Moody’s Sees Eventual Guild Deals Costing Media Companies A Collective $450-$600 Million A Year; Movie Theaters First At Risk From Strikes

July 17, 2023

Moody’s Investors Service, which rates corporate creditworthiness, said it expects agreements with three Hollywood guilds will collectively cost big media companies it follows $450 million to $600 million more per year. That includes the recently ratified DGA deal and eventual settlements with the WGA and SAG-AFTRA. Moody’s covers most of the entertainment industry, although some smaller, independent players aren’t captured in the number.

The “greater leverage of two unions vying for new agreements will result in higher costs for studios [and] will likely be credit negative,” the firm said in a note today titled “Actors join writers’ strike: Golden age of TV spending causes dark age for studio profits.”

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“Production in the US has halted at a time when the sector is under pressure to mitigate the secular decline in linear TV and show it can operate streaming platforms at a profit to mitigate linear decay,” it said. “Two unions on strike highlights the stresses on both sides of the bargaining table. It is not just the revenue share at stake, but how compensation has evolved in the streaming ecosystem.”

Also at stake — technological advancements of AI and compensation surrounding the use of artificially generated digital likenesses.

In May, the WGA said its proposals would have benefited its members by $429M per year and claimed that the AMPTP’s offer was approximately $86M per year, 48% of which is from an increase in minimums. The AMPTP countered that the numbers were hypothetical as it’s unclear how many shows would be ordered over the three years and how many subscribers the streamers would have. The coalition of studios/streamers also said it made it clear to the WGA that those were offers that it was willing to improve.

The firm said movie theaters would be first at risk in a long strike, followed by diversified media companies transitioning to streaming from dependence on broadcast television and entertainment pay-TV channels, which are seeing both subscribers and engagement in secular decline. Least at risk — global streaming platforms like Netflix that are well positioned financially and have little or no exposure to the declining linear ecosystem, and major studios and broadcasters with deeper and more globally diverse production and libraries, and that are diversified and have relatively strong balance sheets. Networks and platforms more dependent upon sports and news formats are also in a better position.

Wall Street and Hollywood players will be all ears for commentary from CEOs as Netflix kicks off quarterly earnings for the sector on Wednesday, followed by other media companies into August.

Among its rated companies, Moody’s cited exposure of cinema operators NAI Entertainment Holdings (rating B3 stable), Vue Entertainment (Caa2 negative), AMC Entertainment (Caa2 stable) and Cineworld (started bankruptcy proceedings in 2022) — all of which could face earning, cash flow and liquidity pressures in a prolonged strike.

After exhibitors, broadcast television and cable networks are most exposed, given they’re already in secular decline.

Major studios, network owners and streamers that are well-diversified by business, content genre (news and sports) or by geographic production and library, and have relatively strong balance sheets are least at risk. Besides Netflix, that also includes Comcast (A3 stable), Fox (Baa2 stable), Sony Group (A3 positive) and newer participants like Apple (Aaa stable) and Amazon.com (A1 stable).

“Ultimately, we believe the strike will be a temporary phenomenon and unlikely to cause the investment-grade companies’ credit quality to weaken significantly enough to pressure their ratings in isolation. But it could cause some disruption and ultimately a settlement is highly likely to result in higher costs for all producers and distributors, and potentially for consumers which could moderately hurt subscription growth and churn rates,” Moody’s said.

Moody’s Sees Eventual Guild Deals Costing Media Companies A Collective $450-$600 Million A Year; Movie Theaters First At Risk From Strikes

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