Hollywood's double strike might be over — but that means studios will now have to pay up as new union contracts begin to take effect.
"We estimate the new contracts for writers, actors and directors will cost studios closer to the high end of our $450 million to $600 million yearly cost estimate," Moody's wrote in a new report released on Friday.
"Still, absorbing that cost, spread over a large number of projects will not pose a credit risk for the studios in isolation," the report continued. "Especially considering global yearly spending on TV and film entertainment is over $100 billion, with the US a big chunk of that."
Moody's said studios will likely cut costs in other areas to cover the pricier contracts, explaining: "We believe studios are unlikely to change their overall production budgets to accommodate these higher costs, or reduce volume, and will instead look to save where it will not materially hurt amount of material produced or quality of storytelling."
Cost-cutting possibilities include hiring fewer A-list actors, approving less on-location filming, and trimming postproduction and special effects spending, in Moody's view.
Companies may also more aggressively pursue production incentives like tax credits and financing subsidies, in addition to increasing the level of imported content.
"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," the report said, citing Disney's recent earnings as an example of this trend.
Disney expects to spend $25 billion on content next year versus the $27 billion spent in full-year 2023.
Still, companies like Disney will continue to feel pain on the direct-to-consumer side as Moody's expects streaming losses to continue next year and, for some, also in 2025.
"The cost of creating content and launching new international markets remains high and many are in or just beyond their peak streaming loss year," Moody's said, calling out not only Disney, but also Comcast (CMCSA), Paramount Global (PARA), Warner Bros. Discovery (WBD), and AMC Networks (AMCX) as companies most likely to feel the impact of higher costs and escalating streaming losses.
That being said, the boom in free cash flow, which virtually all of these media companies experienced during the strikes, will likely offset some of the higher costs.
SAG-AFTRA, the last of the Hollywood unions to strike a deal with major studios, revealed Friday its national board approved the tentative deal to end the historic 118-day actors strike — the longest in its history against the studios— by 84%. It now heads to the union's member base, who will vote on whether to ratify the contract over the next few weeks.
Moody's said gains for union members "were significant," with minimum wage increases, streaming viewership bonuses, and protections against artificial intelligence serving as highlights across the board. It will take approximately six weeks to resume scripted TV and film production.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected].
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