The Hollywood Strike Could Exceed $3 Billion In Economic Fallout. Here’s Why

It’s a bittersweet time in Hollywood, with many celebrating the recognition of their work with awards nominations as others pace the picket lines.

An Artists vs. Hollywood studios strike will have an enormous economic impact. It’ll be the first time in 63 years that both SAG-AFTRA and the WGA simultaneously strike, and the financial and human toll will be catastrophic.

Following four weeks of intense negotiations between SAG-AFTRA and the studios, two sticking points remain at the forefront: AI and residual pay for streaming. With no resolution, Hollywood has now officially shut down.

The human cost has already been felt. As I interviewed analysts and legal experts for this article, more than one person shared that they know someone currently moving out of their home because the financial impact has already devastated them. I’ve spoken with many who are out of work in the industry, and several have had garage sales and sold items online to compensate for lost income.

A recent Los Angeles Times article detailed how this writers’ strike will be much more costly than the one in 2007. The trickle-down effect could touch every facet of the Southern California economy, including the housing market. If people stop buying houses, rents increase; this is especially concerning as consumers are already dealing with high inflation and rising interest rates.

This strike could lead to an economic fallout surpassing the estimated $2.1 billion lost in the 100-day strike 16 years ago. That strike solely included the writers, so you can see how this could be worse.

The Milken Institute released a report following the 2007 strike that estimated the loss of 37,700 jobs. The cost of this strike could exceed $3 billion, with Hollywood’s biggest stars joining the writers on the picket lines. Unless a deal can be reached quickly, Tinsel Town is in for dark days.

As for consumer viewing habits in the interim, Tony Marlow, Global CMO at LG Ad Solutions, says viewership will continue to shift towards non-scripted programming such as Sports and Reality TV. “We are two months away from the NFL season, which will appeal to viewers and advertisers.”

As for the long-term, Marlow sees a massive gap in creating new content. “Without deals signed with actors and writers, streamers won’t have new scripted content to bring eyeballs to their platforms. They will have to purchase existing content that will be competitive to acquire.” The consumer, he adds, could feel this in the form of higher subscription rates.

Dave Helmreich, Chief Commercial Officer of Innovid, concurs that a writers and actors strike will drive dollars to sports, OTT and AVOD, a space where money is already flowing. “Amazon and Apple have already pushed towards seemingly engagement-guaranteed content, like live sports.”

Helmreich points to the streamers’ original content libraries, which could be impacted in future seasons, but explains streaming platforms and studios already have a lot of content that’s been filmed and is ready to go.

As for the consumer, the ripple effects will be felt quickly, with many tightening their belts and spending less at stores and restaurants. Dry cleaners working with productions will also feel the loss, as will the travel industry that flies and houses cast and crew.

In addition to actors and directors, each film and television series employs roughly 300 crew members who will be out of work. These include carpenters, caterers, hair/makeup/wardrobe, accountants, prop houses, set designers, transport workers, and production and personal assistants. Most of these workers also have families and pets that rely on them.

The writers and actors have already felt the impact. Most writers go show-to-show and job-to-job, and many actors are day players and do not earn seven-digit incomes like A-List celebrities.

Per the LA Times article, multiple economic experts predict that the current situation is even more complex due to lingering instabilities caused by pandemic shutdowns, the numerous changes to the entertainment industry because of streaming and those concerns about AI replacing writers and actors.

According to Alicia Reese, VP of Equity Research at Wedbush Securities, there’s a benefit to the writers’ strike expanding to an actors’ strike as it could lead to a quicker resolution. “Studios didn’t let the directors strike for long, and the actors are even more crucial because they’re necessary for marketing ahead of big films in the near term.”

As for the Box Office, Reese says it could suffer soon if movie stars are barred from marketing, with opening weekends not getting the traction they would with a robust press tour. “Actors strikes typically don’t last as long as writers strikes and are less frequent. On production delays, this won’t impact the upcoming theatrical film slate for one to three years. Studios can smooth the release slate to avoid holes.”

Reese adds that this will impact the networks and streamers near-term and should push Netflix, Disney, and the other studios to negotiate and tie it up as soon as possible. “However, Bob Iger said this morning that the WGA and SAG-AFTRA have unrealistic expectations. It sounds like the studios expect the writers and actors to bend more in the negotiations.”

As for cost trickling down to the consumer, Reese adds that studios with streaming services will have to raise prices if content costs rise. “Streaming services could beef up their advertising tiers and increase their revenue that way.”

Entertainment law attorney Camron Dowlatshahi, a partner at Los Angeles-based Mills Sadat Dowlat LLP, addressed the issue of AI. “It’s difficult to get a grasp on how AI will be used in Hollywood, but even with all that uncertainty, neither SAG-AFTRA, the WGA, nor the AMPTP wants to make a deal that will set them back. Everyone has a clearer understanding of streaming and how that will develop now that the studios have each established their streaming platforms and are acquiring all types of content. Streaming has less room for growth than it seemed a few years ago, but the platforms are stable, and there’s no expectation that they’ll fail. It’s just a matter of deciding a fair share of residuals that SAG-AFTRA and WGA members should receive.”

Ron Zambrano, partner and Employment Litigation Chair at West Coast Employment Lawyers, has thoughts on the matter. “I think what we are seeing now playing out in the media is really all theater. Everyone needs each other in this case. The actors need the studios, and the studios need the actors. The question is how much each side is willing to lose before a deal is made. They’re playing chicken.”