Cast & Crew

Several sources flagged Cast & Crew, which provides payroll processing services to the entertainment industry, as one to watch. Given that the strikes mean a lot of people are suddenly not getting paid anymore, it definitely feels like a good place to start.

An analyst familiar with the entertainment sector estimated that payroll processors’ exposure to the current strike activity was close to 60%, versus 25%-30% for talent agencies like Creative Artists.

Cast & Crew’s $225m term loan due December 2028 was quoted at 97.172 as of 2 August. That’s down from a peak of around 99.9 between during April and May — and it’s probably no coincidence that trading levels started drifting lower the day before the WGA began its strike.

Understandably, a lot of the discussion around which companies are most impacted by the strikes centers on who is the most diversified. From that perspective, Cast & Crew is bigger and broader than it used to be, having completed a string of acquisitions under its sponsor EQT:

• Film and television payroll provider Media Services in February 2020
• Expense management system LeBog Software in April 2021
• Advertising, music, and concert tour payroll provider The Team Companies in November 2021
• Content creation tool Backstage Holdings in February 2022

These additions (particularly The Team Companies) give Cast & Crew some diversification in terms of adding more end markets within the entertainment space, as well as ancillary services beyond payroll processing. However, the company is still heavily exposed to film and TV and the broader content industry.

It’s also worth considering how the strikes, and their potential impact on earnings, might impact EQT’s plans for an exit from this investment. The sponsor acquired Cast & Crew from Silver Lake in 2019, and was reported to be considering a sale of the company in March 2022.

EQT declined to comment, and a Cast & Crew spokesperson did not return a request for comment.

United Talent Agency

United Talent Agency is the second EQT portfolio company on this list, and the first of a handful of talent agencies.

Like its peer Creative Artists Agency, UTA tapped the leveraged loan market before the strikes kicked off. Back in February, it raised a $250m TLB due 2028 to pay down revolver borrowings and add cash to its balance sheet. The loan is quoted around par.

A source close to UTA said its business has not yet been impacted the strikes. Other sources noted that diversification will be crucial to its ability to weather the volatility — analysts at Moody’s concurred, in a report they published when UTA hit the market in February.

“A potential strike by WGA could increase volatility in operating performance depending on the length of time that scripted content production is disrupted, but UTA has diversified operations over the past several years with a cost structure that is largely variable,” the analysts wrote.

EQT has plenty of time for things to stabilize — it only acquired UTA in July 2022. The sponsor declined to provide comment for this article, and a UTA spokesperson did not respond to messages seeking comment.

Creative Artists Agency

Creative Artists Agency is a big name, representing celebrities like George Clooney, Beyonce and Lady Gaga. That short selection of clients gives a flavor of the company’s diversification outside of just TV and film.

Together with UTA and Endeavor (see below), it’s one of the top three talent agencies in Hollywood, representing a range of talent and brands in entertainment and sports.

As we already mentioned, CAA successfully extended its $1.55bn TLB maturity to 2028 back in February. During a lender call to discuss the TLB extension, the company said that its diversified business model could help it maintain earnings during industrial action.

But the longer the strike goes on, the more likely it is that CAA’s revenue will take a hit. “They can maybe withstand one or two quarters, but if it drags into 3Q or gets towards a year, you could see more of an impact on performance,” said an analyst familiar with the company.

On the flipside, the increased attention the strikes are now getting could make it more likely that a deal will be reached. And if that deal involves higher pay, that could benefit CAA down the line.

“There could maybe be a bit of silver lining in more pay for actors and writers, which could lead to more fees for agents,” said the analyst. “Higher pay to writers and actors could be a net positive to CAA.”

As with Cast & Crew, exit options are also worth considering here. Last month, news broke that French billionaire Francois-Henri Pinault was in discussions to buy CAA from its current sponsor TPG (the company handles speaking engagements for Pinault’s wife, Salma Hayek).

TPG has held the company for an unusually long time. It took majority control of CAA nearly ten years ago, and in 2021 moved the investment to a new fund.

A CAA spokesperson did not return a request for comment, and TPG declined to comment.

Endeavor

If you’re a fan of UFC, you’re probably familiar with its owner: talent agency Endeavor Group Holdings.

In April, the company inked an agreement to hive off UFC into a new publicly listed company together with World Wrestling Entertainment. Endeavor will hold a 51% controlling stake in the new company while WWE shareholders will own the remaining equity.

The fact that Endeavor retains a significant interest in the new UFC and WWE entity could be seen as positive in light of the strikes, because it provides diversification outside of TV and film. Then again, those diversified assets are now a separate company.

Still, Endeavor’s chief executive Ari Emanuel said Endeavor could withstand the action — but he also noted that Endeavor is “working to size” the potential impact and provide additional detail in its 2Q earnings, which are due to be reported on 8 August.

“While the writers’ strike is likely to have an [impact] on our representation segment if it carries on for any great length, the depth of that impact will be determined by several factors that we will quantify over the term of the work stoppage,” said Emanuel in the company’s 1Q earnings call.

“Given [the] diversification of Endeavor, we remain well positioned to continue capitalizing on the most resilient secular trends, benefiting premium content and live events,” he added.

A spokesperson for Endeavor did not respond to a request for comment.

Lionsgate

In our conversations with sources following the strikes, global content platform Lions Gate Entertainment Corp came up several times.

During the company’s most recent earnings call, chief executive Jon Feltheimer said the business could withstand the writer’s strike, even though the company has not “factored a prolonged strike into guidance.”

He looked back at the last major industry strike for guidance on how long this one might last, saying that if it were to last three months (like the 2007/2008 action) the financial impact on Lionsgate “would be modest”.

“We've of course been preparing for the strike for several months and we've got a significant content pipeline, completed projects and with our film and television library, our businesses are very resilient,” he said.

Lionsgate reports FY 2024 earnings on 9 August. A company spokesperson did not return a request for comment.

AMC Networks

Not to be confused AMC Entertainment (more on that below), AMC Networks operates cable TV channels, streaming platforms and a content studio.

So far, the company has shrugged off the impact of the strikes. But their last earnings call took place on 9 May — only a week after the writers’ strike kicked off, and way before the actors got involved.

“I would say we're very well-positioned for all of this year and into next year, so we have no real concerns about the [writers’] strike at this point,” said chief executive Kristin Dolan on the earnings call.

With the original WGA strike dragging on and the situation snowballing, management could very well change its tune in its next earnings call. The company reports 2Q results on 8 August.

As a side note, it’s probably worth noting that analysts have suggest AMC Networks should sell its studio business while the going is good. An AMC Networks spokesperson did not respond to a request for comment.

Cinemark Holdings

As in the case of Lionsgate, cinema operator Cinemark Holdings is looking into the past for guidance.

“In the past, some of the longer strikes like what we saw in 2007 to 2008 with the 100-day Writers Guild Strike had perhaps some impact on the industry, but the overall disruption to the flow of films was fairly limited,” said chief executive Sean Gamble in a May earnings call.

He said the impact of the current strike was “a bit too soon to speculate” on, but noted that Cinemark had a backlog of content that could help it weather the storm.

“The positive thing for our industry in the short run is the majority of films scheduled for this year and next are unlikely to be materially affected, based on the stage of production they are in,” he said.

The company most recently obtained a $650 TLB due June 2030 in May to refinance existing term loan debt. At the time, the strike was not listed as a concern by a Moody’s report on the loan transaction. Instead, the analysts flagged that attendance could shrink as a result of a “pullback in consumer spending” due to higher inflation and a weak economy.

A Cinemark spokesperson did not respond to a request for comment.

AMC Entertainment

Meme stock, gold magnate and cinema operator AMC Entertainment isn’t sweating it. Its chief executive Adam Aron indicated that a shorter strike would have a bigger impact on television programming, but that the movie industry should be just fine.

“Movies for 2023 and 2024 have pretty much been written,” he said on the company’s most recent earnings call. “In many cases, they've already been filmed. And I think only a very prolonged writer’s strike would have…a material impact on the movie theater industry or AMC.”

But as with the other AMC (Networks), this earnings call happened just a few days into the writer’s strike, and before the actors joined the fray. Those films may have already been written, but they’re not going to act themselves.

Aron isn’t exactly known for mincing his words, so there will probably be more soundbites around the company’s 2Q earnings, set to be released on 8 August. A company spokesperson did not respond to a request for comment.

Netflix

The OG streaming platform held its 2Q earnings call on 19 July, making it the only public company on this list to have already acknowledged the twin impact of both the writers and actors’ strikes on its earnings.

Spencer Neumann, the company’s chief financial officer, noted on the call that the strikes would impact cash flow between 2023 and 2024. But because they will reduce the amount the company spends on creating new content, the impact is likely to be broadly positive — the main issue is the volatility they could create.

“There's still a pretty wide range of outcomes for where we where we're going to ultimately land on cash flow this year given the ongoing strikes,” he said. “That may also create some lumpiness actually between 2023 and 2024. So still a substantial expected free cash flow in 2024, but some lumpiness between the years.”

A company spokesperson directed 9fin to a shareholder letter published in 2Q, in which the company revised its 2023 free cash flow expectations to $5bn, up from $3.5bn previously:

“Our updated expectation reflects lower cash content spend in 2023 than we originally anticipated due to timing of production starts and the ongoing WGA and SAG-AFTRA strikes,” the letter stated.

Technically, Netflix shouldn’t even be on this list: Moody’s upgraded the company’s senior unsecured notes to Baa3 in March and withdrew its corporate rating, after S&P moved it to investment grade in October 2021.

Spokespeople for AMPTP, WGA East, WGA West and SAG-AFTRA did not respond to requests for comment for this article.