In the first round of corporate earnings since the double strike began, the financial hits are starting to come into view.
While hoping and planning for a resolution in September, Hollywood studios, streamers and affiliated businesses have begun forecasting lower revenue, content spend and, in some cases, a lower outlook for the year. Because while some may be able to stem the tide of a production shutdown in the short term, the financial danger increases as the strike goes on further into the fall and the release schedule suffers.
The biggest impact so far may have been seen with Endeavor, which owns talent agency WME, with CFO Jason Lublin warning Aug. 8 that the company expects to see a hit of about $25 million a month in revenue for the quarter ending Sept. 30. Uncertainty about the length and financial impact of the strike caused the company to pull its full-year guidance.
On Aug. 9, Lionsgate CFO James Barge said the studio expects a revenue hit of about $30 million for the upcoming quarter, primarily in its 3 Arts Entertainment talent and television businesses. Still, management reiterated its operating income guidance of $400 million to $450 million for fiscal 2024, assuming the strikes end in September. “If it goes longer, it has a similar impact, probably, as it rolls quarter-to-quarter,” Barge said. “We’re hopeful that things get resolved, and we’re back to work in the mid-fall.”
While noting that the strikes had created savings in the “low $100 million range” for the second quarter, Warner Bros. Discovery adjusted its 2023 guidance and expects to come in at the low end of the range, at $11 billion to $11.5 billion in adjusted earnings before interest, taxes and depreciation, as a result of the shutdown of content production as well as advertising challenges. That guidance assumes that the strikes will be over in September, but CFO Gunnar Wiedenfels also noted that the company is keeping “fluid” release dates through the rest of the year.
“For the remainder of our feature films this year, as well as Warner Bros. Television productions, release dates and performance expectations are naturally fluid given the ongoing strikes, and we will evaluate our options and update the market accordingly. But it is possible we will see greater variability against our forecast,” Wiedenfels said.
The Writers Guild of America has been on strike since May 2; SAG-AFTRA has been on strike since July 14. As a result, production on most U.S.-based projects has come to a standstill and studios are rethinking their release schedules, with actors barred from promoting their projects, while broadcast networks have been reshuffling their fall lineups, leaning heavily on acquired series and unscripted shows. Talks between the WGA and the Alliance of Motion Picture and Television Producers resumed Aug. 11, but many think there’s a long road to a resolution.
Though there are still some upsides from the strikes for studios and entertainment giants — notably increased free cash flow, as spending on production and other related expenses has waned — those gains will likely be reversed when the strikes end and production resumes. And the financial pain points will multiply the longer the strikes go on. “If it settles today, then it’s going to really have almost no impact,” says Michael Pachter, managing director at Wedbush Securities. “If it drags on for two to three more months, it’ll have some impact. If it drags on for a year, it will have a devastating impact.”
Within the entertainment space, talent agencies have the most immediate exposure to the strike, but companies with exposure to the linear TV business, and in particular the TV advertising business (sans sports), will face challenges next. Sources at all the broadcast networks say their 2023-24 upfront commitments were in line with last year, whereas in previous years they saw gains. Those that reported improvements cited only very modest, low-single-digit growth, and that was due to live sports like the NFL, or gains in their streaming offerings. Scripted fare was largely absent from the upfronts in May, and marketers have been reluctant to commit too many dollars for an uncertain entertainment schedule, preferring instead to wait for the spot market (where they can place ads closer to their run date).
“Advertisers are reluctant to buy TV inventory without knowing the scheduled programming,” S&P Global’s Naveen Sharma wrote in a July 10 research note.
Meanwhile, “Netflix took share from traditional TV broadcasters as well as digital video platforms,” a source at the streaming giant says of its upfront negotiations.
Many view Netflix as the best positioned among the streamers to withstand the strike, thanks to its large library of content and international production capabilities. Asked during the company’s July 19 earnings interview whether or when Netflix would run out of original content, co-CEO Ted Sarandos did not commit to an answer, but said the streamer produces “heavily across all kinds of content” including unscripted, scripted, domestically and internationally. That wealth of content could even bring in additional subscribers if the strike persists.
“Like COVID, in a prolonged Hollywood strike, NFLX likely gains share of engagement,” Wells Fargo analyst Steven Cahall wrote in a July 19 report.
This comes even as Netflix forecast lower cash content spend in 2023 in response to the strikes, with the expectation that it would return to normal levels in 2024. (Disney also cited lower content spending during its Aug. 9 earnings call, forecasting spending for the year to come at approximately $27 billion, compared to earlier estimates of $30 billion.)
Other streamers, such as Paramount+, have pointed to their ability to draw on global multiplatform content over the next three months or so to help mitigate the impact of the U.S. strike and reduce subscriber churn. But Third Bridge analyst Jamie Lumley notes that Paramount is more reliant on content from its linear networks for its streaming platform and will likely be more affected, on both the studio and streaming side, as the strike continues.
On the Aug. 7 earnings call, Paramount Global CEO Bob Bakish assured investors there are more than 85 international scripted and unscripted Paramount+ Originals already produced, in production or greenlit, as well as a “significant number” of feature films that have been completed, including Killers of the Flower Moon and Bob Marley: One Love. However, Bakish also noted that the strikes “present some marketing challenges,” which the studio is considering in regard to the release of the films, and executives said some originals, which were previously expected to be released on Paramount+ in Q4, will move to 2024 “due to strike-related production delays.”
As Cahall noted in an Aug. 11 note, “It’s tough to see a relative winner from the writers/actors strike,” even with Netflix more isolated from the impact of production shutdowns among the streamers, and Fox with more news and sports offerings to fall back on than other linear networks. And even when a resolution is reached, companies, such as Fox, are warning of higher costs that will likely be associated with the new contracts.
Until then, investor uncertainty about the length of the production halt adds to the growing list of strike-related stressors for Hollywood studios.
Alex Weprin contributed to this report.
This story first appeared in the Aug. 16 issue of The Hollywood Reporter magazine. Click here to subscribe.
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