California's Tax Credits May Soon Offer a Lifeline to Halt Animation's Exodus

Yahoo

21-05-2025

As part of plans to halt the flight of Hollywood productions from Hollywood itself, lawmakers behind the proposed expansion of the California Film & TV Tax Credit program want to expand the types of films and TV shows that can qualify. That includes a section of entertainment that to this point has been closed off entirely from such tax breaks: animation.
In the language for the California Film and TV Jobs Act, which is currently winding its way through committees in the state assembly and senate, animated films and TV shows with a minimum runtime of 20 minutes would be listed as eligible for the program provided that they have a minimum production budget of $1 million.
It comes as the state's animation industry, one founded in Burbank by legends like Walt Disney and Bob Clampett and which continued through the 20th century with the rise of Pixar and DreamWorks, has ceded its cultural dominance to a global landscape. For members of The Animation Guild, IATSE's union for animators, that has led to an increasingly untenable position stuck between the high cost of living in Los Angeles and a jobs market that has declined despite being part of a worldwide industry valued at $413 billion and estimated to more than double over the next decade, according to the guild.
'There's the stereotype of actors waiting tables and working at Starbucks to make ends meet, but everyone is doing that, including animators,' Leslie Simmons, political coordinator for TAG, told TheWrap. 'We've had a growing number of members who have lost their health insurance and applied for Medi-Cal. I've spoken with one who has pivoted to another job and become a certified bookkeeper.'
Earlier this month, The Animation Guild commissioned a report by CVL Economics, a consulting firm that has previously advocated for production tax credits, to lay out how much California's share of global animation production has declined and gone elsewhere. From 2019 to 2024, the amount of animation jobs increased by 18% in New York and by 72% in British Columbia, the latter bump being fueled in part by the creation of a new Disney animation studio in Vancouver.
Meanwhile, the number of animation jobs in California declined 5% over that same 2019-24 time span. The report also found that the percentage of the top grossing animated films produced in California fell from 67% in 2010 to just 27% in 2023.
All of this is despite the fact that the number of film and TV animation projects commissioned worldwide rose from 558 in 2019 to 860 in 2024, an increase of 54%. The bottom line: The desire for animation is rising, but California is not partaking in that increased business.
Offering new tax incentives will be an essential step to making sure California can remain competitive in animation, but considering that many major players in the space have set up extensive networks of satellite studios and overseas vendors over the past decade, it remains to be seen how much those companies will be tempted by Sacramento to pull up those recently planted stakes and come back home.
It's a slide that traces its roots back to 1995, when Canada first introduced its tax incentive program, which included animation. In the decades since, other countries such as the U.K. and Australia, as well as 30 American states, rolled out their own tax incentives that included animation. Even when Sacramento lawmakers last overhauled California's incentive program in 2014, animation was not included.
This has led to an ongoing trend where many of the most popular animated films and TV shows are more likely to have been made outside of California, a major change from the days of Disney and Warner Bros. setting the cultural standard from their Burbank headquarters or when landmark films like 'Toy Story' and 'Shrek' were developed at Pixar's East Bay offices and DreamWorks' Glendale campus.
Instead, the biggest cartoon on TV is 'Bluey,' an acclaimed kids' series produced in Queensland, Australia. DreamWorks' most recent film, 'Dog Man,' was animated by the defunct British studio Jellyfish Pictures while its next film, 'The Bad Guys 2,' is being produced partially by the Vancouver-based Sony Pictures Imageworks alongside DreamWorks' in-house California crew.
Some films, like Pixar's 'Inside Out 2' and Paramount/Industrial Light & Magic's 'Transformers One' are still California-grown. But then there are films like 'Moana 2,' which was first greenlit as a Disney+ streaming series and thus was primarily produced at Disney's Vancouver studio before being repurposed into a theatrical feature that topped $1 billion at the global box office.
It was a major shift from the first 'Moana,' which was made entirely at Disney's main animation studio in Burbank. The CVL report claims that Disney's move of the sequel to Canada cost California's entertainment industry 817 jobs as well as an estimated $87 million in wages — which contribute to income tax and consumer spending — and $178 million in state GDP.
'Without prompt action to match global incentives, California risks permanent displacement as the heart of animation innovation — forfeiting not just today's productions but tomorrow's pioneering advances in a rapidly evolving digital economy,' the report reads.
As it continues its way through the legislative process, there are still a lot of changes that could be made to the incentive program expansion, and details on how the expanded program will be implemented won't be ironed out until after the bills pass. For those reasons, insiders at several major studios say they are not sure at this point how the program might factor into their animation divisions, which widely vary from studio to studio.
Universal, for example, could potentially use the tax credit program to bring more of DreamWorks Animation's production process back in-house, but that remains to be seen as the vendors and partners DWA works with on feature and TV projects vary from project to project. Along with 'Bad Guys 2,' the studio is in early development on 'Shrek 5' for Christmas 2026 as well as a streaming revival of 'Casper' for Peacock.
Warner Bros. Animation is in the midst of a major revival of its feature division, and insiders say it's too early to determine whether the tax incentives will allow the studio to base more of its production operations in Los Angeles.
And then there is Disney, which has not one but two fully operating California studios with Walt Disney Animation in L.A. and Pixar in the Bay Area. That puts them in the best position to take advantage of the new tax credits, though how much it can will be based on its production process.
According to an insider with knowledge of production of Disney's next feature film, 'Zootopia 2,' a substantial portion of the film is still being animated and rendered, requiring extra manpower from Disney's Vancouver studio to help get the film done on time for its Thanksgiving release. Having that second studio to expedite the animation process gives Disney more time to fine-tune the story and rewrite scenes as needed before beginning layout.
But for Disney and other animation studios, there's also another simple advantage to outsourcing the work to other countries: the workers there are largely not unionized. That is slowly changing in British Columbia thanks to the organizing efforts of the Animation Guild's Canadian counterpart, IATSE Local 938, which last year unionized WildBrain, the studio that co-produced 'My Little Pony: Friendship Is Magic,' and Icon Creative Studio, which does TV animation for streaming shows like Disney Junior's 'Ariel' and Paramount+'s 'Transformers: Earthspark.'
But for the most part, the labor costs of producing overseas are cheaper than those of union animators in California, and it remains to be seen whether studios deem the tax credit to be large enough to pivot a significant number of their productions back to local teams.
For now, leaders at the Animation Guild say they expect that, like live-action, the tax credit's impact will most likely be felt on TV productions, specifically adult animation shows like 'Bob's Burgers,' 'Krapopolis,' and others that fill up Fox's Sunday primetime block.
'These primetime shows are trying to draw a larger audience, often have big-name talent and higher pay at the producer level, and have bigger staffs that put them over the $1 million threshold,' TAG president Jeanette Moreno King said.
It is those bigger staffs that lawmakers want to prioritize with the tax credit expansion. In Sacramento, the increase of the incentive cap to $750 million is being promoted by its co-authors as a jobs program, with the intent of prioritizing productions that offer the maximum number of jobs for entertainment workers. Dozens of half-hour TV shows, live-action and animated, are expected to lead the first wave of newcomers to the California incentive should it be approved this summer.
But King also notes that even the expanded criteria would exclude a significant number of animation projects, most notably independent animation and children's TV shows that often get produced at a budget below the program requirement of $1 million per episode.
While it is unlikely that the budget threshold would be lowered given the desire to maximize well-paying production jobs and to not overwhelm staffers tasked with handling applications from producers, King notes that doing so would provide more opportunities for California to bring in employment opportunities for animators.
'There are a lot of projects that are moving towards an indie market where budgets are much lower,' she said. 'There's also been a push to lower the budget threshold from commercial workers to increase more job opportunities there, so it isn't just animation that would benefit from lowering the minimum budget to even half a million.'
For now, the industry waits to see how quickly California lawmakers might move this forward.
The post California's Tax Credits May Soon Offer a Lifeline to Halt Animation's Exodus appeared first on TheWrap.