Strikes save studios money, for now
But a prolonged pause in production is likely to cause companies long-lasting damage.
One narrative that gets bandied around a lot during the writers’ and actors’ strikes in Hollywood is that the dual work stoppage is a gift to the major studios because they’re able to save money on production at a time when investors are demanding bigger profits after a period of rampant overspending.
While it’s true that studios are saving money, the reality is much more complicated.
Warner Bros. Discovery last week said that halting production of scripted content at the company led to a savings in the “low $100-million range” during the second quarter.
That sounds like a lot, though not compared with the media giant’s $47.8 billion in debt or its $1.7 billion in free cash flow. Netflix increased its full-year cash flow estimate to $5 billion, up by $1.5 billion. Similarly, Paramount Global expects “significantly” increased cash flow during the second half of the year.
But any upside will evaporate as quickly as water on the pavement outside the Universal lot.
The companies’ content engines will ramp up after the WGA and SAG-AFTRA reach deals with the studios and go back to work. That’s exactly what happened after the COVID-19 pandemic shut down everything from movie sets to live sports. Productions came back. So did spending.
“Of course, there’s the short-term benefit from the strike that the media companies will recognize higher free cash flow as production is shut down,” said Robert Fishman, a media analyst with the research firm MoffettNathanson. “But the sustainability of that is really shortsighted. It’s not something that will benefit them in the long term.”
In fact, it’s more likely that a prolonged strike will do long-lasting damage, particularly for legacy studios that are facing dramatic challenges to their businesses, including cord-cutting, declining TV ratings and an improving but still risky box office environment.
With a fall broadcast lineup dominated by reality TV, there’s little left to entice viewers to keep their cable and satellite bundles for anything other than sports. To blunt the impact, CBS, for example, is hosting the broadcast premiere of sister channel Paramount Network’s hit “Yellowstone,” starting with Season 1. Television advertising is already soft, and may get worse.
The success of Warner Bros.’ “Barbie” ($1 billion in global box office) and Universal Pictures’ “Oppenheimer” ($553 million) just shows why it’s essential to have original material in the hopper. Not to mention “Teenage Mutant Ninja Turtles: Mutant Mayhem” — a franchise-revitalizing hit for Paramount Pictures — and smaller successes like A24’s
“Talk to Me.” Studios can’t go a year without new movies and TV shows.
The pure streamers and tech titans — Netflix, Apple and Amazon — might hold up a little better than the traditional studios for a period of time. But it’s never a good thing for movie and TV studios to not make movies and TV shows. While the streaming services have oldies like “Suits” (currently a top hit on Netflix) to keep folks entertained, the companies need fresh material to prevent subscriber churn, especially as they raise prices to boost revenues.
There’s a reason why Warner Bros. Discovery Chief Executive David Zaslav isn’t playing up the savings for Wall Street analysts, who normally salivate over that kind of thing; and why Netflix’s co-CEO Ted Sarandos is talking about his dad, who was a union electrician, on an earnings presentation. They need the conflict resolved.
There’s also a political dimension to this. It doesn’t look good to brag about all the money you’re saving on content while the writers and actors tell reporters about their inability to eke out a middle-class livelihood.
Public opinion is against the studios as it is, according to polling conducted for The Times by Leger, a Canadianbased polling firm with experience in U.S. surveys.
While sympathy for the unions falls short of a majority, few respondents said they’re aligned with the studios. Thirty-eight percent of respondents said they sympathize more with the striking actors and writers, while just 7% sympathize more with the entertainment and media corporations represented by the Alliance of Motion Picture and Television Producers.
That matters. While the public doesn’t vote on the outcome of the labor negotiations, it would be hard to find a prominent studio executive who doesn’t care about his or her public image.
So why no real movement?
Friday’s much-anticipated summit between WGA and AMPTP negotiators — to talk about restarting discussions — went nowhere, as expected, giving little reason for hope that the strikes will end anytime soon. Warner Bros. Discovery said it has modeled its figures on the assumption that the strikes end in September, but that seems optimistic, to say the least.
The simplest explanation for the impasse is not that there’s a benefit to staying on the sidelines. It’s that the sides are dug in on points about which they fundamentally disagree, including writers’ demands for minimum staffing requirements and higher pay based on the success of streaming shows.
Workers and studios are ultimately fighting over slices of what most analysts expect will be a smaller pie after the business’ transition to a direct-to-consumer model from a highly profitable one based on bundles and box office. That’s a recipe for a long standoff, which helps no one.
This article is taken from the Aug. 8 edition of the Wide Shot, a weekly newsletter about everything happening in the business of entertainment. Sign up at latimes.com/newsletters.