One way to view Blackstone’s $800 million investment in Hollywood sound stages and creative office is as a niche diversification play tied to the lucrative world of film and television. But that would be missing a bigger shift going on in private real estate.
After all, little of the content created in these spaces will be shown on the big screen or broadcast on television. This distinction speaks to the evolution of the entertainment industry; it is less about movies and shows to be watched than it is about content to be consumed. Increasingly, that consumption is taking place online, streamed on computers, smartphones and tablets.
In that sense, Blackstone’s joint venture with Hudson Pacific Properties fits a broader theme that has taken root during the covid-19 pandemic: digital real estate.
The two property types most often associated with digital real estate are distribution warehouses and data centers. Both are conduits for online commerce; one is a transfer point for physical goods between sellers and buyers, the other plays a similar role but with information. Sound stages and creative offices, meanwhile, are where an important part of the digital supply chain begins.
Much like brick-and-mortar retailers, the titans of the entertainment industry have been upended by nimble startups that have used technology to create new efficiencies. Streaming platforms such as Netflix, Hulu and Amazon collect money directly from their audiences through monthly subscriptions and, in exchange, provide them with a treasure trove of on-demand content. No need to fiddle with distributors, financiers or other middlemen. Digital platforms also take out much of the guesswork that went into surmising what will resonate with audiences. The model is so successful that most traditional studios are now attempting to adopt it.
As these groups compete to produce the most and highest-quality content, sound stage owners are emerging victorious, because without production facilities there is no content. Private real estate managers with the resources to acquire these assets and expertise to operate them therefore control a critical choke point for the entertainment world.
Like other digital real estate assets, studio spaces have proved resilient during the pandemic. Though production houses from Los Angeles to London were shuttered by the coronavirus lockdowns – in contrast to distribution warehouses and data centers – revenue streams at the top facilities were not disrupted thanks to the Netflix-inspired trend of content producers signing multi-year leases. If anything, the delay in production has compounded the demand for new content and spaces in which to produce it.
As it stands, vacancy is virtually non-existent in the top sound stage markets in North America and the UK. That is partly because building top-flight facilities is expensive. One manager in the space pegs studio construction at four to five times more costly than e-commerce warehousing, which is competing for similar development sites. As with data centers, high barriers to entry should prevent the property type from becoming oversupplied.
As Blackstone’s head of Americas real estate Nadeem Meghji put it, studio lots and creative office are “critical infrastructure for TV and film production.” In an era when “TV and film” is rapidly becoming streamed content, these assets have become key pieces of digital real estate.
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