Production declines as Hollywood reacts to soaring inflation – The Hollywood Reporter

Entertainment industry is reeling under the weight of inflation exacerbated by ongoing supply chain turmoil, say physical production executives and studio operators The Hollywood Reporter. Amid a banner year for production levels after rebounding from the pandemic, studios are grappling with how to build sets on budget and on schedule.

“The accessibility of steel and wood due to supply chain issues has driven up the cost of materials by at least 25-30%,” said Herb Gains, executive vice president of physical production at Legendary. On a recent film, he notes that the same set with the same shots cost double what it cost four years ago.

Virtually no material or part needed to build sets has been immune to a price spike. Inflation has affected everything from fuel to electrical equipment to duct tape. “Across the board, we’re facing rising costs,” says Brian Cooper, partner at sound stage company S2CO, which is building a 1 million square foot production complex in Georgia. “Where I could build a $3 million stage five years ago is $8 million now.”

Last year, most production managers and set construction workshops said that they mainly faced delays and that they had not reached the point where they were not able to obtain certain decorative accessories. Some are now saying the unmet nationwide demand for the same materials, equipment and parts amid record demand for content is impacting set construction. “If a scene calls for a bathroom, but nothing happens there, we won’t have one to cut costs,” says the production manager of a major studio. In California, where the cost of gasoline now averages $6.34 a gallon, this executive notes, “For the first time, we’re wondering how to reduce fuel expenses.”

Mark Binke, executive vice president of production at NBCUniversal overseeing gas lit, Plainville’s daughter and Queer as Folk, among other headlines, notes that one of its most daunting challenges this year has been cushioning the impact of soaring costs. “Inflation has impacted all areas of production,” he says, explaining that the studio shifted to “having all the scripts up front [to] multiple crossover episodes,” bundling filming locations and taking advantage of “volume discounts with major vendors.”

Several stage operators who build sets from scratch say the cost of raw materials, including wood, metal and some fabrics, is at least 30% higher than at the start of the year. Some materials have more than doubled in price. While a sheet of plywood sold for around $40 a year ago, it now costs just under $80, a source says.

Manufactured parts and equipment were also not spared by inflation. A sound stage rental company owner notes that he received a quote for $85,000 to install a modest lighting array – a big increase from the $42,000 he paid a while ago. barely two years. Another piece of electrical equipment, transformers, has gone from $2,800 at the start of last year to $5,800 now.

Many stage owners say they would be willing to pay the premium if it weren’t for the huge delays. “We recently placed a lighting order, which would normally be completed in two to four weeks,” says Luis Guizar, co-founder and director of stage rental company A Very Good Space. “We are told it is now 16 weeks.”

One of the hardest parts to secure has been switchgear – a critical component used to control high-demand electrical systems across industries – which can take up to a year to deliver depending on quantity. Cooper says he was told he could get his order filled within 30 weeks if he paid an additional $100,000 on $300,000 worth of components.

Studios fight inflation in different ways. Some are better placed to absorb the costs. A representative from Trilith Studios, an Atlanta-based operation that is home to Disney+ Ms. Marvel and She-Hulk: Lawyer as well as features such as Black Panther: Wakanda Forever, indicates that it currently costs about 15% more to build scenes than it did last year. On top of that, the studio faces eight to ten month lead times for critical parts and supplies such as electrical boxes and stage doors.

“We have another set of milestones coming online that we need,” the rep says. “We have the team there, and we have bulldozers there, but we don’t have all the electrical boxes we need and we don’t have all the doors.”

Yet Trilith describes inflation and supply chain disruptions as a thorn in the side, albeit a costly one, rather than a crisis forcing major changes in operations. The studio isn’t building less or less elaborate sets to offset soaring prices, especially amid record demand for content — LA filming is up 40% in the first quarter from 2021 — and more competition than ever to drive subscriber growth. The rep clarifies, “I don’t know of anyone in this industry that is cutting back on its construction. Demand for content is at an all time high; we can’t keep up with the demand, and as we continue to increase the amount of content we produce and the amount of content consumers consume, I can’t imagine anyone slowing down the process or downsizing to meet to this request. It’s about working on all those challenges right now.

But for other studios, the higher costs incurred by inflation combined with already inflated budgets due to COVID-19, which can add 5-20% to additional expenses for PPE, testing and staffing. security, among others, have forced cuts. A physical production manager for a major studio says that some productions, for example, had to combine two scripted scenes for different locations into a single area. “We ask, ‘This scene is seven eighths of a page. Do we need the set, which costs $500,000? “, he explains. “It’s in the margins of how we can cut rather than a wholesale list of cuts.”

Tax incentives have become an even bigger part of the calculation, insiders observe. Studios have focused on jurisdictions with the most generous credits — like Georgia, New Mexico and Ireland — which can save productions in the range of 15-40% on costs, depending on location. where they are shooting, regardless of some potential infrastructure risks and issues if they can save enough money. Amid inflationary pressure, a production executive said studios were more willing to entertain filming in incentive-rich areas like Vancouver, even though it’s seen as a liability after the Canadian Guild of producers in British Columbia issued an official strike notice in April. (The Directors Guild branch officially made peace with the producers on June 23.) After all, movie magic can only go so far.

In a move that may contribute to shortages, executives at studios and production facilities are buying materials and parts in bulk when possible for later use. In a market where they juggle dozens of bidders from various industries to get to the top of the queue, they say their supplier relationships are more important than ever.

“We have a wonderful general contractor we work with every week to plan, and we’ve just lined up for advanced orders for everything from concrete and steel to electrical boxes,” says a Trilith representative. “Advance planning is the general answer, but it’s really about relationships. We have a lot of relationships that are essential to us, and when you need silly things like concrete, that’s very important.

A stage foreman remembers searching an office building that was to be demolished. The price? About $200,000 worth of insulation plus thousands of light fixtures and other replacement parts, all for the cost of the labor needed to strip the building. “Not a week goes by without a competitor asking us to part with some of these things,” he says. “It was not just the cost, but the duration of securing these materials that scared us.”

For some major studios, bulk buying is a logistical nightmare as they have to build sets for films shot thousands of miles apart. It doesn’t make sense to get a big batch of wood in Atlanta even if it’s available, for example, to turn around and try to ship it to Africa or Australia where it’s needed. Not only does this weigh on the supply, but it costs too much.

Despite inflation hitting the U.S. economy as a whole, the race to build sets to accommodate studios trying to produce content during a shortage of stage space has become even more competitive. Studio conglomerates have allocated huge content budgets for programming this year, as Disney plans to spend $33 billion, Warner Bros. Discovery $23 billion and Netflix about $17-18 billion.

Private equity continues to surround sound stage operators, but questions are starting to surface if there is money to be made if they build right now due to soaring prices. “It could become prohibitively expensive to build stages in certain areas,” Cooper says.