L.A. Production Shows No Sign of a Rebound Yet

Los Angeles production activity weakened further in Q4 2025 as shoot days for film, TV and commercials fell 12.3% quarter‑over‑quarter and 2025 production volume ran roughly half of 2019 levels. Despite Gov. Newsom’s July expansion of the state film & TV tax credit and $771 million in allocated incentives, the boost has yet to materialize in shoots (approved projects have 180 days to start); only 17.3% of film projects and 11.1% of TV projects in Q4 were state‑subsidized. TV production days were 50% below the five‑year average and down 22% year‑over‑year, while film was 31.7% below its five‑year average and down 19.7% year‑over‑year, signaling continued industry weakness despite policy support.

Analysis

Market structure: The data implies winners will be asset owners of physical studio space and vertically integrated studios that can capture production that migrates back to California once incentives are deployed. Losers are small, location-dependent production services and regional vendors whose revenue maps directly to shoot days (shoot days down 12.3% Q/Q; 2025 ~50% of 2019), compressing utilization and pricing power. Expect short-term pricing pressure on day-rates and bargaining leverage shifting to producers who can relocate shoots to incentive jurisdictions.

Risk assessment: Key tail risks include (1) California budget overruns that scale back the $771m program and (2) continued remote/streaming production models reducing long-term demand for LA studio space. Timing matters: a measurable ramp should appear once incentivized projects begin filming within 180 days of credit issuance (many issued in July 2025 → filming starts by Jan 2026); reversal catalysts include another strike or federal/state fiscal constraints. Hidden dependency: labor cost inflation and VFX outsourcing can mute local gains even if shoot days rise.

Trade implications: Tactical trades favor studio-REITs and large-cap media with deep libraries that can weather lower new-production cadence (6–12 month horizon). Short small-cap, locally exposed production service names and equipment-rental players into Q1–Q2 2026. Use defined-risk option spreads to play a January–June 2026 ramp (buy call spreads on studio REITs / major studios) rather than outright long equity exposure to limit idiosyncratic risk.

Contrarian angles: Consensus expects a slow multi-year recovery; that risks missing a concentrated early-2026 volume spike because approved projects have a 180-day start window—if >50% of the $771m converts to active shoots by Feb 2026, expect a >15–30% utilization swing for LA stages. Conversely, if shoot-day trends don’t turn by H1 2026, the incentive program is likely politically unsustainable, amplifying downside for locally exposed names.

Key Decisions for Investors

• Establish a 1.5% portfolio long in Hudson Pacific Properties (HPP) targeting a 20–35% total return into 2026 H1 as studio utilization should recover if >50% of the $771m in credits convert to active shoots by Feb 2026; set a 20% stop-loss and reassess on FilmLA monthly shoot-day data.
• Implement a 1–2% long / 1–2% short pair: long DIS (Disney) and short ROKU (Roku) for 6–12 months to favor large-IP owners with resilient libraries vs pure-play distribution exposed to cadence of new production; target relative outperformance of +10% and rebalance if quarterly content delivery metrics deviate >5% from plan.
• Buy defined-risk call spreads (debit spreads) on a major studio (WBD or DIS) expiring June 2026 to capture an operational ramp tied to projects beginning filming Jan–Jun 2026; size to 0.5–1% of portfolio and cap downside to premium paid.
• Cut exposure to small-cap, LA-dependent production services (reduce positions in exposed names such as CIDM by 50%) through Q2 2026—probability of sustained margin compression is high while shoot days remain 20–50% below five-year averages.
• Add to long studio/production real-estate exposure (incremental 0.5–1%) only after two consecutive months of ≥5% QoQ rise in FilmLA shoot days or when CA reports >$500m of credits actively filming (monitor monthly; act within 0–60 days of trigger).