Hudson Pacific Shrugs Off Netflix Cost Cutting as Entertainment-Related Leasing Advances

Los Angeles REIT Owns Multiple Production-Related Properties in Hollywood and Beyond

By Jack Witthaus CoStar News

April 29, 2022 | 3:32 P.M.


The chief executive of a major Los Angeles owner and developer of entertainment production-related properties brushed aside concerns that demand may fall in the wake of a decision by streaming giant Netflix to curtail costs because its subscriber base contracted.


Victor Coleman, CEO of Hudson Pacific Properties, was asked by an analyst on a first-quarter earnings call Thursday if he thought the recent financial performance of Los Gatos, California-based Netflix indicated that content spending had peaked, which may change the demand for real estate supporting the entertainment industry. Coleman pointed to comments from Netflix co-CEO Ted Sarandos, who said on an April 20 earnings call that the company would grow content spending this year.


"The streaming companies' perception on [if] this is a downturn is absolutely not relevant to, first of all, the demand that we have in our studio space, and two, the capital that's being put into the marketplace," Coleman said.


Indeed, Hudson Pacific is in negotiations for leases or has completed deals on about 55% of its real estate with leases that are expiring this year, excluding the roughly 376,000 square feet that San Diego semiconductor company Qualcomm is expected to vacate in San Jose in July, President Mark Lammas said. Roughly 1.6 million square feet of leases in Hudson Pacific's portfolio are expected to expire this year, according to a filing.


Concern about entertainment companies pulling back spending and predictions of having reached "peak TV" — the inability to maintain Hollywood's high-volume, high-quality output — have been inaccurate in the past, and global entertainment spending is still expected to reach $230 billion this year, according to London media research firm Ampere Analysis.


That said, Netflix's stock is down nearly 70% since the start of the year. The company reported it lost 200,000 subscribers in the first quarter despite projecting it would add 2.5 million subscribers in that time. The company said it expects to lose another 2 million subscribers in the second quarter.

Crowded Field

Still, the field of competitors attempting to attract subscribers to their streaming platforms is crowded. Coleman said Netflix isn't the only streaming company in the market, and the entertainment spending from Amazon, Apple, Disney and HBO is unlikely to fall. Hudson Pacific counts other major streaming companies outside of Netflix as tenants in its properties.


"The others are saying they are increasing their content," Coleman said later in the earnings call. "I don't think anyone's implying that as Netflix goes, Hudson goes."


Hudson Pacific has more than 21 million square feet of studio and office space, mostly on the West Coast and in Canada. The company inked more than 500,000 square feet of leases in the first quarter, including a lease for 60,000 square feet to post-production firm Company 3 at its Harlow office development on the Sunset Las Palmas studio lot in Hollywood. Hudson Pacific has another 2.3 million square feet of office and studio development projects in the works or under construction.

For the quarter ended March 31, Hudson Pacific reported that revenue rose about 14.7% from the year-earlier quarter to $244.5 million, according to a filing with the Securities and Exchange Commission. It reported a loss attributable to common stockholders of $19.8 million, compared with a gain of roughly $5 million in the year-earlier quarter. Funds from operations to common stockholders and unit holders, an industry-recognized metric gauging the performance of changing real estate investment trust portfolios, totaled $66.4 million, compared with $72.5 million in the year-earlier quarter.

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