Los Angeles’ film industry has given shape, sound and color to the American Dream for over a century.

The “Dream Factory,” as dubbed by anthropologist Hortense Powdermaker in 1950, is one of the country’s best-known export industries. It amplified American soft power, transcending economic and military dominance to set a global benchmark for cultural influence.

“It’s always been America’s most significant export industry … it comes with a cultural representation, it comes as ideology, it comes as a set of beliefs and practices and habits and styles,” said J.D. Connor, associate professor of cinematic arts at USC. “Hollywood really does pioneer the 21st century pivot to immaterial assets.”

That influence is severely challenged today.

With a highly mobile workforce in a global landscape of capital and political uncertainty, the entertainment sector is facing a murky future. Multi-billion-dollar consolidations have shaken up the industry, raising concerns about a shrinking job market, censorship and monopolization. The pending $111 billion merger between Warner Bros. Discovery Inc. and Paramount Skydance Corp., the $22 billion acquisition of Roku Inc. by Fox Corp., and The Walt Disney Co.’s absorption of Hulu and 21st Century Fox at the respective prices of $9 billion and $71.3 billion, are among the deals at play.

Amy Hobby, an independent filmmaker whose 2015 biopic “What Happened, Miss Simone?” earned her an Academy Award nomination for Best Documentary Feature, said the allure of L.A. is rapidly fading in an industry that’s faced many disruptions in recent years. That includes the COVID-19 pandemic, the dual strikes of Screen Actors Guild-American Federation of Television and Radio Artists and Writers Guild of America, and the 2025 Palisades and Eaton fires.

Having started her career in Los Angeles, she has since moved to New York.

“When I started, I didn’t distinguish myself from the possibility of working with Hollywood independent studios,” Hobby said. “Now I don’t see that ever happening. I feel farther and farther away from that, and I don’t know if it will ever reconnect.”

Hollywood’s economic legacy

To understand the industry’s current state of turmoil, one must look back at its rise.

In 1909, Chicago’s Selig Polyscope Co. established the first filming studio in the Silver Lake and Echo Park neighborhoods. Yet, Hollywood only became synonymous with cinema in the 1920s, as creatives fleeing Thomas Edison’s East Coast patent wars flocked to the sunshine of Southern California.

With its varied, visually striking terrain and well-advertised good weather – despite its rainy winter months – Los Angeles came to entertainment dominance with the influx of talent and money.

It soon became the host for the “studio system,” a highly regulated, vertically integrated business model where a studio controlled the production, distribution and exhibition of the films, often signing whole crews with long-term contracts. Featuring major studios such as MGM, Paramount, Warner Bros., 20th Century Fox, and RKO Pictures, the system ushered in the Golden Age of Hollywood, where stars like Marilyn Monroe and Humphrey Bogart held court.

Hollywood’s legacy extends beyond the cultural sphere. While the studio system gradually gave way to a more fragmented landscape with shorter contracts and more independent cinema in the 1960s, Hollywood still left behind an enduring economic legacy. Connor noted that its distinct business model and union culture marked it “a beacon in the organizing of American labor.”

“Even beginning in the 1920s, economically, Hollywood was at the forefront of modern capital deployments. A lot of the first kind of complex stock trades and derivative work happened around the entertainment industries, beginning back then.” Connor said. “The economics are different and global, the local industry is unique and organized, and the financial relationship has always been interestingly cutting edge.”

Even today, key collective bargaining in the creative space still happens first in Hollywood. The 2023 strikes of Writers Guild of America and SAG-AFTRA led the way to build guardrails against artificial intelligence in art, a topic that has since spilled over to a wide swarth of industries beyond film.

Soft power, hard power

Furthermore, Los Angeles’ ascension as an entertainment giant was never a standalone feat. The region’s rise as an aerospace and defense hub supplied the film industry with creative ideas, technology and capital, especially during World War II. Los Angeles County alone saw the establishment of Lockheed Corp. and The Douglas Aircraft Co. (now known as The Boeing Co.), both of which set the foundation for the current aerospace renaissance in the South Bay and served as the economic backdrop for Hollywood.

“From the very first days of interest in making aviation-centric movies, the industry relied on initially World War I surplus planes and former World War I pilots,” Connor said. “The military was pushing forward optics and coatings, and a lot of highly mobile technology… then (they) became incredibly useful for the film industry in particular. Things like Cinerama are a direct spinoff of the military industrial complex. That alliance has been around for a long, long time.”

With the U.S. gaining military dominance after World War II, Hollywood became pivotal in shaping American identity abroad. Kal Raustiala, a professor of law at University of California, Los Angeles, said Hollywood projected an American way of life, with democracy and material abundance at the center of its “soft power” – simply defined as the power to attract.

“I think you can’t really disentangle American soft power from… American hard power or American economic power. I think they all go together,” Raustiala said. “Hollywood painted us in a positive light.”

The soundstages of filmmakers, therefore, were closely tied to the podiums of politicians. The Cold War spawned Hollywood’s infamous blacklist era, where practitioners suspected of sympathizing with communism would be barred from working in film, television and radio.

The government’s propaganda also seeped into Hollywood in the form of investment: the CIA, for example, purchased the film rights to the 1954 animated film “Animal Farm” and edited its ending to sow anti-communist sentiment. Other movies, such as “They Were Expendable” starring John Wayne, portrayed a heroic image of American soldiers at war. That trend continued well into the current time, when films such as “Top Gun” glorified individual heroism and boosted recruitment for the armed services like the U.S. Navy, according to Military.com.

“There are multiple reasons why the U.S. was and remains the most powerful country on Earth, and I don’t think there’s anyone who would say that that happened because of the influence of Hollywood,” Raustiala said. “At the same time, I do think that that was a pretty powerful dimension in that it made it easier for the United States to be a dominant country and even to domineer other countries at times, and to be perceived as a benevolent leader of the free world.”

The challenge and the challengers

The industry has fewer workers and more tribulations today. The merger between Warner Bros. Discovery and Paramount Skydance remained under regulatory scrutiny amid antitrust allegations, though the U.S. Department of Justice had approved the deal in June.

However, its economic impact is already felt by industry professionals, such as Sundance Audience Award-winning producer Karin Chien.

“As a producer, what you need for your marketplace and for your business to be healthy is you need buyers,” said Chien, who also works as a distributor for independent films. “The consolidation of the buyers has really affected the entire supply chain, so it directly affects what a producer does.”

An interim report released by the Los Angeles County Department of Economic Opportunity painted a picture of a shrinking industry. The report finds that within Los Angeles alone, approximately 2,495 positions may become redundant if the merger is completed.

The combined company will carry $82 billion in gross debt and plans to cut over $6 billion. Roles in corporate operations, technology systems, real estate, and administrative functions are the most vulnerable, but the merger also presents “broader risks to both production employment and the regional production ecosystem,” according to
the report.

“This deal increases the threat to jobs, workers, and communities that are already under attack,” said L.A. County Supervisor Lindsey Horvath in the report. “We’ve already seen this movie and know what happens when corporate consolidation puts billionaires’ interests ahead of working people – no need for a sequel.”

The expansion of streaming is also at the core of the deal. Paramount Skydance has already announced plans to merge HBO Max and Paramount+, which together have 200 million global subscribers. An ongoing quest that gained momentum during the pandemic, streaming has disseminated American content into every living room around the world, bolstering a soft-power upgrade from the era of cinemas. But with their vertically integrated business model, which produces their own content for distribution, the streamers have radically changed both the economy and the products of filmmaking, according to Hobby.

“The vertical integration has meant that truly outsider voices, or adventurous cinema, are not getting into that system, and they’re not reaching audiences through streaming,” Hobby said. “Streaming has completely decimated independent film.”

For a people-centric industry, the film scene in Los Angeles is also losing grasp of a solid talent pipeline. New York-based market research firm ProdPro Inc. reported a 20% decrease in spending on film and television production last year, and other regions seem more economically feasible on a tight budget.

New Jersey offers up to 35% of credits on local production spending and gives Netflix Inc., Lionsgate Studios Corp. and Paramount Skydance up to 45% if they shoot in the state for at least a decade, the Wall Street Journal reported.

Georgia offers 30% in tax incentives for qualifying in-state expenditures, the United Kingdom provides 25.5% to almost 40%, and New York state offers a massive film production tax credit of up to 50%.

While California is joining the effort through Gov. Gavin Newsom’s expansion of annual film and TV tax credits from $330 million to $750 million – with a base rate of 35% and a flexible cap of 45% – productions have been fleeing the Golden State to shoot elsewhere.

Warner Bros. Discovery’s “Sinners,” which won four Academy Awards and received a record-breaking 16 nominations, was filmed in Louisiana, which offers tax incentives ranging between 40% and 65%.

Hobby, who works as a mentor for the next generation of filmmakers, said the appeal of Hollywood is rapidly diminishing for the near future.

“I work with a lot of emerging filmmakers of color and LGBTQ filmmakers,” she said. “And for the first time, they don’t have any allure of Los Angeles or the studio system.”