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THE BUSINESS OF ENTERTAINMENT

DreamWorks: To Be a City or a Studio?

December 29, 1996|Joel Kotkin | Joel Kotkin, a contributing editor to Opinion, is the John M. Olin fellow at the Pepperdine Institute for Public Policy and a senior fellow at the Pacific Research Institute. He is also business-trends analyst for Fox TV

Launched two years ago amid hype extravagant even by Hollywood standards, the proposed DreamWorks studio has fallen hostage to the slow progress of the Playa Vista development that was to be its home. Now at least a year behind schedule, the $8-billion, 1,000-acre project remains very much a question mark--and costing DreamWorks invaluable time in its race to create Hollywood's cutting-edge entertainment company.

In many ways, Playa Vista's problems are not surprising, given its huge scale and its location on one of the Westside's last-remaining great open spaces. Although its developers have worked diligently to accommodate environmental concerns, the area's affluent activists are not likely to downsize their efforts to block the project, especially if bulldozers start rolling.

More seriously, DreamWorks is buffeted by financial forces beyond its control that have stymied Playa Vista's developers, most notably, the huge decline in Los Angeles real-estate values. Although few doubt the bankability of the studio concept, the remaining pieces of the Playa Vista project, especially housing, face widespread skepticism in the investment community. The resulting delays have fed rumors that DreamWorks is seeking a different home.

But DreamWorks is not totally blameless. Indeed, part of the problem is the grandiosity of the envisioned complex itself. Many industry observers see a connection between DreamWorks' relatively modest achievements so far--four network TV shows, three record albums, video games and at least two animation movies in the works--and the desire of its founders, Steven Spielberg, David Geffen and Jeffrey Katzenberg, to locate their operations in a state-of-the-art "green-field" development.

"The problem with DreamWorks was not that they wanted to build a studio, but they wanted to build their own city," explains Cloud Nine Interactive President Debra Streiker-Fine. "There's a bit of the Ramses complex in evidence."

The accumulating snags put the Playa Vista complex at a decided disadvantage as a timely provider of space for the burgeoning entertainment community. With production days surging more than 50%, industry jobs growing by 40,000 and the ranks of self-employed entertainment workers swelling by an additional 20,000 during the past two years, demand for space has been met not with huge new construction, like that proposed for Playa Vista, but by converting scores of old warehouses into offices and production sites, and airplane hangers into sound stages.

Much of this space was created by Southern California's deep recession in the early '90s. The DreamWorks' founders would certainly be moving faster today if they had been willing to build on such sites as the old Lockheed facility in Burbank, now being converted by the Disney Company, or on the largely deserted old Fox lot in Hollywood. Even new projects just underway in these "older" locations--including DreamWorks' own animation facility in Glendale--will probably be completed long before Playa Vista is.

The expected growth in entertainment-related production has spawned other future Playa Vista competitors. Among the proposed developments is Roy Disney's plan to build 14 sound stages--only one fewer than Playa Vista--in Manhattan Beach on land formerly owned by TRW. In addition, sound-stage projects in Culver City and along Hollywood Boulevard are under discussion. These developments, all on relatively inexpensive real estate and driven by highly specialized companies, could strand Playa Vista at the high end of the market when the inevitable slowdown in industry growth comes.

Indeed, most digitally sophisticated Hollywood entrepreneurs have embraced a more austere, if less visionary approach than DreamWorks'. Cloud Nine, which develops education software for children, recently moved from its cramped, rundown 6,000-square-foot office in Santa Monica to one twice as large, though its new home is no more architecturally impressive and is located in a hardscrabble industrial section near the Marina.

Simply speaking, the bricks and mortar of digital is wiring and equipment, which can easily fit in traditional warehouse and industrial buildings. Much of the most-advanced digitally oriented work in Los Angeles, particularly in multimedia, is taking place in formerly shabby manufacturing districts in Burbank, Glendale and Culver City's Hayden Tract. The Hayden Tract, for example, houses the Cyberstudio complex, which serves as a production facility for more than 50 web-related developers. Other new-media firms, such as web-site developer Digital Planet and W-3 Design, have also set up shop there.

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