{"id":584396,"date":"2023-07-26T16:35:00","date_gmt":"2023-07-26T13:35:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/the-strikes-side-effect-a-cash-hoard-for-studios\/"},"modified":"2023-07-26T16:35:00","modified_gmt":"2023-07-26T13:35:00","slug":"the-strikes-side-effect-a-cash-hoard-for-studios","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/the-strikes-side-effect-a-cash-hoard-for-studios\/","title":{"rendered":"#The Strike\u2019s Side Effect: A Cash Hoard for Studios"},"content":{"rendered":"
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\n The ongoing actors and writers strikes are creating a paradox for major studios and streamers, one that will become more app<\/a>arent over the coming months, when each company reports quarterly earnings. As the impasse wreaks havoc on the entertainment economy, the companies that SAG-AFTRA and the Writers Guild of America are striking against will see their cash flows rise and their profit margins (or losses) improve.<\/p>\n

\n It makes sense, after all: With the vast majority of film and TV sets shut down, the companies are keeping cash in their treasuries that normally would be funding those productions. And with Wall Street analyst firm MoffettNathanson estimating that total media<\/a> industry content spend in 2022 was nearly $135 billion, there\u2019s going to be a lot of cash sitting idle.<\/p>\n

\n \u201cIn the short term, every media company will benefit from preserving cash and right-sizing talent deals,\u201d MoffettNathanson\u2019s Luke Landis wrote in a May 3 report. \u201cLonger term the strike could cement the pendulum swing away from Peak TV to its antithesis: An age defined by a dearth of English-language-scripted content rather than a glut.\u201d<\/p>\n

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Illustration By Eric Yahnker<\/cite><\/p>\n<\/figcaption><\/figure>\n<\/div>\n

\n In fact, the impact of the strikes on corporate balance sheets already was visible when Netflix reported its quarterly earnings July 19. The company had previously told investors that it expected 2023 free cash flow to be about $3.5 billion. Thanks in part to the strikes, it raised that figure to more than $5 billion.<\/p>\n

\n \u201cIf the strikes are extended, there is likely further upside in \u201923 FCF,\u201d Morgan Stanley analyst Ben Swinburne wrote July 19. \u201cThis is not necessarily good news<\/a>, as Netflix is in the business of producing TV shows and films. If the strike lasts for an extended period of time, 2024\u2019s slate will be impacted even if it is relatively better off versus the competition.\u201d<\/p>\n

\n For other companies, like Disney, Warner Bros. Discovery, Paramount and NBCUniversal \u2014 which have spent billions in pursuit of streaming hits but so far have come up short \u2014 near-term cash boosts could nudge them closer to profitability, even if that quarterly improvement is just a mirage, with the long-term impact of the strikes on the content pipeline not to be felt until\u00a0next year.<\/p>\n

\n And to be clear: the strikes, if they continue on much longer, will be very bad for the entertainment giants. \u201cThe consequences of a very long strike could prove bothersome and even dire, under certain circumstances, for the many media companies along the food chain that rely on the entertainment content studios produce and that have minimal diversity, minimal sports rights and news programming, or lack adequate replacement content and financial flexibility,\u201d Moody\u2019s senior vp Neil Begley wrote in a July 17 report.<\/p>\n

\n Take Netflix\u2019s latest earnings report, in which the guidance on free cash flow was accompanied by co-CEO Ted Sarandos <\/strong>telling analysts about growing up in a union household and his desire to cut a fair deal with the guilds. Netflix\u2019s focus is on \u201ccreating a steady drumbeat of must-watch shows and movies<\/a>\u201d for its users. If that drumbeat slows, or stops altogether, there will be consequences for Netflix and any other company that relies on a steady stream of content for growth.<\/p>\n

\n And for the owners of broadcast and some cable networks, the economic pain will be felt sooner, as fall schedules get impacted by a lack of scripted programming. That in turn will cause more pain in an already strained advertising\u00a0market.\u00a0<\/p>\n

\n NBCU, for example, says that it closed its upfront deals the week of July 17 with cash commitments \u201cin line with last year,\u201d driven largely by sports and tentpole events. But if its entire schedule is impacted (or even its planned 50th-anniversary celebration for Saturday Night Live<\/em>, which NBCU says more than 30 advertisers have already inquired about), the strikes\u2019 pain will far outstrip<\/a> the gains. \u201cWith actors and writers both striking for the first time since 1960 and an approaching broadcast season, we believe profitability could be impaired in 2H23 due to lower advertising,\u201d JPMorgan\u2019s Phil Cusick wrote in a July 18 note.<\/p>\n

\n In other words, for companies that own broadcast networks, those short-term gains may be very short term indeed.<\/p>\n

\n As was the case during the COVID-19 shutdowns in 2020, many of these companies will find themselves with extra cash, raising the question: What do they do with it? The simplest answer would actually be a repeat of the 2020 shutdowns: Hoard it.<\/p>\n

\n In the early weeks of the pandemic, companies desperately sought to shore up their cash reserves, unsure of how their businesses would be impacted. The concern isn\u2019t the same in 2023, but there is one key similarity: Once the strikes are over, the productions will resume, and fast.<\/p>\n

\n While companies may look to exit some projects or deals in search of long-term cash savings, they also will be going from a dead stop to a sprint when it comes to restarting films and series halted by the strikes.<\/p>\n

\n \u201cIn Q3 and then further in Q4, we hope to start ticking up our cash spend on content again and doing it in a healthy way,\u201d Netflix CFO Spencer Neumann told analysts on the company\u2019s earnings call, adding that the disruptions will create \u201csome lumpiness\u201d in the company\u2019s content spend. \u201cSo we think we\u2019ve got a lot more we can spend into a big opportunity, but we want to do it responsibly.\u201d<\/p>\n

\n If the picketing drags on, companies may look to put their cash to use in other types of content, perhaps reality or unscripted shows or international productions not impacted by the strikes.<\/p>\n

\n But there are other options. A big one is returning cash to shareholders via dividends or stock buybacks. Disney already has said that it hopes to bring back its dividend by the end of 2023 after eliminating it during the pandemic, and Netflix recently told shareholders that it expects \u201cto increase our stock repurchase activity in the second half of 2023,\u201d citing its excess cash.<\/p>\n

\n Of course, there\u2019s also the M&A question. While high interest rates and an aggressive FTC and Department of Justice could pose issues for megadeals, there is still an appetite for dealmaking. Just look at the feverish speculation over selling off Disney\u2019s linear TV businesses, including ABC, following Bob \u202fIger\u2019s declaration that they \u201cmay not be core\u201d to the company. Or Lionsgate, which is splitting its studio business and Starz business later this year, potentially making each ripe for\u00a0acquisition.<\/p>\n

\n And with its cash hoard only growing, and a relative dearth of legacy IP to build off of, Netflix is frequently cited as a possible buyer of assets. \u201cSome of those assets are stressed for a reason,\u201d Sarandos said when asked if any troubled entertainment companies could be an acquisition target for Netflix. \u201cBut if there are opportunities that give us access to pools of IP that we could develop into and against that could be super interesting.\u201d<\/p>\n

\n The future may include lower overall spending on content as the irrational exuberance of content spend in search of a profitable streaming business.<\/p>\n

\n For the major Hollywood players, the need to balance that uncertainty with what is likely to be some extra cash is a difficult equation to solve. Every entity except the already consistently profitable Netflix wants to make gains, but it needs to be sustainable: Short-term profit in favor of long-term pain won\u2019t cut it. The actors and writers will make up a piece of that puzzle and likely will get more than they had previously, though if content spending falls overall, the strikes may very well be the death knell of peak\u00a0content.<\/p>\n

\n A version of this story first appeared in the July 26 issue of\u00a0The Hollywood Reporter\u00a0magazine.\u00a0Click here to subscribe<\/a>.\u00a0<\/em><\/p>\n<\/p><\/div>\n