Section 1.1: A Flashback to Film Economics

Reflecting on my time as a business student at The Wharton School in 2004, I recall taking a course titled "The Hollywood Film Industry." We explored the evolution of the studio system and examined the rise of Netflix, which was initially shaking up the video rental market by mailing DVDs to subscribers. During this course, Professor John Katz provided a guest lecture where he sketched a basic supply-and-demand model, illustrating how the Hollywood studio system functioned—ultimately highlighting its focus on profit.

Section 1.2: The Current Crisis

An article from The New York Times on July 15th, "In Hollywood, the Strikes Are Just Part of the Problem," captures the multitude of challenges facing Hollywood today. These range from tech giants asserting dominance to the slow recovery of box office sales post-pandemic. Traditional models of network and cable television are declining, giving way to integrated streaming services, alongside ongoing labor disputes with the WGA and SAG-AFTRA.

The article emphasizes that even after the strikes conclude, the fundamental business issues will persist. However, it overlooks the critical role played by CEOs in shaping these circumstances.

The Death of Mid-Budget Films

Mid-level budget films were once the backbone of profitability in Hollywood. With lower production costs, these films had a better chance of breaking even and generating profits from secondary revenue streams such as licensing and home video sales. However, apart from a few resilient genres, these films have nearly vanished from theaters, largely confined to streaming platforms where they no longer generate additional income.

This shift has prompted writers and actors to advocate for transparency in streaming data and to establish a fair residual payment structure. They seek to share in the success of projects that perform well, but studios remain resistant to these demands.

The Issue with Peak TV

The term "Peak TV" refers to the overwhelming number of scripted television shows released annually. Although TV has always operated on a volume basis, the current focus on quantity over quality has led to a decline in long-running, profitable series. Traditionally, successful shows produced many episodes over several seasons, allowing for syndication and licensing opportunities. In contrast, streaming series often consist of shorter seasons, with few lasting beyond four seasons.

The executives at these streaming platforms have largely abandoned the principles that once ensured television's profitability, opting instead for short series modeled after Netflix's early offerings.

The video "How Finance Bros Broke Hollywood" examines the financial strategies affecting the industry, shedding light on the shifts that have led to the current landscape.

The Product: Platforms Over Content

In the streaming world, the product has shifted from individual films or shows to the platforms themselves. With the introduction of ad-supported tiers, viewership metrics became less relevant, provided subscribers remained engaged and did not cancel their subscriptions. To mitigate churn, many platforms have adopted weekly release schedules, which complicate viewer choice and may lead to decision paralysis.

Today, instead of resisting change, members of the WGA and SAG-AFTRA are striking to ensure that their minimum agreements reflect the realities of the modern entertainment landscape. The AMPTP's reluctance to address key issues—such as wage growth, residuals for streaming, unpaid work, and the implications of emerging technologies—underscores the disconnect between corporate leadership and the workforce.

The Choices of CEOs

Despite acknowledging the impact of these concerns, CEOs maintain that now isn't the right time to negotiate. However, as some companies announce profitability projections for their streaming services, it raises questions about the authenticity of their claims.

In conclusion, the struggles within Hollywood can be traced back to the decisions made by its leadership. The refusal to engage meaningfully with the demands of writers and actors highlights a broader issue of corporate accountability in the face of changing industry dynamics.