Production Cuts Surface as Hollywood Responds to Surging Inflation – The Hollywood Reporter

The entertainment industry is buckling under the weight of inflation exacerbated by persisting supply chain turmoil, physical production executives and studio operators tell The Hollywood Reporter. Amid a record year for production levels after bouncing back from the pandemic, studios are grappling over how to build sets within budget and on time.

“The accessibility of steel and lumber due to supply chain issues have driven up the cost of materials by at least 25 to 30 percent,” says Herb Gaines, executive vp physical production at Legendary. On a recent film, he notes that the same set with the same plans was double the price of what it cost four years ago.

Hardly any material or part necessary to construct sets has been safe from surging prices. Inflation has hit everything from fuel to electrical equipment to gaffer tape. “All across the board, we’re facing increased costs,” says Brian Cooper, a partner at soundstage company S2CO, which is constructing a 1 million-square-foot production complex in Georgia. “Where I could build a $3 million stage five years ago, that’s $8 million now.”

Last year, most production executives and set construction shops said they were mainly facing delays and hadn’t reached the point where they were unable to procure certain set fixtures. Some now say that impossible-to-meet demand nationwide for the same materials, equipment and parts amid record demand for content is impacting set-building. “If a scene calls for a bathroom, but nothing happens there, we won’t have it to bring costs down,” says a major studio’s top production executive. In California, where the cost of gas now averages $6.34 cents a gallon, this executive notes: “For the first time, we’re asking how to reduce fuel expenditures.”

Mark Binke, executive vp production at NBCUniversal overseeing Gaslit, The Girl From Plainville and Queer as Folk, among other titles, notes that one of his most daunting challenges this year was cushioning the impact of soaring costs. “Inflation has impacted every area of production,” he says, explaining that the studio has turned to “having all scripts in advance [to] cross-board multiple episodes,” clustering filming locations and pouncing on “volume discounts with key vendors.”

Several stage operators who build sets from scratch say that the cost of raw materials, including lumber, metal and certain fabrics, is at least 30 percent higher than at the start of the year. Some materials have more than doubled in price. Whereas a sheet of plywood sold for roughly $40 a year ago, it’s now just under $80, says a source.

Manufactured parts and gear haven’t been spared from inflation either. An owner of a soundstage rental company notes that he was quoted $85,000 to install a modest lighting grid — a steep hike from the $42,000 he paid just two years ago. Another piece of electrical equipment, transformers, has jumped from $2,800 at the beginning of last year to $5,800 now.

Many stage owners say that they would be willing to pay the premium if not for the massive lead times. “We placed a lighting order recently, which would normally be fulfilled in two to four weeks,” says Luis Guizar, co-founder and foreman of stage rental company A Very Good Space. “We’re being told it’s now 16 weeks.”

One of the most difficult parts to secure has been switchgears — a vital component used to control electrical systems in high demand across every industry —  which can take as long as a year to deliver depending on the quantity. Cooper says that he was told that he could get his order fulfilled within 30 weeks if he pays an extra $100,000 on $300,000 worth of components.

Studios are tackling inflation in different ways. Some are better-positioned to absorb the costs. A representative for Trilith Studios, an Atlanta-based operation that’s home to Disney+’s Ms. Marvel and She-Hulk: Attorney at Law as well as features like Black Panther: Wakanda Forever, says it currently costs roughly 15 percent more to build stages than it did last year. On top of that, the studio is facing eight- to 10-month lead times for critical parts and supplies like electrical boxes and stage doors.

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

Still, Trilith describes inflation and supply chain disruptions as a thorn in its side, albeit an expensive one, rather than a crisis forcing major changes to operations. The studio is not building fewer or less elaborate sets to offset surging prices, especially amid record demand for content — filming in Los Angeles is up 40 percent in the first quarter from 2021 — and more competition than ever to boost subscriber growth. The rep elaborates, “I know of nobody in this industry that is downsizing their construction. The 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’re producing and the amount of content that consumers are consuming, I can’t imagine anyone slowing the process down or downsizing to meet that demand. It’s all about working around all of these challenges right now.”

But for other studios, the higher costs incurred by inflation combined with already bloated budgets due to COVID-19, which can tack on an extra five to 20 percent in expenses for PPE, testing and safety personnel among other things, has forced cuts. A physical production exec for a major studio says some productions, for example, have had to combine two scenes scripted for different locations into a single area. “We’re asking, ‘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 trim rather than a wholesale list of cuts.”

Tax incentives have become an even more important part of the calculus, insiders observe. Studios have lasered in on jurisdictions with the most generous credits — like Georgia, New Mexico and Ireland — which can save productions in the range of 15 to 40 percent on costs, depending on where they shoot, disregarding certain risks and potential infrastructure issues if they can save enough money. Amid inflationary pressure, a production exec says studios have been more willing to entertain shooting in incentive-rich areas like Vancouver even though it’s considered a liability to shoot in after The Directors Guild of Canada’s British Columbia branch in April issued a formal strike notice. (The Directors Guild branch made peace with producers officially on June 23.) After all, movie magic can only go so far.

In a move that may be contributing to shortages, studio and production facility execs are buying materials and parts in bulk when possible for use later. In a market where they’re jockeying with dozens of bidders across various industries to get in front of the line, they say their relationships with vendors matter now more than ever.

“We have a wonderful general contractor who we work with on a weekly basis to plan, and we’ve just been getting in line early on advanced orders for everything from concrete and steel to electric boxes,” a Trilith rep says. “Advanced planning is the broad answer, but it’s really about relationships. We have a lot of relationships that are critical for us, and when you need silly things like concrete, that’s very important.”

One stage foreman recalls scavenging an office building that was slated to be demolished. The prize? Roughly $200,000 in insulation on top of thousands in light fixtures and other spare parts all for the cost of the labor to strip the building. “There’s not a week that goes by without a competitor asking us to part ways with some of that stuff,” he says. “It wasn’t only the cost but the length of time to secure those materials that was scaring us.”

For some major studios, bulk buying represents a logistical nightmare because they need to build sets for movies shooting thousands of miles apart. It does not make sense to source a large batch of lumber to 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 it strain supply, it costs too much money.

Despite inflation hitting the U.S. economy at large, the race to build sets to accommodate studios trying to churn out content during a shortage of stage space has become even more competitive. Studio conglomerates have allotted enormous content budgets for programming this year as Disney plans to spend $33 billion, Warner Bros. Discovery $23 billion and Netflix around $17 billion to $18 billion.

Private equity continues to circle soundstage operators, but questions are starting to surface if there’s money to be made if they build right now due to soaring prices. “It might start to get cost-prohibitive to build stages in certain areas,” Cooper says.