Strike Actors Make Money As Studios Ramp Up War Funds – The Hollywood Reporter

In the first round of corporate earnings since the double strike began, financial blows are beginning to emerge.

While they were hoping and planning for a resolution in September, Hollywood studios, streaming companies and their affiliates began projecting lower revenues, content spending and, in some cases, lower projections for the year. Because while some may be able to stem the wave of production outages in the short term, the financial risk increases as the strike drags on into the fall and the release schedule suffers.

Perhaps the biggest impact to date has been seen with Endeavor, which owns talent agency WME, with CFO Jason Lublin warned on Aug. 8 that the company expects to post $25 million in earnings per month for the quarter ending Sept. 30. Uncertainty about the length of the strike and its financial impact caused the company to withdraw its guidance for the full year.

On August 9, Lionsgate CFO James Barge said the studio expects to generate revenue of about $30 million for the next quarter, primarily in its 3 talent, entertainment and television businesses. However, the administration reiterated its $400 million in operating income guidance to $450 million for fiscal year 2024, assuming the strikes end in September. “If it continues for a longer period of time, it will have a similar effect, probably, because it goes from quarter to quarter,” Barge said. “Hopefully things will work out, and we’ll get back to work in the middle of the fall.”

Noting that the strikes created savings in the “low $100 million range” for the second quarter, Warner Bros. Discovery has revised its guidance for 2023 and expects it to come in at the lower end of the range, at $11 billion to $11.5 billion in adjusted EBITDA, as a result of content production shutdowns as well as advertising challenges. That guidance assumes the strikes will end in September, but CFO Gunnar Weidenfels also noted that the company maintains “flexible” release dates through the rest of the year.

“For the rest of our feature films this year, as well as TV productions for Warner Bros. release dates and performance expectations are naturally volatile given the continued hits, and we will evaluate our options and update the market accordingly. But it is possible that we will see greater variance against our expectations,” Weidenfels 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 has halted on most US-based projects, studios are rethinking their release schedules, with actors banned from promoting their projects, while broadcast networks have been redistributing fall collections, leaning heavily on earned series and unscripted shows. Talks between the WGA and the Motion Picture and Television Producers Alliance resumed on August 11, but many believe there is a long way to go to a solution.

Although there are still some gains from the strikes for the studios and entertainment giants—notably an increase in free cash flow, as production spending and other related expenses have waned—these gains will likely be reversed when the strikes end and production resumes. And the financial pain points will multiply as the strikes continue. “If things stabilize today, it has almost no impact,” says Michael Pachter, managing director at Wedbush Securities. “If it continues for another two to three months, it will have some effect. If it continues for a year, it will have a devastating effect.”

In the entertainment space, talent agencies have the most direct exposure to the strike, but companies that are exposed to linear TV work, particularly the TV ad business (no sports) will face challenges next. Sources across all broadcast networks say their advance commitments in 2023-24 were in line with last year, while in previous years they saw gains. Those reporting improvements cited only very modest and single-digit growth, and that was due to live sports like the NFL, or gains in their broadcast offerings. Scripted fare was largely absent from shows in May, and marketers were reluctant to commit too many dollars to an uncertain entertainment schedule, preferring instead to wait for the spot market (where they could place ads closer to the show’s date).

“Advertisers are reluctant to buy TV inventory without knowing the scheduled programmes,” S&P Global’s Naveen Sharma wrote in a July 10 research note.

Meanwhile, a source at the streaming giant said of its upfront negotiations: “Netflix has taken share from traditional TV broadcasters and digital video platforms.”

Many see Netflix as the best of the streaming companies to take the strike, thanks to its large library of content and international production capabilities. When asked during the company’s July 19 earnings interview whether or not Netflix will run out of content, co-CEO Ted Sarandos didn’t commit to an answer, but said the streamer produces “heavily across all types of content” including unscripted, scripted, and local content. And at the international level. This wealth of content could bring in more subscribers if the strike continues.

“Like COVID, in a prolonged Hollywood strike, NFLX is likely to gain a stake,” Stephen Cahal, an analyst at Wells Fargo, wrote in a July 19 report.

This comes even as Netflix expects content spending to drop in cash in 2023 in response to the strikes, with the expectation that it will return to normal levels in 2024. (Disney also cited lower content spending during its Aug. 9 earnings call, forecasting spending for next year to be about 27 percent. billion, compared to a previous estimate of $30 billion).

Other broadcasters, such as Paramount+, have indicated they can count on global multi-platform content over the next three months or so to help mitigate the impact of the US strike and reduce subscriber bloat. But Third Bridge analyst Jamie Lumley points out that Paramount relies more on content from its linear networks for its streaming platform and is likely to be affected more, on both the studio and broadcast side, as the strike continues.

On the Aug. 7 earnings call, Paramount Global CEO Bob Bakish assured investors that there are more than 85 international written and unscripted Paramount+ originals already made, in production or greenlit, as well as a “significant number” of films. The completed novel, Incl Moonflower Killers And Bob Marley: One Love. However, Bakish also noted that the strikes “present some marketing challenges,” which the studio is considering in connection with the release of the films, and executives said that some of the originals, which were previously expected to be released at Paramount+ in the fourth quarter, will carry over into 2024. due to production delays linked to the strike.

As Cahal noted in an Aug. 11 note, “It’s hard to see a relative winner from the writers/actors strike,” even as Netflix is ​​insulated from the impact of production outages among broadcasters, and Fox with more news and sports offerings backed off from other linear networks. Even when a solution is found, companies such as Fox warn of the high costs likely to be associated with the new contracts.

Until then, investor uncertainty about the length of the production outage adds to the growing list of strike-related stresses at Hollywood studios.

Alex Webrin contributed to this report.

This story first appeared in the August 15 issue of The Hollywood Reporter. Click here to subscribe.

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