Terry August got a phone call from Paramount Pictures two weeks before Christmas a few years back with a hefty demand. The production studio wanted 1,400 gift baskets made up for clients and employees on a tight deadline.
August, who owns Fancifull Gift Baskets on Melrose in Hollywood a company that assembles baskets filled with an array of cheeses, wines, and other treats that she collects from around the world filled that order within days.
But this year she didn’t get any orders like that. About 40 percent of her clients come from the entertainment industry, and the writers strike put a damper on her holiday sales.
“The strike affects people’s mood,” August said. “There isn’t as much celebration this Christmas. Agents aren’t sending gifts. There are no deals being made. It hurts everyone.”
The impacts of the strike are easier to see now that it appears to have staying power. The strike started Nov. 5 and appears on course to continue into next year as negotiations between the writers’ union and studios are in stop-start mode. Businesses that serve the entertainment industry have begun to lose income, lay off workers and even sell off their assets.
Estimates vary as to the potential financial impact on the Los Angeles economy as production stops. They range from $1 billion to a third of that.
Equipment companies, restaurants, caterers, transportation services, and costumers are some of the most affected, said Michael L. Klowden, the president and chief executive of the Milken Institute, an economic think tank in Santa Monica.
“They aren’t actual production companies, but they are taking a hit,” Klowden said.
Business has come to a near standstill for some companies.
Michael Kopilec, the owner of Classic Car Supplier in West Hollywood for 23 years, rents out a collection of historic cars for movie shoots.
“This is about the third phone call I’ve had in two weeks,” he said. “I usually have about 15 every day. The phone just doesn’t ring.”
He usually rents two or three cars in a week, but has done almost no business this month. He is living off his credit cards and is preparing to sell inventory. He will put one of his fourteen cars up for sale this week.
“It can’t get any worse,” he said.
Richard Chan, the chief executive of North Hollywood-based Aero Mock-Ups Inc., which builds plane interiors for movie and television sets, has also taken a hit.
“In a word, business is horrible,” Chan said. “It slowed up to where we aren’t doing any television or movies.”
Gross sales are down 75 percent and Chan had to lay off two people half of his staff. The company is still working on commercials but it isn’t enough to sustain them for long, he said.
The Screen Actors Guild strike of 2000 hit him hard as well. Then came 9/11, which lowered the demand for scenes shot in airplanes.
“We had actually just done a full recovery this year and this has set us back again,” he said.
Wide impact
A mid-budget film in the $17 million range employs about 300 contractors, and a large film employs more than 900 contractors, mostly independent and small, said Mark Deo, a business consultant who is working with a number of companies that are being affected by the strike. His main advice: diversify.
“The strike is already affecting many hundreds of businesses,” Deo said. “I have personally talked to dozens and people on my staff have talked to dozens more. This has a really dramatic impact on the small business community, the local economy, and to some extent, the national economy.”
Deo began to see companies affected even before the WGA strike began because studios began cutting expenses. He is consulting Hollywood Coaching, a company that trains entertainment executives. It lost several contracts with senior level studio executives in anticipation of the strike, he said.
More and more companies will be affected as the strike continues, Deo said, and when it’s over, some won’t be around anymore.
“It is particularly bad timing certainly not purposeful in light of the fact that small businesses have been having trouble dealing with economic woes, like in the real estate market. It makes it hard for businesses in any sector.”
Some economists doubt that the strike will be as severe as initially portrayed. In a mid-December report, UCLA Anderson Forecast economist Jerry Nickelsburg said the impact of the strike would be nowhere near the $1 billion number cited early on by the media. Instead, he estimates that the total impact will be about one third of that or less, including money that fringe businesses lose.
In an interview with the Business Journal last week, he said reality TV plays a significant role in lowering the strike’s impact.
According to Film L.A., a non-profit that serves the entertainment industry, 46 percent of television is reality TV. That part of production, and the companies that support it, are not affected by the strike.
As far as scripted shows go, fringe companies made more money in the summer as studios stockpiled shows in anticipation of a strike. That would help them offset the effects of a slow period now, Nickelsburg said.
“To the extent that these complementary industries were able to earn revenue in support of the stockpiling of television shows prior to the strike, they had only a temporal change in their cash flow,” Nickelsburg said. “They did more work last summer and less work in the fall. The strike will only have a moderate impact in Southern California. It is nowhere near the problems in the housing market or in the 90s during the contraction in the aerospace industry.”
Getting new customers
The entertainment-related businesses that reported doing best in the face of the strike were those that have diversified.
Thaddeus Smith, the co-owner of the Music Box Theater in Hollywood, which is rented out for holiday parties and film and television shoots, has felt the effects of the strike. But they aren’t as bad off as they could be.
Smith lost $50,000 in business this holiday season when several studios canceled their parties at the location. The show Mad TV which shoots at the theater several times a month is on hold until further notice.
“That’s why you don’t put all your eggs in one basket,” said Smith. Lately he has been concentrating on booking clients outside the entertainment industry. “We didn’t book a lot of TV and entertainment as far as Christmas parties because I’ve been around a while and I know what happens when you have a strike. It would have been a big problem if we had.”
After Jim Tessmar saw his company Battery Hut severely affected by the 2000 SAG strike, he made a serious effort at diversification.
In 2000, the company sold 85 percent of its products to the entertainment industry for use in cameras and other devices. Since then it has narrowed that to about 25 percent. The company now supplies batteries to hospitals and maintenance departments at large companies, as well as directly to consumers.
So far, the writers’ strike has wiped out 100 percent of Battery Hut’s entertainment-related business. If not for diversification, “we would essentially be out of business,” he said.
Even so, he may have to begin laying employees off by the end of the month.
Even restaurants, especially those close to studios that are nearly empty during lunch hours, have been trying to find alternative ways to make money.
Larchmont Grill, which just opened in May a block and a half from Paramount studios, has beefed up its delivery business and advertised heavily to bring in outside parties from surrounding areas such as West Hollywood.
Walk-in traffic has declined because people don’t want to cross picket lines for meetings and other business at the studio.
“But we support both sides and we have supplied food for both,” said co-owner Sean Bates. “Our timing for opening was less than ideal, but we deal with it and look forward.”
August of Fancifull has been trying to build clients from other industries such as law, banking, and wealth management.
“It’s always a matter of keeping the clients you have, but we are always trying to replace big clients,” August said. “We lost one big company back East but you just go on and find new opportunities.”
