Farewell, my lovely

Embracing change has always come hard to Hollywood, world capital of self-absorption. But the studios, which resisted introducing soundtracks for 15 years, forbade their actors to work in television, tried to make the video-cassette recorder illegal, and adopted the DVD only after a 10-year wrangle, now find themselves confronted by irresistible external forces.

Globalisation and its ally, digital technology, are changing the nature of Los Angeles and the motion picture industry. Superficial evidence appeared last year when they combined - with a little help from the economic downturn and industrial strife - to force the loss of more than 17,000 jobs: almost 12 per cent of the workforce and eight times the number lost in the previous three years.

Digital technology means that post-production work - adding sound, effects, music and editing - can be performed anywhere in the world. And, in present conditions, almost anywhere is preferable to high-cost Los Angeles. As Jeff Berg, chairman of International Creative Management, the talent agency, pointed out last week, none of the five films nominated for this year's best picture Oscar was made in Hollywood. Three were shot overseas.

And as Mark Ordesky, president of Fine Line Features, remarked, his global smash The Lord of the Rings was shot and finished in New Zealand. The only "foreign" input was the orchestral soundtrack, beamed in from London. Summing up the industry's troubles in a single, unfinished sentence, he told an audience of business leaders and academics at a University of California, Los Angeles conference: "If a bunch of Kiwis can do it . . . ".

In gentler fashion, Mr Berg warned Hollywood to come to grips with "the fallacy of the permanent franchise". Mr Berg, agent for Julia Roberts, spoke of "big changes" ahead and the uncertainties created by the orgy of media mergers in the 1990s. The biggest is already evident in data from the UCLA Anderson business school, which show that film production in LA has been declining steadily for five years. While the school's analysts see little danger of a collapse similar to LA's aerospace sector - entailing the loss of 145,000 jobs in the past decade - they say the trend will continue.

More telling, perhaps, is the dramatic change to the structure of the workforce. From less than one-third of the total in the mid 1980s, the proportion of jobs in management and administration has climbed to 43 per cent. "LA is changing from a production centre to a design centre," says Christopher Thornberg, an Anderson economist.

That may be bad news for the gaffers, grips, cinematographers and the like but, if the forecasts prove correct, it will be good for LA's creative core of writers, actors, agents and executives who dominate the top end of the industry's salary scale.

John Miller, a senior banker at JP Morgan Chase, the investment bank, has no doubt about the implica tions. Since the annual return on a studio's average production schedule - or "slate" - of films is only 1 or 2 per cent: "The studios don't want to be in production any more. They want to be in distribution."

At the same time, and for the same bottom-line considerations, he says they can expect little help from banks. "The next few years will be very challenging for financing." Although proposals for tax relief and other measures to help keep the lots busy are being processed in Congress and the California state legislature, there is little confidence that they will provide more than a stop-gap.

There is plenty of evidence that industry leaders - including the unions - feel overwhelmed by the complexity of the problems they face. All have been part of an industry "that has historically done nothing but grow," says Cody Cluff, president of LA's Entertainment Industry Development Corporation.

Now, though, an increasingly common view is that post-production companies and laboratories threatened by the looming introduction of digital film-making are fighting for survival.

The major studios also have to plan for the likely disposal of their backlots and soundstages. For the moment television, commercial and music video-producers are taking up the slack. But according to Mr Cluff, these sectors will inevitably face the same challenges from runaway production and technology as film, particularly because TV production does not demand movie-scale sound stages. "An old warehouse with an eight-foot ceiling is fine," he says.

While many in the industry feel they need political help, there is no tradition at national, state or local level of close collaboration. Most European governments, by contrast, have a cultural ministry of some sort and many European countries encourage their national film industries through generous tax breaks.

In Hollywood, which has reigned so long as the unchallenged world centre of movie-making, there is no clear consensus on how to respond to the changing conditions. For Mr Cluff, the principal question is: "How do you hold off the bad effects while the transition takes place?"

Others are more sanguine. Speaking at the UCLA conference, Allen Scott, head of the UCLA Center for Globalisation and Policy Research, warned against "over-dramatising" the situation. He argued that the upsets of today could simply be a cyclical phenomenon. "Other sectors face it. We need to learn to live with it."

He concedes that "foreigners" may out-compete Hollywood for the first time. But he recalls that Los Angeles was in a similar situation when its garment-making industry shifted production to low-cost centres abroad. That process started almost 20 years ago, but textiles - having traded low-pay jobs for high-pay, high-skill positions - is once again one of LA's leading industries, and the area is now recognised as a global leader in fashion design and creativity.

As an acknowledged world leader in film, television, fashion, car design, and, of course, plastic surgery, Mr Scott believes LA could propel itself into a bright new and rebranded future as "The Silicon Valley of Creativity".

Mr Ordesky of Fine Line Features, an eager convert to globalisation who is expecting worldwide box-office receipts of Dollars 900m for the first of his three Kiwi-made Lord of the Rings films, takes a more down to earth view. "At the end of the day it's all about return on investment." And as for all those production jobs gone and still to go: "They're not lost, they've just been relocated."