Studios Get Millions From California’s Tax Credit. But They Balk at the State’s Diversity Initiative

Opposition is mounting among some major Hollywood studios against the California Film Commission’s diversity initiative designed to encourage more inclusive hiring on movies and TV series.

At the heart of their frustration: concerns that compliance could violate federal law as the government cracks down on diversity programs hailed not too long ago as representing a much-needed step forward in getting films and TV shows to more accurately reflect audiences in California and the rest of the world. In recent years, Disney, Amazon Studios and Skydance, among others, have quietly retreated from diversity efforts, like tying staffing goals to race, ethnicity and gender.

Participation in the state’s diversity initiative, which gives movies and TV shows a small bump in their overall tax credit, isn’t mandatory. Productions, however, risk leaving money on the table by choosing not to opt in. Over the course of multiple films, it can net studios a hefty sum. For California, criticism of the program has emerged as yet another roadblock to restoring production in the state amid a global tit-for-tat battle to host Hollywood.

The pushback to the initiative climaxed in June at a commission meeting, reviewed by The Hollywood Reporter, in which board members employed by the studios and unions expressed significant reservations about whether it should move forward as currently constructed because of legal and administrative issues. Arturo Barquet, a board member and CFO of Global Production Operations for Universal Filmed Entertainment, said that Universal has “many times considered whether we should opt out.”

“There are regulations — there are things in here that are in conflict with federal law,” he added.

Universal exec Barquet pointed to Skydance, which he said isn’t participating in the initiative as studios look to avoid clashing with the government. “My understanding is that Paramount is not going for the diversity program,” the exec noted at the June 5 meeting.

Skydance does not have a blanket policy against participating in the diversity initiative and a number of shows under review by the commission are being considered, a person familiar with the situation tells THR.

Under the construction of the California film incentive program, movies and TV shows must opt into the initiative to maximize filming subsidies. Gov. Gavin Newsom has championed the incentives and signed a bill to double them from $330 million to $750 million last year. The program doesn’t carry diversity quotas and rewards good-faith efforts by studios to boost minority representation on productions. It was constructed, in part, to sidestep federal law believed to prohibit hiring targets by rewarding productions that comply rather than punishing those that do not.

During the June meeting, Fanshen Cox, manager of the DEIA program, stressed that minority representation in Hollywood has taken a step back in recent years.

“Instead of raising the bar, we are now seeing productions fall below it,” she said. “This is not progress. This is a reversal.”

UCLA documented that backslide in a report earlier this year when it noted, for the first time in three years, that the proportion of minority lead actors on streaming fell below their proportion of the U.S. population, from a high of 51 percent in 2024 to 36 percent in 2025. Streaming films featuring casts with a majority of minorities also slipped from 41 percent to roughly 26 percent.

Another study from ¡Pa’lante!, a Latino representation initiative from the USC Norman Lear Center, found that Latinos only accounted for six percent of all roles across the top broadcast series, despite making up nearly 20 percent of the country’s total population and 41 percent of California’s population.

“We’re seeing what happens when our finger gets taken off the pulse,” said Colleen Bell, executive director of the California Film Commission, about the figures.

The productions that drop out of the diversity initiative also do so because of the administrative process, which requires attending orientation sessions and filling out voluminous paperwork, among other things. It’s believed to be overly burdensome by several of the studios.

Still, 105 of 115 productions opted into the diversity provisions across the last eight application windows, according to the commission.

California began collecting information in 2020 about diversity for films and TV shows tapped to receive filming subsidies, requiring productions to report the racial, ethnic and gender makeup of their workforces. The state last year expanded the requirements, making productions eligible for the full value of their tax credits only if they also comply with a more extensive process setting and assessing diversity goals.

Under the expanded rules, productions must submit a checklist covering hiring, workplace education, workforce development and supplier diversity. They must also hand over a plan outlining specific efforts to broaden access to jobs, an interim assessment before filming begins and a final assessment after completing production. The initiative does not include racial quotas or hiring targets; instead, it evaluates whether a production has made a good-faith effort to pursue the goals in its blueprint. Productions that opt out of the additional requirements, or fail to meet the standard, still qualify for 96 percent of their allocated credit rather than the full amount.

Diversity programs requiring applicants to come from certain racial or ethnic groups have long been on legally tenuous ground, but the nail in the coffin came in 2023 when the Supreme Court struck down race-conscious admissions in colleges. Since then, there’s been heightened scrutiny around such initiatives. A year after the decision, a script coordinator for SEAL Team who was denied a staff writer job sued CBS Studios and Paramount for allegedly carrying diversity quotas that discriminate against white men. General counsels at studios have pushed to keep race out of hiring decisions. Policies meant to encourage more inclusive hiring now often employ read-between-the-lines placeholders like “underrepresented” or “underserved” or “unique experiences.”

Part of the Barquet’s grievance also stemmed from its belief that an untitled movie from Daniel Kawn and Daniel Scheinert had complied with the program’s requirements but was rejected three times. Universal Pictures’ Snoop Dogg biopic, he added, was rejected twice before a recent greenlight. The exec indicated that he didn’t know why these titles were initially rejected from qualifying for the state’s diversity initiative. The Snoop movie is expected to receive $17 million in tax credits from the California Film Commission, though the figure will come in lower if the production fails to complete the program (the commission hasn’t approved Snoop yet but is expected to do so, according to a person familiar with the matter.)

Some studios believe they should get credited for complying with California’s overall goal to boost diversity in the Hollywood workforce because they still maintain diversity program even though particular productions may not have sufficiently diverse cast and crew or made good-faith efforts to achieve diversity goals.

Andrew Davis, Sony Pictures’ president of production administration, echoed Universal’s criticism of the diversity initiatives’ construction, saying that studios want to participate in the program but that compliance is a “tremendous burden on both television and features.” Thom Davis, the head of IATSE Local 80, argued that diversity initiatives clash with the longtime process of placing members into productions.

“All this work and all these resources put into [studio diversity] programs are getting no credit and are actually being discouraged,” Thom Davis said. “We’ve got people that come in through the union side who tell us they aren’t getting on” because productions need to prioritize compliance at times.

By Cox’s thinking, however, increasing minority representation in Hollywood means giving a share of work to Californians looking for a foothold in the industry who also reflect the diversity of the state.

“All these jobs are coming back, and they’re still going to the same people,” Cox, who no longer works with the commission, says. She adds, “This is a system-wide problem. Ultimately, it’s the studios that need to do the work.”

In a statement, Bell stressed that the commission is in regular talks with the studios on the issue. “Our goal hasn’t changed: keep California the best place to make film and television, with opportunity open to everyone who wants to build a career here,” she said.