In the wake of the ongoing writers and actors strike in Hollywood, the financial impact is starting to become apparent. Studios, streamers, and affiliated businesses are already forecasting lower revenue, reduced content spending, and a less optimistic outlook for the year. While some companies may be able to mitigate the effects of the production shutdown in the short term, the longer the strike continues, the greater the financial danger and the more the release schedule suffers.
The strike has already had a significant impact on Endeavor, the parent company of talent agency WME. CFO Jason Lublin warned that the company expects to see a monthly revenue hit of approximately $25 million for the quarter ending on September 30. Due to the uncertainty surrounding the length and financial consequences of the strike, Endeavor had to withdraw its full-year guidance.
Lionsgate is also anticipating a revenue hit of around $30 million for the upcoming quarter, particularly in its 3 Arts Entertainment talent and television businesses. However, management has reiterated its operating income guidance for 2024, assuming the strike ends in September. If the strike continues for an extended period, Lionsgate expects a similar negative impact on a quarter-to-quarter basis. The studio is hopeful for a resolution and a return to work in the mid-fall.
Warner Bros. Discovery has adjusted its 2023 guidance due to the shutdown of content production and advertising challenges resulting from the strike. The company now expects to come in at the low end of its adjusted earnings before interest, taxes, and depreciation range, at $11 billion to $11.5 billion. However, the guidance assumes that the strike will be over in September. CFO Gunnar Wiedenfels also acknowledged that release dates and performance expectations will remain fluid due to ongoing strikes.
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The Writers Guild of America has been on strike since May 2, and SAG-AFTRA has joined them since July 14. As a result, most U.S.-based projects have come to a standstill, and studios are reevaluating their release schedules. Broadcast networks have been reshuffling their fall lineups, relying heavily on acquired series and unscripted shows. While talks between the WGA and the Alliance of Motion Picture and Television Producers have resumed, many expect a long road to resolution.
Although studios and entertainment giants have experienced some benefits from the strikes, including increased free cash flow due to reduced spending on production and related expenses, these gains are expected to reverse once production resumes. The longer the strike continues, the more financial pain points studios will face. Michael Pachter, managing director at Wedbush Securities, warns that if the strike continues for a year, it could have a devastating impact.
Talent agencies have the most immediate exposure to the strike within the entertainment space. However, companies involved in the linear TV business, particularly the TV advertising business (excluding sports), will face challenges next. Broadcast networks have reported only modest growth in their 2023-24 upfront commitments, with gains primarily due to live sports or streaming offerings. Scripted fare has been largely absent from upfronts, as marketers prefer to wait for the spot market to place ads closer to their air date.
Netflix is viewed as the best-positioned streaming platform to withstand the strike, thanks to its extensive library of content and international production capabilities. The company produces a variety of content, both scripted and unscripted, domestically and internationally. Wells Fargo analyst Steven Cahall suggests that Netflix could gain share of engagement, similar to how it benefited during the COVID-19 pandemic if the strike persists. However, Netflix has forecasted lower cash content spending in 2023 in response to the strikes.
Other streamers, such as Paramount+, have highlighted their ability to leverage global multi-platform content to mitigate the impact of the U.S. strike and reduce subscriber churn. Nevertheless, Paramount, with its reliance on content from linear networks, is expected to be more affected by the strike on both the studio and streaming sides.
Although there may not be a clear winner from the writers and actors strike, Netflix and Fox appear to be in relatively better positions compared to other industry players. However, even when a resolution is reached, companies such as Fox are warning of higher costs associated with the new contracts.
Investor uncertainty about the duration of the production halt adds to the growing list of stressors for Hollywood studios. As the strike continues, companies are reassessing their strategies and working to mitigate the financial impact.
