City of Industry

The entertainment business may get top billing in this town, but what would happen if it up and went away? Not as much as you might think

Los Angeles magazine, February 2008

The entertainment business may get top billing in this town, but what would happen if it up and went away? Not as much as you might think

You can’t get much further from Hollywood than talking trade and logistics in the banquet room of the Torrance Holiday Inn. That’s where a business group called FuturePorts is holding a no-frills lunch meeting and two economists are gamely explaining the importance of shipping $330 billion worth of stuff into and out of San Pedro harbor. For much of Los Angeles, the port complex is a detached and mysterious place, but all those trucks going back and forth on the 710 and 60 freeways—the movement of cargo that’s known as logistics—requires a workforce of 485,000. No other portion of the Southern California economy—including entertainment— ranks higher, yet it’s virtually invisible, the Rodney Dangerfield of local business. As he makes his PowerPoint presentation, Global Insight’s Paul Bingham admits that “for people not focused on the trade and transportation communities, the attitude is, well, what’s the point in all this?”

Show folk would surely say big but boring. From their view of the constellation, we’re one huge company town where nothing other than the TV and movie industries really matters. Jobs and businesses depend on them. The culture depends on them. Well, maybe. Hollywood long has considered itself a major player in the local economy, certainly the sexiest player, but its importance is being oversold. What used to be a three-legged economy dominated by aerospace, tourism, and entertainment now has 20 or so legs . Tech companies have content components, theatrical agencies have marketing divisions, apparel businesses have overseas manufacturers—the economy has become an intricate collection of relationships, with no one industry in control.

The Paramounts, Warners, and Universals remain important employers, of course, but their primary business is under siege and, worse still, their ability to change with the times is stifled by having to report to much larger conglomerates based somewhere else. At the other end of the spectrum are thousands of small businesses, many of which are more innovative and showing more revenue growth than any of the networks and studios. The new L.A. economy can be seen on the Los Angeles Business Journal’s latest list of 100 fastest-growing companies, of which 39 have three-year growth rates exceeding 100 percent. Among them are an online ad network, a private-label perfume maker, an Australian wine importer, a specialty coffee house franchiser, and a social network for reconnecting with old friends. None of the 39 is in show business. Not to sound like a chamber of commerce brochure, but the local economy happens to be the most diverse of any metropolitan area in the United States and arguably the world. The region has more technology companies than Silicon Valley, the largest manufacturing base in the nation (that after the near collapse of the aerospace industry), and the fifth-largest airport on the planet. UCLA’s Anderson Forecast estimates that L.A. County’s gross domestic product, which is the value of an area’s goods and services, weighs in at $380 billion. Entertainment’s share—that means mostly movies and TV shows—is roughly $20 billion, or 5.3 percent. Both health care and durable goods manufacturing are greater contributors.

Here’s the main, blasphemous point: If a meteor suddenly knocked out L.A.’s traditional entertainment industry—we’re talking studios, talent agencies, special-eff ects houses, movie distributors, TV syndication, everything—the place would somehow survive (despite the prospect of fewer celebrity haunts and paparazzi). Its creative side extends well beyond Hollywood to fashion, architecture, toy design, and Web content, among many other industries. There are more creative jobs in L.A. than there are people in Pittsburgh, and only 37 percent of those jobs are in entertainment. That’s hardly what would be classified a “company town,” where most or all of the real estate, businesses, and utilities are owned by a single company. (Think Cass, West Virginia, founded more than 100 years ago for West Virginia Pulp and Paper.) When I put my meteor notion to Samuel Hoi, president of Otis College of Art and Design, he quickly says, “Something else would come about. There’s something very unique about the West Coast mentality that will nurture a new set of industries, and there are a lot of possibilities waiting in the wings.”

While Hollywood’s intrinsic importance is undeniable—consider sales of all those Hollywood T-shirts in gift shops around the globe —digging for specifics is a frustrating exercise of guesstimates based on assumptions on top of extrapolations. A few days before members of the Writers Guild of America walked off their jobs in November, the Los Angeles Times carried a hyperbolic page one article quoting Mayor Antonio Villaraigosa as saying that a slowdown similar to the 22-week walkout in 1988 would cost the area more than $1 billion. No explanation was given for how he came up with that number. In the ensuing days, other news organizations picked up on the $1 billion estimate—there’s nothing like a nice round number in your headline—and pretty soon it was being used by politicians, industry analysts, and labor leaders.

Jerry Nickelsburg, an economist at UCLA’s Anderson Forecast who specializes in the L.A. region, thought the number was suspicious— mostly because he didn’t believe it considered all the stockpiling that had taken place in the months leading up to the strike. In past labor disputes, that extra production activity off set some of the lost business. Go back to the first two quarters of 2007, and you’ll see a bump in the number of days of location shooting, what the industry organization FilmLA attributed to stepped-up production in anticipation of a walkout. That presumably gave everyone from actors to grips more income than usual for much of the year.

After crunching his own numbers, Nickelsburg concluded that the economic impact of a theoretical 22-week strike would amount to far less than the $1 billion figure, probably in the $380 million range (based on layoff s from the shuttering of shows, among other factors). That amounts to less than one-tenth of 1 percent of the entire L.A. economy. “This is a pretty small event,” he says. Jack Kyser, chief economist of the Los Angeles Economic Development Corporation, which came up with the $1 billion figure, says Nickelsburg’s estimate is too low because he factored in more stockpiling than actually took place last year. Even so, he admits that government data can be faulty and that some of his estimates, including the strike-related forecast, have been distorted. When measuring the show biz economy, it’s best to lowball. During the 1988 walkout, media reports had many of the same doom-andgloom predictions, but a couple of months after an agreement had been reached, then- UCLA economist Larry Kimbell characterized the strike’s impact on the state as “zilch.”

It’s no wonder the numbers have been hard to pin down—economists can’t even agree on how many people are in the entertainment industry. The LAEDC uses state employment numbers in estimating a workforce of 254,000 for movies and television production. But at the U.S. Bureau of Labor Statistics, the figure is only 113,000. Other organizations have other numbers. The truth is, no one knows. Unlike businesses in which it’s easier to keep abreast of employment rolls, inmuch of the entertainment industry is made up of independent contractors not on the payroll at any one company, and so they’re hard to track.

But there are other complications: Actors and production people often work nonentertainment jobs to make ends meet, and only some economists include ancillary job categories in determining the total workforce. Not having a reliable number means it’s almost impossible to measure Hollywood’s growth. If you believe the employment number cited by the LAEDC in 1988—70,000—then the Bureau of Labor Statistics estimate of 113,000 in 2006 represents modest growth. The 254,000 figure suggests substantial growth. Either way, it’s only a sliver of the county’s 4.1-million-person workforce.

Hollywood’s role in the economy always has been overstated. In the late 1980s, aerospace was the region’s dominant industry— too much so, as it turned out. When the Soviet Union collapsed and the cold war ended, military spending plunged and the aerospace industry was forced to consolidate, eliminating thousands of high-paying jobs in Southern California and taking thousands of others out of the area. The region went into a prolonged tailspin, made worse by the Northridge earthquake and the L.A. riots. “In the early ’90s, we found out to our horror that we were so dependent on defense that when we lost it, we literally went into a depression,” says economist John Husing.

Then came an unlikely turnabout. The Chinese decided that capitalism—at least their version of it—suddenly made lots of sense. What followed was an unprecedented surge of international trade coming into Southern California, much of it originating in Asia. Entertainment fared well because it was among the industries that generated most of their revenues from outside Southern California. This allowed money to be brought into a local economy that was reeling long after the national recession had ended. But it was technology that changed everything; entire industries came into being and fledgling entrepreneurs rolled the dice on new ways of doing things (e-commerce, online ad sales, Internet phone service, digital graphics). Plus, this was California, where, going back to the 1800s, businesses have been smaller and have shown greater adaptability than elsewhere in the nation. More than half a century ago, the progressive author Carey McWilliams wrote, “Californians have become so used to the idea of experimentation—they have had to experiment so often—that they are psychologically prepared to try anything.”

Glitz and glamour cover up a lot, of course, but you can’t sustain the old ways of doing deals at a time when the distribution of content is being decentralized, in ways ranging from the video sharing site YouTube to the online news and gossip sheet LAist. Along with this proliferation of content comes an unstructured means of pricing; video clips that get e-mailed to hundreds of thousands of users are often the work of anonymous creators who will never be paid. When money does enter the picture, it’s disbursed inequitably— as with the Web game Chain Factor, which is cheaper to produce than the CBS series that it was spun off from. Economist and former labor secretary Robert Reich calls entertainment properties “intangible, weightless.” That’s why they’re so hard to monetize: You can laugh your head off just as easily at something your Uncle Ziggie said at the Thanksgiving table as you can watching Leno or Letterman. Until recently, the only difference was that the networks and studios had the infrastructure to distribute the laughs. Now most anyone can do it.

“It’s a changing world,” says Hoi, who before coming to Otis was dean of the Corcoran College of Art and Design in Washington, D.C. Otis recruited him in 2000, and like everyone else, he expected to be hit with all show business, all the time. But he was surprised. “I quickly perceived L.A. to be a much richer, more open structure than just the entertainment industry,” he says. “It is just an insular part of the city. It’s very cloistered.” Hoi takes me upstairs to four floors of open-air classrooms, where courses are under way in toy design, photography, digital media, graphic design, and interactive product design (a downtown location focuses on fashion design). Samples of the students’ work line the walls, from pencil sketches to bikinis. Inside one of the digital media labs, a fellow nervously presents his 3-D versions of a company logo. There’s no shortage of Hollywood dreams here, but graduates typically fill spots at other creative outlets: Mattel, Apple, Nike, Hasbro, Guess, and Electronic Arts (the school has an extensive placement program). None of this starving artist stuff , Hoi tells me.

You wouldn’t get an argument among the 2,000 or so members of the Writers Guild who show up during a unity march along Hollywood Boulevard. It’s only a few weeks into the walkout, and the mood is relaxed and cautiously upbeat. Most everybody is wearing the strike’s signature red T-shirts, some adorned with PENCILS DOWN buttons. Talent agency schleppers pass around cookies, and a brass band is belting theme songs from old TV shows, including The Love Boat and Hawaii Five-O. Waiting for the arrival of the rally’s headline attraction, pop star Alicia Keys, I bump into Anne-Marie Johnson, who starred in the TV series In the Heat of the Night and is on the board of the Screen Actors Guild . She has an intense manner at odds with the more relaxed attitude of the strikers, some of whom are hovering near the flatbed truck on which Keys will sing. I’m curious whether Johnson thinks the walkout has had any impact on L.A.’s overall economy. “Not yet,” she says, “but we’re making a dent into our employers, and that’s the important thing.”

True enough, yet she ignores the overriding point. When Keys starts to sing, I look around and realize that while the intersection of Hollywood Boulevard and Virgil Avenue is packed, both streets are wide open beyond that point. There’s no one I can see from among the area’s nonentertainment unions, which isn’t surprising given how the Hollywood guilds have shown only vague interest in other labor disputes, including walkouts by the janitors and the dockworkers. Regular people seem supportive; it’s just that they’re not all that interested in the plight of writers (certainly not the way they were during the supermarket strike, when shoppers abandoned their local grocery stores). I suspect class stratification has something to do with it; working guild members have median earnings of $110,000 (many writers make a good deal more). So, too, does the overall economy’s breadth . The vast majority of our livelihoods simply don’t depend on when and what the two sides agree on . “Entertainment is disconnected both socially and politically,” says Fernando Guerra, director of the Center for the Study of Los Angeles at Loyola Marymount University. “It’s not a mirror of America, and it’s definitely not a mirror of Los Angeles.”

What really matters in Los Angeles is having enough distinct industries—from shipping to semiconductors to movie-making—so that if one of them falters, the others aren’t destined to follow. That’s what makes a great economy, a recession-resistant economy, and it’s a more comforting prospect than the empty promises of that star-crossed company town.

Illustration by Viktor Koen