The 2023 Writers' Strike: What it Means for Investors

The entertainment industry is currently buzzing with news of the 2023 Writers' Strike, as members of the Writers Guild of America (WGA) voice their concerns and demand better compensation and working conditions. This strike has far-reaching implications for the industry, particularly in the era of streaming services and rapidly evolving technology. Let’s take a look at the writers’ central demands and what its tells us about the modern entertainment industry and investors in this space. 

• Increased Pay

  • One of the central demands of the Writers Guild of America is increased pay for writers across the board. Despite the proliferation of streaming services and more job opportunities, writer compensation has actually declined. Many writers are now paid the minimum rate, and accounting for inflation, writer pay has decreased by 14% in the last five years. This decline in earnings is particularly concerning as the median weekly writer-producer pay has dropped by 23% over the past decade. Writers argue that a significant portion of their members struggle to make a living wage, making it essential to secure better compensation and increases for their pension and health funds.

• Residuals and Upfront Fees:

  • Residuals, a vital source of income for writers, have been greatly impacted by the rise of streaming services. Previously, writers received substantial compensation when their work went into syndication or was sold overseas. However, streaming platforms have disrupted these traditional revenue streams. Furthermore, the lack of viewership data sharing prevents writers from accurately assessing the value of their work. As an alternative to backend residuals, the WGA is seeking higher upfront fees to address the changing landscape of the industry.

• Staffing Requirements and Mini Rooms:

  • The union is advocating for specific staffing requirements for TV shows, as they raise concerns about the increasing use of "mini rooms." Mini rooms involve only a handful of writers working on a series during the development stage, often leading to extended periods of uncertainty and delayed projects. This practice bypasses the protections against overwork and understaffing that WGA members typically enjoy. The pandemic accelerated the use of mini rooms, with virtual meetings becoming commonplace. The WGA aims to establish more stability and safeguards in the staffing process.

• Shorter Exclusivity Deals

  • With the shift towards shorter seasons and limited series, writers face challenges in terms of their pay and professional opportunities. In the past, writers would spend months working on longer seasons of broadcast TV. However, the average season length has significantly decreased, impacting per-episode pay and restricting writers' ability to work on multiple projects due to longer exclusivity terms. The WGA seeks to address these outdated models and ensure fair compensation and creative flexibility for writers.

• Concerns About Artificial Intelligence (AI):

  • The advent of artificial intelligence poses potential threats and opportunities for writers. While AI could be a useful tool, there is growing apprehension that producers may use AI to write scripts or fill in unfinished screenplays. The WGA insists on implementing safeguards to protect writers' creative contributions and maintain the integrity of storytelling.

Anybody's Game 

The ongoing strike has already caused disruptions in the industry, with picketors halting productions and live television programming immediately shutting down. Over a longer period, traditional TV networks, including broadcasters, are likely to bear the brunt of an extended strike as the summer is prime filming season for their fall lineup. In contrast, streaming services possess more flexibility in their release schedules as they do not have the same seasonanality. 

The 2007 writers' strike, which went on for 100 days, cost the industry $2 Billion (or $2.8 billion in 2023) but the consequences of this strike could be far more reaching due to the number content providers. There are far more productions today than there were sixteen years ago. However, streamers can circumvent the WGA by sourcing content internationally. Netflix has famously purchased shows from the U.K., Germany, Spain, and South Korea and satisfied the appetites of English-language audiences. For now, that may help the original streamer avoid the negotiating table. 

The strike's impact on various stakeholders is a matter of speculation. While streaming giants like Netflix are expected to weather the storm, studios such as Warner Bros. and Paramount, grappling with debt and transitioning business models, may face greater challenges. However, the strike does present an opportunity for studios to clean their balance sheets, terminate expensive overall deals, and potentially reshape the industry landscape due to the force majeure clauses in creative contracts. Back in 2007, ABC scrapped more than a dozen development deals once the strike went on for more than 8 weeks, saving the network millions. It may also provide traditional TV networks with a chance to gain an advantage over streamers by negotiating more favorable terms with the WGA and becoming top-choice buyers for creative talent.

Wall Street’s Dangerous Influence? 

The frustrations voiced by writers and industry figures are indicative of a larger conflict between the business aspects of Hollywood and its artistic heritage. The rise of streaming and the influence of big tech and publicly traded entities have brought forth concerns about prioritizing financial value over artistic vision. The contemporary funding structures and demand for immediate returns from investors have resulted in risk-averse decision-making and a lack of support for innovative and original projects. This shift has diminished the production of timeless, blockbuster franchises in favor of safer options like superhero movies and sequels. 

This is supported by comments from the greatest director of all-time, Martin Scorsese, who wrote in The New York Times: 

“The reason for this deterioration of cinema is not a crisis of talent or audiences’ waning appetite for good films. Instead, contemporary funding structures have removed risk from film. The formulas that investors rely on to secure returns on their investments are making cinema increasingly predictable.”

Conclusion

The 2023 Writers' Strike reflects the entertainment industry’s commodification over the last decade. The rise of streaming services have been great for consumer access and raising the next generation of creative voices, however, it has also manufactured a hyper-compeititve content market that places quick profitability above all else. To create truly great projects that last for decades, studios and streamers need to take financial risks and part of that is supporting the very foundation of cinema and television: writers. This may mean we get fewer projects every year but hopefully they will be of better quality, nurtured by writers who can afford their rent and bills. 

The negotiations between the Guild and the industry will be key for how entertainment stocks perform for the next decade to come.