Possible strikes by actors and writers may have many people forecasting a gloomy 2001 for Hollywood, but thanks to growing global demand for content the long-term outlook is actually quite bright, with L.A. well positioned to reap the benefits, according to a new study by Arthur Andersen.

Threats posed by runaway production, sinking TV ratings and battles between managers and agents may be troubling in the short term but are nowhere near fatal, asserted John Nendick, managing partner of media and entertainment at Arthur Andersen.

“Are there some bumps in the road in 2001? Yes. Does that change our overall optimistic outlook? No,” Nendick said. “We think the long-term strategic positioning of the media and entertainment business remains strong. The demand for content should be in place for the next two or three years, and global revenues should continue to increase.”

In fact, despite problems posed by rising production costs and pressure for near-term profits, Andersen predicts substantial growth during the next five to 10 years, as a number of factors converge.

Andersen’s forecast comes despite acknowledgement by the accounting company that operating income for the largest media and entertainment companies shrunk by 8 percent in the past two years.

Meanwhile, mounting production costs have outpaced profits, with more than 50 percent of the films made in the past three years failing to turn a profit. Meanwhile, the number of new films released in the U.S. has grown by 19.5 percent during the past five years while the number of theater screens has gone down by 13 percent, meaning an oversupply of domestic product.

According to the report, many of the problems confronting the $30 billion industry call for “tactical adjustments” and don’t speak to the numerous positives that promise to keep it strong for years to come.

“Our optimism comes from a long-term perspective,” Nendick said. “Overall, the industry is very robust and should stay that way.”

Andersen’s report, “Key Trends in the Media and Entertainment Industry,” was derived from several studies it either conducted or commissioned, as well as a survey involving more than 30 companies, including entertainment and media giants Walt Disney Co., Sony Corp. and Time Warner Inc.

In the report, Andersen identifies a number of overriding trends that Nendick said speak to more profitable days ahead.

Most significantly, Andersen cites growing demand for film, television, video and DVD content in markets outside of the United States, particularly in Asia. In addition, the trend towards conglomeration and strategic partnerships witnessed most recently by the pending merger of Time Warner and America Online, and Vivendi’s purchase of Universal Studios will allow the major content providers to extend their reach across numerous markets. Meanwhile, the explosion in digital and other new technologies and changing consumer spending habits all bode well for the future.

For example, as it stands, Asia now has five times as many television sets as the United States, but that continent represents just a small fraction of the total market demand for media and entertainment. As global markets continue to open, entertainment companies are poised to fill the void with existing content.

“Over time, countries like China and India will generate significantly more long-term revenues and profits for the content providers,” Nendick said.

While the conglomerates stand to increase their competitive edge due to their massive resources and reach, the entertainment field should also provide ample opportunities for smaller companies, according to Nendick.

“Creativity in this industry will always be rewarded,” he said. “You don’t have to consolidate in order to survive.”

Despite what is becomingly an increasingly grim outlook in L.A. due to the lack of progress in labor discussions between the studios and actors and writers, other analysts echo Andersen’s optimistic long-term outlook.

“The current labor problems are just that, current,” said Eric Scheirer, an entertainment industry analyst with Forrester Research. “Unlike what some people think, this is not leading to a labor apocalypse that’s going to break down the industry.”

Satisfying customers

Scheirer said rosy long-term prospects for entertainment and media companies stem from their ability to reach consumers on their own terms.

“The film industry is already offering its customers the products they want through the media channels they have access to theaters, video, DVD and cable,” Scheirer said. “That compares favorably with the music business, where the consumer wants the ability to pick and choose among singles, and the record industry is not equipped to do that. In that case, Napster stepped in to give consumers what they want.”

Morrie Goldman, vice president of communications for the L.A.-based Entertainment Industry Development Corp., said a Hollywood work stoppage could be worse than analysts expect, particularly for the local economy, where the impact would approach $50 million a day. But he agreed the outlook was better down the road.

“This year could have some significant bumps but I agree that overall the long-term prognosis is good as long as we continue to nurture the industry,” Goldman said.

Scheirer, however, cautioned that one developing technology could threaten L.A.’s position at the center of the entertainment world. He pointed out that so-called e-marketplaces allow producers to find talent and technical support on the Internet.

“Say you’re doing a production in France. You can log on to a Web site and ask for an assistant photographer in Nice and a script designer in Paris,” Scheirer said. “This is a slow process, but it will create less impetus for anyone involved in the entertainment business to move to L.A., which they have to do now.”