Strike Storm Clouds Darken Over Hollywood With Authorization Vote; Will Streamers Benefit Or Break?

The likelihood of a seemingly inevitable writers strike in Hollywood inched closer to reality this week when Writers Guild of America members overwhelmingly voted to allow their leadership to call a strike if contract negotiations fail over the next couple of weeks.

More than 98% of WGA members voted to authorize the strike, unsurprising given the combative language its leadership has been using for a few years now, and the union’s success in a two-year battle with talent agencies that reshaped that relationship.

The writers want more money, but also other key concessions, like the way media companies have typically ordered shorter seasons for streaming series, kept writers on contract holds for lengthy periods, and reduced residuals and other ancillary payments. Union members are also worried about the sudden rise of artificial-intelligence tools and their possible use in creating or modifying scripts.

A WGA strike would be the first since a brutal 14-week stoppage in 2007 that cost many jobs and lingered into early 2008, and the seventh in the past six decades. That strike and one in 1988 both fueled the rise of cheap-to-make, non-unionized reality shows.

So what’s likely to happen in this new Hollywood era, with streaming services going through a brutal last year of layoffs, spending cuts, program cancellations and more?

As happened before the last two strikes, traditional media companies have been stockpiling scripts for months. They’re ready to open the spigots even wider on non-union, unscripted shows. And they’ll rely on the deep catalogs of older films and TV series they’ve accumulated for decades.

But there are reasons for concern here if the strike drags and few new productions debut over the next several months. Will customers stick with all the services they’re paying for with no new shows to get them to tune in? Or will audiences click off, cancel, and perhaps not come bacl?

A new Deloitte media trends survey found that U.S. households were paying an average of $48 a month on their streaming content. About half those surveyed said they’re already paying too much, an attitude that could further harden in a prolonged strike. That could send churn rates, already rising across most of the industry, soaring.

Higher churn rates, stalled subscriber additions, and reduced revenue would be badly timed for the Hollywood media companies, which lost a collective $10 billion or so on their streaming ventures last year (Netflix generated more than $3 billion in positive cash flow in 2022).

All the major services are trying to get to break even on their streaming efforts by next year, while selling more of their non-core content to other services and praying for a full revival of the staggering theatrical exhibition business.

LightShed Partners analysts RIch Greenfield, Brandon Ross and Mark Kelley suggested in a note Monday that a strike might actually help Paramount Global and Warner Bros. Discovery, which plans to launch its rebranded Max service with content from both HBO Max and Discovery+ content in late May.

“…multi-billion dollar operating losses could come in significantly better than expected with free cash flow also ending up being far greater than expected (remember how Netflix free cash flow came in far better than expected during the pandemic),” the LightShed note contends. “While there is certainly the potential that less ‘fresh’ content in the back half of 2023 or lower-quality content due to a lack of script edits will hurt streamers (fewer gross adds and/or higher churn), we believe that impact is dwarfed by the cost savings (cash outlay savings) from a production halt.”

Basically, a strike would give the companies behind loss-making second-tier streaming services a chance to save a lot of money while avoiding the pressures of keeping up with the content wars.

A sustained strike also would allow studios to exercise so-called force majeure provisions to cancel some of their less productive talent deals, many signed in the super-heated early days of the streaming wars at steep prices.

“While we would not expect Warner Bros. to terminate its deals with star writers such as Chuck Lorre or Universal with Dick Wolf, there are lesser-known writers who struck overall deals with studios that do not make economic sense today,” LightShed’s note says. “Terminating out-of-market overall deals could be another positive earnings/free-cash-flow event for studios.”

Not incidentally, it would be the exact opposite of the union’s preferences for its membership.

But the real winner might be Netflix, especially if the strike drags on.

“An extended strike that lasts three-plus months should meaningfully advantage Netflix,” LightShed noted. “Netflix’s global production prowess is unmatched by its peer group with a steady flow of international content.”

Netflix
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now has production operations in 40 locations around the world. Many feed local-language versions of the service in major markets, but sometimes, the shows can break big internationally, as happened with 2021’s Squid Game, out of South Korea.

Other features and series, both scripted and unscripted, from markets such as Japan, Scandinavia, Spain, Brazil, and France have been international hits for Netflix. The company picked up rights last year for RRR, the massively popular Telugu-language hit produced in southeastern India. The investment paid off with viewers and an Oscar earlier this year for best original song (Naatu Naatu), the first Indian film to be so honored.

It was part of a concerted effort to create more locally relevant content beyond just what might come out of Hollywood, and appeal to specific audiences, Netflix chairman and founder Reed Hastings has said regularly over the past few years.

Importantly, those productions aren’t covered by the WGA or other Hollywood guild contracts.

Netflix isn’t the only streamer leaning into international productions to fill out its slate. Paramount
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+ this week announced it was adding two Korean dramas, A Bloody Lucky Day and Queen Woo, to its service in North and South America and some European territories. The deal is part of a global partnership with Korean entertainment power CJ ENM, which operates the Korean streaming service TVing that added Paramount+ content for free last June.

But a well-positioned Netflix sailing relatively unscathed through a lengthy strike would be yet another reason for its competitors to grind their teeth.