The Show’s Over: Is Hollywood Moving Past Peak-TV?

A scale back in production was inevitable to achieve positive cash flow. But can Hollywood’s streaming era survive with fewer new TV shows?

Photo by Samantha Borges via Unsplash

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It’s the best of times and worst of times in Hollywood. On one hand, the Writer’s Guild of America strike ended after a 148-day work stoppage, with the writers scoring some major wins. Those include minimum staffing requirements for TV writers rooms, boosted pay, and success-based residuals for streaming programming — despite studio executives’ vows they’d never concede on some of those points when the strike began in May. With the Screen Actors Guild strike widely expected to end sooner than later, the industry is one major step closer to returning to sets and soundstages.

On the other hand, a spate of high-profile TV cancellations — including HBO’s Winning Time: The Rise of the Lakers Dynasty and Perry Mason, Hulu’s How I Met Your Father, Amazon’s A League of Their Own reboot, and NBC’s Young Rock —  may portend what’s to come: a seismic slowdown in production following a boomtime era in which studios spent billions, green-lit projects indiscriminately, and filmed constantly to create streaming platforms with a gushing pipeline of content to satiate viewer’s endless attention appetites.

A narrative is already bubbling up that the gains just won by writers — and soon likely by actors — will surely lead to less work for fewer people.

But that obscures a much bigger picture. Hollywood executives have already become laser-focused on cost-cutting. Outside of Netflix, streaming remains a money-loser, and Wall Street shareholders are starting to prioritize profit over streaming subscriber growth. Case in point: Disney CEO Bob Iger’s protracted battle with activist investor Nelson Peltz over this very issue.

A scale back in production was inevitable to achieve positive cash flow, but the penny-pinching coincides with another trend: Streaming subscribers are seeing prices go higher. All of which could add up to Hollywood executives’ least favorite word: churn, otherwise known as canceling your subscription. With fewer new TV shows on offer, subscribers may begin to see the increasingly expensive monthly charge as increasingly inessential.

It’s just the latest challenge deviling an industry in flux.

Boomtown: For years, Hollywood players have been chattering about the concept of “Peak TV,” or the year in which TV production hits an all-time high. The concept first came into being a decade ago, back when cable packages turned into a cash cow, and channels mostly known for reruns of The Departed started taking risks on more and more high-budget original programming such as Breaking BadThe Americans, and The Walking Dead. Then Netflix fired the first shots of the so-called streaming wars, sparking a veritable production frenzy as legacy studios raced to create as much content as possible to backstop their fancy, and expensive, new streaming services.

But “Peak” implies an actual peak, and subsequent comedown. And it’s likely that 2022 may be remembered as the tippy-top:

  • Last year, 599 original series hit the air, according to FX chairman John Landgraf, who keeps an annual tally.
  • That was an increase from 560 the year before, but also included a 2% fewer new original series debuts. “We see a strong indication that we’ll see decline in 2023,” Landgraf said in January at the Television Critics Association awards — a prediction solidified by the dual talent strikes.

But a contraction is still expected next year, even with a presumably back-to-work Hollywood (‘presumably’ is the operable word, because the International Alliance of Theatrical Stage Employees, or IATSE, the guild of below-the-line Hollywood workers and technicians, is up for contract negotiations next year).

“At a macro level, our specialists have highlighted how really even before the strikes were ongoing, it seemed that we were at an inflection point, a bit of a peak when it came to overall content spending,” Jamie Lumley, sector analyst at Third Bridge, told The Daily Upside. “Most of the experts we’ve spoken to were talking about how, if not this year, then next year, there would be a cooling and a bit of a drop in that overall level of content spend.”

Lumley added that the industry is likely to shift focus from quantity to quality, with studios focused on taking fewer swings for bigger results. Meanwhile, Wedbush Securities analyst Michael Pachter told The Daily Upside that while there may be a slowdown in domestic production, international productions should be expected to continue apace. That’s because it remains typically cheaper to film in other jurisdictions — in part because of labor gains in the US, and in part because US stars, for example, can demand a higher paycheck than international ones. Netflix in particular has built strong relationships overseas and has enjoyed success worldwide (remember the South Korean phenom Squid Game?). It’s the studios with fewer overseas relationships — that’d be Disney, and Paramount/Viacom — that may struggle the most.

It is Written: The dual talent strikes did — obviously and intentionally — lead to a production stoppage this year. For now, the WGA is claiming the contract its guild members ultimately ratified as a victory:

  • The WGA estimates that the contract it won is ultimately worth some $233 million annually, or about triple the studios’ initial offer, but still about half of the guild’s initial request.
  • That’s a decent chunk of change — money that will go toward minimum staffing requirements, keeping writers staffed through production, and success-based residuals.

Sure, it could lead to less work in a tighter-budgeted future, but it should on paper lead to better work overall. At least, that’s what guild leadership has been pitching to its members: “The companies were trying to eliminate the writer’s room, and if they had done that, they would have moved us on to a freelance model, writers would’ve made a fraction of what they were, and this would’ve turned into a gig job,” comedian Adam Conover, who was a member of the WGA’s negotiation committee, recently said on a Puck podcast. “The point of [fighting for minimum staffing guarantees] was to… maintain the middle class way of life that TV writers have enjoyed for a generation. And we did it.”

How much will those gains alter the studio calculus of production? On the high end, writing staffs can account for up to only about 10% of an overall production budget, or small enough to offset with cutbacks elsewhere. “In terms of changing the cost for writers, so far, it doesn’t seem like it’s hugely going to be moving the needle here,” Lumley told The Daily Upside.

Follow the Money: The entire industry is grappling with the fact that returns on the boom in streaming content largely failed to materialize. That’s obviously shown up in companies’ quarterly earnings reports, but the trickle-down has been felt at all levels of Hollywood.

Just ask the world’s largest alternative asset manager, Blackstone, which bet big on a production boom:

  • In 2021, Blackstone backed Candle Media, an independent production company launched by former Disney executives Kevin Mayer and Tom Staggs. Earnings for the company, however, are now expected to come in at less than 50% of forecasts for this year, according to sources who spoke with Bloomberg.
  • That same year, Blackstone also acquired a controlling stake in Reese Witherspoon’s production company Hello Sunshine, which produces The Morning Show and Little Fires Everywhere, at a $900 million valuation. That production company is expected to bring in less than 10% of expected earnings this year, according to Bloomberg sources.

While this year’s results are almost solely impacted by the labor stoppage, a cutback in studio spending is likely to harm production companies in the future.

To combat lower revenue, streamers are responding with higher subscription prices. Disney increased its streaming rates this week, bumping the ad-free Disney+ tier to $14 a month from $11, and Hulu went to $18 a month from $15. Netflix plans to raise prices once the actors’ strike ends.

Suit Up: If prices can increase by 30% without triggering a 30% drop in subscriptions, the moves will be worth it. But the question remains: Will audiences keep subscribing if the steady flow of content slows down?

One phenomenon from this summer has given Hollywood executives some hope: the unexpected resurgent streaming popularity of Suits, a cable-TV dramedy that ran on USA Network for most of last decade.

Industry insiders and analysts see it as proof that the past production boom is finally paying off, ie, instead of keeping up with new content every week, audiences can easily shift focus to everything they may have missed as well as all those old shows stuffed away in streaming back catalogs. But that presents a tech challenge for the media world: The streamer’s with the best systems for making algorithmic viewing recommendations are the one’s likely to fare best in a world where back catalogs are more important. It’s another sphere where Netflix is seen to have the edge, and where Disney — especially on Disney+, which has a less-varied catalog — may lose out.

All of which means a general audience’s relationship with content may ultimately end up quite similar to how it was 10 or 15 years ago when cable ruled the day: less time watching high-budget half-hour character studies, more time watching old reruns of Grey’s Anatomy.