Hollywood enjoyed a four-decade boom from the succession of the basic cable TV networks, home video DVDs and video streaming revolutions, which steadily enlarged the industry workforce locally. But streaming experienced an unexpected growth panic attack earlier this year, putting Hollywood and the associated digital media at an uncertain crossroads.
Streaming leader Netflix reported two disappointing quarters recently, and performance of other streamers shifted to mixed, from previously uniformly stellar. Subscription headcount was flat at NBC Universal-owned streamer Peacock in the second quarter, according to parent Comcast, which is an abrupt leveling for the video service launched only in 2020. And the low-end forecast for Disney+ was dropped 7% this month.
With streaming’s growth ceiling lowered, Wall Street no longer applauds growth at any cost, which had spurred a land-grab mentality among streamers of fast expansion.
The film and TV industry employed 306,606 persons in Los Angeles County in 2020, according to federal labor statistics. A statewide California count presents spectacular employment growth. “The Motion Picture and Video subsector saw phenomenal growth in the state, with employment levels swelling almost 102% (from 2007-2022) as the world of streaming platforms came online,” says “2022 Otis College Report on the Creative Economy,” a 271-page report commissioned by Otis College of Art and Design. The pandemic lockdown devastated the industry, distorting comparisons since 2020.
Any slowdown or retrenchment in streaming is important, because entertainment is L.A.’s signature industry. Five entertainment companies are on the Business Journal’s annual list of 50 largest Private Sector Employers, which begins on the following page.
The poster child for Hollywood’s new realpolitik is the decision to scrap a nearly finished $90 million live-action comic book adaptation “Batgirl,” which was conceived as a made-for-HBO Max streaming original movie by corporate sibling studio Warner Bros. For “this idea of expensive films going direct-to-streaming, we cannot find an economic case for it,” Warner Bros. Discovery’s chief executive, David Zaslav, said on an earnings call Aug 4. “We can’t find an economic value for it and so we’re making a strategic shift.”
That’s a U-turn from prior management at HBO Max that unveiled an ambitious slate of 10 original movies in July 2021 to premiere on the video streamer. Made-for-streaming production initiatives are now under the knife across Hollywood.
Streaming originals bulk up Hollywood’s content output like the successive emergence of cable TV networks and home video, whose originals were largely additive to Hollywood’s pre-existing content pool.
Reflecting the content pool mushrooming, basic cable channel FX Networks estimates Hollywood will crank out 649 original scripted prime-time original series this year across broadcast, cable and streaming, from just 211 comparable TV series in 2009. That surge tracked by the FX annual “Peak TV” report is largely attributable to streamers.
The impact on talent wages from mushrooming production is more of a mixed bag, by some accounts. Marvin S. Putnam, the Century City-based partner at law firm Latham & Watkins and chair of its Entertainment, Sports and Media Industry Group, notes volume for a season worth of production by a TV series has shrunk in some cases, which can crimp talent pay. Decades ago, when broadcast TV networks dominated, they would order 22 to 26 episodes of a series, while six to 12 segments are sometimes commissioned now by streamers or cable networks. Or the season might have been defined as 18 months, not 12.
“Yes, there are more writers for more and more shows, but those can be for less episode seasons that require a greater time commitment,” observes Putnam.
Also, Hollywood’s content spending is global, so employment doesn’t necessarily accrue to Los Angles, though the region is a big recipient. Netflix, in particular, has been locating production hubs in other states, such as purchasing Albuquerque Studios in New Mexico in 2018 and then expanding the production facility.
Wells Fargo estimates that content spend, excluding sports rights, for the top nine film/TV players will hit $111 billion this year, up from just $77.8 billion in 2019.
In the recent boom, Hollywood and streamers bid up compensation for the cream of TV producing and writing talent — the so-called show runners. Top deals surpass a hundred million dollars, in big jumps from prior years. Netflix raised industry rates to sign Shonda Rhimes (“Bridgerton”) and Ryan Murphy (“American Crime Story” at FX).
It’s not clear if these precedent-shattering mega-deals for top-tier show-creating and show runner talent will continue or not. “This really was a gold rush at a precise moment of time,” Putnam says. “Whether we see that again, it’s hard to imagine.”
Employment riches trickle down to more mundane jobs, in some cases. “For example, production accounting is in super high demand,” says Adam J. Fowler, founding partner of CVL Economics, a Los Angeles-based consulting firm with an extensive practice in entertainment. “It’s a very niche skill set” that’s in short supply.”
Since 2007, the entertainment and digital media segment is by far the star performer among five California creative industries, rising 35% in relative comparison to four other segments, according to the Otis College creative report. The data was compiled from the Bureau of Labor Statistics Quarterly Census of Employment and Wages. The other four creative sectors, which were comparatively flat to down, are architecture/related, creative goods/products, fashion and fine/performing arts.
The streaming revolution that is the current wave of entertainment/digital media growth and Hollywood employment is a costly enterprise. Walt Disney Co. reported this month that its direct-to-consumer streaming business incurred a quarterly $1.06 billion operating loss, up from red ink of $293 million year earlier. At about the same time, Paramount Global forecast a $1.8 billion streaming loss for calendar 2022, which is higher than Wall Street expected. The Paramount Pictures parent defended the investment for building a new business.
An ominous trend for local employment is the current streaming growth that occurs overseas. That prompts streamers to build abroad, including commissioning local-language programs. All eyes of Hollywood labor and producers are fixed on how streaming economics play out in the months and years ahead.
“My impression, we’re not seeing everyone putting the brakes on that we saw back in mid-2020 with the pandemic,” says entertainment/intellectual property lawyer Rami S. Yanni, a Century City-based partner at Raines Feldman LLP. “TV production and feature films have bounced back.”