• by Karlene Lukovitz  @KLmarketdaily, July 13, 2023

Update: As expected, SAG-AFTRA voted to strike. The strike will begin at midnight tonight/Thursday and picketing will start on Friday. In announcing the strike, Fran Drescher, president of the union, declared that “What’s happening to us is happening across all fields of labor. When employers make Wall Street and greed their priority and they forget about the essential contributors who make the machine run, we have a problem.” She also said that the union remains willing to negotiate now and going forward, but only if the studios are “willing to talk in a normal way that honors what we do.” The union has accused the Alliance of Motion Picture and Television Producers of showing disrespect to its members by refusing to engage meaningfully with the union's proposals.

The entertainment business is facing an intensified threat to its content and short-term profitability, as actors prepare to join Hollywood writers in striking.

After the Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) contract expired at 11:59 p.m. PT on Wednesday, its negotiating committee voted unanimously to recommend a strike.

The guild’s national board is expected to vote to formally approve the start of a strike during a meeting on Thursday morning (see update above).   

This will be the first actors’ strike since 2000 (the last one prior to that was in 1980), and the first time actors have been on strike at the same time as writers since 1960.

The contract was originally set to expire on June 30, but SAG-AFTRA and the Alliance of Motion Picture and Television Producers (AMPTP) — which represents major studios and streamers — agreed to an extension to July 12 while they continued negotiations.

Prior to the extension, SAG-AFTRA members voted 98% in favor of striking if a deal had not been reached by June 30.

In anticipation of a possible writers’ strike, entertainment companies stockpiled content and began shifting production to unscripted shows. 

But the Writer’s Guild strike that began on May 2 has already stopped production of most movies and scripted TV shows, and the addition of an actors’ strike could extend the shutdown for months — possibly even to the end of the year.

The actors, as well as the writers, contend that the financial sustainability of their careers has been damaged by the lower residuals they receive as streaming supplants traditional broadcasting, and as companies in both segments have sought to improve their margins by cutting back on the numbers of shows they produce. In addition to health insurance and other benefit improvements, both groups are also seeking guardrails around how AI can be used, to try to limit the use of AI to replace writers and actors and ensure that they are compensated for use of their work, images and voices. 

“The studios and streamers have implemented massive unilateral changes in our industry’s business model, while at the same time insisting on keeping our contracts frozen in amber,” Duncan Crabtree-Ireland, SAG-AFTRA’s national executive director and chief negotiator, said in a statement following the failure of negotiations on Wednesday. “That’s not how you treat a valued, respected partner and essential contributor. Their refusal to meaningfully engage with our key proposals and the fundamental disrespect shown to our members is what has brought us to this point. The studios and streamers have underestimated our members’ resolve, as they are about to fully discover.”

“We are deeply disappointed that SAG-AFTRA has decided to walk away from negotiations,” AMPTP said in its own statement. “This is the Union’s choice, not ours. In doing so, it has dismissed our offer of historic pay and residual increases, substantially higher caps on pension and health contributions, audition protections, shortened series option periods, a groundbreaking AI proposal that protects actors’ digital likenesses, and more. Rather than continuing to negotiate, SAG-AFTRA has put us on a course that will deepen the financial hardship for thousands who depend on the industry for their livelihoods.”

Other major Hollywood unions — including the Directors Guild of America, which avoided its own strike by reaching a deal with AMPTP in early June — issued a joint statement declaring their "unwavering support and solidarity" with SAG-AFTRA, and the Writers Guild.  

The studios and streamers are not in a hurry to settle because the strike could "eventually allow them to shed unprofitable long-term deals," but "that's also a dangerous long-term game," wrote SA analyst The Entertainment Oracle, following the writers’ strike.

Some have asserted that the timing of the strikes is poor and could backfire for writers and actors, given that most streaming services are struggling to show a profit and that virtually all entertainment companies are now pushing to cut costs to improve their financials. But the unions say that they must take a stand now or face snowballing financial consequences for their members.

“Arguably, in this environment, perhaps the unions realize it’s more important than ever that they do as well as they can now, while there might at least be some debate about some remaining growth potential, including some optimists within the studios about a return to the profitability of the past, at least for a while,” Brian Weiser wrote in his Madison and Wall newsletter on Wednesday night. “On the other hand, in a world where there are alternative ways to provide entertainment services — more sports and news, more amateur-based content, more international content and deep libraries — and where factors beyond the cost of labor seem poised to drive profits down, it seems hard to imagine that whatever percentage of the industry’s revenue currently gets paid out to talent will go up any time soon."

Weiser added, “We need to remember that the profit margin profile for the media business is only going to get worse from here.”  U.S. consumer spending on video in all forms has risen by only about 1% to 2% each year over the past five-, 10- or 15-year time periods, and that trend is unlikely to change, as  consumers continue to drop traditional pay-TV services in favor of streaming services, he noted.

"Meanwhile, video-based advertising — whether on connected TVs or via linear TV — is probably set to decline slightly,” he continued. “Let’s assume total pools of revenue will be flat for the foreseeable future. As consumer expectations for quality content will stay high, as the costs of top-tier sports rights continue to rise, and as the increased focus on streaming services means higher absolute costs for content delivery, marketing and customer service rises, margins have only one direction to go.”