Striking Numbers

Today the City of Los Angeles breathes a little easier, as Hollywood writers fill up their gas tanks and head to the writers' room. It's been three and a half months since the Writers Guild of America began its strike, and this industry town is feeling the strike's ripple effects. Entire production staffs have been laid off. So have agents. So have gardeners. So too have the workers who roll out the red carpet at events like the Golden Globes, which was all but canceled. But the drama ended on Tuesday, when the WGA voted overwhelmingly (92.5 percent of the 3,775 ballots cast) to end the strike.

To calculate the cost of the strike, NEWSWEEK's Jennifer Ordonez talked to S. Mark Young, a professor at the University of Southern California's Marshall School of Business, who studies the economics of the entertainment industry. Excerpts:

NEWSWEEK: In the strike's first days you predicted that a five-month work stoppage could cost Los Angeles nearly $8 billion. The strike lasted nearly four months. What's the real grand total?
S. Mark Young: When I made that prediction I was working primarily from numbers from a very comprehensive study that [economic think tank] the Milken Institute did in 2001, when there was the threat of a strike. Basically I adjusted the Milken numbers to the inflation rate and came up with just a staggering $8 billion dollars. I think a lot of people were really just stunned by that. Then I found a report by the MPAA [Motion Picture Association of America], which talked about the number and kinds of people working in and for the industry. We know restaurants have lost business, laundry services are hurting, limo drivers aren't driving nearly as much. Also, the Milken study assumed the Screen Actor's Guild would also strike. They haven't. So, taking that into consideration, after almost four months, we're looking at somewhere around $3.5 billion. I think that it's still a little bit too early to assess what the actual damage is going to be, but my calculations are based on things like lost productivity, the kinds of income taxes that aren't going to be collected, sales tax for the everyday-life stuff that people aren't purchasing.

How about the industry itself? Do you think, as some people predicted, jobs actually disappeared for good?
Well, take, for example, the pilot season. The TV networks will be re-evaluating the ways in which they'll select programming for this coming fall. Historically, there's a pilot season that goes on for the first four months of the [calendar] year. It's an expensive process. You have to get writers and actors and build sets and basically do a full-blown episode. So as a result of the strike the networks are likely going to ask for a more abbreviated, less expensive form of a pilot. In some cases they'll call for demos, where you use existing sets, and [shoot just] 10 to 15 minutes instead of the full 22 minutes that a sitcom runs. If you begin to cut pilots by 50 percent, right out of the gate a lot of these folks that would normally be trying to write for pilots are not going to have that opportunity anymore. And once it's gone it could be a permanent change in the landscape. So those folks are going to be out of work.

How about the televisionadvertising economy, which was already shrinking as people spend more time on the Internet?
What's called the upfront market in May is when the networks put on this big dog-and-pony show for the advertisers to preview the upcoming season. The advertisers then decide what shows they want to buy ads on. The networks like this because they get a commitment from advertisers, amounting to about $9 billion dollars in ad revenue up front. But advertisers don't like it, because they have to commit the dollars so early, before the season has begun. If there are new shows that come up after the upfront season, then we go into something called the scatter market, which occurs when advertisers in September decide to purchase advertising for a new show that's coming out then. The catch is, [buying advertising is much] more expensive at that stage. So I think the writers' strike could have a big impact on to what extent the upfront market exists [this year]. Because advertisers have been grousing about the upfront market and its structure for years, maybe the networks will reevaluate the whole upfront structure and allow advertisers more flexibility to purchase shows throughout the year.

Did the strike in some ways allow the producers to rein in their own expenses advantageously?
Oh, absolutely. I think that part of the reason why network television has been in trouble for a while is there are always a handful of shows that end up being successful, like "Heroes" and "30 Rock." In the past the networks kept shows with mediocre ratings for a while. But now with the strike, I think they were able to cut their losses and eliminate shows that were on the margin. Network executives have had a lot of time to sit around and think—clearly to their advantage—"Can we restructure the whole way that we do business in terms of acquiring our product and displaying the product to the advertisers?"