Hollywood strike: the numbers behind the crisis

Moody’s Investors Service is expecting the Writers Guild of America and SAG-AFTRA strike to last a relatively long time and result in incremental costs of between $450 million and $600 million to media companies. 

18 JUL 2023

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Moody’s Investors Service is expecting the Writers Guild of America and SAG-AFTRA strike to last a relatively long time and result in incremental costs of between $450 million and $600 million to media companies when it is settled. Hollywood's double strike will hit movie theater chains the hardest. At the same time, streaming-facing companies like Netflix are best-positioned in the event of a prolonged work stoppage, according to a new report by Moody's released on Monday.

Moody's warned that the stakes couldn't be higher, predicting "a relatively long strike" which would hit movie theater companies such as AMC Entertainment and Cineworld first, followed by diversified media companies transitioning to streaming amid secular declines in linear television. "If there is a protracted strike, cinema operators are most at risk with their nearly complete dependency on the new product. Theatrical exhibitors are already strained from damage caused by the COVID pandemic, such as lighter release schedules that followed and shortened distribution windowing. They also have mostly weaker balance sheets and credit ratings," Moody's said.

Moreover, Moody's said Netflix, Comcast, Fox, and Sony Group, along with newer participants like Apple and Amazon, are best-positioned. "Major studios, network owners, and streamers well-diversified by business, content genre (news and sports) or by geographic production and library, and have relatively strong balance sheets are least at risk."

The media and entertainment industry is being dramatically reshaped by the impact of streaming services. Streaming shows often have fewer episodes and come with less residual income compared to traditional network television, which often means less money in the pockets of both actors and writers. At the same time, the majority of studios are no longer just "pure play" production houses. Rather, they have their own streaming divisions, which have brought on a new set of challenges as direct-to-consumer losses mount. "Production in the US 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. Two unions on strike highlights the stresses on both sides of the bargaining table. It is not just the revenue share at stake, but how compensation has evolved in the streaming ecosystem," Moody's said.

Moody's estimated the newly ratified Directors Guild of America (DGA) contract, which included gains in wages and benefits, a 76% increase in foreign streaming residuals (a type of royalty payment), and a "groundbreaking agreement" confirming AI is not a person, coupled with potential new WGA and SAG-AFTRA contracts will ultimately cost media companies $450 million to $600 million more per year. Overall, Moody's said studios, networks and streamers were preparing for potential strikes by increasing production and accelerating deadlines to saturate and lengthen their finished content pipelines. As a result, the firm believes "the strike will be a temporary phenomenon and unlikely to cause the investment-grade companies’ credit quality to weaken significantly enough to pressure their ratings in isolation. But it could cause some disruption and ultimately a settlement is highly likely to result in higher costs for all producers and distributors, and potentially for consumers which could moderately hurt subscription growth and churn rates," the report added.

“Television will bear the brunt of a long strike as the implications of the two striking unions will play out more noticeably for TV networks, stations, cable channels, and streamers. “TV networks, particularly broadcast networks, consistently schedule new primetime shows to begin in the fall. Cable networks vary in their exposure to original scripted content and, therefore, only some are exposed. Cable networks that typically air original scripted programming sometimes release new series in the fall as well, but have historically been less consistent and have rotated their smaller original lineups more evenly throughout the year, and may have partial or shortened series releases,” Moody's added.

SAG-AFTRA is fighting for more protections surrounding the role of artificial intelligence in media and entertainment, in addition to higher streaming residuals as more movies and TV shows go direct to streaming. These demands are similar to those posed by the writers' guild. It is the first time SAG-AFTRA has gone on strike in over four decades and the first time since 1960 that both actors and writers are striking concurrently. The Writers Guild of America (WGA) strike is currently in its third month with no end in sight. SAG-AFTRA, the union that represents approximately 160,000 actors, announcers, recording artists, and other media professionals around the world, joined writers on the picket lines early Friday after the guild failed to negotiate a deal with the Alliance of Motion Picture and Television Producers (AMPTP), which bargains on behalf of studios including Disney, Netflix, Amazon, Apple, and NBCUniversal.

G-AFTRA and the WGA simultaneously on strike, haveready feel the fMoody's added that streamersimpact. A; therefore,reported, the Hollywood strike could exceed $3 billion in economic fallout. Someld top $4 billion. Andrew Boyd, Financial Advisor at Finty, estimates the immediate loss to be $150 million per week. “The financial ramifications are far-reaching and can be quite substantial. Should the strike extend into 2024 or beyond, the cumulative impact could be significantly more. This cost includes production delays, increased expenditure once the strike is resolved, and a possible decline in output quality.”

Boyd said the disruption in releasing new content might drive consumers towards alternative entertainment options. “In the long-term, the quality of content could be impacted due to rushed production schedules post-strike, and the cost might also be transferred to consumers in the form of higher prices for movie tickets or streaming subscriptions.” Boyd also contends that historically, long strikes have increased the popularity of independent productions as viewers seek new content.

Peter C. Earle, an American Institute for Economic Research economist, explains it’s difficult to estimate the financial losses. “One estimate puts Hollywood’s losses owing to the 2007 writers’ strike at $500 million over three months. That would be an average of $165 million monthly, about $42 million weekly. But those are internal/direct costs. Another estimate of the 2007 writers’ strike puts the total losses - losses including related businesses dependent upon movie studios and film production like hotels, caterers, personal services, and so on — at about $2 billion over three months or roughly $110 million per week.”

The Alliance of Motion Picture and Television Producers (AMPTP), which negotiates on behalf of Netflix Inc, Walt Disney Co, Warner Bros Discovery and others, said SAG-AFTRA “continues to mischaracterize the negotiations.” Major film and television studios offered Hollywood actors more than $1 billion in higher compensation and enhanced benefits before the SAG-AFTRA union called a strike last week, a group that represents media companies said on Monday. 

“The deal that SAG-AFTRA walked away from on July 12 is worth more than $1 billion in wage increases, pension and health contributions and residual increases and includes first-of-their-kind protections over its three-year term, including expressly with respect to AI. For SAG-AFTRA to assert that we have not been responsive to the needs of its membership is disingenuous at best,” the AMPTP said in a statement.

Earlier on Monday, SAG-AFTRA, which represents more than 160,000 actors, stunt performers and others, issued a detailed list of its proposals, and what it said were the studios’ responses, under the title “We’re fighting for the survival of our profession.”

Among them, SAG-AFTRA said it asked for an 11% general wage increase in the first year of the contract to make up for inflation. The union said the studios countered with an offer of 5%. “We moved on some things, but from day one they wouldn’t meaningfully engage on the most critical issues,” SAG-AFTRA said. The actors have joined members of the Writers Guild of America (WGA), which went on strike May 2 after failing to reach a deal with the AMPTP.