Moody’s expects new WGA and SAG-AFTRA contracts to cost studios up to $600 million a year

Major ratings agency Moody’s Investor Services estimates that new contracts with actors, writers and directors will cost Hollywood studios between $450 million and $600 million a year.

Incurring these costs, spread over a large number of projects, does not in itself pose a credit risk to the studios, he said, noting that spending to support the streaming wars is already at global record highs of more than $100 billion is. reach. However, the company does not expect studios to adjust their overall production budgets to account for the higher costs, given the priority on “sustainable profitability,” and some will even cut expenses. They are also not expected to reduce volumes – which only recently started to rise after the Corona crisis, before the strikes broke out.

This means production cuts.

“Companies are unlikely to reduce their production volumes significantly, if at all, to reflect higher costs. Instead, we believe they will seek cost savings that will not materially affect the scale of film and television production or the quality of stories experienced by audiences,” Moody’s said.

These include reducing the use of top talent, less filming on location and greater use of sound stages and green screens. They are likely to limit spending on post-production and special effects.

“We believe there is significant opportunity to tighten budgeting processes given the known excess in the industry, and studio executives are willing to do so given the secular pressure on linear television distribution, thin film margins and the collective losses in the streaming sector. “

Lionsgate executives, who were among the first to discuss the new landscape yesterday, said as much, noting that they will take a close look at all aspects of a production given the higher costs.

SAG-AFTRA announced an agreement with the AMTPT this week after an agreement was reached between the studios and the WGA in October. It was one of the longest work stoppages in Hollywood history and marked the first time since 1960 that both unions went on strike at the same time. In July, the DGA agreed to a no-strike agreement with the studios. The range of 450 to 600 million US dollars was given by Moody’s at the time.

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

Moody’s said studios could also seek more tax breaks, fund subsidies and produce more projects outside the United States. That could mean “importing more content and stories that perform better across borders.”

“This increased cost awareness, starting with the green light, is already underway as companies try to achieve faster profitability after a period of trying to scale at all costs.”

Starting last spring, there was a massive shift in sentiment toward streaming on Wall Street and in the industry, shifting the focus from subscriber growth to profits. Most streamers have since introduced ad-supported tiers to tap into a dual revenue stream and raise subscription prices. Additionally, studios became less interested in keeping all their own content in-house and started licensing it to others.

The problem remains that media companies with ties to broadcast and cable networks — most of them — are still in the painful transition from linear television to direct-to-consumer streaming, and most will continue to have significant streaming losses for years to come. will suffer

The new contracts offer better pay, staffing and AI protection. Writers now receive bonuses based on streaming views, a minimum occupancy in TV writers’ rooms depending on the number of episodes, and limits on AI usage. The final details of the agreement between the actors are not yet known, but they include higher wages and AI rails.