Writers' Strike – Exotic Market, Same Old Fear and Greed

Skew View is a new series that will cover all aspects of our markets, and prediction risks in general, with a skeptic's eye.

Open up ChatGPT…instruct it to write a movie scene between a father and daughter arguing about LGBTQ issues…add whatever detailed requirements, including duration, conflict, etc. Go…

You’ll get a scene that mostly delivers what you asked for. Now you understand one of the reasons the Writers Guild of America is on strike.

A contract between the Hollywood writers and producers has existed since 1941, and has been renewed periodically ever since (currently on a  three year cycle). The WGA (with branches East and West) emerged from a merger of unions in 1954. The producers’ organization is currently named the Alliance of Motion Picture and Television Producers (AMPTP).

Often the renewal process is routine and concerns pay, benefits, workplace conditions, all the usual stuff.

When it goes wrong, it goes really wrong. You may not know much about the movie-creation process, but you know all about fear and greed, right? That’s all you need here.

Below, we consider only the strikes from 1960 onwards, as this is the period when the WGA had meaningful negotiating power.

There have been four strikes since 1960, with an average duration of 17.5 weeks. The current strike has continued for 11 weeks as of July 22.

** Approx WGA membership

Source: WGA and Wikipedia

THE TOP-LINE ISSUES of the current strike are about a share of the new income from streaming, and residuals.

And like legal clerks and journalists and comedians and whoever else, screenwriters are currently gripped by the fear that AI is going to partially or wholly replace them, and they want to draw a line in the sand as early as possible.

But that is only half the story. Hollywood writers have always felt under-regarded – in pay, in control over the final product, in status and fame. William Goldman’s classic Adventures in the Screen Trade is both instructive and hilarious on this.

Set aside any image you have of the legions of faceless manual laborers who fought a century of exploitation by developing the power of collective bargaining. There is little risk of a screenwriter dying underground from toxic workplace fumes or being rushed to hospital with a horrific keyboard injury.

Usually, unions represent a group of workers who all perform much the same work, generally lower-skilled, work for much the same pay. The WGA represents a wide range – from struggling writers who get only occasional work and cling to the benefits the union provides, all the way through to the famous screenwriters and TV show-runners who are comfortably in the top 1% of US earners.

Despite that, the WGA is a remarkably cohesive, well-marshaled union. When it comes to striking, the WGA has two advantages that few other unions can dream of: creative minds and famous friends. It also has funds: The LA Times reported that as of May 2022, the WGA (West) held over $20-million in strike funds.

The ultimate revenue from WGA members’ work flows first to corporations who mount the productions, and those executives do what all executives do: they cut costs whenever, wherever and however they can. Writing is an art and often a glorious thing, but to a producer it’s an input cost.

If you want to understand how Hollywood producers might think that writers and actors are superfluous to requirements, you need only watch 20 minutes of “Extraction” on Netflix. ChatGPT could indeed have written a better script and five guys from your gym could have provided the running, grunting, shouting and fighting that passes for acting by Chris Hemsworth and his clownish foes.

It’s not that producers hate good movies. It’s just that they’re so darn hard to identify. If a team builds one perfect jet engine, the same people can probably build another one just like it. But a writer-director-star team can make a killer move this year and a howling dog next year. And the howling dog will cost you twice as much because pay-value is backward looking.

There’s no gradual, no trend to observe here. They are negotiating behind the scenes without issuing bulletins. This could end today with an announcement.

If the strike continues until the first Kalshi bracket point of September 30, it will already be nearly the longest strike ever the WGA (less than a week short of record). That argues for a short position. What factors might extend strike for significantly longer than ever before?

The actors’ union, Sag-Aftra, came out on strike after the writers. Their demands are similar to the writers’ concerns about AI and residuals, but differ in other aspects. The actors union is significantly larger and even more diverse – as reported by The Hollywood Reporter:  “SAG-AFTRA represents 160,000 media professionals, mainly actors, but also broadcast journalists, program hosts, puppeteers, stunt performers, voiceover artists and other entertainment workers. All of the members in actors-performers caucus are currently on strike against the major Hollywood studios (though the union has given a limited number of exceptions for actors to work on low-budget indie productions.)”

Ask yourself this question: If you looked like Ryan Gosling or Margot Robbie, would you license studios to clone your image in 3D so that they can store it for use in any movie they like in the future? Not entirely kidding.

On the short side: The big studios are not just in fights with the writers and actors. They are also in a guerrilla war with each other over streaming customers.

Amongst other things, Hollywood is a manufacturer that needs to ship product. No writing now means less production next year means less buzzy new shows in 2025. That’s a revenue bomb traveling towards you – winter is coming because you overplayed your hand.

Maybe they’ll decide to cave this time, invest in AI for a couple of years, and then return to the battlefield with a can't lose weapon.

If the actors settle with the producers, that immediately puts pressure on the writers. As long as the actors are on the picket lines, my view is that the writers will stay out.

FULL DISCLOSURE: STAN_DV8 does not, and will not in future, have a position in this market.

The opinions and perspectives presented in this article belong solely to the author(s). Kalshi does not provide investment or trading advice or make any other claim to the veracity of the contents described herein and provides this article solely for the convenience of its members.