The economics of video streaming services don’t seem to be adding up for anyone at the moment. In the US, screen writers are on strike asking for better pay. The longer the strike goes on, the greater will be the hiatus in original programming, which will reduce industry revenues. All this at a time when investors in video streaming services are looking for greater returns, which is prompting streaming services to cut costs by firing staff and deleting content. And we consumers are dropping subscriptions to save money and because they are unhappy about their favourite shows being cut.

The Writers Guild of America (WGA), which represents the people who write the Hollywood shows and movies we watch in theatres and at home, has been on strike since May 2 this year. Their concerns centre on writers’ incomes, which by some estimates have declined by 23% in real terms over the past decade. That’s probably an underestimate given that writers tend to live in Los Angeles or New York where cost of living pressures are usually higher than average.

Writers’ incomes have declined for many reasons, but changes to the way TV is produced have been a major factor. Shows such as House of Cards, launched on Netflix in 2013, introduced viewers to the concept of binge-watching entire seasons in one go. The rising popularity of video streaming services such as Netflix has brought with it an insatiable demand for content which was boosted during COVID lockdowns. According to FX Networks, in 2022, mainstream TV networks and platforms delivered a record high of 599 total English-language adult scripted TV series compared with just 182 in 2002 and 288 in 2012. Many writers, and the people that employ them, believe that this surge in content has now peaked. The industry doesn’t have the capacity to produce more.

You would think that the increase in demand for content would have benefitted writers. Not so. Netflix and other video streaming services have also changed the way that TV is produced. Traditionally, TV production that was aired on mainstream networks followed an annual cycle. Pilot scripts were submitted and chosen for production in January. If the pilot was well received, production of a 22-episode season would run from May to September, with the season airing from September to May. These days, TV shows generally have half as many episodes and there are longer breaks between seasons – sometimes several years.

This new production model has had profound implications for writers. Fewer episodes mean writing jobs are shorter and the time between jobs is longer. Writers would also get income when TV series were aired multiple times – called ‘residuals’. Residuals were a big part of writers’ income back in the day, and often filled the income gap between jobs. The video streaming business model is different. If a TV series you worked on is aired on Netflix, you might get a lump sum that doesn’t change regardless of how many people watch it. Where residual income is earned, streaming platforms are cutting content from their platforms to reduce residual payment costs.

Opportunities for writers to advance are also harder to find these days. Traditionally, writers would be given exposure to the production process, learning as they went, eventually taking on producer roles. These days, to cut costs, production companies ensure writing is completed (and the writers laid off) before production begins.

The creative process has also suffered. With writers present during production, scripts could be changed on the go, and the writers had the opportunity to see the actors perform the words they had written, giving the writers greater insight into the character’s motivations, speech patterns etc. All of which fed back into the script.

Reading media articles about the writer’s strike, you get a sense that the writing has been on the wall for some time, but that the situation is now at breaking point. As one article put it, production companies have created a gig economy inside a highly unionised workforce.

Production companies are not having it all their own way either. Industry profit reporting is notoriously opaque. But the WGA estimates that annual industry profits increased from $5b in 2000 to $28-$30b from 2017-2021. Yet the more challenging economic environment of the last couple of years has seen the likes of Disney, Warner Bros. Discovery and Paramount reducing costs either by cutting content (thereby reducing licensing fees and residuals) or laying off staff. For example, Disney recently laid off 7,000 staff.

Studio and production companies are under pressure to increase profits, or in some cases to start making a profit, for the investors and corporations that own them. This is to be expected in an economy with rising inflation and interest rates. Inflation eats away at profits and higher interest rates offer a low-risk return for investors. Higher-risk investment opportunities such as TV and film production must offer a greater return to attract funds.

Investors are also expecting to see a degree of industry maturity. Video streaming services grew prolifically during the pandemic as people were forced to stay home. In those early days, investors were happy to see subscriber numbers rise even if a platform wasn’t making a profit. As subscriber numbers have started to plateau, investors are now demanding profits.

Audiences are also becoming accustomed to bigger budget TV with productions such as The Lord of the Rings: The Rings of Power, Star Trek Strange New Worlds, The Mandalorian and Marvel’s Secret Invasion boasting visual effects traditionally reserved for the big screen. Video streaming services have also allowed audiences to personalise their viewing, watching whatever they want whenever then want, in contrast to linear TV programming offered by incumbent networks which streaming is increasingly replacing.

Traditionally, TV was where movie actors went when their careers were in decline. The so-called ‘Second Golden Age of Television’ which is generally identified as beginning in 1999 with The Sopranos, has changed this.1 For big screen actors, starring in your own TV series has become normalised. However, big screen actors still require big salaries to appear on the small screen.

While the bar has been raised in terms of production budgets, streaming has arguably created space for smaller budget productions. Netflix in particular hosts a wide range of shorter films and TV series, as well as productions from every corner of the globe. This may have created a ‘long tail’ of shows with lower budgets and therefore lower incomes and more fragile working conditions for writers and others in the creative chain.

COVID lockdowns led to a rise in streaming subscriptions as consumers looked for ways to entertain themselves within their own homes. However, our release from the confines of lockdown and recent cost of living pressures have seen us consumers cut back their discretionary spending on home entertainment as necessities such as food and fuel take up a greater share of incomes. We consumers are also becoming more savvy: subscribing to a streaming service when it launches a TV programme we want to watch, then cancelling and moving on to a different service when it suits us. Which puts pressure on the streaming companies to keep producing original content to maintain subscriptions.

Subscribing to multiple services at once can get expensive. In New Zealand, you could easily be spending more than $100 per month to get the full range of programming. A Netflix subscription will cost you between $6.99 and $24.99 per month, SkyGo costs $25.99 per month, Neon $15.99 per month, Amazon Prime $8 per month, Disney+ $12.99 per month, Apple+ $12.99 per month and AMC+ $9.99 per month.

TV and movie streamers are also competing with music and podcast streamers, gaming consoles, audiobooks and other more traditional forms of entertainment. Entertainment is integral to our lives. But there are only so many hours in the day that we can spend being entertained and therefore (relatively) unproductive.

There are also concerns that live events can’t compete with video streaming. These days, musicians generate most of their revenue from live performances. But some commentators are contrasting the price of a ticket to see a major artist perform in a stadium, which could set you back hundreds of dollars, with the cost of a Netflix subscription.

The implications of all this disruption have yet to play out. There is a view in the industry that the number of subscribers has maxed out and that to grow further individual companies will need to compete with each other for customers. Some expect this more competitive environment to prompt a wave of industry consolidation in the form of mergers and acquisitions. You might see mergers of companies that operate across multiple platforms such as TV, movies, music and gaming.

The immediate implications of the writers’ strike depend to a degree on how long it lasts. Shows such as Saturday Night Live in the US for which scripts are written just days before the show is aired will be affected immediately. However, most TV shows have longer production schedules so the effects will only be seen over the next few years. For most of us in New Zealand, we might find we need to wait months or years longer for the next season of our favourite US TV show.

Technology is also a big part of this whole picture. Streaming technology has disrupted the industry. So has cheaper, easier to access digital imaging technology. The WGA has sited Artificial Intelligence as a future cause for concern. There may well come a time, perhaps sooner than later, when AI is writing TV and movie scripts, potentially putting (human) writers out of work. AI also raises other concerns, such as whether the writers of algorithms could and should derive revenue from any scripts that their AI writes. Also, AI will almost inevitably draw on existing material in developing its own original content, which raises the potential for copyright infringement.

I will end with this final thought. This all boils down to the value that society places on entertainment, art and creativity and how these creative industries distribute revenues among their contributors. Writers are just one example of a creative profession that isn’t being fully rewarded for their contribution, and a profession in which the revenues that are generated are channelled disproportionately to a very small number of very successful people. Musicians, actors, artists and many other creative people are in exactly the same boat.

1 The original Golden Age of Television occurred in the 1950’s.