The Writers Strike: Don't Expect a Return to the Status Quo

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As what will go down in history as the 2023 Writers Strike drags into its 5th month, it is increasingly clear that it arose from unprecedented seismic changes in the media ecosystem that present existential threats to many of its participants. And it seems that the media ecosystem will never be the same as a result.

To examine the political dynamics and issues driving the strike, Media Financial Management Association (MFM) sponsored a Town Hall Webinar on August 29 featuring Jonathan Handel, a Los Angeles-based entertainment attorney and journalist.

The Writers Guild of America (WGA), representing over 11,000 screenwriters, went on strike on May 2, 2023, and was joined on July 14 by the 160,000-member Screen Actors Guild -- American Federation of Television and Radio Artists (SAG-AFTRA). On the other side is the Alliance of Motion Picture and Television Producers (AMPTP), which represents movie and television producers ranging from legacy studios like Paramount, Universal, Disney and Warner Brothers, broadcast networks like ABC and FOX, and newer, disruptive streaming services like Netflix, Amazon and Apple TV+.

The writers, according to Handel, are exhibiting a high level of resolve due both to industry factors and a sense of leverage. The first is a resurgence of labor activism that was fueled by the erosion of unions over the past 20 years, the Me Too and Black Lives Matter movements, and the marginalization of many labor categories in the wake of the COVID pandemic.

The rise of big tech and growing inequity in the corporate world -- the average CEO salary as a multiple of the average worker has swelled from 20x to 400x in the last 20 years -- fueled further resentment and resulted in unionization at companies like Amazon and Starbucks. Consequently, the strike is motivated by working and middle-class writers and actors -- not big-name stars -- whose livelihoods have been most damaged by inflation. This issue is compounded by the fear of artificial Intelligence and its capability to further erode the demand for original writing.

In short, the writers' strike is fueled on the Writers Guild side by a tremendous amount of fear and doubt. On top of that, because there is a dual strike with SAG-AFTRA, the writers have unprecedented leverage, providing additional incentive to dig in.

On the production side, there is a similar level of fear, but for different reasons, among legacy companies (but not streamers like Amazon or Netflix). Despite some massive summer hits, cinema box office revenues are still down 20% from pre-COVID levels and are unlikely to recover; increases in ticket price are not balancing declines in attendance.

The cable/satellite/broadcasting audience -- characterized as the "linear" audience -- has fallen below 50% of households for the first time. Compounding the problem, the linear audience that remains is aging out of the 18-49-year-old demographic that national advertisers value most.

Legacy companies are logically seeking to migrate to streaming, but this strategy is fraught with barriers. Handel notes that Netflix has a multitude of advantages: (1) it had a head start as a streamer; (2) it had existing business-to-consumer relationships as a result of its original DVD-by-mail service; and (3) it was treated as a tech company by investors at a time when the market was willing to pay for growth opportunities. In today's environment, not only do the legacy companies' investable profits pale in comparison to Netflix, but they also pay much higher interest rates today than Netflix did in its early stage.

As a result of these factors, investors expect the legacy AMPTP members to exhibit extremely disciplined fiscal practices, which in turn exerts great pressure on the writers. AMPTP can argue that its offer of $1 billion over three years is the most generous ever, but assuming the equivalent of 11 companies, this sum works out to $30 million per year, less than the average CEO earns at those companies. The Writers Guild argues that this still leaves them behind recent inflation.

The strike from a high level seems like a clash of the titans in which all the parties, except possibly the streamers, face existential threats from audience fragmentation, technological change, demographic shifts and economic pressure. Historically we have never seen such profound changes in filmed entertainment.

Nuts and bolts issues are being negotiated in the context of this inhospitable environment. The Writer's Guild is resisting the disbanding of writers' rooms after production; they argue that the "mini-rooms" advocated by the studios disrupt content and deprive new writers of experience. On wages, the Writers Guild is asking for a 6% increase compared to 5% offered by the studios. SAG-AFTRA has moderated its demand from 15% to 10%.

Residuals are also a source of contention: under the current regime residuals are based on subscribers, not viewership, so a hit program receives the same residuals as a flop. Not surprisingly, the guilds are requesting some type of override for successful programs. Artificial intelligence is a new frontier that must balance the studios' need for innovation and economy against the writers' and actors' fears that they will be marginalized.

Even in the unlikely event the disputes are resolved today, production won't be able to get underway until 2024 -- and there are no signs that this scenario is likely.

When asked if the 2023 Writers Strike would do nothing but leave all the parties diminished and hobbled, Handel tapped his math, computer and quantum background prior to becoming an attorney, explaining that "the glass can be ¾ empty and ¾ full." The media ecosystem has shown remarkable creativity and resilience over the years, but it should be clear that the one that emerges from the strike will be dramatically different from the one that preceded it.

This article was written by John S. Sanders a principal at Bond & Pecaro.

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