With Hollywood’s writers and now actors on a “double strike” for the first time since 1960, Wall Street and other analysts have started assessing the fallout for entertainment industry conglomerates — with one expert estimating the cost of the contracts to studios.
SAG-AFTRA’s National Board officially called a strike against major film and TV companies on July 13 as contract talks with studios and streamers broke down without a deal, with the work stoppage impacting 160,000 union members. The performers’ union released strike rules governing work its members can and cannot perform, prohibiting them from all principal on-camera work — including acting, singing, dancing and stunts — and off-camera work, such as voice acting and narration. Also barred is any promotional activity, such as interviews, award shows, red carpets and podcasts, among other things. And the Street began to predict possible winners and losers, as well as where most of the pain will be felt.
Moody’s debt analyst Neil Begley wrote in a July 17 report, “we believe this standstill could be a relatively long strike, with the stakes being larger than they have been in many years” and estimated the potential cost of the new contracts.
“With the sides remaining far apart, we estimate an agreement increasing compensation under new collective bargaining agreements will ultimately cost Moody’s-rated companies an additional $450 million to $600 million a year for each year of a new three-year contract for all three guilds (DGA, WGA and SAG-AFTRA),” Begley wrote. “There is great play in these estimates, and some of this increased cost, particularly for television production, is likely to be passed on to buyers.”
More striking creatives, namely both writers and actors, put entertainment companies at a disadvantage, his report suggested. “Greater leverage of two unions vying for new agreements will result in higher costs for studios,” the Moody’s analyst wrote. “Production in the U.S. has halted at a time when the sector is under pressure to mitigate the secular decline in linear TV and show it can operate streaming platforms at a profit to mitigate linear decay.”
“In a prolonged strike in which new theatrical Hollywood tentpole product is spread more thinly or runs dry, these companies could face earnings, cash flow and liquidity pressures,” Begley concluded. “After exhibitors, broadcast television and cable networks are also exposed, given they are already in secular decline with rising costs to consumers and a shrinking value proposition relative to direct-to-consumer video-on demand streaming services such as Netflix.”
Meanwhile, Macquarie analyst Tim Nollen in a report headline summarized the current wave of industry challenges this way: “Strike! and a down upfront – not good for media.” The expert also chimed in on the possible impact for streamers. “The timing will affect many of this coming season’s scheduled scripted dramas on TV, which may ironically drive even more viewers to streaming services, where lead times can be one to two years for episodic series and hence won’t be affected until next year,” he said. “And on top of a weak TV ad market, media network groups face a bad combination of negative trends in both traditional subs and advertising, higher labor cost demands in linear and streaming production, and likely poor PR.”
“Arguably, the biggest impact will be among TV shows in the first instance,” PP Foresight founder and analyst Paolo Pescatore told THR. “Clearly, it will have a profound effect on the wider content creative industries,” he suggested about the double strike. “With support among Hollywood stars, all key stakeholders will need to come to the table and find a reasonable compromise.” This also puts the writers in “a stronger position,” he argued. “Ultimately, the winners and losers will depend on the final outcome and how long strike action lasts. For now, the viewers will be the biggest losers.”
“With the Screen Actors Guild joining the Writers Guild of America on strike, film and TV production has now ground to a halt,” added Third Bridge analyst Jamie Lumley. “This comes amid the increasing pressure on traditional linear distribution models and the ongoing rise of streaming, which continues to change how content is consumed and monetized.” The expert highlighted that the pressure is being felt by players across the sector though. “Streaming companies have been feeling the heat from Wall Street to push towards profitability. This has put a number of players on challenging footing as they weigh content costs, strategic decisions, and the growth of their audience,” he noted. “With actors and writers seeing contracts and royalties heavily impacted by streaming, the stakes are high for everyone at the negotiating table.”
Lumley also touched on the impact on programming supply for key sector players. “We’ve been hearing that most streaming companies won’t feel the pain from strikes until 2024 given the pipeline of content that has already been locked in,” he wrote. “However, streamers could be in trouble as soon as the velocity of content slows. Our experts emphasize that content is still king and if streamers want subscribers to keep coming back, they need to have a steady feed of new movies and shows being released on their platforms.”
Under the headline “Stand and deliver,” Wells Fargo analyst Steven Cahall in a Friday note to investors weighed in on the strike and content supply. “Networks had already unveiled unscripted-heavy fall lineups at the upfronts, and while networks/streamers have a backlog of content, a prolonged strike could punch holes in the film/TV release calendar late next year,” Cahall noted.
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