Amateur entertainers with fresh ideas for video content should get their stuff on YouTube right away. Hollywood's brain trust has gone on strike.
More than 12,000 movie and TV writers represented by the Writers Guild of America have begun the first industry-wide strike since 1988. Weekend negotiations in Los Angeles between the union, film studios and TV networks failed to result in an agreement.
The absence of writers, who are pushing for residual compensation for sales of DVDs and other forms of digital media like online video, represents an amorphous threat to old media as the industry struggles to adapt its business models to the Internet.
For their part, Wall Street analysts are largely sanguine about the effects of the strike on profits and stock prices in the sector.
"The elements leading up to a strike here have been in place for the last six months, so no one is surprised by this, and it probably won't last long enough to have a real effect on these companies as far as investors are concerned," says SMH Capital analyst David Miller. "No one knows how things will turn out, but in my experience with these strikes, both sides usually talk tough in the lead-up and then it all ends more quickly than most people believe."
The 1988 strike lasted 22 weeks and TV ratings dropped about 9%, cutting the industry's revenue by an estimated $500 million. This time around, the rise of reality TV shows, 24-hour cable news networks and other forms of nonfiction programming has left professional writers with less clout.
That said, some effects of the work stoppage will become quickly apparent on TV, especially on popular late-night comedy shows that are immediately going to reruns without their writing staffs on hand to poke fun at current events.
Comedy Central network will begin reruns on Monday with its hit late-night shows,
The Daily Show with Jon Stewart
The Colbert Report
broadcast network, NBC,
The Tonight Show With Jay Leno
is expected to be affected, as will be
Jimmy Kimmel Live
The Late Show With Dave Letterman
A spate of reruns for these shows shouldn't do much damage to their networks, but the allegiance of audiences could be tested if the strike is prolonged.
"Shows that go to reruns may get fewer viewers and fewer ad dollars in the near-term, but their costs would be less as well so profitability could actually be higher," says Barrington Research analyst James Goss. "But you don't want to condition people to go somewhere else. That ultimately does come back to bite you."
As for TV dramas, analysts say the networks have months of leeway to weather a strike before they begin to suffer. Millar Tabak & Co. analyst David Joyce says his estimates for TV stocks won't change unless the strike lasts into 2008. SMH Capital's Miller says his models won't be changed unless a strike goes into the spring.
Miller says the only stock he covers that has shown any reaction to the risks posed by the strike is CBS, which is down 11% since the beginning of October (the stock was recently gaining 35 cents, or 1.3%, to $28.02). He estimates that CBS, perhaps the closest thing to a pure-play TV network stock on Wall Street, has lost $1 in response to the recent strike rumblings.
have been rallying in the lead-up to the strike, despite the prospect of picketers outside their studios in Hollywood.
"The strike will not affect the stock prices of film companies as much as TV companies," says Miller. "That's because of the long lead time required for film production. If you're
Lions Gate Entertainment
, and 66% of your revenue base comes from feature films and home video, all you've been doing for the last year is stockpiling scripts. They could probably make movies for the next two and a half years with all the scripts in their inventory right now."
Shares of Lions Gate recently were down 14 cents, or 1.3%, to $10.54. The stock is still up 2.2% since the beginning of October.
is not expected to take a hit from the strike. Disney will see picketers at its Hollywood studios, but its cable sports stalwart, ESPN, won't be affected.
Shares of Disney were recently down a nickel, or 0.1%, to $33.87. The stock is off by 1.5% since the beginning of October.
Goss notes that in 1988, the first-run domestic box office performance of a movie accounted for most of the total revenue it generated, but now it accounts for less than 20%. Now, DVD sales account for more than half the revenue.
"Significant changes have taken place since then, but in many ways, this is a fight over revenues that still haven't amounted to much yet," says Goss. "Most of the revenue that will be generated for these companies on the Internet is still in the future, so the impact of any reasonable settlement would not be much in terms of current revenue."