TBI Weekly: How Hollywood strikes could impact US studio strategy

With both the WGA and SAG-AFTRA now on strike, Omdia analysts David Hancock, Sarah Henschel and Tim Westcott explore how US studios are seeking to lessen the impact and whether Hollywood turmoil will mean gains for international productions.

On Thursday, 13 July, members of SAG-AFTRA, the union representing US actors, voted to go on strike after failing to agree terms with the Alliance of Motion Picture and Television Producers (AMPTP), representing the major studios. Both sides are in disagreement over multiple issues, including revenue shares, payment increases, and the use of AI.

WGA, the writers’ union, has already been on strike since May, shutting down a slew of films and TV series in development or full production in the US. The SAG-AFTRA strike will only serve to aggravate the shutdown of the world’s biggest entertainment industry as actors, as well as writers, withdraw their labor. Channels and platforms operated by the studios face a hiatus in the pipeline of new content, with shows ranging from Stranger Things to The Last Of Us and Family Guy on hold.

Stemming the streaming losses

The dispute comes at an awkward time for the studios, which are under pressure from shareholders to stem operating losses from their ventures into streaming. The Walt Disney Company’s direct-to-consumer division, including Disney+, Hulu, and ESPN+, lost $1.7bn in the six months to April 1, 2023.

Disney, Paramount, and Warner Bros. Discovery have said they will cut back on content costs to stem losses. Removing content from streaming platforms also hints at the studios’ low willingness to pay residuals. With Wall Street expecting streaming to reach profitability through 2024 and 2025, title removal is a popular strategy that streamers employed before the strikes began.

Writers and on-screen talent argue that their pay and conditions have deteriorated while managers and shareholders of the studios have increased their remuneration. The negotiating positions of the two sides appear to be some way apart, and even if the unions accept what is currently on offer, this will still mean an increase in costs for the studios.

The studios have had time to prepare for the strikes but face the double risk of subscriber losses and, in the longer term, lower revenues from content licensing. Disney is moving the superhero series Ms. Marvel from Disney+ to ABC, while Paramount is moving Yellowstone from SVOD to the CBS network. Unscripted and reality TV content could also see major boosts. This season, Paramount has already boosted Survivor and The Amazing Race to 90-minute slots on CBS. The WGA strike of 2007 also led to an uptick in reality content, and CBS aired the first-ever winter season of Big Brother, which could be on the table this year. Netflix has also leaned heavily into reality content, with Love Is Blind, The Circle, and Too Hot To Handle topping the charts during their seasons. The live stream overload of Love Is Blind in early 2023 showed high demand for this feature enhancement, and the looming lack of scripted series may bring this back to audiences sooner than planned.

Shifting impacts on scripted TV slates may put even greater pressure on US pay-TV cord-cutting. Pay-TV subscriptions in the US continue to decline 7–8% year on year, largely due to high consumer costs and the perception that quality content on streaming services is sufficient on its own. If traditional network and broadcast series continue their pauses during strikes, consumers may cut the cord at a faster rate than planned. Walt Disney CEO Bob Iger has also announced that he is considering selling off ABC, Freeform, FX, and Disney’s channel assets because he does not foresee any long-term profitability for them. Suppose this becomes a tipping point for studios to sell off channel assets and double down on streaming. In that case, it becomes an even higher priority for the writers and actors to seek residuals and streaming-based compensation.

International gains?

Another element of the dispute is the increasing amount of production that the studios are doing outside the US. HBO’s House Of The Dragon, Dune: The Sisterhood, and The Palace are shooting in the UK and will continue to do so. Apple TV+ comedy Bad Sisters, filming in Ireland, and Peacock/Sky’s The Day Of The Jackal (filming in multiple European locations) are also unaffected.

Production costs are generally lower in Europe and Canada, and tax relief schemes provide another incentive for offshore shooting. Prolonged strikes at home could mean more productions moving away from the US in the future.

As for whether the strikes will create an opportunity for international distributors with newly-made dramas available for sale to the US—or even to global streaming services—the jury is still out. With the threat of the writers’ strike looming earlier in the year, European distributors were noncommittal when asked what impact the writers’ strike would have on them. Jens Richter, CEO of Fremantle International, commented at Series Mania in March: “The word for us is we want to be prepared. We all produce in America, so it could harm us quite a bit on the production side.”

This article was adapted from a report, ‘Hollywood strikes could be a sea change for the US film and TV industry’, available to read here in full (with registration), by Omdia’s chief analyst, media & entertainment, David Hancock, principal analyst, Sarah Henschel and senior principal analyst, digital content & channels, Tim Westcott.