The Journal. - The Case of the Hollywood Shutdown

Episode Date: July 28, 2023

Amid Hollywood’s biggest strike in 60 years, WSJ’s Amol Sharma dons his investigator’s hat to find out who’s to blame for the standstill.  Further Reading: - Streaming Brought Hollywood to a Standstill. Now Comes the Pain.  - TV’s Golden Era Proved Costly to Streamers  Further Listening: - One Hollywood Writer on the Industry’s ‘Dire’ Situation  - Why ‘Yellowstone’ Is One of TV’s Most Expensive Shows  Learn more about your ad choices. Visit megaphone.fm/adchoices

Amol Sharma is our media and entertainment editor. And over the years, he's seen a lot go down in the industry. But nothing quite like this. New York is a union now. On strike. When I say union, you say power union. Power union. When I say union, you say power union.

Power union. Actors and writers are on strike. It's the biggest for the industry in 60 years. And Hollywood is at a standstill. It's a ghost town. I mean, all the places that should be producing stuff are shut down. So every lot is basically very quiet. You'd normally see a lot of hustle and bustle for producing broadcast shows for the fall season, for example.

That's not happening. To understand what brought Hollywood to this point, Amol says one way to think about it is like an Agatha Christie mystery, with suspects, motives, clues, and consequences. I think there's a crime scene. A crime scene? Yeah. There's definitely a crime that's happened upon the entertainment industry here.

Okay, so who's the victim of this crime? The victim is everyone who has any stake in the entertainment industry. So the whole industry is the victim. You can't make shows now, so that's bad for the companies. It's obviously bad for the talent when they can't make any programming. And it's not great for the consumers who are looking forward to whatever it is, Abbott Elementary or White Lotus or Euphoria or any of that stuff. So we, the viewers, are kind of like the loved ones.

I think so, yeah. We're sort of looking on, dismayed, and the whole thing indirectly hurts us too, yeah. Amol has visited the crime scene. He's collected clues and leads, all to get to the bottom of this mystery. We're trying to figure out sort of who has killed at least temporarily the entertainment industry, or who at least has kidnapped the entertainment industry.

I don't know what the best way to say it is. One thing about making a true crime podcast like this, many of them have unsatisfying endings. Yeah. Are we going to have a good ending for this? I think you can make that case. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Friday, July 28th. Coming up on the show, the whodunit over the standstill

in Hollywood. Your teen requested a ride, but this time not from you. It's through their Uber Teen account. It's an Uber account that allows your teen to requested a ride, but this time, not from you. It's through their Uber Teen account. It's an Uber account that allows your teen to request a ride under your supervision with live trip tracking and highly rated drivers. Add your teen to your Uber account today. As a mole set out to figure out this Hollywood mystery,

he first surveyed the damage. Hey, hey! Ho, ho! One, two, three, and down you go! We're on! Let me hear it! We're on! When do we want it? Now!

At the picket lines in L.A., a mole spotted a lot of famous actors, like Alan Ruck, who played Connor on Succession. Because I don't need love. It's like a superpower. Jared Harris from The Crown. I mean, a great act of patriotism. And even Jane Fonda.

Do you not see me? Do I not exist? I'm not going to lie. It wasn't that easy always to spot the famous people when they're wandering around like in cargo shorts and like, you know, in a hat and haven't gone to makeup prior to attending the rally. A lot of the actors out picketing aren't big names. They're lesser known actors who say they don't bring in big paychecks. You know, working actors, regulars on shows, people that you think, oh, that person must be

doing really, really well. And then you find out that they consider themselves middle class, and what they're earning is pretty tough to get by on in Los Angeles. At the Netflix strike, I met a guy who was a regular actor on the show Black-ish on ABC, or he was before it ended, Nelson Franklin. But, you know, he described himself as a working actor, really,

who's been hit a bit in the streaming era and is trying to figure that out. Sorry, go ahead. Yeah, I've been an actor for 15 years, hit a bit in the streaming era and is trying to figure that out. Sorry, go ahead. Yeah, I've been an actor for 15 years and I've had a very pleasant sort of middle class existence doing that. And over the last sort of six or seven years, it's been, I've just been,

I've had like a front row seat of it just sort of diminishing as time goes on. Less money for the actual work that I'm doing and also less money for residuals, well, no residuals in terms of streaming. So I just need to be able to make a living again, because as it is now, the middle class actor can't survive on the current contract. Striking actors and writers are asking studios for more money and better conditions. One of the key demands is for higher payments for residuals, what they receive when reruns air on TV or when something's watched on a streaming

platform. The coalition representing the studios and streamers have said they made significant offers to the writers and actors. According to the executives you spoke with, like, why can't the studios give them what they want? Well, some of the things that the talent is asking for are actually really hard to do. One of the asks is, we want a percentage of revenue from all your streaming. But it's just not that simple. And the companies have basically been like, we're not going to even negotiate on that. So let's keep it to just regular questions of pay. And even on those, the companies don't have a tremendous amount of wiggle room in their view right now. Getting back to our mystery, these strikes mean that shows cannot be made right now.

These strikes mean that shows cannot be made right now. So in this crime that has shut down Hollywood, does this mean that the actors and writers are suspects? Yeah, I think they play a role. But I think it's hard to make the case that they are like the sort of main culprit. But I think if you look at how we got here and who's to blame and who the suspects are, you could start with cable companies, which basically created this very lucrative system that was almost too good to be true for years and years. That system was the old cable bundle.

When you paid your cable bill, a lot of that money went to the channels and made its way down to the Hollywood writers, producers, and actors. A lot of people did very well. Amol says the cable companies are suspects because they allowed the cable bundles to get too expensive.

Yeah, we didn't like having like 400 channels for $175 a month. Yeah, exactly. So as the cable bundle is starting to unravel or you start to detect, like people are unhappy and want to cut the cord, but it's not really yet a thing. You need somewhere to go where you're going to go. Netflix storms onto the scene. It's the pioneer in streaming.

And Netflix is our next suspect. For a long time, Netflix focused on growth, gaining more and more subscribers. And with that, it devoured the entertainment landscape. And they started changing the entire economics, like even the way talent is paid. They'd say, we're going to pay you a lot of money in the front, like up front right now, this big check, instead of spreading it out over time, which is the way that it happened in TV. They changed the pricing that would be appealing, the product you should offer, which would be a ton of content, the delivery of it should be streaming, and the way you pay the

talent. All Netflix pioneering all of that. The rest of the entertainment industry wanted in on it. Traditional media companies and studios like Disney and Paramount sold their own shows, like The Office and Friends, to Netflix. One could argue they created the Netflix monster in the first place. They did not have to give all their stuff, all their old shows and libraries of things to Netflix. They licensed them.

They sold that stuff to Netflix. So it was short-term money, which looked good to investors, but they enabled Netflix to get stronger and stronger by giving them this content. In other words, the media companies and studios fueled the shift to streaming by empowering Netflix. And this raises the idea that maybe the studios are also a suspect. This is the idea that maybe the studios are also a suspect. The studios decided they needed to compete with Netflix directly and began launching their own streaming services.

In 2019, Disney came out with Disney Plus, and in 2020, NBCUniversal launched Peacock. The studios did not manage the shift to streaming well, to put it mildly. One could argue that the way that the strategy they've picked to go about competing with Netflix also isn't working, which is a let's make a ton of stuff. Let's make a ton of content. We have to be a supermarket. But it's also the golden age of television. It is.

So many shows. So many shows, yes. And I think a lot of people, you know, honestly thought that's the answer. You just have to make a ton of programming. You have to pay a ton of people. You have to make a ton of shows. Huge programming budgets, right? The truth is now every top entertainment executive I talk to is reflecting on that

and saying things like, maybe we overshot. The striking actors and writers. The cable companies. Netflix. The studios. But there's another suspect. A dark horse. That's next.

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One key plot point in our mystery happened last spring when Netflix announced its first quarter earnings. It was not a good week to be a Netflix shareholder. The stock plummeted more than 35% on Wednesday. They lost 200,000 subscribers. They expect to lose two million more. I think basically times have caught up to Netflix. Up to that point, Netflix's growth had looked unstoppable. So when the company reported its first subscriber loss in more than a decade, it shocked Wall Street and the whole entertainment industry. What did that mean for the studios? I think everyone just said, wait a minute, this is like the 800-pound gorilla. This is the juggernaut that can't be stopped. They are a few years ahead of where we are in

sort of pursuing this streaming gold rush. And we all thought there was a lot more kind of like low-hanging fruit out there to get like subscribers to sign up is just going to be easy. Oh, no, it's going to be hard. If it's hard for Netflix, it's going to be hard for the rest of us. And was that because of pressure from Wall Street? Well, Wall Street sent the signal to all these companies that if you weren't taking the Netflix situation seriously, you better be because Netflix stock, you know,

was hit hard when that happened. And every other company knew they'd be next if they weren't going to shape up and figure out a better, more efficient way to run their streaming businesses. Wall Street? Yeah. Potentially our dark horse suspect. going to shape up and figure out a better, more efficient way to run their streaming businesses. Wall Street. Yeah.

Potentially our dark horse suspect. Potentially the dark horse, yeah. They're like the shadow. And then all of a sudden you're like, the camera lens turns to them and you're like, wait a minute, they're the suspect. Yeah. I mean, I don't want us to like the conclusion to be, okay, we figured it out. Like Wall Street killed the streaming industry.

But I do think it's really fair to say that investors were rewarding one thing for a really long time. Just show me how many subscribers you can get in streaming. Profits, schmuffits, I don't really care. And then all of a sudden it all changed. And they're like, what? This doesn't make money. And all of a sudden it all changed and they're like, what? This doesn't make money? And all of a sudden that was the only thing that mattered to these companies. The result has been a painful transition for Hollywood.

Entertainment companies have laid off thousands of people, canceled shows, and pulled back on new content. Netflix had to make big changes too, like cracking down on password sharing. And at the same time that Wall Street's putting pressure on the studios, talent, Hollywood actors and writers are trying to negotiate new contracts. Yeah. So the talent is showing up in this environment where the companies are under tremendous pressure from Wall Street to show profits, to show progress. And they're basically saying, we need a raise now because this whole system isn't working for us. And these strikes have just sort of made it a much more complicated situation to navigate. I have a question here. It's a little bit of a curveball.

Is the victim actually the business model? I think the business model might be the weapon. The weapon. Yes. Okay. It depends how you look at it. I mean, in a weird way, the business model is the weapon and it's also the way out of this if they change it and fix it in some way. And how long do they have to fix this problem? Well, it depends who you ask, but almost everyone agrees that if this goes through the fall and into the winter, you start seeing real damage to some of the key pillars of the entertainment business. Broadcast television already is pretty screwed up for the fall season. I mean, shows should be in production now that people would want to watch in September.

They're not. As you get later in the year, big movies aren't launched. And if you go further out into by the end of the year or early next year, if this strike is still going on, then you start asking yourself, like, there are hit shows people are really excited about and want to see. Like White Lotus. Might not come back for a while. Yeah, White Lotus might be into 2025 or Euphoria might be into 2025. So, now that we have our suspects, we have our weapon, we have our stage, do we have our answer in our Agatha Christie analogy here? Like, who is to blame?

I just think it's really hard to look at it and not see that this was at least a two-man job. I mean, it took both Netflix and the entertainment companies to get us where we are. You could argue who's more responsible. Certainly, I've heard both sides of that. But clearly, both sides wanted to pivot to streaming. Eventually, they both were pivoting to streaming aggressively and changed the entire industry

and its economics in the process in about five years and now are realizing, oh, some of this is not working and there's collateral damage. That's all for today, Friday, July 28th. Additional reporting in this episode from Joe Flint, Sarah Krause, and Jessica Tunkel. The Journal is a co-production of Gimlet and The Wall Street Journal. Our engineers are Thank you. dot sessions. Fact-checking by Nicole Pasolka. Thanks for listening. See you Monday.