Hollywood Restructuring and the Economic Impact of the Writers and Actors Strikes

The dual strikes in Hollywood shut down much of the new production from April to early November 2023. Throughout the strike period there were speculations, sometimes offered with a seriousness with regard to their certainty, about the economic impact.[1] Indeed, everyone wanted to know on a daily basis the impact on the Los Angeles economy and by extension the California economy. The problem was and remains that it is complicated. For example, 2022 was a recovery year from the dearth of production during the pandemic years of 2020 and 2021. Should the comparison be between 2023 when the strike was going on and 2022 when the industry was producing additional content post-pandemic? That would certainly inflate the economic impact. But what about using a more normal year like 2019? From then until now the entertainment industry has been adjusting to digital media, streaming, and business models that were not generating the required returns to continue as before. This has resulted in a downward trend in the production of film and television. Chart 1 illustrates the complexity of the issue. Notice the steep drop in the number of days of filming in both television and feature films in 2022, a year that should have seen an increase as studios recovered lost content due to the pandemic and as they prepared for what might be an attenuated labor action. Clearly, there is not an obvious baseline from which to measure the economic impact of the labor actions. This essay reports two methods to ascertain a rough order of magnitude impact conditioned on the fact that 2024 data will be important in refining, and likely lowering, the estimates herein. The findings from both methods suggest a to-date impact of approximately $1.5B or 0.16% of an almost $1T LA economy and 0.04% of the almost $4T California economy.[2]

The first method employed in this analysis is to use the number of days of filming in 2023 as a percentage of the expected non-strike number of days of filming and apply that to double the value of productions subsidized by the State of California. The estimate will be based on extrapolating the trends pre-pandemic. This is, admittedly an assumption, particularly when it comes to the estimate of the total value of expected production, but it turned out to be similar to the result from the other method. The second method is to estimate the CA GDP value per payroll employee and apply that estimate to the reduction in employees during 2023 adjusting for non-payroll employment in Hollywood.

One method for estimating the reduction in the number of days of filming in Los Angeles from trend is to estimate the trend from pre-2020 data and extrapolate to 2023.[3] This will likely result in too high an estimate with a linear trend because the restructuring accelerated over the last five years. More realistic is a non-linear trend and this was also estimated on pre-2020 data. To translate this to dollars requires putting a dollar figure on film and television recording for 2022. From official reports, we find that $4.4B in production was subsidized in 2022.[4] Some of that filming was outside Los Angeles and some filming was without subsidy. Just to get a rough order of magnitude, suppose half of the total value of productions was associated with the subsidy. Those that were not, were more likely to be smaller, less expensive productions, and were more likely to be more numerous than those that were. 

Using the trends to adjust from 2022 spending to trend 2023 spending and then taking the difference between trend days of filming and actual days of filming yielded an estimate of $2.25B direct loss due to the strike with the linear trend. Using the more realistic non-linear trend representing accelerated restructuring of the industry relative to the 2015 to 2019 period reduced this impact to an estimated $1.59B. 

A second methodology is to look at the average amount of GDP generated per payroll employee in film and television production. This is available from the EDD employment statistics and the U.S. BEA.gov GDP statistics. The average in California for 2022 was $147,200. The 2019 to 2023 drop in sectoral GDP was estimated to be approximately $400M; significantly below the estimates reported in the press. The data for 2023 payroll employment show a drop of only 3% in jobs between the two reference years. Since many jobs in Hollywood are not payroll jobs, this estimate is likely to be somewhat low.[5] A 2012 estimate of the number of independent contractors for each payroll employee was .67.[6] Since those independent contractors are on average less than full-time employees (for example extras and part-time actors), if we assign $20,000 of the $147,000 to them and assume all of them were unemployed for all of 2023, the estimate jumps to $1.4B.

There are two important caveats. The first is the multiplier effect. Not all of the lost revenue represents lost consumption. Striking workers draw down savings and continue to spend, albeit at a lower rate, and there are leakages outside of California. Because of the nature of the industry with fluidity of production across state and national borders and residences generally not associated with production away from the two centers of entertainment, Southern California and New York City, it is difficult to infer how much if any net impact the strike had from standard multiplier analysis.

The second caveat is that we only have data through 2023 and do not have the 2024 numbers to use in this evaluation. To the extent that production was postponed into 2024 due to the uncertainty with respect to the end of the strike and the closely following holiday season, it might be the case that catch-up production will offset some of the projected losses presented here. For that, we need another year or two of data to refine the estimates. Consider the following two scenarios. In the first, production stays at 2023 levels in 2024 and 2025. Then 2023 was a “normal” post-restructuring year and the losses associated with the labor actions were only due to that activity that might have taken place had there been a more gradual transition to 2024 levels. In the second, suppose 2024 and 2025 production returns to 2022 levels. In this case, most of the dip in production in 2023 can be attributed to the two strikes. 

Nevertheless, using the data available we find that the direct cost of the strike is likely to be in the $1.4B to $1.6B range with an outside estimate of $2.3B. Our expectation is that these numbers are high in the sense that additional data ought to confirm that part of the estimated cost was from a restructuring of the entertainment business. Therefore, we can conclude that the $3B plus swag oft-quoted in the news is just that; a swag, and the impact on both the Los Angeles and California economies was quite small in the aggregate, even as it was individually large and difficult for some.

EndNotes

1. https://variety.com/2023/biz/news/hollywood-strike-economic-toll-workers-1235760692/ https://www.reuters.com/business/media-telecom/hollywood-strikes-sap-economy-industry-readies-revamp-2023-11-15/ https://www.npr.org/2023/08/10/1192698109/hollywood-strikes-economic-impacts-are-hitting-far-beyond-la

2. Bureau of Economic Analysis, Los Angeles GDP 2022 and CA GDP Q2 2023.

3. https://filmla.com/our-services/research/

4. https://cdn.film.ca.gov/wp-content/uploads/2022/11/Progress-Report-2022.pdf

5. https://legal-forum.uchicago.edu/print-archive/hollywood-writers-and-gig-economy

6. https://www.hollywoodreporter.com/business/business-news/la-county-movie-tv-employment-422479/