Hollywood’s tumultuous double strike may be fading into the rearview mirror, but the aftermath is casting a sizable financial shadow on the horizon as new union contracts come into play. According to a report released on Friday by Moody’s, the cost implications for Hollywood studios are estimated to fall within the higher end of a substantial range, ranging from $450 million to $600 million annually.
“We estimate the new contracts for writers, actors, and directors will cost studios closer to the high end of our $450 million to $600 million yearly cost estimate,” Moody’s stated in its latest report. The financial analysis firm also emphasized that while this additional financial burden is considerable, spreading it across a multitude of projects should not pose a significant credit risk for individual studios. This perspective is reinforced by the context that the global yearly spending on TV and film entertainment exceeds $100 billion, with the U.S. contributing a substantial portion to that figure.
Despite the anticipated financial strain, Moody’s suggests that studios are poised to navigate these increased costs without compromising their production budgets or scaling back on the volume of projects. The report notes, “Especially considering global yearly spending on TV and film entertainment is over $100 billion, with the US a big chunk of that.” Instead, studios are likely to implement cost-cutting measures in other areas to offset the impact of pricier contracts.
Potential avenues for cost reduction, as identified by Moody’s, include the possibility of hiring fewer A-list actors, reducing on-location filming, and trimming postproduction and special effects expenditures. Additionally, companies may opt to pursue production incentives such as tax credits and financing subsidies while increasing reliance on imported content.
“This greater level of cost consciousness, beginning at the greenlighting stage, is already underway as companies try to reach streaming profitability quicker, having transitioned from a period of trying to get to scale at any cost,” the report noted, citing Disney’s recent earnings as an example of this strategic shift. Disney, for instance, plans to spend $25 billion on content next year compared to the $27 billion expended in full-year 2023.
Despite these efforts, Moody’s predicts that streaming losses will persist for major companies like Disney, Comcast, Paramount Global, Warner Bros. Discovery, and AMC Networks. The report anticipates that these companies will continue to grapple with the impact of higher costs and escalating streaming losses, extending into 2025 for some.
Nevertheless, the financial windfall experienced by many media companies during the strikes is expected to partially offset the increased costs. While companies like Disney face challenges on the direct-to-consumer side, the surge in free cash flow during the strike period is anticipated to provide a buffer against the financial strain.
In a related development, the Screen Actors Guild‐American Federation of Television and Radio Artists (SAG-AFTRA), the last Hollywood union to reach a deal with major studios, announced on Friday that its national board has approved a tentative agreement to conclude the historic 118-day actors’ strike. The deal, approved by 84% of the national board, is now subject to the union’s member base vote over the next few weeks. Moody’s highlighted the gains for union members in the deal, citing minimum wage increases, streaming viewership bonuses, and protections against artificial intelligence as key highlights. The resumption of scripted TV and film production is expected to take approximately six weeks.
In conclusion, the looming challenge for Hollywood studios is navigating the intricate landscape of burgeoning cost implications, a fiscal hurdle that demands strategic and prudent financial maneuvers in the evolving entertainment industry.
Source: Yahoo Finance
