A SAG Strike Could Be Next. What to Know.

A who’s-who of Hollywood actors including Meryl Streep, Ben Stiller, and Jennifer Lawrence told union leadership they’re prepared to strike if studios won’t agree to a “transformative deal” before their contract expires on June 30. They’d join the Writers Guild of America, already on strike, which would lead to a full-blown Hollywood shutdown.

The rise of streaming has created a glut of content spending, but it’s also brought with it challenges for actors and writers. Both groups want larger residuals for content produced for streaming platforms, as well as protections for how artificial intelligence is used.

Media companies are already navigating a tricky environment. Wall Street is putting a heavier emphasis on profitability these days, which has been challenging as firms deal with a weak advertising environment. The rise of tech and streaming owners has also shifted priorities.

Barron’s Tech caught up with Rich Greenfield, co-founder of LightShed Partners, to walk us through the strike—both current and potential—and what it means for streaming platforms like
Netflix
and
Walt Disney
‘s (DIS) Disney+, and their investors.

Here are highlights of our conversation with Greenfield.

Barron’s: How do you view the negotiations, and what’s at stake for the studios?

Greenfield: Whether we’re talking about the writer’s strike, or we’re talking about a potential screen actors strike, the challenge is the entertainment business has undergone and continues to undergo seismic change. The entire way in which content is consumed is changing.

It used to be a movie came out, then it went to home video, then it went to a pay-TV service. And then it went to free-to-air. Now DVD has evaporated, and you’re going right to streaming. You’re eliminating windows, sometimes movies are going direct to streaming. TV shows aren’t being syndicated at 11 o’clock at night on TV anymore, they’re showing up on things like Netflix. Series, instead of running seven years, they’re running one to two.

Everything has changed. It’s not a shock that the guilds are looking for meaningful changes. And I think even the studios would admit that given the changes, they need to adjust how they deal with writers and actors.

I don’t think anyone denies that. I think what makes this so much more challenging right now, is that the industry is in a very difficult financial position. Most of the companies that own these entities, these studios, are under a lot of financial pressure. It may be a great time to make content, because there’s so many buyers for that content. 

But go one by one through this industry—this is a pretty tough time for most of these companies. You can point and say, ‘Well,
Apple
(AAPL) and Netflix and
Amazon
(AMZN), these are massive companies! You know, they can clearly pay more for talent right now.’ The challenge on the other side is that you’ve got all these big entertainment studios that are a big part of these big legacy media companies that are under a real financial strain.

And they’re all looking to cut costs.

Correct. And so, think about 7,000 jobs at Disney, 1,000s of jobs at these other companies. It’s no longer a unified group of studios. The studios don’t look the same anymore.

Sony
‘s a pure-play arms dealer. You’ve got companies that are in the tech world, where they don’t even make their money off of entertainment, meaning Apple and Amazon. You’ve got a pure-play streamer like Netflix. And then you’ve got all of these legacy studios that have cable networks under pressure and broadcast TV under pressure. Advertising is down in a weak economy.

It isn’t like it used to be where everybody was the same. You did this negotiation 10 years ago, everyone’s interests were aligned. Now, there is no singular alignment on the studio side.

How do you see the negotiations playing out right now?

It just feels like there’s very little negotiation. What surprises me is that there hasn’t been more leadership from any of the major Hollywood studios. We haven’t seen a Bob Iger [from Disney] or a Ted Sarandos [from Netflix]…raising their hand saying, ‘We’ve got to put an end to this. We’ve got to figure out how we meet and get this over with.’

What’s your view on how residuals have changed, and how data is shared by streaming platforms?

It’s hard to know, right? Because when a show succeeds on streaming, is it because it added subscribers? Is it because it retained subscribers who may have otherwise left? Does it help a streaming service raise prices, because people really enjoyed it? In the old world, box office or ratings drove advertising. It was very clear. It was very easy to measure success.

In the subscription streaming business, it’s hard to know the impact one piece of content in and of itself has.

And it’s difficult for investors to evaluate shows, as well, without having a lot of that information.

Correct. When you have a blowout, like when you have Wednesday on Netflix, or something like Squid Game, it’s pretty clear to see the type of monstrous impact a breakout show has. But for the average show, I would say it is just incredibly difficult to analyze.

What’s your view on media firms? Do you have a favorite?

It’s hard not to look at Netflix as the big beneficiary here. So many of these big studios are scaling back production, trying to get to profitability. And here you have Netflix. All of a sudden, what Netflix spends in the year [roughly $17 billion on content] is becoming that much greater than its peer group because the peers are all pulling back.

This is the best possible scenario for Netflix. Everybody else is focusing on getting to profitability. Netflix is already starting to gush cash, and they don’t have to cut back on production and spending. And so the relative gap between them and the peer group is widening.

What’s your rating on the stock? 

We’ve had a Buy on Netflix for quite some time. It’s been a great stock. In the legacy media group, nothing has really excited us. We don’t know what to do with these names right now.

Do you think if both the screen actors and the writers are on strike, does that create more pressure on the studios?

Tremendous. Because that’s a complete shutdown. At least now, there are certainly things filming that scripts were completed for. Other than reality, everything in the U.S. shuts down on Friday night, assuming there’s a strike. 

A screen actor strike is really painful and even further disrupts the next nine months of content releases.

The screen actors put out a video that seemed optimistic the other day.

I’m not nearly as optimistic as that video portrayed.

Can you elaborate?

I think these issues are just very complicated. The only thing I don’t know is, do they continue to negotiate past the deadline? That’s unclear.

What’s your view on artificial intelligence—and how it plays out in these negotiations?

I look at it as the potential to make content far better, right? Anything that can sort of technologically help improve what you’re doing and make the process of content creation more efficient, could be very powerful as a positive.

Obviously, it’s also disruptive. Because, you know, people fear that it’s going to replace how content is created. Animation might be one of the most impacted fields.

Generative AI is a topic we weren’t even talking about six months ago. And now you can’t have a conversation without it coming up. To think that something that is so new and moving so fast, that you’re going to structure guild agreements around, at this point, I think is naive. It’s just too early.

What are clients saying about the strike? Is it something investors are focused on?

I think everyone’s just trying to get a feel of whether there’s going to be a screen actor strike or not.

Assuming there is some kind of compromise where studios have to share more of the pie, how would that impact streaming firms?

I mean, obviously orders of magnitude is all that matters. But you already have a focus on getting to profitability. So anything that increases the cost is obviously a challenge for these companies.

Thanks for your time Rich.

Write to Connor Smith at connor.smith@barrons.com

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