Last Monday, as I was assembling the flotsam and jetsam of news stories that compiled the week of news that was, I noticed a trio of stories about unions in Hollywood. SAG-AFTRA elected a new president, the Writer’s Guild East had a fight over its future, and then a little story about IATSE—the catch-all guild for “below the line” workers in Hollywood—was contemplating a strike. But I cut that little section for space.
Then all of a sudden strike talk went from “Maybe” to “Oh this might happen.”
To quote Ron Burgundy, that escalated quickly. Given the increasing likelihood of a strike, the fascinating economics/business strategy ramifications, let’s make that the story of the week.
(Before this went to “print”, news broke that CAA would try to acquire ICM. That’ll be the story easily next week.)
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Most Important Story of the Week – IATSE Will Hold a Strike Authorization Vote
Let me be up front: I’m not negotiating this guild contract nor have I read the IATSE/AMPTP “basic agreement”, the contract under negotiation. I’m not a lawyer, and don’t negotiate back-end/performance contracts.
To sum up, the problem lies primarily with the streamers. They currently pay lower rates to nearly all below-the-line talent in Hollywood (and even some above-the-line talent) to make their TV shows and films. (Below the line means folks whose credits aren’t advertised in the poster. Think electricians, key grips, camera operators, editors and so on.) This covers a host of different areas, but the biggest is probably “residuals” or the payments sent to talent when a show or film streams/airs in multiple windows. Further, to keep costs low, many productions routinely work very long hours, a situation that is increasingly untenable (not to mention dangerous) for front-line IATSE workers. (And it seems to be worse with streamers.)
On September 10th, the “basic agreement” that covers IATSE’s relationship with AMPTP—the studio negotiating body—expired. And they’re negotiating an extension, with a strike authorization vote—but not a strike—due this week. (Two local guilds that are a part of IATSE have already voted to strike.)
The disagreement mainly stems from negotiations a decade or so back when, to let some guild crew work on early internet (think YouTube) and both sides agreed to create a new window called “New Media” that had smaller residuals and relaxed work standards than theatrical or broadcast distribution. In a world, though, where streaming companies have billion dollar valuations, this seems anachronistic.
IATSE wants to change that definition. Nothing about streaming is “new”, the Guild argues, so streamers should have to pay a larger share of the residuals pie. And IATSE could launch a general strike to get that change.
Small Legal Decisions/Definitions Have Big Consequences
If you’ve ever negotiated a multi-million dollar contract of any sort, it probably required lawyers to hash out all the details. And it probably took months. While a lot of this is a waste of time—honestly legal contracts take longer to execute in 2021 than they did in 1981, mainly because of email—sometimes it’s because lawyers know that small decisions can have big consequences.
Take the “rolling 5” episodes. When Hulu launched, they needed recently released TV episodes, but the Big Networks didn’t want to give away all of their episodes. They compromised on a “Rolling 5”, which meant only the last five episodes aired on Hulu. While Hulu was satisfied to get anything, obviously, customers lost out on this compromise. If you missed the first two episodes of Survivor, why would you start with Episode 3? You just won’t watch. That ultimately hurt Hulu’s growth (and helped Netflix/Prime Video).
I see similarities to the Guild’s decision to label streamers as “new media”. Years ago, the Guilds were happy to get anything. But small decisions—without expiration dates—have big consequences. Now that the streamers generate billions in revenue and compete with TV directly, classifying them as New Media just gives them an artificial cost advantage.
The Streamers Can Easily Afford This
IATSE has a seemingly simple pitch to its members: Netflix, Prime Video, Disney+, and their ilk have spent or plan to spend billions on streaming content. Netflix is spending between $15-18 billion on content. Say $10 billion of that would need to comply with Guild rules—meaning mostly US talent and such—then maybe costs would go up 10%. (This is very back of the envelope math.) Then Netflix would need to pay $1 billion more to make its content. Is that crazy? $1 billion out of a $18 billion dollar budget? That’s nothing.
As for the Big Tech firms, you’re talking about Apple, which has tens of billions in cash on hand. What are they crying poverty for? Amazon just bought MGM for $9 billion and has recently said this is just the start of their media adventure. They can’t afford this?
Actually, the Streamers Can’t Afford This
Revenue and stock price numbers are only part of the picture. Arguably the most important number for any business is the amount of cash generated every year. Say Netflix had to pay an extra billion dollars every year in streaming. Instead of making about $1 billion last year it would have only broken even. This year, it would stand to lose another $1 billion.
As I’ve said so many times, streaming loses money right now. Netflix broke even because a pandemic paused all production and Hulu has had one positive cash flow quarter, allegedly. Everyone else is likely worse off. And the future could be much less lucrative than the boom times of the 2000s.
That said, it isn’t IATSE’s fault that Netflix sparked a streaming war which has led to inflated prices for content. IATSE—their thinking goes—should still get its piece of the boom times, even if the streamers are losing money.
So What Happens?
I don’t know, but I agree this is the key juncture. Streaming has matured as an industry and waiting three years to end the “New Media” designation is too long. But are the town and Guild ready for another strike, right as a pandemic ends and productions have finally resumed? Probably not. But would the streamers cave, when changing definitions will encourage SAG-AFTRA, the DGA and WGA to change their terms too? Probably not as well. And if IATSE wins, do international productions try to join? Yikes for the streamers if that happens!
Bonus Thought 1 – Why Doesn’t IATSE Strike Just For Streamers?
Even after reading the coverage, I’m not sure whether IATSE will target the streamers specifically or all of Hollywood. The former seems smart and the latter seems silly. For the most part, broadcast and cable shows pay the negotiated rates. The issue is with the streamers. But since all of AMPTP signs the “basic agreement”, it looks like IATSE can’t call a targeted strike.
That feels like a mistake. If IATSE boycotted just Big Tech streamers, the effect would be targeted and dramatic. Then you could target the traditional players after you’ve won that battle. Netflix has had a poor run of content in 2021 so far because of the Covid-19 slowdown; another production pause would fuel Hulu, Paramount+, HBO Max and Disney+ to their detriment.
(Does Netflix see this risk? Maybe, which is why as Kasey Moore has reported, they filmed a record quantity—of likely low quality—content this summer.)
Bonus Thought 2 – Should IATSE Members Lead a Boycott Too?
The logic of a strike is that, if the workers disappear, you can’t make your product. But Netflix has content saved up for eons. So even if the workers go on strike, they could just keep buying films and shows and serving them to users.
So why doesn’t IATSE go one step further? In addition to calling for a strike, call for a boycott too.
This advice updates Guild strike tactics for the current era. Imagine a Twitter campaign to “Support Equity; Cancel Netflix” that went viral. If Netflix say loses 5% of their US subscriber base, that would devastate their next earnings report. Even more so for HBO Max or Disney+ at their young lives. Losing workers for shows? Really bad. Losing subscribers (who may also be workers!)? Devastating.
M&A Updates – Netflix Buys The Roald Dahl Catalogue
What an interesting purchase by Netflix! Netflix bought the Roald Dahl Story Company—Dahl the celebrated children’s author of titles such as Willy Wonka and the Chocolate Factory, James and the Giant Peach, Matilda, Witches and so on—for $500 million. Since we got an actual price, we can evaluate the purchase a bit more in-depth.
(Oh, and if Netflix is worried it can’t afford to pay Guild members, I just found $500 million dollars they could save to pay workers more! That was easy.)
This makes a lot more sense than Amazon buying MGM for $9 billion. The IP has greater potential for franchise-ization, licensing and merchandise, a long legacy of successful properties and less detritus than buying an entire studio. As such, I like it and Netflix immediately announced a new Willy Wonka TV series. Smart. Given how much kids IP is locked into other places, this feels like one of the few available tranches of available IP.
But how available is it? I’m not sure what Netflix actually has here. Think Disney buying Marvel on steroids. When Disney bought Marvel, Sony owned the rights to Spider-man films, and since Sony is releasing a Venom sequel in October and a Spider-man sequel in December, um, clearly Disney never got those rights back! That’s partly my worry with Netflix here: nearly everything in Roald Dahl’s oeuvre has been made into something at some point, so what can Netflix actually make out of this catalogue? How many ways have the rights been sliced and diced into oblivion already? Likely, Netflix will have lots of TV rights to exploit, but not films.
(Want a second example? Amazon had to make a Lord of the Rings prequel because it’s unclear who controls TV rights for the Lord of the Rings.)
(Want a third example? Even though Amazon bought MGM, the Broccoli family has said they won’t start casting the next James Bond until 2022. Meaning Amazon will wait a while before James Bond his Prime Video.)
The last warning is the same as the one I had for MGM: Remakes do not guarantee success. Just last year HBO Max rebooted The Witches and it dropped without a lot of fanfare. Just because something has good IP backing it does not mean it will turn a profit.
Covid-19 Update – Broadway Returns!
Here’s a pinch of good news: earlier in the month Broadway shows began to reopen. Big shows include Hamilton, The Lion King, Wicked, Chicago and more. I expect that broadway theaters will have a reopening that resembles movie theaters reopening, meaning slowly. Also, there will be a bit of a tension as the folks who can go and will be safer (the vaccinated) may still be too worried to attend, whereas those who can’t go and could get sick (the unvaccinated) won’t/can’t go. But over time this concern won’t really matter.
Other Contenders for Most Important Story
Theaters Have a Sense of…Hope?
Seemingly all it takes is one movie, and the sense of hope returns to theater operators. That hope came from Shang-Chi’s strong-run for the last several weeks. Combined with the decline in Covid-19 Delta wave cases, and theaters/studios seem cautiously optimistic for the fall.
Has this optimism led to action? Somewhat. Paramount moved Clifford: The Big Red Dog from streaming-only to day-and-date streaming/theatrical release. Meanwhile, studios are preparing a marketing blitz in the UK and the UK is seeing the highest pre-sale of tickets since Avengers: Endgame for the latest James Bond film.
However, as Red told Andy in The Shawshank Redemption, the most dangerous thing a man can have is hope.
Marvel Comic Creators Sue for Their Rights
For the second time today, I won’t pretend to understand all the legal complications for the families of Marvel comic creators suing Disney for the rights to their characters back. It will hinge on whether or not the work counts as “work for hire”, meaning the company owns the rights, or whether the authors keep the long term rights.
So pay attention, because literally billions are on the line for Disney (and maybe Warner Bros).
Another Carriage Fight with a Peacock Twist
The latest carriage war fight is headed to an over-the-top screen near you. In this case, NBC-Universal is threatening to pull its channels from YouTube TV—the virtual MVPD—who has promised to cut prices if NBC does that. The fun twist to this one is that NBC Universal is demanding that YouTube include Peacock subscriptions. So clearly Comcast is desperate to boost Peacock numbers, and we’ll see if this extends to future linear negotiations.
Two Low Key Linear TV Moves – Family Guy to FX and Seinfeld to Comedy Central
The big splashy moves in entertainment nowadays are huge streaming acquisitions. Like HBO Max buying the South Park rights. Or Netflix buying Seinfeld for streaming. Or Peacock getting The Office.
What we don’t pay attention to are the smaller moves. Like the fact that Family Guy, The Office, Seinfeld, Friends and all the rest are still playing non-stop on linear TV. Anyways, Family Guy and Seinfeld are both moving linear homes, the former to FX and the latter to Comedy Central.
Lots of News with No News – Netflix Held a Big Marketing Event
This column is not an “entertainment” column, meaning a list of new TV series and films with reviews. That’s well covered by others. So unless a big announcement day implies a change in streaming strategy, I tend to ignore it.
The latest, happening over the weekend, was Netflix’s fan event, called “Tudum” after the Netflix sound before an Original starts. If you want lots of trailers, check it out, but I didn’t see a lot of entertainment strategy updates.