It should be a great time in Hollywood.
For a month now, writers have been back at their keyboards, negotiating a deal to end the strike that was so favorable that even they seemed a little taken aback. On Wednesday, the actors’ union said it had negotiated its own tentative contract that would have all but ended its 118-day strike and paved the way for the film and television industry to revive for the first time since May.
Champagne for everyone!
Instead, the mood in the entertainment capital is decidedly mixed, as celebratory feelings compete with discontent over the work stoppage and worries about the coming business era.
“People are excited — excited — to get back to work,” said Jon Liebman, co-chief executive of Brillstein Entertainment Partners, a venerable Hollywood management firm. “But they are also aware of the sobering challenges that lie ahead.”
Analysts estimate that higher labor costs will increase the cost of producing a show by 10 percent, and that studios are expected to compensate by cutting back on production.
“Companies are not going to increase their budgets accordingly,” said Jason E. Squire, editor of “The Movie Business Book” and host of an accompanying podcast. “They will compensate by producing less. The end.”
Hulu, for example, assumes that the number of new shows in 2024 will decrease by about a third compared to 2022.
The Directors Guild of America also has a new contract that guarantees salary increases. And two more union contracts, both related to crews, are due in the next few months. The studios either have to pay up or risk being closed again. “READY for our contract fight next year,” Teamsters Local 399 lead organizer Lindsay Dougherty said recently on X, formerly known as Twitter. Their office represents more than 6,000 Hollywood employees, including truck drivers, location managers and casting directors.
Even before the strikes, Hollywood was transitioning from boom times to austerity. Peak TV, the flood of new programming that defined the streaming era, ended last year as Wall Street began pressuring streaming services to prioritize profits over subscriber growth. According to Ampere Analysis, a research firm, television networks and streaming platforms ordered 40 percent fewer adult scripted series in the second half of 2022 than in the same period in 2019.
In other words, 599 adult scripted series were produced last year. Some analysts expect the annual number to be closer to 400 by 2025, a decline of about a third. Even the most modest series employs hundreds of people, including agents, managers, publicists and stylists, who in turn stimulate the overall economy.
“After the strike is over, we all face a painful structural adjustment that preceded the strike,” wrote Zack Stentz, a screenwriter with films like “X-Men: First Class” and “Thor,” on X. “Many careers and even entire companies will disappear next year.” (He added with a glass half full: “This is also a time when smart small mammals survive and even thrive in the new landscape. Their job is to be a smart mammal .”)
The problem of streaming profitability remains largely unresolved. Netflix and Hulu are making money, and Warner Bros. Discovery has said its Max service will turn a profit by the end of the year. But Disney+, Paramount+, Peacock and others continue to lose money. Peacock alone will lose $2.8 billion in red ink in 2023, Comcast said last month.
Most analysts say there are too many streaming services and that the weakest ones will eventually close or merge with larger competitors.
The entertainment industry’s underlying cable television and box office problems also remain severe and, in some cases, worsened in the five months it took for labor peace to be restored.
According to accounting giant PwC, fewer than 50 million households will pay for cable or satellite TV by 2027, down from 64 million today and 100 million seven years ago. In July, Disney announced it was exploring a once-unthinkable sale of a stake in ESPN, the cable giant that has driven much of Disney’s growth over the past two decades. Paramount Global’s once-venerable cable portfolio, centered on Nickelodeon and MTV, has also been hit by cord-cutting. Paramount shares have fallen nearly 50 percent since May.
The film business is also unsettled. Films now arrive in home cinemas (either through digital stores or streaming) in just 17 days, compared to around 90 days, which was the standard for decades.
Audiences have finally grown tired of Hollywood’s prevailing movie business strategy – endless sequels, each more bloated than the last – with poor results for the seventh “Mission: Impossible” film, the fifth installment of “Indiana Jones” and the eleventh “Fast & Furious” . Chapter as evidence.
Movie theaters aren’t dead, as the blockbuster turnout in “Five Nights at Freddy’s,” “Taylor Swift: The Eras Tour,” “Barbie” and “Oppenheimer” has shown. But ticket-buying data points to a worrying trend: People who saw six to eight films a year before the pandemic are now going to three or four. Even the most ardent fans of cinematic entertainment cringe.
Movie theaters in North America sold about $7.7 billion in tickets through October this year, a 17 percent decline from the same period in 2019.
There is more competition for free time; TikTok has 150 million users in the US, most of whom are under 30, and the average time they spend on the app is growing quickly.
Across Hollywood, it seems, companies are trying to cut costs. Citing the strikes and the “volatile larger entertainment market,” Anonymous Content, a production and management company, laid off 8 percent of its employees last month. United Talent Agency and several competing agencies also reduced their headcount.
DreamWorks Animation recently cut 4 percent of its workforce, while Starz, the premium cable channel and streaming service, is reducing headcount by 10 percent. Netflix is restructuring its animation division, which is expected to lead to layoffs and fewer home-made films.
Consider what’s happening at Disney, widely considered the strongest of the legacy entertainment companies, in part because it’s the biggest.
Before the strikes, Disney had about 150 television shows and a dozen films in production. But worries about the profitability of streaming and the decline of cable television have dragged down Disney’s stock price. Shares were trading in the $80 range, compared to $197 two years ago. Sorting out ESPN’s future is Disney’s top priority, but the company is also selling stakes in India and considering whether to divest itself of assets like ABC; the Freeform cable channel; and a chain of local radio stations.
Disney is so vulnerable that activist investor Nelson Peltz has told the Wall Street Journal that he plans to push for board seats for the second time in a year. Disney hit back at Mr. Peltz in February, including by saying it would cut costs by $5.5 billion and eliminate 7,000 jobs. On Wednesday, Disney said it ended up cutting $7.5 billion and more than 8,000 jobs. It added that it would tighten its belt.
Phil Cusick, an analyst at JP Morgan, said of Disney in a note to clients in late September: “The company plans to produce less content and spend less on what it produces.”
Nicole Sperling contributed reporting.