What Might Finally Resolve the Hollywood Strikes
Combination tropical storms and earthquakes aside, there is stronger optimism in Los Angeles this week that the summer of agitation by workers in this company town will bear fruit. The studios are engaged in what by all accounts appear to be legitimate talks to end the Writers Guild strike that is now in its fourth month. While key issues like the preservation of writers’ rooms had previously been off the table, they are now being discussed seriously. The studios are also now offering real viewing data for streaming as part of the talks, which is a way to quantify real residuals, a key Guild demand.
There isn’t yet consensus on a resolution. But as a reminder, the initial stance of the studios was to essentially starve out the writers and force them into agreement out of desperation. What changed this posture?
Obviously, the one-two punch of simultaneous WGA and SAG strikes, for the first time in 60 years, has stalled out virtually all productions. If production was continuing, studios could have made programming for perhaps a year or more without new scripts, but the actors’ strike reduces their inventory to already completed productions still undergoing editing. The consequent economic damage from the lack of production, as the L.A. Times has reported, builds pressure for an agreement.
The difficulties studios are having with launching movies since Barbenheimer weekend suggests that existing inventory is in trouble as well. It’s now evident that actors are critical to getting people to theaters, and with the strike effectively ending all celebrity publicity, releases like Strays and Blue Beetle have suffered. One box office analyst said the lack of actor promotion translates to 10 to 15 percent of a film’s revenue. It’s no wonder, when the talent provides that much value, that they want to be fairly compensated for their work.
On the television side, networks can spin up plenty of reality and game shows, and hope that the upcoming football season can restore a measure of interest. But television accounted for less than half of viewing time for the first time ever in July, and the strike is only accelerating the cable cord-cutting, the way the pandemic accelerated e-commerce. With nothing scripted on broadcast TV, people will naturally move to streaming libraries, and advertising will dry up, destroying studio balance sheets.
As I noted last week, the shift to streaming is intentional, because it affords the studios cheaper labor costs. That’s what the whole strike is about, and it’s a grim irony that the labor action is just heightening the incentives to rush into streaming. But even the streamers need fresh content to prevent viewers from hopping in and out of their platforms.
More important, the Writers Guild has connected this trend to how the dominant players in the industry are breaking the law. In a report released last week, “The New Gatekeepers: How Disney, Amazon, and Netflix Will Take Over Media,” the WGA peers into the future of the entertainment business model and finds just three companies likely to control “what content is made, what consumers can watch, and how they can watch it.”
The report was intended for the eyes of the Biden administration’s antitrust enforcers. It recommends that Disney, Netflix, and Amazon be prevented from any further consolidation, and investigated for anti-competitive practices in streaming. It was a call from inside the industry to break the industry up. And the administration got the message. That may be the primary reason why the studios are backtracking.
We have been here before, as the report points out. The government used the Financial Interest and Syndication (fin-syn) rules to separate production from distribution to the three major TV networks in the 1970s. This bolstered independent production companies and ensured prosperity in the industry, also enabling cable to eventually expand the possibilities for entertainment. The Paramount decrees in the 1940s similarly separated production and distribution in movie theaters.
Over the past decade, this anti-monopolization has gone into reverse, even as distribution channels expanded. Disney has used acquisitions to centralize control, beginning with its purchase of ABC in the 1990s. More recently, Disney’s purchases of Marvel, Pixar, and Lucasfilm, along with Fox assets, made it an unquestioned leader in production, which it used for its own distribution through streamers Disney+ and Hulu (where it is majority owner). “In the 2021-2022 season, every original scripted series made for Disney+ was self-produced, along with the vast majority of series on Hulu,” the report notes.
Time Warner, Paramount/Viacom, and NBCUniversal have followed Disney’s lead in streaming, but Disney is the unquestioned leader. By 2025, half of all streaming revenue in the U.S. is expected to flow to Disney. The company has also led in spiking consumer prices for streaming, even as actors and writers are paid less. Disney has forced creators to forsake future licensing revenue for a chance to work with them on projects; if you say no, a large chunk of the industry is closed off.
Amazon uses streaming as a perk for its e-commerce business. Through Amazon Studios and MGM, which it bought in 2022, it’s a producer, and though Amazon Prime and Freevee, it’s a distributor. But Amazon’s control of Fire TV, a streaming video device that’s tied for the biggest in the U.S., is a bigger factor. Through Fire TV, Amazon can control which streaming channels get to viewers. Much like it does in e-commerce, Amazon strikes deals with smaller streamers in exchange for a cut of the profits, which can be as high as 50 percent of monthly revenues. By keeping HBO Max off Fire TV when it launched in 2020, Amazon deliberately slowed its growth.
Netflix was initially a competitor to cable that offered good terms to independent producers. But now, 61 percent of original scripted series on Netflix in 2021-2022 were self-produced, and it never produces for other distributors (neither does Amazon). Netflix has said explicitly that they produce in-house to lower costs, but the result is control of the market, which it is using to buy film production, animation, and video game studios.
There are other streaming platforms, but the WGA reasonably predicts that if Disney, Amazon, and Netflix are allowed to continue their practices, those other platforms will wither away or be bought by one of the Big Three, which Wall Street analysts have already begun to demand.
The three walled gardens have essentially recreated the state of the three major networks before the fin-syn era, the WGA explains. That brings us back to the issues in the writers’ and actors’ strikes: low starting salaries, little or no residuals, the inability to move a production from one walled garden to another, no recourse when the Big Three reduce investment, and rising fees for consumers, who are essentially trapped for their entertainment dollar. “Unless antitrust agencies and lawmakers prevent future merger activity by dominant firms and step in to preserve and protect the competitive environment for other streaming services, the future of content is in peril,” the report concludes.
That’s why it’s so interesting that Federal Trade Commission chair Lina Khan went on the podcast of The Ankler, a popular website that covers the entertainment industry. Khan essentially affirmed the WGA’s concerns, saying that there appeared to be a “broken” market structure, and that the fin-syn rules, and the associated efforts to separate production and distribution in movies, “created a healthier ecosystem than a situation where you have a handful of gatekeepers.” Khan has also visited picket lines during the strikes.
Ultimately, that’s the reason the studios are back at the table with the WGA. As Matt Stoller points out, it’s easy for top executives to think they can do whatever they want, right up until the moment that the government tells them they’re breaking the law. It’s not just that the WGA called for the breakup of the industry’s biggest players, which got plenty of attention. It’s that the union actually has people in government who share their concerns. Polls also make clear that the public overwhelmingly supports the actors and writers in this fight.
The revival of talks is only an initial step. Studio executives may be concerned enough to come back to the bargaining table, but a fair contract does not lead to a fair market structure. However, the dissonance between the system that worked in the past and the system that has everyone in the industry at each other’s throats today is undeniable.
Perhaps the most important lesson here is the essential linkage, in industry after industry, between market power and labor. That was a lost connection for decades that is only now being revived, hopefully in time to save Hollywood.
[David Dayen is the Prospect’s executive editor. His work has appeared in The Intercept, The New Republic, HuffPost, The Washington Post, the Los Angeles Times, and more. His most recent book is ‘Monopolized: Life in the Age of Corporate Power.’]
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