Moody’s Sees New WGA, SAG-AFTRA Contracts Costing Studios Up To $600 Million A Year

Big ratings agency Moody’s Investor Services estimated that new guild contracts with actors, writers and directors will cost Hollywood studios at the high end of $450 million to $600 million a year.

Absorbing that cost, spread over a large number of projects, won’t pose a credit risk for the studios in isolation, it said, noting that spending had already reached global records of well over $100 billion to support the streaming wars. But the firm doesn’t believe studios will change overall production budgets to accommodate the higher costs given the priority on “sustained profitability”, and some will even trim spending. Nor does it think they will reduce volume — which ha only recently started to ramp up post-Covid before the strikes hit,

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That means cutting costs on productions.

“The companies are unlikely to reduce production volume materially if at all to accommodate higher costs. Instead, we believe they will look for cost savings that will not materially impair the volume of film and TV throughput or the quality of storytelling that will be noticed by audiences,” said Moody’s.

That includes trimming the use of A-list talent and less filming on location and increased use of soundstages and green-screens. They’re likely to trim postproduction spending and special effects.

“We believe that there are significant opportunities to tighten the budget processes given well known industry excesses, and studio executives will to do this exists given the secular pressure on linear television distribution, thin margins in film and collective industry losses in streaming.“

Lionsgate executives, who were among the first to discuss the new landscape yesterday, said as much, noting that they’ll be scrutinizing all aspects of a production given higher costs.

SAG-AFTRA announced a deal with the AMTPT this week following an agreement between studios and WGA in October. These were among the longest work stoppages in Hollywood history and the first time both unions struck simultaneously since 1960. The DGA reached a deal with studios in July, with no strike. The $450-$600 million range was what Moody’s cited then.

SAG-AFTRA valued the actors’ total contract at more than $1 billion in total over three years.

Moodys’ said studios may also look for more tax breaks, financing subsidies and to produce more projects outside the US. That could means “more imported content and stories that perform better across borders.”

“This greater level of cost consciousness, beginning at the greenlighting stage, is already underway as companies try to reach streaming profitability quicker, having transitioned from a period of trying to get to scale at any cost.”

A huge swing in sentiment on streaming swept Wall Street and the industry starting last spring, shifting the focus from subscriber growth to profit. Most streamers have since launched ad-supported tiers to capture a dual revenue stream, and raised subscription prices. Studios are also less keen on keeping all of their own content in-house and have started licensing to others.

The issue remains that media companies with exposure to broadcast and cable networks – most of them — are still in the painful transition from linear TV to direct-to-consumer streaming and most will still post significant streaming losses for the next few years.

The new contracts offer better pay, staffing and protection AI. Writers now have bonuses based on streaming views, minimum staffing in TV writers’ rooms dependent on number of episodes, and limits on use of AI. Final details of the actors’ deal aren’t out yet but will include higher pay and AI guardrails.

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