Lights, Camera, Action – STRIKE! What’s going on in Hollywood?

Sascha: [00:00:02] Welcome to The Dive, the podcast that asks Who said business news needs to be all business? Bad news, everyone. We might need to go outside because in a world where most of us are spending some part of the day glued to a screen, our constant stream of content might be slowing down just a little bit. On the 2nd of May, Hollywood writers walked off the job. But now, just a couple of months later, the Guild of Actors have also downed tools, for lack of a better word. And it's not like there's not work for them to do. I mean, I'm alone have about five streaming services. Every day I open a news item and it says we're in the golden era of television and content creation. So what's the issue at play here? It's Wednesday, the 19th of July, and I want to know what exactly are the economics of the Hollywood strike. To talk about this today? I'm joined by my colleague here at Equity Mates and the co-founder. It's Alec Renehan. Alec, welcome to The Dive. 

Alec: [00:01:02] Sascha, good to be here. Glad that podcasting isn't on strike as well because I wouldn't know what to do with myself. 

Sascha: [00:01:08] Yeah, we'd certainly have a couple more hours in the data. Well, we couldn't watch the TV then because there was nothing on apparently. 

Alec: [00:01:14] I'll probably still read the news and just really annoy my partner. Give her in live her podcast episodes of The Dive. 

Sascha: [00:01:23] Now to start with, you said you wanted to share some key numbers because I mentioned everywhere we look. This is described as the golden age of content. And from the outside, it does look like things in Hollywood are going pretty well. 

Alec: [00:01:36] Yeah. 1999. To take you back there, Sascha, with the launch of The Sopranos. Historians, historians of TV, if that is a job, have dubbed that the start of the second golden age of TV. Fast forward about 20 years and John Landgraf, the chief executive of the TV network effects, coined the term peak TV. There's never been more money thrown into content, more content being made, more jobs in content. There is an argument that we're coming down the other side of peak TV. We'll get to that. But the numbers are pretty staggering. We are in an age of just mass content. Statistics looked at Netflix, Amazon, Hulu and Apple. Four of the big streamers over in the US in 2017, The four of them combined spent 1.17 billion on original content 2021 So just what, four years later that 1.17 billion was up to 11.15 billion, a massive growth in just a few years. That's huge. Those four streamers don't include Disney. The Australian Financial Review estimated that in 2019 alone, Disney spent $28 billion on original content to build their war chest ahead of the launch of Disney Plus. To give you an idea of what this spending translates to in terms of new shows, in 2011, the TV industry in the United States made 266 scripted TV shows. In 2019, that number was doubled, 532 scripted TV shows. So there's more money and more content than even just a few years earlier. And that translated into the amount of money that we as consumers were spending and the amount of time that we were spending consuming this content. In 2021, Americans streamed 15 million years worth of video content in one year. In Australia, on average, Australian households pay for 2.4 online streaming services. I'm certainly bringing that average up, although I have been thinking about cutting a few from my roster. 

Sascha: [00:03:56] Oh, I can have a conversation about that another time. 

Alec: [00:03:59] And in Australia, 81% of homes have at least one subscription service. 

Sascha: [00:04:07] So Alec, I'm going to make a pretty simplistic argument, which is we're seeing more money spent and more content made. Surely that just means there's more jobs and things are pretty good. But against that backdrop, we're seeing a strike. Before we get into their complaints, just give me the lay of the land. 

Alec: [00:04:26] So let's take a step back. As you said in your introduction, the Hollywood writers have been on strike for a little while, and the Hollywood writers strike seems like a once in every ten years phenomenon. The Hollywood actors' strike is a little bit rarer. The 160,000 members of the Screen Actors Guild, American Federation of Television and Radio Artists, which, for ease of reference I'm just going to refer to as SAG from here on in, have called the union's first strike against the film and TV companies in 43 years. The contract they'd previously signed with the Association of all the major television and film production companies had expired and they hadn't come to a new agreement. Now, Sascha, one thing that I know you're particularly excited about is that the president of SAG is Fran Drescher, the nanny. 

Audio Clip: [00:05:18] It came with great sadness that we came to this crossroads, but we had no choice. We are the victims here. 

Alec: [00:05:28] So to give you a lay of the land, 160,000 members of SAG joined about 20,000 writers who were already on strike. And this is the first time that actors and writers are on strike together since 1960. 

Sascha: [00:05:42] And just to be clear, it doesn't mean that they can't act or do their work at all. It just means that they can't perform work for what we call struck companies. 

Alec: [00:05:51] Yeah, it's not just us that call it that. I think it runs the term. But essentially, the companies who are part of the Alliance of Motion Picture and Television producers are the companies that quote unquote struck. They're the ones that the Actors Guild are negotiating against. There's 350 members in the alliance, and it's all the big names Paramount Pictures, Sony Universal, Warner Brothers, Walt Disney, the key broadcast TV networks, ABC, CBS, Fox, NBC, and also the streaming giants Netflix, Apple TV and Amazon. So while we say it doesn't mean they can't act or do work, these are the companies that fund almost all the original content. So most of the actors aren't working. It also means they can't promote their work. If you wondered why the Body PR tour started very early. It's because everyone knew this deadline was coming. The deal was going to expire. The two sides were quite far apart and there would likely be a strike. And so Margot Robbie got on the campaign trail early and has been promoting the hell out of Bobby even. I'm probably going to go sell it on 20th of July, even though I know when it comes out. And that's rare. The key movie being released at the same time as Bobby Oppenheimer. The cast walked out of the premiere over the weekend led by Emily Blunt. Again, in Solidarity was part of this strike. And there has just been a real who's who of Hollywood coming out and supporting and participating in this strike.

Audio Clip: [00:07:35] Some prominent actors left the London premiere of Oppenheimer early tonight in solidarity with the strike. 

Audio Clip: [00:07:41] We had to protect the people who were kind of on the margins, and residual payments are what carry them across that threshold. And and if if those residual payments dry up, so does their health care. And that's absolutely unacceptable. At a certain point, you have to just say who's going to determine what our value is? Well, look at these thousands of people. We're determining what our value is. And you know who else determines it to the audience? 

Sascha: [00:08:05] So before we get into the details of what each side are arguing, I want you to give me the high level and Alec, you've never seen the nanny, but I'm going to give you a task anyway. I want you to play the role of Fran Drescher, who is the president of SAG. 

Alec: [00:08:20] These streaming fat cats are earning hundreds of millions of dollars in salary. Look at their share prices. Look at their market cap. These are multibillion dollar companies and they can't give us scraps. Look at Andy Jassy at Amazon. Look at Bob Iger at Disney. They're getting pay rise after pay rise and the actors are getting nothing. What's more, they're paying us less for the same amount of work than they did in the pre streaming days. All we want is a return to the traditional economics of Hollywood. And we want what we would have got ten, 20 years ago.

Sascha: [00:08:58] Very good, Alec. I'm not sure I'm going to give you an Oscar anytime soon, but I really appreciate your commitment to the craft. Now I'm going to give you the challenge to do Carol Lombardi, who's president of the Alliance of Motion Picture and Television Producers. What is she saying? 

Alec: [00:09:14] These actors are living in La la land. They do not understand that the business has changed. They want to go back to the old economics of Hollywood when there were five big movie production houses and three big broadcast networks. That is not the world we're living anymore. We are earning less per piece of content, and each piece of content has a shorter lifespan. And all we want is our bargain to reflect the new reality of Hollywood. 

Sascha: [00:09:46] I'm really impressed with those two things, kind of the culmination of the two perspectives. But let's actually get into the details now. What exactly does SAG and the Writers Guild want?

Alec: [00:09:57] Yes. So the actors in the writers. Let's take them together, because at a high level they really want the same thing. The first thing is they want better upfront pay for the work they're doing. They want to be paid more. Then following on from that, they want a return to the old days in terms of royalties and residuals. Thirdly, they want higher contributions to their pensions and health plans. And then finally, this one is quite interesting safeguards on the use of AI in the industry. So a few different demands or requests that the actors and writers are making. 

Sascha: [00:10:33] Yeah. So let's take them one by one. Can you start with upfront pay?

Alec: [00:10:36] So the rise of the streaming service has shrunk the length of a TV season. Remember Grey's Anatomy?

Audio Clip: [00:10:43] But, Derek, I love you. So pick me, Choose me, Love me. 

Alec: [00:10:53] 23 episodes was a season that was sort of standard back in the day in the era of content churn and binge watching. Now we're getting like four episode seasons or ten is sort of the standard, and that dramatically affects your pay. That means an actor that was getting 23 episodes worth of pay, had 23 episodes worth of work, is now getting 8 to 10 episodes. It also does mean that there are logic gaps between jobs and compensation hasn't kept up with that. So the actors and the writers are asking for a rise. 

Sascha: [00:11:32] Let's turn to residuals now because that one's particularly interesting. Before 1960, actors didn't make anything beyond what they made during production. And it's actually that strike that we talked about, the lost concurrent one that resulted in them getting these residual checks. 

Alec: [00:11:48] Yeah. So a quick residual 1 to 1, you get paid upfront for your work, but then as that work earns more money over time, gets rebroadcast on different TV networks around the world. The rights get traded between different streaming services because your IP, your face is involved in that production. You get paid a little bit, but you get paid. And that was a great recurring revenue stream for actors and writers for decades in Hollywood. But with streaming services, that has changed, or at least just greatly reduced. The Hollywood Reporter reports that residuals under streaming services is a lot less and is costing actors over $170 million in residuals they would have otherwise got. Now, Sacha, without getting into all the details, I think one really important difference between the old school TV world and the new streaming world is in TV. Your residuals were broadly commensurate with how popular your show was because if it was getting rerun more, if the rights were getting picked up overseas more, you were getting paid more. That's not the case in the world of streaming. Now, your residuals are based on how big the streaming service is and how much you were paid originally, whether you have the most popular show on Netflix or the least popular show on Netflix doesn't matter. And hey, Netflix, don't even tell you how popular your shows are most of the time anyway, so you wouldn't even know. To illustrate this point, Sascha Kimiko Glenn, who played Soso on Netflix's hit show Orange is the New Black.

Audio Clip: [00:13:27] Got him about to Be So Rich. 

Alec: [00:13:30] Has been sharing her story about how little residuals she's been getting from the show, she recently shared a TikTok showing her most recent residuals total just $27. 

Audio Clip: [00:13:43] People were bartenders. Still, people had their second job. Still they were fucking famous as shit, like internationally famous, couldn't go outside, but had to keep their second jobs because they couldn't afford to not. 

Sascha: [00:13:59] So SAG is arguing for the need to protect what they call a middle class existence, largely so that acting doesn't just become something that very wealthy or privileged people can do because it's such a glamorous industry. And when you read about the Hollywood strike, I think it's natural. Everyone thinks of millionaire Hollywood stars, but the people who stand to lose the most are the ones that you kind of don't notice. Background actors, voiceover artists. Which is also why AI is a factor in this argument. 

Alec: [00:14:29] Yeah, that's right. You might think protecting a middle class existence is an argument about pay, but it's actually an argument about air because according to the Actors Guild, the movie studios and TV studios have a proposal to use AI that basically will eliminate the need for background actors. The way it would work, according to the Screen Actors Guild, is that background actors would be brought in, paid for one day, scanned and then sent. And the company would then own that skin, the image, their likeness, and be able to use it for the rest of eternity in any project they want with no consent or no compensation. So basically, according to the Actors Guild, the production houses have a plan to eliminate the need for background actors to scan maybe 100 people, and then all of a sudden we're going to see the same extras in every movie, in every TV show, forever more. I don't know if you've seen the most recent season of Black Mirror, but it is really starting to have echoes of the first episode of that season.

Sascha: [00:15:35] It's pretty terrifying. I mean, the lazy part of me thinks, Yeah, that sounds like a great way to earn a living. But the crucial part is one day's pay. That's definitely not going to cover the mortgage. 

Alec: [00:15:45] Yeah, there seems to be a pretty clear middle ground, which is, Sure, scan me, make me an AI version of me, put me as a background actor in as many things as you want, but just pay me for that every time you do it. 

Sascha: [00:15:59] Yeah. So then the question is, why aren't the movie studios budging? According to them, it's because of tough economic conditions. And interestingly, they're not necessarily wrong about that. Let's look at that after the break. Welcome back to The Dive. Today we're talking about the Hollywood strike. Just a quick recap. Let's look at the numbers. In 2021, Americans streamed 15 million years worth of video content. On average, Australian households pay for 2.4 online streaming services, and 81% of homes have at least one subscription service. But these numbers don't fix the problem that Hollywood is now revolting against. As the Los Angeles Times wrote, Honey, we blew up the Hollywood business model. Alec, does anyone know how to fix it? 

Alec: [00:17:01] Yeah, that's the way to fix it is to have streaming as one tiny part of a much bigger business empire. Bay, Apple and then have Apple TV or they Amazon and then have Amazon Prime because streaming doesn't make money except for Netflix. They've recently started making money, but on the whole, streaming doesn't make money. Now the Screen Actors Guild look at the amount that CEOs are being paid and they say, well, we are making money. We're just lining your pockets, not our own. The CEOs who are getting paid very well, look at what the actors are asking for. And they just call it, quote, not realistic in the current TV environment. 

Sascha: [00:17:44] So like you said, streaming is losing money. Give me the numbers. Just how much are we talking? 

Alec: [00:17:50] Yeah. So let's start with Disney, who reported that in the most recent quarter, they lost $1.1 billion in streaming, Paramount with their Paramount Plus streaming service. Their most recent quarterly loss was 575 million, and they say Universal owned the streaming service Peacock. They reported a loss of 978 million again in just the most recent quarter. So quarters is three months. So for all these numbers times and by four to get a yearly number, Warner Brothers Discovery, a company that already has $50 billion in debt, they lost $217 million in the quarter. And then we get to Netflix. Now, Netflix, as I said, is the one that is making a profit, not a massive profit. They brought in $7.85 billion in revenue in the quarter and they made 55 million in profit off that. But Netflix is the one example of when you do get to a sufficient enough size and you have enough subscribers, you can make streaming profitable, but they've gone through a lot of pain to get there, a lot of headcount reduction and a lot of content being cut as well. 

Sascha: [00:19:11] And when we talked to that figure earlier of 11 billion spent on content and then count up those losses there, it's pretty extraordinary. 

Alec: [00:19:19] And that's why they're saying that we can't afford to pay people more. 

Sascha: [00:19:23] Yeah, because the world has changed and these losses, they're not being tolerated anymore. 

Alec: [00:19:28] Yeah, that's right. As we set up this episode, we've lived through the golden age of streaming. There's an argument that in hindsight will say that the age of streaming ended last year when Netflix first announced it had lost North American subscribers and the stock market just punished the company for it. Between October 2021 and June 2022, Netflix's share price fell almost 75%. Investors lost three quarters of their money in Netflix. Netflix woke up, cut costs and have really started to turn that story around. But I think every streaming service realised that was the moment when they couldn't just keep losing money on streaming and everyone had to shape up. Warner Brothers Discovery is probably the most extreme example of that. They own HBO Max and Warner Brothers Discovery have been pretty open that they're going to do anything to save a buck. That included taking the practically finished, almost complete Batgirl and just putting it on the shelf because they could save money on tax. But they've also cancelled so many shows from the critically acclaimed shows like Westworld to some of your favourite Sascha, like Fboy Island. 

Sascha: [00:20:51] Hey.

Alec: [00:20:54] Empire Analysis research firm over in the US have tried to quantify what these spending cuts have looked like in terms of the amount of content being produced in the second half of 2022. The number of adult scripted series ordered by TV networks and streaming services aimed at American audiences fell by 24% in the second half of 2022, compared to the second half of 2021 compared to 2019, though, it was down 40%. So I think the crazy days of spending on content of greenlighting projects over the phone, those Go-Go days are sort of falling behind. The other important thing to note is that a lot of players in the space are getting out of the space. I don't know if you ever watched a Facebook original or a YouTube original, but they were investing in original content. They're no longer investing in original content. 

Sascha: [00:21:51] I've seen the writing on the wall look, Alec in 1960, which is the last time that there was this concurrent strike. It lasted 148 days. I'm curious, just looking forward, what do you think the impact of these strikes are going to be in our contemporary landscape?

Alec: [00:22:08] Look, I think we should be clear. We don't know. But these two sides are very far apart and it's not on us to argue who's right here. I think, you know, as with everything, there is obviously a middle ground. The world has changed, but there's still heaps of money in content and I think we'll end up somewhere in the middle ground. Some of the stuff just is ridiculous. Like as a general principle, if someone is going to use your name or your likeness, you should get paid for that, not just once, but when they use it. But we don't know. You know, these are some of the deepest pocketed companies in the world arguing on one side and on the other side that some of the deepest pocketed individuals are leading the charge and they can both probably not work for a while and be okay. And keep debating. So as you said, it was 148 days in 1960. Don't be surprised if it's a long time again. There'll be a massive economic impact. The writers strike in 2007 cost California's economy over $2 billion. And there will be an impact on our screens and we will see the velocity of content slow down and who knows? It might speed up people rationalising the amount of streaming services that they're willing to subscribe to. If there's less and less content being put out. So I think to sum it up, Sascha, the industry is changing. Expectations are going to have to adjust both from executives, from stars of these shows and also from consumers about how much content we can expect from Hollywood. 

Sascha: [00:23:50] How much content can I expect? Well, I have an insatiable appetite for television, so I'm definitely eagerly watching this. 

Alec: [00:24:00] If you're ever short of content, just go to Tiktok. 

Sascha: [00:24:03] Oh, yeah. Oh, I don't know about that. Anyway, Alec, let's leave it there for today. Thanks so much for joining me for this episode. Why don't you drop us a line and tell us what you think? We should be covering all our contact details. All right. There in the show notes. Alec, thanks for joining me today. Until next time. 

Alec: [00:24:18] Thanks, Sascha.