Cord cutting, streaming losses and the ‘terrifying math’ driving the writers strike

CNN

By Chris Isidore, CNN

The structure and economics of the entertainment industry are changing ferociously fast. Nowhere is that more evident than on the picket lines of writers for television shows and movies that began Tuesday.

The writers say they can’t afford to live under the current economics and pay structure of the industry, with fewer job opportunities on many shows and lower pay for many writers who do find work. There are many successful, even award-winning, writers who are finding themselves unable to make a living at the profession anymore.

Studio management says they’re trying to offer a deal that is beneficial to both sides, but that they can’t afford to meet the demands of the Writers Guild for requirements to have minimum staffing levels and duration of employment when writers are hired.

The union says management’s offer would transform the industry from one that uses primarily staff for its writing needs to one that offers primarily freelance writing positions.

But less than two years ago the studios agreed to a lucrative deal with a different union, the International Alliance of Theatrical Stage Employees (IATSE), representing 63,000 production workers.

That deal, which covered technicians, artisans and craftspeople who perform a wide variety of jobs other than writing, acting or directing, included large wage increases for some of the jobs, with immediate raises of as much as 30% to 50% for some of the lower-paid classifications.

So why was management willing to pay whatever it took to avoid a strike then, but is poised for a long strike now? The sea change in the so-called “streaming wars.”

The about face in the streaming wars

Two years ago, the war between competing streaming services was all about subscriber growth, no matter the cost. Those services are seen as the future for media companies due to a steady and severe rise in cord cutting by many households cutting off the cable subscriber revenue stream that the media companies depended on for years.

But the media companies’ streaming services are faced with competition from tech companies such as Amazon and Apple and that’s resulted in continued losses — outside of Netflix. Those are losses that Wall Street is unwilling to support.

For media companies and some content providers, there are also contractual advantages to not having a quick settlement.

So the streaming wars that had been all about subscriber growth are now all about cost cuts and future profitability.

“Wars are brutal, painful and sometimes utterly pointless and the streaming wars may be no exception,” wrote analyst Michael Nathanson of MoffettNathanson in a note six weeks ago. “Now that most media companies have moved away from driving streaming subscriber growth at all cost, we expect to see a rationalization of content spending in the years ahead and a shift towards …achieving streaming profitability.”

Cord cutting and streaming losses

The media companies with broadcast or cable channels are still making money on those. But with a steady annual drop of more than 5% to 6% of cable subscribers expected to continue, those revenue streams are expected to get smaller and smaller.

Streaming is clearly the future, but an economically difficult one.

“They have a long way to go to figure out how to make these profitable ventures. It’s very challenging,” said David Mumpower, a media expert, chief content officer of Mickeyblog and co-host of the “Streaming into the Void” podcast.

“It’s a reinvention of television. But it’s terrifying math,” he said. And he said that math is falling squarely on some very successful writers who are making $2,000 a month, when they can find work.

“These horror stories, they’re real. I know talented people struggling to make ends meet,” he said. “The Writers Guild is acutely aware that their leverage isn’t as strong as it was in previous strikes because the dynamics have changed. But long-term salaried employment [for members] isn’t assured unless they hold out now.”

This isn’t the only labor battle coming up. Talks are due to start later this month for SAG-AFTRA, which represents actors, and the Director’s Guild.

There’s little incentive for the studios to settle with the Writers Guild in the near term with those other talks looming. The shutdown in production is just another form of the cost-cutting efforts already underway.

Even before the start of the strike, there had already been thousands of layoffs across media and tech companies

A long strike?

The last Writers Guild strike in 2007-08 went for 100 days. If this strike goes on for six to eight weeks, it opens the door for the studios to cancel expensive deals they have with show creators that gave them exclusive rights to their shows over a set number of years.

Many of those deals have proved to be too costly, and provisions of those contracts would allow the studios to opt out if production is halted over an extended period of time.

“Around four to five years ago, the streamers and some studios did these deals in multi-million dollar range. There was a lot of irrational exuberance about the money that they’d be making,” said Jonathan Handel, an entertainment lawyer and writer and author of a book on the 2007-08 strike, “Hollywood on Strike!: An Industry at War in the Internet Age.”

“The studios and streamers will find it to their advantage to use this strike to get out of those deals. So this will likely last until at least July,” he said.

If the strike, or strikes, goes into late summer, it will likely push back the start of the traditional fall TV season, as well as the debut of new content on streaming services.

Put another way: The streaming war, which delivered so many viewing choices to viewers in the past few years, is about to result in a lot less new content being available for much of the rest of this year.

The key to how long the strike goes could be how long subscribers stay with multiple streaming services once they run out of new content. If viewers are satisfied watching the large selection of existing content the services offer, it could be a very long and very painful strike.

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