For the first time in 15 years, the Writers Guild of America (WGA) went on strike this week following failed contract negotiations. The streaming boom has benefited consumers greatly by offering high-quality entertainment that is often ad-free at a relatively low price. However, its disruption on the legacy video entertainment industry is just as impactful, and we are seeing that with the most recent strike.
The major sticking point regarding the failed negotiations is reduced pay. Writers were traditionally paid residuals on successful shows, and each “writers' room” contained approximately seven to eight writers. In the streaming world, writers are being paid a flat rate, and there are “minirooms” that only have three to four writers for each show. While this is a simplification of the issue, the removal of incentives and the reduction of number of writers per show are having an impact. In 2013, one-third of TV writers worked for minimum wage. Currently, that number has risen to half of all TV writers. Median pay for the higher writer and producer level has declined 4% over the past decade, according to guild statistics.
The combination of shorter seasons and smaller residual payments is hurting the writers’ salary. However, as TV ad-revenue declines, media companies are more focused than ever on reaching their streaming breakeven profitability targets over the next few years, which makes the current negotiations more deadlocked.
Another interesting sticking point that came up during negotiations is artificial intelligence (AI). The WGA wants to ensure that AI will not be used to generate new scripts based on previous work. Additionally, writers should not be required to rewrite or edit “draft” scripts created by AI.
The potential impact of the strike depends on how long it lasts and the eventual agreement. WGA’s last strike lasted 100 days and cost the California economy more than USD 2 billion, according to Reuters. In the near term, popular late-night shows and Saturday Night Live are shut down. Networks and streaming companies already have a pipeline of shows that are ready to launch or in post-production, so we shouldn’t expect an absence of new shows any time soon. Similar to the beginning of the pandemic environment when productions were shut down, shows continued to be released on streaming platforms before hitting a bare patch in 2021. Then a flood of new content entered the market following reopening.
But if the strike continues through the summer, future shows will be delayed, and we would expect both networks and streaming companies to rely more on unscripted reality shows and reruns. Streaming companies that have a more robust pipeline and have global production facilities will likely be better equipped to handle a prolonged writers' strike. We think a drawn-out strike would hinder the streaming industry's path toward profitability. However, we still expect streaming to gain share of video entertainment consumption over the long term given the major shift in behavioral trends.
Read the full report Streaming boom causes writers' strike 3 May 2023.
Main contributors: Reid Gilligan and Kevin Dennean
This content is a product of the UBS Chief Investment Office.
