Months of Hollywood strikes lead to pain — and some gain — for studios like Warner
Trouble in Tinseltown… Warner Bros. Discovery cut its annual profit forecast as the Hollywood strikes continue with no end in sight. Writers have been on strike for four months, and actors have been picketing since July. Now HBO owner Warner is targeting full-year adjusted earnings of about $11B, down by $500M, if the strikes continue through this year. Although Warner is still benefiting from the smash success of “Barbie,” the Looney Tunes legend had hoped a deal would be reached by early this month.
No deal: Studios finally offered up a new deal for writers last month, featuring better pay and more transparency around streaming, but reps for the Writers Guild were unimpressed.
No action: Production of hit TV series like “The Last of Us” has been on ice and blockbuster releases like “Dune: Part Two” have been delayed.
No season: If a deal doesn’t happen soon, the 2023-24 television season and big flicks could be delayed or canceled. The Emmys have already been postponed.
INT. EMPTY SET — DAY… The strikes have cost California’s economy $5B and last month alone led to the loss of 17K jobs. But while studios expect revenue hits from the strikes, some are reporting cost savings (no production = no production costs). Netflix is now projecting $5B in free cash flow because of the strikes — up by $1.5B from its previous estimate. Disney expects to spend $3B less on content this year, partly because of the strikes. Even Warner raised its annual cash-flow outlook after the strikes “saved” it $100M last quarter.
You can’t survive on stockpiles forever… Studios, and especially streamers, are still chugging along thanks to a pantry full of older content (past “Suits” episodes, which are currently in Netflix’s Top 10, are like shelf-stable canned peas). They’re saving $$, but eventually consumers will start demanding fresh food (aka: new content). Investors want to see actual growth — not just savings that result from production companies not producing anything.