How Hollywood studios will be impacted by new actors' deal

A new Moody's (MCO) report estimates that the recent strikes in Hollywood will cost entertainment studios $450-600 million dollars annually going forward, as the new union contracts go into effect. The report said that this increase in costs "will not pose a credit risk for the studios in isolation," citing the massive spending that already occurs globally, this only makes up an incredibly small percentage. Yahoo Finance Senior Reporter Alexandra Canal joins the Live show to break down the report and what it means for the entertainment industry going forward.

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Video Transcript

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- Well, Hollywood's double strikes may be over, but new contracts are expected to result in hefty price tags for major studios, a new Moody's report pointing to a payout in the amount of hundreds of millions of dollars. Let's bring in our very own Ale Canal to break this down for us. Payout expected Ale, but what kind of money are we talking about?

ALEXANDRA CANAL: Yeah. So Moody's saying that those contracts with the writers, actors, and directors, it's going to cost studios an estimated $450 to $600 million per year. And while yes, that is a lot of money, Moody's said spread out over a large number of projects will not pose a credit risk for the studios in isolation, especially if you think about how much these types of companies spend on content-- around $100 billion globally if you add that all up.

But Moody's did say these studios will look to cut costs in other areas, and that could include enlisting fewer A-list talent actors, approving less on-location filming, and trimming post-production and special effects spending. Studios may also more aggressively pursue production incentives like tax increases and financing subsidies, in addition to leaning on more imported content.

So at least on the content side, on the production side, we likely won't see any impact there because at the end of the day, content is king and these businesses don't want to make any moves that are going to hurt their storytelling capabilities. That being said, though, you are already seeing these types of companies really focus on what they want to produce.

Disney, for example, they've really stressed quality over quantity. They lowered their 2024 content spend to $25 billion versus the $27 billion it spent this year. So studios are still being very cost conscious at the end of the day, especially as they continue to work to reach profitability within those very tricky streaming businesses.

RACHELLE AKUFFO: And Ale, it's worth noting that Moody's called out certain companies that will feel the pain of higher costs more so than others. So who's most at risk?

ALEXANDRA CANAL: Again, it's really those companies that have exposure to the streaming side. Moody's did list specific companies, Disney being one of them, along with Warner Brothers Discovery, Comcast, Paramount Global, and AMC Networks, those will be the companies that will most likely feel the impact of higher costs coupled with escalating streaming losses, which Moody's says it expects will continue in 2024. And for some of these companies, even 2025.

That being said, though, we did see a boom in free cash flow virtually for all of these companies during the strike. So that should help offset some of these higher costs. So if you look ahead into 2024, we'll probably have some tough year over year comps when it comes to free cash flow, but again, that's going to greatly help these companies as they work to pare down some of those losses on the streaming side.