Quixote Studios, a production services company acquired by Hudson Pacific Properties in 2022 for $360 million, is undertaking significant restructuring measures by shuttering its Atlanta-based production services business and scaling back its soundstage operations in Los Angeles. This strategic pivot comes amid a prolonged downturn in the production industry, leading to approximately 70 layoffs across both Atlanta and Los Angeles.

The financial implications for Hudson Pacific Properties are substantial. The company has already had to write down the entire value of its Quixote unit due to considerable operating losses. Despite this setback, Victor Coleman, Chairman and CEO of Hudson Pacific, acknowledged the deal was not optimal but expressed confidence in finding alternative solutions to mitigate the losses, aiming for the asset to be "zero or at least flat at the end of the year."

The changes primarily affect Quixote-branded soundstages that Hudson Pacific leased, specifically facilities located in Pacoima, Panorama City, and West Hollywood. These locations experienced significantly lower occupancy rates, recorded at just 53.3% last year, and are slated for relinquishment. However, Hudson Pacific will retain the Atwater Village location. In contrast, Hudson Pacific's separate portfolio of Sunset Studios soundstages, which are leased to major entities like Netflix, remain unaffected by these changes and boast a high occupancy rate of 96%.

These cost-reduction initiatives are projected to save Hudson Pacific Properties between $21 million and $27 million annually. Mark Lammas, President of Hudson Pacific, articulated that these steps are designed to enable the company to move away from underperforming leased soundstages and markets burdened by "structural cost or demand disadvantages." This refocusing will allow Hudson Pacific to channel its financial and operational resources more effectively into its office portfolio and the more robust segments of its studio business.

Further streamlining includes the closure of Quixote’s production services business in Atlanta, following similar closures in New Orleans and Albuquerque last year. This move is part of a broader strategy to concentrate production services efforts on the stronger markets of Los Angeles and New York. Coleman highlighted at an investor conference that these primary hubs are weathering the industry downturn more effectively than "second-tier hubs" such as Atlanta, Chicago, Albuquerque, and New Orleans, largely due to enhanced tax credits in L.A. and New York that stimulate production flow.

Hudson Pacific also maintains significant real estate holdings leased to Netflix, including the Icon, Cue, and Epic office towers on Sunset Boulevard, which serve as Netflix's L.A. headquarters with leases extending through 2031. Separately, Netflix is reportedly nearing an acquisition deal for the Radford Studios lot in Studio City, though the potential impact of this acquisition on its existing studio leasing arrangements with Hudson Pacific remains to be seen.