From 2025 into 2026, Hollywood has been undergoing a structural contraction in which the century-old business model of the “dream factory” itself is being dismantled, rather than a temporary cyclical downturn.
The number of productions has plummeted, and the production ecosystem centered on Los Angeles is now described as undergoing “Detroitization,” in an analogy with the decline of the automobile industry. Yet this collapse has produced an unexpected by-product.
As the supply of content from the United States dwindles, Japanese content centered on anime and games has begun to exert a formidable presence in the global licensing and retail markets, as if filling the resulting void.
This article first examines why Hollywood's structural recession is happening and then considers why it has created an unprecedented tailwind for Japan's creative industries.
The Hollowing Out of Production and “Runaway Production”
The sharp decline in production volume is the clearest symbol of Hollywood's recession. According to FilmLA's figures, annual filming days in the Los Angeles area fell from 36,792 in 2022 to just 19,694 in 2025, a drop approaching one half.
The decline has been particularly severe in television, where annual filming days are reported to have shrunk to nearly one third of their peak several years earlier. When the total volume of work falls, the livelihoods of those who support it also become unsustainable. Union members working behind the scenes have seen their total hours fall sharply, and tens of thousands of skilled workers are said to have left the industry.
For freelancers who make a living from individual projects, the gap between jobs has reportedly reached an average of six months. That is long enough to consume their savings and dissolve the very professional networks that sustain a career.
Accelerating this hollowing out is the overseas migration of production bases, known as “runaway production.” Countries such as the United Kingdom, Canada, and Australia offer powerful tax incentives equivalent to rebates of as much as nearly half of production costs. To counter soaring production expenses, studios are moving filming abroad en masse.
California has expanded its own tax credits, but at present they cannot fully compete with the more aggressive incentives offered by other countries and states.
Streaming's Profit-First Turn and Consolidation into “Three Companies”
From a management perspective, the largest force driving the downturn is that streaming, the industry's growth engine for the past decade, has hit a wall. Companies once competed for new subscribers regardless of losses, but investor interest has now shifted completely toward “sustainable profitability.”
Companies are spinning off unprofitable legacy cable-television operations and moving into a phase in which they must extract profits from direct-to-consumer services.
This emphasis on earnings makes production more conservative. Budgets and attention concentrate on large franchises considered certain to succeed, while original mid-budget works and niche concepts are the first to be cut.
New programs are also given extremely little time to prove that they have support. This concentration on “safe bets” is the fundamental cause of the depletion of new intellectual property discussed below.
Industry restructuring is also moving toward extreme oligopoly. The biggest event of 2026 was Paramount's (Paramount Skydance) acquisition of Warner Bros. Discovery. Netflix initially came close to an agreement worth approximately $82.7 billion, but amid a backlash over monopoly concerns, Paramount prevailed with an offer of $31 per share, or $110.9 billion in total. On June 12, 2026, the U.S. Department of Justice approved the merger.
Most of the acquisition financing came from sovereign wealth funds in Saudi Arabia, the United Arab Emirates, and Qatar, which were to own 38.5% of the combined company. After the merger, Paramount+ is scheduled to be integrated gradually into HBO Max, and chief executive David Ellison has pledged to release 30 films in theaters each year. The industry is now converging into effectively three to three and a half giant companies.
AI Redefines Labor and the “Tilly Tax”
In Hollywood in 2026, artificial intelligence is no longer a matter for the distant future. It has entered production as a concrete technology that physically eliminates jobs. The video-generation model “Sora 2,” released by OpenAI at the end of September 2025, sent shock waves through the industry.
From the outset, the company had adopted an opt-in policy requiring prior consent for an individual's voice and likeness. Soon after release, however, repeated cases emerged in which the likeness of actor Bryan Cranston was generated without his consent, prompting a strong protest from SAG-AFTRA. OpenAI tightened its guardrails in October 2025, temporarily settling the issue.
An entity that could replace human actors themselves also appeared: Tilly Norwood, a fully AI-generated “actress” created by Xicoia, the AI division of a production company led by a Dutch creator.
When multiple talent agencies were reported to have shown interest, a strong backlash followed, with actor Emily Blunt describing it as “really scary.”
Amid these developments, a new concept called the “Tilly Tax” emerged as the biggest issue of 2026. It is a proposal to require studios to pay royalties into union funds whenever they use an AI-generated performer instead of a human actor.
The key point is that unions have been forced to make a philosophical shift from “a total ban on AI” toward “financial compensation for the use of AI.” The spread of the technology can no longer be stopped. Entry-level jobs such as extras, minor parts, and voice work in commercial advertising are already being replaced by AI. This change also threatens the Hollywood talent pipeline that produces future stars.
Depleted American IP and Japanese Content Filling the Gap
The structural changes examined so far have created a vast vacuum in an unexpected place: the licensing business. What industry participants witnessed at Licensing Expo 2026, one of the world's largest trade shows, was a decisive change in which “the number of theatrical releases across Hollywood has plummeted, depleting the supply of new IP and franchises.”
Hollywood mega-hit films have historically driven the licensing market for toys, apparel, general merchandise, and other goods. With extremely few such “theatrical successes,” the very foundation for licensing programs is becoming unstable.
Japanese content centered on anime and games has filled this immense gap remarkably well and is displaying an overwhelming presence. There are two main reasons.
The first is stability of supply. Japanese anime, game, and character IP is wholly unaffected by Hollywood strikes and the resulting delays and cancellations of live-action films. It can therefore promise retailers and licensees a continuous, stable supply of content.
The second is high conversion in retail markets. Overseas consumer demand has moved beyond a temporary boom and become established. The content is flexible enough to translate with high probability into “products and experiences that actually sell,” ranging from food and beverages, collectibles, apparel, and stationery to household goods and even pet products.
Sony Pictures provides a symbolic example. Without a large-scale general streaming service of its own, Sony decided to concentrate capital on screen adaptations of PlayStation game IP and the development of anime IP through subsidiary Crunchyroll, rather than mass-producing traditional Hollywood films.
This is a case in which a U.S. company itself embodies the broader shift “from American IP to global and Japanese IP.” Hollywood's structural stagnation has consequently created an unprecedented tailwind enabling Japan's creative industries to establish a position in global licensing and retail markets.
The Explosion of the Creator Economy and a New Media Map
Alongside the rise of Japanese IP, another new protagonist is growing rapidly: the creator economy of content published by individuals. Total payments to creators are said to have increased substantially year on year, supported by revenue returned by giant platforms.
YouTube is said to have paid creators and media companies a combined total of about $100 billion over the past several years, while the gaming platform Roblox reportedly returned $1 billion to creators in 2025 alone. “Microdramas” lasting only a few minutes per episode rapidly swelled into a global market worth $8 billion.
Capital is also clearly shifting from video toward interactive games. EA (Electronic Arts) was taken private in the largest all-cash acquisition in history, valued at approximately $55 billion, while enormous titles such as Grand Theft Auto 6 are expected to draw people's attention wholesale away from film and streaming.
While tens of thousands of traditional entertainment jobs were lost in Los Angeles, employment in the creator economy in the same area instead increased. Studios and television networks are losing their significance as “gatekeepers,” while individuals and small teams that connect directly with audiences create wealth. This new paradigm is approaching completion.
A Window Opens for Japan's Creative Industries
Hollywood's 2026 recession is the process of dismantling a legacy model tied to the geography of Los Angeles. Yet people's desire for entertainment has not disappeared. Games and microdramas, the creator economy, and Japanese anime and game IP are emerging as new protagonists, growing at extraordinary speed from the ashes of the old system.
Compared with the unstable supply of U.S. live-action content, Japanese IP can be supplied consistently and can “sell” around the world. This period of restructuring gives it an opportunity to secure a firm position. The collapse is a crisis, but for Japan's content industries it is also the moment when a once-in-decades window has opened.
