California’s Animation Industry Is in Crisis — Here’s How to Save It

— By John Attanasio and Luisa Huang, Co-Founders of Toonstar —

On July 2, Governor Newsom signed AB 1138, an increased film and TV tax credit of 35%, into law. This marks the first time animation projects (features, series and shorts) have been directly eligible for the state’s production incentive program. While we applaud the inaugural inclusion of animation, the effort falls short, and reveals a critical misunderstanding about today’s animation landscape. The legislation’s $1 million minimum production budget requirement excludes the vibrant ecosystem of independent creators who are developing innovative content and launching hit intellectual property with production budgets well below this arbitrary minimum. And for California to reclaim their leadership in the animation space, this community of creators needs to be recognized.

California has always been synonymous with animation excellence. From the pioneering days of Disney to the digital revolution of Pixar, the state has defined the global language of animated storytelling. But while our creative legacy remains unmatched, the economic reality tells a different story: California’s share of the highest-grossing animated films has plummeted 40% from 67% to just 27% between 2010 and 2023, according to a recent report from The Animation Guild. And while animation employment in California dropped by nearly 5% between 2019 and 2024, it surged by more than 18% in New York thanks to tax incentives through the state’s Film Tax Credit Program.

In addition to animation jobs going to other states, many have moved overseas as well. What began as studios outsourcing “in-between” frames has evolved into entire productions relocating to countries like South Korea and Canada, where labor costs are significantly lower and tax incentives are substantially higher. The recent case of Disney’s Moana 2 illustrates this perfectly — while the original film was largely produced in Burbank, the sequel was moved to Disney’s Vancouver facility, taking with it an estimated 817 jobs, $87 million in wages, and $178 million in state GDP.

Now, this global animation war is intensifying. South Korea recently announced a staggering $1 billion investment (through their Basic Plan for the Promotion of the Animation Industry) to further strengthen their already robust animation sector. This follows decades of strategic policy decisions that have systematically built their competitive advantage.

The animation industry has transformed dramatically. New technologies have democratized production, allowing nimble, independent teams to create compelling content that rivals traditional studios in terms of quality. And direct-to-consumer distribution platforms like YouTube and other social media platforms enable indie studios to build large and highly engaged audiences, bypassing the legacy Hollywood gatekeeper system. Meanwhile, even established franchises that have historically been produced in California — like SpongeBob SquarePants, The Fairly OddParents, and Looney Tunes — are now outsourcing components of their production pipeline overseas. It’s become standard practice for development to remain in-state while pre- and post-production phases increasingly move elsewhere, putting the entire production chain at risk. Independent creators represent California’s animation future — if we give them reason to stay.

What would effective policy look like? First, eliminate or substantially reduce the minimum budget threshold for tax incentives. A tiered approach could provide proportional benefits to productions of all sizes, acknowledging that tomorrow’s animation giants are today’s independent creators working with modest resources.

Second, invest in education and training programs that maintain California’s competitive edge in animation talent. South Korea’s billion-dollar investment isn’t just about production subsidies — it’s about building a complete ecosystem that nurtures expertise from education through professional development.

Third, create targeted incentives for animation technology innovation. California’s historic advantage has always been the intersection of art and technology. By supporting R&D in animation tools and workflows, we can develop efficiencies that make local production more competitive regardless of wage differentials.

The global animation war won’t be won through half-measures or protectionism. It requires a comprehensive strategy that acknowledges both the industry’s storied legacy and its evolved reality. This is especially true given that the global animation market is projected to more than double in value from $413 billion to $898 billion between 2024 and 2034 across film, TV, video games, digital platforms and advertising. The new law is a start, but it remains a 20th century solution to a 21st century challenge.

We didn’t know it at the time, but we grew up during an era that turned out to be a golden age of animation. Our love for animated characters are some of our first memories, and like so many in our industry, the joy we derived from them planted the seeds for eventual careers in the industry. Today’s creators with their innovative use of new production and distribution platforms are poised to launch a second golden age of animation.

California’s animation industry stands at a crossroads. We can continue watching jobs disappear overseas while implementing insufficient measures, or we can recognize the full spectrum of our animation ecosystem — from independent creators to established studios — and develop policies that reverse a decades-long trend and secure California’s position as the world’s animation leader for generations to come. In other words, actually bring animation jobs back to California.

The choice should be animated clearly.

John Attanasio (CEO) and Luisa Huang (COO) are the founders of Los Angeles-based Toonstar.

The company employs creators and technologists with backgrounds working for major studios including Disney, DreamWorks and Warner Bros., and combines an AI-powered production pipeline with direct audience building to launch animated content with engaged communities across the web.

toonstar.com