Friday, October 3, 2008

Report: SAG Strike Would Have No Immediate Credit Impact on Entertainment Conglomerates

Fitch Ratings, a leading global rating agency that rates the credit of large businesses, municipal governments, and entire industry sectors (they must be very busy these days), has produced a short analysis of the effect of a possible SAG strike on the credit ratings of media conglomerates.  Their conclusion:  “limited impact … over the short-term of six to nine months.” 

The analysis is less explicit on the effect of a long strike, but appears to suggest that it too would not have great effect on the conglomerates, but would hurt theatrical exhibitors and TV broadcasters.  This seems contradictory:  if the latter two sectors are affected, then so would be the upstream studios, and therefore their corporate parent conglomerates.  Fitch estimates that studio and network operations account for roughly 20%-40% of conglomerate revenue, depending on the conglomerate, so it’s hard to see why the effect would be immaterial.  Of course, some impact would be diluted by a further shift to reality programming (which is either non-union or AFTRA).

Another question mark:  Fitch says that it assumes that most 2009 films are already in the can.  However, the general feeling in Hollywood seems to be that although summer 2009 production is complete, fall 2009 is not.  I don’t know of any definitive analysis of this, however. 

Also unclear, and unmentioned by Fitch, is whether fall 2009 could be filled out by acquisitions from Sundance, Tribeca and Cannes.  My experience at these festivals is that a lot of the films screened there are not particularly commercial, which limits the prospects for such acquisitions no matter what the need in the fall.

This all suggests that a strike might have to last 6-9 months, or perhaps more, before the studios might be willing to compromise on jurisdiction and residuals related to original productions for new media, the key roadblock.  The cost of such a strike in lost wages would be enormous for actors, and, presumably, for the local economy, and the effect on SAG would be to further drive television production to AFTRA. 

In contrast, the benefits of a strike would be sparse:  a small increase in revenue over the next three years (a period during which original production for new media is not likely to generate much revenue), and less likelihood of having to fight a bad new media precedent in future negotiations (i.e., three or six years from now), when there may start to be significant new media revenue at stake. 

The obvious question is, why not strengthen SAG through member organizing and inter- and intra-union fence-mending, then fight (and possibly strike) in 3 years, a time when the stakes may be meaningful, the economy may have improved, and actors and others won’t be suffering from post-writers strike fatigue.  That’s a question to which SAG seems to have no convincing answers, and thus we careen towards a possible strike for no good reason. 

Note:  The Fitch analysis did not review GE (NBC Universal), because Fitch (for unknown reasons) does not cover GE, nor Sony, because it’s not U.S.-based.

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