The Unintended Fallout of California’s Hasty Response to AI in Entertainment

Photo by Roman Skrypnyk on Unsplash

In 2023 and 2024, there were strikes by SAG-AFTRA, a labor union that represents workers in the entertainment industry. Both strikes were largely in part over Name, Image, and Likeness (commonly referred to as “NIL”) being stolen by the use of generative artificial intelligence and workers being replaced by AI. In response to this, SAG-AFTRA lobbied and helped pass AB 2602, which was promptly signed into California law by Governor Gavin Newsom. In a press release after the signing of the bill, SAG-AFTRA released the following statement:

“SAG-AFTRA applauds Gov. Newsom. AB 1836 and AB 2602 represent much-needed legislation prioritizing the rights of creative workers in the A.I. age. No one should fear becoming someone else’s unpaid digital puppet. Gov. Newsom has led the way in protecting people–and families–from A.I. replication without real consent.”

This article examines provisions of AB 2602 and considers the possible unintended consequences of such a response. 

Before analyzing the potential impact of AB 2602, it is essential to analyze the law itself. AB 2602 created Cal. Labor Code § 927 (2024), which states:

“A provision in an agreement between an individual and any other person for the performance of personal or professional services is unenforceable only as it relates to a new performance, fixed on or after January 1, 2025, by a digital replica of the individual.”

However, the act provides that an agreement to use a digital replica of a person’s likeness or voice in place of work performed by that person may be enforceable if that person is represented by either legal counsel or a labor union when they enter into the contract.

Effectively, this bill prohibits entertainment companies from using digital replicas of actors without the consultation of either (a) a labor union or (b) legal counsel. 

On its face, this may sound like a good idea, but it comes at a time when the entertainment industry is waning in California due to intense global and interstate competition with much better tax incentives and lower costs. By eliminating the ability of entertainment companies to use digital replicas of non-character actors, such as extras, which increases the cost of production in the state without increasing film tax credits, this bill could simply cause film companies to go elsewhere, causing further decline in an already dwindling industry. 

California has a valid reason for concern that this bill could further weaken its film industry’s status compared to its international counterparts. A chart from the independent Legislative Analysts' Office (LAO) in California shows the decrease in California’s share of jobs in the film industry from 2010 to 2023 

There are several explanations as to why California’s share of the film industry is shrinking. A report by the Milken Institute, a non-partisan, non-profit think tank, details why California's film industry is declining. 

First, Hollywood is simply too expensive. A long-time historical advantage for California was the combination of pleasant weather conditions and a relatively low cost of living and real estate. This cost advantage has declined since the early 2000s. The cost of living in Los Angeles, as captured by the Consumer Price Index, has caught up to the cost of living in New York. Before 2019-2020, Los Angeles was less expensive than New York. Since 2020, Los Angeles has become more expensive than New York. 

Next, the cost of doing business internationally is increasingly attractive when compared to the United States. In 2015, the British pound hovered between USD 1.6 and 1.7; now, it stays around 1.2 to 1.3, marking a significant reduction in costs for filming in a market that had previously been considered more expensive. The Canadian dollar remained close to parity with the US dollar from 2010 to 2014; now, it stays around USD 0.75. Similarly, the Australian dollar consistently traded at around USD 0.75 in 2015; now it stays around 0.65. This makes offshoring more lucrative for US production companies, whose cost of production can be reduced in these foreign markets. 

Finally, international film industries are becoming increasingly more common, even in the domestic market. Take the Korean film industry for example. The rise in popularity of K-dramas and Korean films has been astronomical, with a Korean film, Parasite, winning Best Picture, Best Original Screenplay, Best Director, and Best International Feature Film in 2019. This is only one of the growing international film industries. One of Amazon Prime’s most discussed shows, Maxton Hall, was created in Germany, and the most recent winner of Best Animated Feature, Flow, was created by Latvian filmmakers. California now has serious competition when it comes to maintaining its dominance in the international realm.

The decline of the film industry in California is problematic for the State’s economy as well. California’s loss of business to other states and countries affects not just A-list actors and directors, but janitors, maintenance men, and restaurant workers through the loss of foot traffic and other lesser-paid jobs. According to Film La, a non-profit, “The entertainment industry feeds around $43 billion in wages into the state economy.” Even further, economists such as Lee Ohanian point out that “[p]eople who hold entertainment jobs and entertainment-adjacent roles account for almost 20% of the LA-area income.”

The loss of wages (in this case, in the entertainment industry) leads to a decrease in consumer spending, which other businesses rely on. In economic terms, this is called a business cycle contraction. This creates a ripple effect in the economy. Without consumer spending to keep businesses open, it causes a cycle of job and profit loss. This leads to layoffs because less work is needed. In the worst cases, it leads to a complete loss of businesses. 

Another factor not often considered is the disparity in protection when comparing well-known or wealthy actors with new or lesser-known actors. The Joint Policy Committee even questions if the new law dictates whether production companies can refuse to hire an actor who declines to accept the condition, and how enforcement will work when an actor is not immediately recognizable. Without clarity, new or lesser-known actors remain vulnerable to AI misuse. These individuals may feel pressured to accept contracts containing digital replica clauses, even against the advice of counsel or their union. Predatory studios are effectively allowed to continue exploiting vulnerable workers that the act aims to protect. Additionally, the representation loophole allows studios to use and enforce agreements that are against public policy, according to AB 2602. 

This law also does not stop studios from utilizing wholly AI “people,” entirely cutting out the need for any worker that the law was designed to protect. Currently making a splash on social media is Tilly Norwood, an AI “actress” that is now licensable as an alternative to hiring a human actor. Already, this development has raised massive debate covering everything from workers’ rights, ethics in art, and the exploitation of women. 

California’s enactment of AB 2602 was done with the best of intentions: to protect entertainment employees against AI misuse. However, its hasty enactment has also exposed the California film industry to potential deterioration and left important issues unaddressed. As it stands now, the law manages to be both overbroad for production companies and underprotective for vulnerable workers.

In a market rife with competition and declining production from a business perspective, enacting overarching bills such as AB 2602 could cause film companies to decide to film somewhere more lucrative than the State of California. The economic effects of the loss of wages have the potential to devastate not just the entertainment companies but also the local economy via business cycle contraction. It can create an unfair situation where new and unknown actors feel pressured into accepting agreements that have been cited as against public policy. Lastly, it acts as a mere band-aid over the bullet hole AI has become in the entertainment industry.

*The views expressed in this article do not represent the views of Santa Clara University.