Entertainment Stocks Slump as Hollywood Strike Widens to SAG-AFTRA

Entertainment stocks struggled on Friday as actors hit the streets of New York and Los Angeles for SAG-AFTRA’s first day of picketing. Investors sold down the shares as Wall Street struggled to assess the impact of the widening strike on the companies’ revenue and costs.

Shares of Warner Bros. Discovery ended Friday’s trading session down more than 5%, while Paramount Global tumbled 4.6%, Disney slipped 2%, Netflix fell 1.8% and Comcast dipped 1.4%. On a year-to-date basis, Paramount has fallen 6% and Disney has fallen 0.3%, while WBD, Netflix and Comcast are up 29.8%, 49.8% and 17.9%, respectively.

Actors went on strike after the union was unable to reach a deal in contract negotiations with the Alliance of Motion Picture and Television Producers on Wednesday. Meanwhile, the Writers Guild of America has been on strike since May 2.

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The first double strike in more than sixty years comes as media companies have been feeling the heat from Wall Street to become profitable in streaming, a feat only Netflix has achieved so far. Additionally, the legacy media giants are contending with a softer advertising market and an industrywide decline in linear television.

“With The Screen Actors Guild joining the Writers Guild of America on strike, film and TV production has now ground to a halt,” Third Bridge senior analyst Jamie Lumley said. “We’ve been hearing that most streaming companies won’t feel the pain from strikes until 2024 given the pipeline of content that has already been locked in. However, streamers could be in trouble as soon as the velocity of content slows.”

Though some streamers have pared back on their libraries in an effort to reduce costs, the industry consensus is that new movies, shows and seasons are key to retaining existing subscribers and attracting new ones.

LightShed Partners expects a SAG-AFTRA strike to last for at least 6-8 weeks, analyst Rich Greenfield wrote in a blog post Wednesday. While Greenfield noted that the strikes help studios’ free cash flow with money not being spent on shuttered productions, he warned that the longer the strike goes on, the more TV and film release schedules will feel the pinch.

“Netflix [is] probably least affected because of how far ahead they produce,” Greenfield said. “But what worries us most in the short-term is that talent will no longer be able to do promotional activities for content being released this summer, especially high profile movies [and] TV series that benefit from talent [and] stars being visible.”

He added that it’s “just another negative for the linear TV ad market, as brands will be even less willing to commit dollars for the 2023-2024 TV season.”

Last year’s linear upfronts generated $20 billion in commitments, up 6% year over year, driven by “large volume sales as networks looked to lock in total dollar increases in a soft pricing environment,” Macquarie senior media tech analyst Tim Nollen wrote in a note to clients on Thursday.

“The subsequent scatter market was then weak, setting up a rough negotiating period for sellers,” he added. “Now with show production halted, how do buyers even know what they are committing to?”

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NBCUniversal should be well-positioned during the strike given the breadth of its parent company Comcast’s portfolio, Benchmark analyst Matthew Harrigan said in a Thursday note to clients.

“The double strike, especially from the vantage point of the writers who have already been out 11 weeks, involves complex streaming issues and we do not anticipate near-term resolution especially with WGA,” he said. “However, the movie business in particular has a significant queue of releases already in the pipeline, and NBCUniversal overall has a high reality show programming component that is
unaffected by the strike. This includes Peacock, which also benefits from event movies off the pay-1 window for Universal Pictures as well as sports.”

He warned that immediate structural issues for the industry will include the “long-term reduction in linear season episodes from 24-26 to 10-12 and the relative absence of residuals for streaming.”

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Disney CEO Bob Iger called the prospect of a double strike “very disturbing” in a Thursday interview on CNBC’s Squawk Box, saying it would be “very disruptive” to both the company and the economy. He argued that the actors and writers’ expectations are “just not realistic.”

“It has been a great business for all of these people and it will continue to be even through disruptive times. But being realistic is imperative,” Iger added. “It will have a very, very damaging effect on the whole business. And unfortunately, there’s huge collateral damage in the industry to people who are support services. I could go on and on. It will affect the economy, different regions even because of the sheer size of the business. It’s a shame. It is really a shame.”

The comments prompted a backlash on social media, with many pointing out Iger’s $27 million pay package. Executive pay has already been a lightning rod during the WGA strike.

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According to the Milken Institute, the 100-day writers’ strike of 2007-2008 cost California’s economy approximately $2.1 billion in lost output through the end of 2008. The WGA, which reportedly estimates that their strike is costing the state’s economy $30 million per day, argues that their latest contract proposal would collectively cost the entertainment industry an estimated $429 million, with $343 million of that directly attributable to AMPTP’s member studios, accounting for less than 1% of their annual revenues.

The Los Angeles County Economic Development Corporation declined to provide an official estimate for the WGA strike’s impact on California’s economy thus far. It’s likewise too early to tell how much the SAG-AFTRA strike will add to that total.

“As with any work stoppage, the strikes’ durations will be key in determining the economic impact on the Los Angeles regional economy; the longer the Writers Guild of America and SAG-AFTRA strikes go on, the more it will cost the local economy,” an agency spokesperson told TheWrap. “It’s important to remember that the economic cost of the strikes is more than just lost wages for writers, actors and production workers; the more production is impacted, the more businesses in the industry’s supply chain, including caterers and equipment rental houses, and the ripple effect of reduced spending by workers in the industry and its supply chain, will represent additional revenue losses in our region.”

Meanwhile, New York City touted the film and television industry as a “vibrant pillar” of its culture and economy, contributing 6.5 percent to the city’s gross domestic product. According to a 2021 study conducted by the NYC Mayor’s Office of Media and Entertainment, the film and TV industry supported a total of approximately 185,000 jobs, $18.1 billion in wages, and $81.6 billion in total economic output in 2019.

“It is essential that both parties find an effective balance that allows workers to be paid a fair wage and the industry to continue to thrive and create opportunities for good jobs,” a City Hall spokesperson told TheWrap. “We recommend both parties remain at the bargaining table to reach a voluntary agreement, so that our city can continue to thrive as a vibrant hub for film and television production.”

The major studios will likely provide updates on the specific impacts they’re feeling from the double strike when they release quarterly earnings results starting next week. Netflix will report on Wednesday, followed by Comcast on July 27, Warner Bros. Discovery on Aug. 4, Paramount on Aug. 7 and Disney on Aug. 9.

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