Mega-Mergers, Silicon Valley, and Our Union-Busted Future (Patreon)

The other night I was talking to someone who works at Warner Brothers because we were both hugely worried by the news that the company was “spinning” off assets in a Discovery deal.  This person had the 1000 yard stare of someone in their FOURTH corporate “restructure” in two and a half years (for comparison, you usually only go through ONE every four years, which is bad enough). These sorts of events are brutal. The kinds of things that blink out entire companies that are nestled within the branches of conglomeration - all done on the whim of overlords who hawk cell phone plans and don’t even understand the basics of the other industries they’re toying with - at least not beyond the concept of making short term bets with them. Even now, the top brass is running only talking about what is going to happen to the stock price and considering their employees not even as an afterthought, but lavish expense of the process. An obstacle to their end goals. That must feel great! Having your entire livelihood tied up in these machinations is to live in the constant state of “end of the world” and “business as usual.” At least until day it isn’t.

Because we have to talk about the way that this particular moment is different. For you may not realize that this one is a major shift in the industry….

1. What Should I Care?

I don’t write about the inner workings of the film industry too much for a few reasons. The first is that there are people who understand the intricacies of a lot more than I do. My attempts always feel like some rough fumbling where I’m DEFINITELY gonna get something wrong in this column and wish I could get my entertainment accountant or lawyer friends to do it instead (though they obviously can’t because they’re jobs don’t allow them to). Luckily, there are some smart industry folks you can read over on substack, like this one on this very same topic, which I can recommend highly enough. But at the same exact time, I’ll sometimes feel the urge because I’ll see some entertainment writers talk about the industry and they don’t even understand the BASICS of real studio accounting and how much movies actually make through international sales / long term libraries.

The other reason I don’t write about it much is because I totally get why you don’t care. The inner workings of the industry usually have nothing to do with you or what you consume. In fact, these things are sometimes seen in a positive way. When it’s like “Yay, Disney gets the rights to the X-men!” and people don’t realize they’re also clapping for a move that makes for a crippling monopoly within the industry. Moreover, that idea that it would dramatically affect “a labor force” isn’t even really a concern because Hollywood itself has always had the distinction of being seen as rather ephemeral. When you talk about “people” who have “jobs,” you are talking about the luckiest people in the world because they get to work in Hollywood, baby! It’s a dream emboldened by social esteem! And you picture everyone doing as well as the endlessly wealthy celebrity of the names you know and associate that with. That’s “Hollywood.” But you have no idea how much that small group of people depends on a bigger group of people. Not just the camera-persons and grips and PAs that help make production go, but how much movies are the engine of so many others, with full-on marketing, P.R. departments, to folks who navigate the technical side of the industry with I.T., Q.C., and fuck, right down through service and custodial jobs. It’s an entire ecosystem. Many of whom still feel lucky to be there, but also operating within the brutal constraints of that same system.

Please know that this is not going to be one of those weird pleas where I ask “have empathy” for heads of corporations as they try to weather these storms! No, it’s garbage all the way down and we need active socialism. So what I’m about to talk about here is the intersections of big business, the way they can make devastating changes to creative power structure, and the dire future of American labor.

2. C.R.E.A.M. (Cash Rules Everything Around Movies)

The following is a simplified, truncated, and somewhat silly history.

Hollywood has long existed on a model of having about 5-6 competing major film studios at the forefront of the business. When I moved here they were Disney, Warner Brothers, Universal, Fox, Paramount, and newly minted Sony Pictures (which was really still Columbia). In some ways, they represent immovable institutions with history, grandeur, and highly profitable libraries of films that they owned. Heck, in the entire history of Hollywood there have only been two major studios that have “died.” That would be RKO - thanks to crippling mismanagement after Howard Hughes bought them in 1948 - and MGM which had solely petered out by 1986, but who still operate in a production capacity and whose library has been bought several times since (you may ask about United Artists but was a mini-major whose production brand still kicked around for awhile). Otherwise, these six businesses have weathered all sorts of storms (some of which were existential, like Cleopatra with Fox) and even larger industry changes and challenges, all while duking it out in competition year after year for theatrical supremacy. But such was their collective value that each was not only able to survive the massive swelling of conglomeration with their new corporate overlords (I.E. Universal gets bought by Comcast, Paramount gets bought by ViacomCBS, etc), the movies are all still crucial elements OF those businesses, whose theatrical success is a bellwether for the company’s larger success. And here’s why:

You need steady cash to run a business.

It may seem silly to say something so obvious, but it’s critical to remember. Especially in a time as we develop more and more big business outside of that cash-flow reality, what with all the speculation and start-up culture of Silicon Valley, as well as the smoke and mirror games of stock prices that go into determining a company’s “value.” But it’s true: without enough cash, you can’t pay salaries. Thus it is the backbone of any company’s solvency. And without cash coming in, there’s only so many tricks you can pull before you have to file bankruptcy or dramatically change the scope of your company. And for these giant conglomerates? The theater business is the front line of cash flow (with advertising coming up the rear). Yes, even when splitting that cash with theaters, it’s where they make their bread and butter in a way that is outright unignorable. And this is why there has always been urgency in the “how are we going to save movies?” discussion. Between lowered theatrical interest, dwindling advertising revenue, and the fake monopoly money politics that comes with inter-conglomerate deal-making (like when ABC “buys” the rights to a movie the larger corporation of Disney owns, you technically pay but don’t pay, it’s weird), the need for REAL outside cash is still of prime concern. You need consumers directly giving you money.

Within the ups and downs of the movie business, there’s been lots of scapegoating of products that “distract” you from movies (remember when they blamed Ipods! You know, those things you wear on the train totally prevent you from going to the movies! Yup! Ipods!). But in all that time, the only real challenge was television, which eventually got brought into the fold of conglomeration so that didn’t end up destroying the model (and even reinforced it with advertising) No, it wasn’t until the singular success of Netflix that the industry experienced the single most disrupting force on the planet. And here’s exactly why.

Believe it or not, a movie makes money in perpetuity or on the “backend” as they say (an important term we’ll come back to). But please allow me to describe the somewhat-already-outdated model that allowed the industry to thrive for years. First you made the movie, you released it in as many territories as possible and it made what it made. But you also kept selling in perpetuity. You sold it to video stores, collectors as vhs / dvd / blus, foreign territories, ongoing TV rights, rep screenings, etc. This really adds up! And totally helps the finances of ANY movie, no matter how bad an initial performance. And that’s the whole advantage of being a big studio with 100 years of history: you have a big library. Because a movie like JAWS is going to keep making money. Hell, even FOUR JILLS IN A JEEP(1944) is going to keep making money (I don’t know why that film is always my go to example of an obscure one, but it is). And a movie studio is going to have thousands and thousands of films making this money from those revenue streams, which REALLY adds up. To the point that it’s what allows them to weather the ups and downs of a given year’s box office return.That’s the whole trick: on a long enough timeline, very few films will “lose money” in the way we often think about it. It all adds up.

Which brings us back to Netflix and the streaming revolution. Because what at first just seemed like another video market to “sell to” was instead playing a whole other game long term. They first cut into the rental market, then the whole plan with online streaming was to dominate the distribution. They spent so much money, aggressively becoming “the new cable” for the world, what with a singular, lower cost service with a big library you can watch with just a click of a button. Boy howdy, did it work! But then they asked the necessary follow-up question: why keep paying for the rights to all these other things? Why pay the studios when could be making our OWN stuff? Why not build our own library over time?

And once again, they spent so much money to essentially become the first new “mini-major” since Dreamworks (which is actually an interesting point of comparison because Dreamworks not having a library is exactly what stopped them from becoming a major). But what’s so interesting about Netflix is that outside of some foreign sales, there isn’t a stream of cash coming in from long-term sales. This is RADICALLY different from the studio model. Thanks to subscriptions, everything they make just becomes part of the same product they're selling forever. Now, you could call it a gamble, but their gambles have paid off. Heck, you’ve probably even heard they’ve been spending billions to make their own content, but it’s okay because they still have SO MUCH cash coming in from subscriptions. We’re talking like 7 billion in revenue, which is already like half of what the ENTIRE film industry makes from box office.

Their success made the direction of the industry SEEM clear: audiences are going to a streaming landscape. But there was such hesitance for studios to follow suit because it took out a MAJOR part of their cash flow. Long term library sales is the buoying thing that keeps them afloat. Instead of the end destination, Netflix was now cutting them out like a middle-man. But as that direction became more and more more clear, the idea became to leverage their own libraries, make their own streaming services and hope they could compete in the landscape. Which leads to two central questions: How much room is left in the pockets of streaming buyers? And even if successful, will this generate more cash than the system as it exists now?

The only company that seems to have looked at the market and adapted somewhat correctly was Disney. Because they were the first to quickly consolidate their library as best they could (because a lot of your films are sold and locked up in aforementioned rights deals). And they were the first to get up a new streamer that reflected the brand while even building releases around big event programming. But even before that, they looked at the landscape of theatrical distribution and said, “okay, what are guaranteed cash earners?” So they bought Star Wars and Marvel for billions and yet have already seen ROI (return on investment) on both purchases. Now, they’re the only ones up and running with semi-solvent streamer AND more importantly, they are utterly dominating the worldwide box office. Like, to a comical degree. In history, I believe there has never been a major that has taken the percentage of box office quite like this (I could be wrong, but point is it’s a lot). But once positioned, what? Rest on their laurels? No, they made a move so big that I don’t think people realize the massive implications of what happened.

The Fox deal was the beginning of the end of the “big 5-6” studio system as we know it.

Because we’re not talking about a company losing grip and folding as another rises in its place. We’re talking about a company that got so big it could straight up buy a competitor. It was coke buying Pepsi. And I say this all the time, but Coke doesn’t buy to let Pepsi do it’s thing. It bought its rival, stripped for necessary parts, kept a few valuable brands, took the library and dismantled everything else. And just like that, suddenly 1/6 of the industry was gone (and the jobs that go with it). It was not because of a downturn, but instead the crippling nature of merge-heavy capitalism gone apeshit. Even as I spoke out against it, I was met with people being excited about X-men/F4 / implying this was business as usual / or weirder still, met with assurances that none of that stripping stuff would happen and they would let Fox be. They didn’t. And more importantly, we’re now dealing with the ramifications in its wake.

Because the problem facing the rest of the big five… How do you compete with one company running away with mega success? How do you also compete with the streamers? The simple, heartbreaking truth is that in order to keep up, you have to merge, too (which means the studio industry will have half as many jobs and will probably be making more than ever). And so every company was looking around staring at one another, wondering who was gonna budge and why. It was a gasoline soaked environment. All it needed was a match.

Enter the pandemic.

The only reason nothing happened IMMEDIATELY is because, for once, an event affected every major studio across the board, including Disney, who was even bleeding their usual cash cows (because they also got hit on parks / tourism). There were furloughs and layoffs obviously at the start, but relatively few shake-up deals. But that’s only because no one was sure what the theatrical landscape would look like in a year and how we’d rebound. But as it dragged on, it led to the second obvious problem: how do you keep up cash solvency even with a skeleton staff? Or even the mere appearance of it to get cash investment from outward sources? As in, how do you appease the shareholders and give confidence of how you’ll weather the cashless storm? (Because as much as you need cash, the stock is the ultimate product when you’re publicly traded). These questions obviously mattered in a world where Netflix and Amazon and other pure online internet businesses just got a fucking BOOST from the pandemic - whereas everyone else was stuck without cash.

Quickly, the studios had to make moves. You may have seen the brouhaha about Warner Brothers suddenly deciding to dump most of their unreleased feature slate right onto HBO Max. On the surface, it was an “all-in” strategy that was all about turning their streamer into the prime destination for grade A content (which fits their overall approach). The real reason was twofold in that, they were apparently the MOST cash-strapped of the studios. And two, AT&T had absolutely no idea what the fuck they were doing and no idea about the ramifications that would come from it. People were freaking out because it was pretty much done without WB’s consent and they nuked every relationship with their creative partners because they destroyed the backend potential (I’ll talk more about this in the next section). Forget destroying you’re theatrical future, the worst part is that the strategy never was even viable in the first place. They were NEVER going to make the kind of cash they thought they were (someone really should write a book about the AT&T reign because it genuinely might be the most clueless corporate takeover of a media business and that’s saying something). Meanwhile, Peacock floundered (mostly due to misunderstanding everyone watched The Office on Netflix just to have a comfort show on, and people don’t buy your service for a comfort show) as Viacom scrambled to assemble “Paramount+” it took too long to get up and running (yay, just in time for the end of the pandemic!). Worse, none of them realized how quickly the consumer would get to “paying for streamers “fatigue and didn’t want to pay for a bunch of services that brought them closer to paying for what they did with cable.

These are the conditions for the reckoning. They’re out of cash. And so suddenly, Warner Brothers is spinning off assets because of AT&T’s massive failure. Which means it’s the beginning of the end for the company that goes back to 1904. But much less reported right now was the fact that Amazon is in the process of buying MGM - which signals the most dangerous shift with what is about to happen regarding labor. Because yes, this whole history thing has a point. After all, why should I care about the death of some giant corporation? How is this not more business as usual? And isn’t it okay that all this business is just going to the streamers? Aren’t we technically making more things than ever in Hollywood? Yeah, here’s the problem with the specifics of how it's happening…

It’s destroying the worker in the center of it.

3. LABOR PAINS

So the only thing Silicon Valley has really “invented” lately is union-busting.

Seriously. For the most part, the app revolution hasn’t been about invention at all. It’s just building an easy-to-access app for a service that already exists and just makes it “more convenient.” Now, this is not to undermine the importance of convenience, but let’s look at the real cost of the process and where that convenience comes from. For example, services like Uber / Lyft built an easier to use version of the service, lured initial workers with fairly decent pay rates, but once established, they drastically slashed pay to create a cheap labor force. And because it gets classified as gig contractor work, they got around constant labor laws and created a system that pretty much entirely built abuse and not treating their employees like employees. And tight when the world was like whoa whoa whoa and started to pushback against their worker abuse / lack of protection? Especially within California?

Enter prop 22, which was a counter-measure against the state trying to offer the most basic protections to these workers, but then “Lyft, Uber, DoorDash, Instacart, and Postmates contributed over $205 million into campaigns supporting Prop 22, making it the most expensive ballot measure in California's history.” Basically, they made all this completely misleading advertising about how the drivers “didn’t want to be employees actually,” nor have basic protections! And the worst part is that in the small print, the ballot passing meant they can’t form unions ever. I cannot tell you the magnitude of this disaster. It is emblematic of how mega-companies are skirting not only around unions, but the laws around basic employee protections, all because “the internet is different or something.” And it gave the rest of the world a new blueprint to follow.

Well, the same exact thing has been happening in Hollywood.

In the century prior, the unions of Hollywood fought so hard for worker protections in Film and TV. This is not to create some hagiography of what it’s like to deal with the unions from either side - it can be hard to get in, it can be expensive, and the details can throw your productions all sorts of curveballs. Moreover, there are elements of industry that never got good union protection, like the VFX and Animation industries. But the existence of those unions is still CRITICAL in so many ways. They really did fight and gave the most basic protections and assurances in an industry absolutely defined by it’s temporary gig-ness. Hell, the unions are the reason the industry isn’t trapped back in the gilded age. And most critical of all, the unions didn’t just fight for better rates on the forefront, but the right to also earn off the “backend,” which is where I told you above that the studios made all their cash. Not just individuals, but the unions themselves. We’re talking residuals from box office, media, international sales - basically anytime that thing makes money, you get a small percentage of it (which can be hilarious, too. Love when actor friends get their thirteen cent checks from a random episode from playing a drug addict in one scene of SVU or something- but they at  least still get that check they’re OWED). More than dues, this is FUNDAMENTAL to the function of the unions. It goes toward health insurance, upkeep, and all that lovely stuff… But it only extended to theaters and TV.

Then the internet came in union-busted.

Because the streamers counted under the purview of neither. They can hire non-union (mostly out of the independent film world) and save so much damn money. Same goes for the fact that they don’t have the same constraints of advertising and can just put something up on the main page and it is just a button click away. And what’s more is that their subscription and exhibition model means that there is no backend. Like, even Netflix’s early shows like Lilyhammer stay up in perpetuity in these territories (foreign sales is still an issue that gets wrestled with, but less so given that Netflix is getting more popular around the world). And going back to those big features being slung on HBO max? This was actually the crux of Nolan's big argument. By putting all those movies on HBO Max, it took away the crucial back-end not just for the artists, but for all the unions (I’ll be honest, I was never more proud of that stiff doof). These issues are so damn pressing for labor. There’s virtually no difference in scale and yet the Netflix and Amazons of the world and yet they get to be “We’re not a tv channel! We’re the internet! We don’t have to pay! Wheeeee” Even when they’re doing, like, a 50-100 million dollar show.

But wait - how did Netflix then get grade A talent to finally come over if they’re paying lower? Well, because they offered exorbitant fees where they essentially negotiated back-end up front. It may seem absurd when you see someone like Ryan Murphy getting paid 300 million for a deal, but what you're not seeing is them saving 500 million through not having to pay union rates on their budgets. Please understand this is a simplification, but part of the crucial math of how streamers manage to make so much more money. Because this really isn’t about the major players (who have great agents and will be fine). This is about the workers. This is about craftspeople with day rates. This is about young, vulnerable writers getting their first gigs. Because the rates for these jobs when looked at across the board? They are so much lower and people are just so happy to simply be getting work. But where “writing a few episodes of a tv show” in the 90’s could give you the kind of a security that could last a decade plus (again, that was fair because those shows were MAKING so much money). Now you can “only” pay your rent for 5-9 months. Which is certainly nice and all, but it’s not the same protection and it’s hard to get those jobs in perpetuity (especially with cancel-happy streamers) . Moreover, I can assure you, there’s MORE people watching your streaming show than were watching the show in the 90’s. The only difference is the lack of worker protections because “it’s the internet.” There’s not more jobs than ever, there’s more worse jobs than ever.

The only hope I can offer is three-fold. The first is that we’re getting new developments like this where the producers are looking to form a union. The second is the understanding that the industry kind of went through this before with the emergence of television, so there’s at least a model for how SAG-AFTRA eventually joined and got their shit together (maybe do it quicker this time). And third, after so much fighting from the industry, as for 2019(!!!) Netflix FINALLY signed an overall deal with SAG-AFTRA. I honestly thought I’d never see it. Perhaps they realized they were just too big and it was easier to eat the cost and seal in the lower template. And meanwhile the WGA has fought so hard for rights based on budget from high value streamers. But still, it’s such a small step they still don’t have deals with so many of the other unions, which don’t have the same kind of power as SAG. Plus, they can keep just hiring non-union. And this conversation isn’t to speak of the other streamers habits, but don’t worry Amazon is a great ally to uniohahahahahahahahahahahahha. Sorry.

Point is this isn’t just going to naturally work out somehow. Remember the union-busing prerogative of Silicon Valley. Remember the “lavish expense” comment. We’re dealing cold, calculating figures who are outright rewarded for being cold and calculating. They’re message is “we will do ANYTHING for our shareholders and your stock, especially hurt our employees.” And this is true of a world where America’s billionaires got 1.2 trillion dollars richer during the pandemic. So I keep coming back to that question, “what are we going to do?”

The answer is the same across the country right now: Look to unionize.

Or to support unionization efforts. Support the PRO Act and help it get pushed through the senate. Because it’s not a “worker shortage” that’s happening. No, coming out of the pandemic, we’re actually watching one of the biggest worker push-backs in history because people are realizing their value / finding alternative solutions. Right now Uber / Lyft are freaking out because their worker pool isn’t coming back either. But you can’t “lure people back” to something worse than where they are now. Simply put: wages need to go up. Protections need to follow suit. And one of the great lessons is that all labor disputes are part of the same equation. Which means that all I’m trying to do with this column is bring these Hollywood-specific issues to the forefront of the consumer’s mind, too. Not because you have to especially “do anything” or actively boycott these absurdly popular services, but simply to be aware of the circumstances involving them. It’s coming to grips with the “what we talk about when we talk about X” thing, whether it is mega-mergers or a streaming revolution. It’s having the basic awareness and solidarity that helps as things go forward. Because even as I write this, people STILL don’t understand the complication that’s coming with YouTube and TikTok’s youth grab. And it’s coming fast.

The concept of “filmed entertainment” is never going away. Some aspects will change for certain, but I don’t hold change against them out of some luddite instinct. I do so because “disruptive” transitions rarely come with protections for workers at the center. Which means you have to be eager to fold the changes into the protections. You have to build out the base. You have to look out for each other. And as much as I get to talk about the nature of drama, character, plot, and theme, sometimes this stuff matters more than EVER. Because at the current moment? Y’all, it’s bad out there.

But when you’re considered a lavish expense?

It’s time to be the necessary obstacle.

<3HULK