Hollywood’s Sound Stage Supremacy Under Pressure

View over Studio Lot to Hollywood Sign

Professional investors are transforming sound stages into a new real estate asset class with global implications for Hollywood’s rival production markets.

“A horse! A horse! My kingdom for a horse!”
Act V, Scene IV, Richard II, by William Shakespeare

A horse?  Try finding a Soundstage!

For small independent film-makers on tight budgets, the selection of clever locations that require little financial outlay or post-production editing is important.  These films can do well financially with limited theatrical releases, or direct sales to streamers, because they cost so little to make.  But for any film or television show intended for wider audiences and extended runs, and seeking to attract A-list talent, production quality must be as good as money can buy. 

For the Media Majors and the majority of streaming platforms, cinema quality movies and high-end television require the carefully controlled environments that only professionally managed sound stages can offer.   

Film producers have the option of going “foot loose” and shooting their picture in whichever city or country has the sound stages available for a six or eight week shooting schedule.  But for television shows, which may shoot for as long as six months each season, being located where their cast and crew live places a serious constraint on where to produce that show.

The sustained growth in content production and recent moves by Hollywood’s most senior film talent into high-end television, or HETV, has pushed both the number of HETV shows being produced in LA to all-time highs.  This has also pushed the average per episode budget for HETV dramas ever higher.  Average per episode costs are increasing year on year, with the once impossible US$20 Million per episode budgets now being breached. 

The set of Friends, Central Perk under the studio lights.
The “Central Perk” set of Friends, Stage 24, Warner Bros. Studios in Los Angeles. Image credit: Gary Null/NBCU/Getty Images

With multi-year budgets in the realm of US$100 billion for content acquisition being announced by Amazon Prime, closely followed by its competitors, the ability to spend big on securing limited sound stage space in prime production hubs has now run into serious capacity constraints.

Those constraints rest on the number of sound stages that are available to shoot on.

According to FilmLA, total soundstage production capacity in the greater LA area was at 92% 2017.  At that time, Netflix, Disney and other Media Majors were booking sound stage space wherever they could find it, leaving anyone else wanting.

In FilmLA’s latest update, released on March 30, 2023, soundstage production capacity remains at 93% and has hovered in the mid-90% range consistently since 2016 with growth of only 4% in total square footage since 2019.

To put this into context, the programming budget for Netflix alone has nearly doubled since 2016 to a reported US$17 billion this year alone. 

See FilmLA’s latest update here.

Private Equity

Few economic issues attract the attention of private equity investors like capacity constraints.  This is particularly true when real estate assets are involved and when those assets are critical in the production process for delivering product to an industry on track to achieve US$2.5 trillion in global revenues this year.

Blackstone acquired a 49% stake in three Hollywood area sound stages and five on-lot or adjacent Class A office properties at a valuation of US$1.69 billion in 2020.

Hackman Capital Partners has invested heavily into the LA soundstage market, upgrading and expanding existing facilities in a market further constrained by a lack of available land for new constructions.  Hackman’s affiliate, MBS, now manages not less than seven major studio campuses around LA according to a recent report from the Los Angeles Business Journal.


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Hackman recently announced a further US$1.6 billion capital raise for its global HCP Studio Fund from a diverse range of institutional investors.  Other larger PE fund managers have been active as well.

Private Equity investor Silver Lake announced last June that it would be investing US$500 million into Shadowbox Studios, a production facilities company with sound stages in LA, Atlanta and London. 

According to analysis from CBRE, a commercial real estate advisory group, extensive capital continues to be deployed by an increasing number of institutional investors building portfolios and seeking to standardize soundstage operations. 

Infrastructure

Los Angeles is the global leader in sound stage space, boasting 6.2 million square feet with all but an estimated 8% available at any one time.  Despite concentrated investment into acquisition of this production infrastructure by PE funds such as Hackman, FilmLA statistics show that soundstage capacity in the greater LA area grew by only 4% since 2019, versus 34% in the United Kingdom and 43% around Toronto in Canada.

According to CBRE, investment by large PE funds into sound stages has highlighted the economics of production infrastructure as a compelling investment case.  CBRE’s analysis of sound stages as commercial real estate assets found that, in most major production markets, vacancy rates are persistently in the single digits, as confirmed by FilmLA.  As a matter of strategy, production companies tend to acquire longer-term leases as assurance of access to sound stage space in light of limited availability, creating upward pressure on rental rates. 

“Rents at the 371,000 sq. ft. of soundstages owned by Hudson Pacific Properties (a publicly traded REIT) for instance, have risen 20% in three years.”  Reports CBRE.  This attractiveness of sound stages as a commercial real estate asset class has helped to “shift the competitive landscape”. 

See, CBRE’s report here.

In support of this assertion, FilmLA reports that the UK is catching up to LA after adding nearly 2 million square feet of space over the past three years resulting in an estimated 5.4 million square feet of sound stage space.

Ontario has an estimated 3.8 million square feet of dedicated sound stage space, followed by the US States of Georgia (with 3 million) New York (2.8 million) and the other Canadian production hub, British Columbia (2.4 million).

The sound stage itself is the factory floor for film and HETV.  But this large, open-span space with its controlled environment for light and sound is supported by engineering spaces, costume and prop storage, fabrication facilities, office space, catering and accommodation.  Back lots offer spaces for shooting on large outdoor sets adjacent to these same facilities, adding to what can best be described as a studio campus.

An aerial view over Pinewood Studios in the UK.
An aerial view of the Pinewood Studio campus outside London. Courtesy: Pinewood Studios.

As critical production infrastructure for films and HETV, sound stage capacity is a key indicator of potential growth in production activity and corresponding expenditure into local economies.  With the world’s most crowded production markets in LA, London and Toronto also being the most expensive, any cost cutting in content acquisition budgets at the Media Majors, it is foreseeable that long-term leases on sound stage space will buoy production costs just as producers have less capital to spend.

The opportunity is not being lost on competing production markets in Europe, where financial incentives for investment into sound stages are being added to a raft of measures to attract those foot loose productions and generate economic development for the local area.  What Los Angeles, London and Toronto have for now is the fact that its actors and production staff on HETV live nearby.

But professional investors are keen to exploit opportunity.  Investments into several modern sound stage campuses are rumoured to be in process for some of the most hospitable locations in Europe with the cost and quality of life being one of the primary draws for investors seeking to attract production professionals and acting talent.

If any of those A-list actors decide that the South of France is a very nice place to spend six months a year, then LA, London and Toronto may have more than runaway film projects to content with.  Perhaps this will ease their sound stage capacity problem.

4 Comments

  1. Lets hope that the strike in the US helps the fledgling European small countries film industry to start flourishing.

    If there indeed is such a shortage of sound stages, then everyone is helped if more of them are build.

  2. Insightful article, but would have touched on one more factor – one beyond real estate and capacity.

    Today The Writers Guild went on strike in the US – and L.A. is a Union and Guild town. In a city for of sharks, I can see the need for the powerless to have voices – I applaud and support that aim.

    But as a media professional living in the city, I couldn’t help but notice that they also act as a closed-shop for newer and more diverse talents – as well as sometimes giving jobs who have more seniority, over the right talent mix to shine at an event. That’s especially true in TV.

    That’s a really long winded way of saying, LA as a union town is also a comparatively really expensive place to film in on sound stages., with further operational restrictions that made sense – but for a world now decades gone.

    Sound stages in Canada, the UK, Czechia and beyond don’t have that. A point proven as streamers like Netflix lean in to non-US produced content to keep US audiences happy during the Writers strike.

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