If Hollywood writers strike, advertisers and revenues may flow to OTT platforms

Apple TV (Apple)
The Apple TV is one of many digital devices that offer over-the-top video programming.

Advertisers may take their money to digital platforms if the Writers’ Guild of America (WGA) approves a writers’ strike and thereby prevents networks from airing new television seasons.

The WGA and the Alliance of Motion Picture and Television Producers (AMPTP) resumed contract discussions this week following a two-week hiatus that was initiated after WGA rejected an AMPTP offer. One main point of contention is over funding of health care plans. Barclays analysts wrote in a research note on Wednesday that if the strike moves forward, advertisers, viewers and ancillary revenues will likely reallocate toward digital platforms.

“If networks are unable to air new seasons due to the strike, this could result in a much greater shift towards OTT platforms than would be the case otherwise,” analysts wrote. “In this environment, what would be needed are platforms that carry originals since YouTube TV, DirecTV Now, etc. still rely largely on legacy television. While Netflix and Amazon’s pipelines are also likely to be affected by the writers’ strike, their library[ies] of original content could realize much wider viewership in the absence of competition from legacy TV.”

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Related: A writers’ strike could slow or stop production on Fox, CBS, HBO series

Historically, the time that viewers spend on alternatives to network television grows when writers strike—and some of the shift becomes permanent. The last writers’ strike was in 2007-2008, which lasted for about 14 weeks, and the strike before that was in 1988, which lasted for about 21 weeks. In 2007, online consumption of videos and movies increased by 54.6%, according to Nielsen research.

Time spent on alternatives to television grew during the 2007 strike, with some of the increase usage permanent. (Source: Nielsen Media Research)

“This time, the impact might be bigger since the strike is likely to occur prior to the start of the fall season,” Barclays analysts wrote.

Further, this news of a potential strike comes smack in the middle of the 2017 upfront advertising season and could seriously impact the ad revenues of companies such as Lionsgate, CBS, Viacom and others.

“With the proximity to the upfronts, this uncertainty over the fall season is unlikely to bode well for the networks on the advertising front,” Barclays wrote. “Given the anemic growth rates for television advertising already, any uncertainty over the fall season is likely to force more advertisers to expand their allocations toward digital platforms.”

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WGA West executive director David Young sent a letter to ad buyers warning about potential effects that a writers’ strike could have on their ad buying, Deadline reported last week.

“Any delay in the start of work has the potential to postpone fall season premieres and reduce the amount of new programming available to advertisers and audiences,” Young wrote in the letter. “During the three months most affected by the [previous] strike, the major broadcast networks’ ratings declined, on average, by double digits compared to the same period in 2007. The strike-impacted ratings forced NBC to return money to advertisers rather than offer make-goods. Should a strike occur in 2017, we would expect that the delay or loss of original primetime programming will similarly affect ratings.”

Looking ahead, Barclays analysts noted that if WGA does approve a strike and writers stop writing, long term effects could be felt in the industry years from now.

“If the strike does come to bear, the number of episodes that are lost during the season will be lost forever,” Barclays wrote. “In 3 years when the season comes up for licensing, there will be [a] fewer number of episodes to sell which is therefore likely to result in a ripple effect that could last a while. This is likely to affect films as well. A number of movies that were still being written during the 2007 strike had to be rushed (X-Men: Wolverine, Star Trek, etc.), which then ended up underperforming.”   

The current agreement between the WGA and the AMPTP expires on May 1.