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THE BUSINESS OF ENTERTAINMENT : DreamWorks' Rich Promise Accents Hollywood's Fall

December 17, 1995|Joel Kotkin | Joel Kotkin, a contributing editor to Opinion, is a senior fellow at the Pepperdine Institute of Public Policy and at the Pacific Research Institute. He is also business-trends analyst for Fox TV

With the City Council's approval, in concept, of the new DreamWorks SKG studio complex at Playa Vista, Los Angeles has scored a badly needed business victory. For the first time since the late 1980s, the city is the site for a major new private economic development, one that could secure the region's role as the primary host of the emerging marriage of technology and entertainment.

Yet, while DreamWorks represents a big boost to the already improving economic fortunes of the city's Westside, it could accelerate the decline of Hollywood's historic core. Once the center of the entertainment world, Hollywood is increasingly a shadow of its historic self, known more for its runaways, prostitutes and high crime rate than as a show- business hub.

In many ways, the decision of DreamWorks' founders--Steven Spielberg, Jeffrey Katzenberg and David Geffen--to locate their new studio on the marshland north of Los Angeles International Airport perpetuates the longstanding shift of entertainment resources away from Hollywood and Vine. "Hollywood is in bad shape," says Dennis Macheski, a real estate consultant. "A lot of the new firms don't want to be there and have flocked to Burbank or the Westside."

The movement east has been accelerating since the early '90s, in part because of more business-friendly administrations in cities like Burbank and Glendale. Many of the newest sound stages and animation studios--including one at Disney and one recently announced by DreamWorks--are located in the Eastern San Fernando Valley, which is an increasingly attractive environment for smaller, entertainment service companies.

The entertainment industry's move to the Westside, although decades in the making, picked up momentum after the real estate crash in the early '90s. Once far too pricey for fledgling entertainment-related firms, the recent drop in rents there has allowed many of them to set up shop in Santa Monica, the Marina and Venice. Significantly, this migration involves companies in the digital-imaging business. Last year alone, Metrolight and Rhythm & Hues, two big players in the industry, moved their operations from Hollywood to the Westside. Other firms, such as website maker Digital Planet, have clustered in Culver City.

The emphasis on technology and digital effects that DreamWorks will bring to movie-making will probably spark even more clustering of techno-entertainment in the vicinity of Playa Vista. Some, like Digital Domain, have announced their intention of moving into the DreamWorks complex itself; others may relocate to the relatively inexpensive real estate near the airport.

Surprisingly, many of the firms have discovered that moving west has saved them money. When Rhythm & Hues ditched its Hollywood facilities earlier this year, the company moved to a Westside complex five times larger for roughly the same rent.

Equally important, these firms have found already existing warehouse, industrial and other space with ample parking, a critical consideration for these highly people-intensive businesses. "If you look in Hollywood, you find buildings for 100 people with seven to 10 parking spaces," says Al DiNoble, vice president for marketing at Metrolight Studios. "You move to get more space, more parking--and for roughly the same amount of money."

The DreamWorks move to Playa Vista is certain to help Southern California lure more investment from existing and prospective players in the growing techno-entertainment field. Due largely to the promise of new infrastructure, as well as the star quality of DreamWorks, Playa Vista developer Maguire Thomas has signed up many major new tenants from outside the region, including IBM, Silicon Graphics, Microsoft and GTE Corp. As a result of these moves, according to one source, at least several hundred high-paying jobs that might have been located in Seattle or the Bay Area now will come to Los Angeles.

At the same time, the DreamWorks studio reconfirms L.A.'s continuing preeminence in the more traditional filmed-entertainment field, a leadership position that has sustained a well-coordinated assault from New York real estate promoters seeking to fill their vacant office towers. With the construction of at least 15 state-of-the-art sound stages at Playa Vista, DreamWorks should also help blunt potentially more serious competition from lower-cost states like Florida, North Carolina and Texas, which are eager to snag a share of film production.

But the growing bifurcation of the industry, with two nodes at different ends of town about 45 minutes apart, could threaten the historic synergies that have made Southern California second to none in the entertainment business. Roughly equidistant from the burgeoning entertainment hubs of Burbank and the Westside, Hollywood is a tolerable 20-to-25 minutes from each. This represents a critical advantage, particularly for the hundreds of supplier firms that service both Westside and Valley-based studios.

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