California’s Strategic Moves to Boost the Entertainment Industry
California, the entertainment capital of the world, has been facing increasing competition in the last few decades, both from other states and countries (Legislative Analyst's Office, 2025). In response, California Governor Gavin Newsom has unveiled a proposal to recover the industry’s dominance, mainly through tax breaks.
Strategic reasoning behind the proposal
The main strategic reason behind the proposal is to halt the exodus of studio projects from California to other states and countries that have become comparatively more competitive. In particular, states like Georgia, with has no ceiling on its incentives, New York and Louisiana have offered production companies attractive financial incentives and lower labour costs, which in turn, has led to California losing its previously unrivalled top spot in the entertainment industry (Legislative Analyst's Office, 2025).
Production slowdowns resulting from its decreased competitiveness has not been the only problem in the industry. The pandemic, the dual writers’ and actors’ strikes in 2023, and the 2025 Los Angeles Wildfires further hindered activity (Masunaga, 2025). The disproportionate effect on California compared to there rest of the States is shown in the following graph:
Source: Legislative Analyst’s Office
Thus the plan aims to increase the number of production companies that choose to operate in California, and attract those smaller ones that wouldn’t be able to do so without the tax credit proposed (Legislative Analyst's Office, 2025).
Key features of the new program
The proposal includes an increase in the annual cap for California’s Film and Television Tax Credit Program, from the current figure of $330 million to a $750 million cap for funding annually (California Business and Economic Development , 2024). The current program, Program 3.0 was launched in July 2020, and the proposal is for the version 4.0, set to commence on the 1st of July 2025.
A key pillar of the scheme is the refundable credits for production companies. From 2025-26, they will be able to make 90% of their allocated tax credit refundable over five years. This measure targets productions with limited California tax liabilities (Legislative Analyst's Office, 2025).
Furthermore, an additional 4% credit will be available for those production companies that can prove their plans for diversity in the hiring process and workforce development (Masunaga, 2025).
Notably, the tax credit proposal also includes several sustainability criteria for the industry (Governor Gavin Newsom, 2024).
Economic impact
Due to the issues in the industry, which have increased costs substantially, it has become almost imperative for production companies to relocate to other states and countries just to be able to secure financing (Governor Gavin Newsom, 2024).
According to a study, since its initial implementation in 2009, the program has generated over $26 billion in economic activity for California and has led to the creation of over 197,000 cast and crew jobs (Governor Gavin Newsom, 2024). The new version of the tax credit plan, Program 4.0, is forecast to create 60,000 and attract $10 billion in investment in the entertainment industry (California Business and Economic Development , 2024).
Implications for investors and the industry
For investors, California’s renewed commitment presents several opportunities. The projected increase in productions, for instance, implies greater demand for studios, soundstages, and post-production capacity (Cho & Kilkenny, 2024). It also offers opportunities in collaborations with streaming platforms and global content companies, which are likely to increase their presence and business activities in California, offering prospects for B2B service providers (California Business and Economic Development , 2024).
For those in the industry, further changes are required. For example, including unscripted productions, that is, reality shows, eligible for the tax relief, like it is in other states such as Texas, Georgia and Louisiana (Cho & Kilkenny, 2024). Indeed, shootings of reality shows in Los Angeles fell by 56% in the third quarter of 2024 compared to that of 2023. The California Film Commission has also highlighted the lack of tax credit for visual effects (VFX) work to the Governor (Cho & Kilkenny, 2024).
In conclusion, the new version of California’s Film and Television Credit Program marks a significant first step towards recovery, after what have been a very difficult few years. It presents significant opportunities for investors, making the industry more competitive once again, although it requires further incentives to keep strengthening California’s infamous entertainment industry.
References:
California Business and Economic Development . (2024, February 26). California’s Film & Television Tax Credit Program Attracts Biggest Blockbuster in Program History, Adding $166 Million to State’s Economy. Retrieved from business.ca.gov: https://business.ca.gov/californias-film-television-tax-credit-program-attracts-biggest-blockbuster-in-program-history-adding-166-million-to-states-economy/
Cho, W., & Kilkenny, K. (2024, October 29). What’s Hollywood Without Cameras Rolling? Gavin Newsom’s Plan May Need More to Halt Exodus. The Hollywood Reporter. Retrieved from https://www.hollywoodreporter.com/business/business-news/gavin-newsom-tax-credit-plan-california-hollywood-1236047520/
Governor Gavin Newsom. (2024, October 27). Governor Newsom proposes historic expansion of film & TV tax credit program. Retrieved from gov.ca: https://www.gov.ca.gov/2024/10/27/governor-newsom-proposes-historic-expansion-of-film-tv-tax-credit-program/
Legislative Analyst's Office. (2025). The 2025-26 Budget: California's Film Tax Credit. Legislative Analyst Office . Retrieved from https://lao.ca.gov/reports/2025/5000/Film-Tax-Credit-022825.pdf
Masunaga, S. (2025, April 25). A desperate Hollywood looks to Sacramento for help in stopping runaway production. Los Angeles Time. Retrieved from https://www.latimes.com/entertainment-arts/business/story/2025-04-25/california-production-incentive-program
Written by Laura Rebollo
