Endeavor Group Holdings CEO Ari Emanuel pledged loyalty to company clients involved in Hollywood’s dual strikes as the company projected taking a $25 million monthly hit to revenue from the ongoing labor impasse.“I’ve been through many strikes in my more than 35 years of representing actors, writers and creatives of all types, whose livelihoods depend on the entertainment economy,” Emanuel said during prepared remarks on the company’s second-quarter earnings call with Wall Street analysts. “Time and again, our industry has navigated change and now is no exception as we adjust to new distribution models and technologies. There are real issues to work through, and we continue to stand with our clients, advocate on their behalf and push for a resolution that protects their creative and commercial interests.”The topic of the strikes dominated the 45-minute call, coming up in some form in nearly every question posed by analysts. Emanuel had personally stepped forward in July along with CAA’s Bryan Lourd to try to broker an 11th-hour settlement of the actors strike, but those efforts did not bear fruit.Emanuel cautioned that the process will take “months, not days” to be fully resolved, with a gradual ramp-up of business activities required even if parties agree to terms by the fall, as many observers have predicted. Responding to one analyst’s question about whether 2024 could see a benefit as activity held up in 2023 shifts into next year, Emanuel did not sound especially hopeful for a settlement anytime soon. “When it ends, we do not know,” he said. “It’s complicated. … It’s not like any strike that’s happened in a long time. But it’s going to be months. Maybe it’s the beginning of 2024, maybe the tail end of ’23, we don’t know.”CFO Jason Lublin said the company expects a $25 million monthly hit to revenue from the strikes, with much of that amount flowing through to the bottom line, but he said the situation’s unprecedented nature makes forecasting difficult. He said monthly updates would be provided to investors as the situation unfolds, or as events warrant, though full-year projections are being suspended pending the resolution of the strikes. Unlike media companies producing film and TV titles, who can reshuffle their slates and defer costs as production is shut down, talent agencies are affected as soon as work stops and deals can’t close.Endeavor President and COO Mark Shapiro called the strikes a “once-in-a-generation event,” and said there is a wide range of potential financial consequences for the company depending on when the disputes are settled.Asked for the outlook on the cost side of WME, Shapiro said, “You can bet we’re lifting all levers” in terms of looking to adjust operating costs, staffing and potentially “pruning the portfolio,” though it wasn’t initially clear if that was a reference to the client portfolio of WME or the asset portfolio of Endeavor. (A company rep later maintained it was the latter.) As the management team learned during Covid, Shapiro said, “Never waste a crisis.”Emanuel noted that while the quarter included the impact of nearly two months of the WGA strike, which began May 2, the company’s representation division also saw growth in Broadway, comedy and country music. Fashion, a speaker’s bureau and non-scripted programming also are helping keep things moving forward, the company said. But the onset of the SAG-AFTRA strike in July will dramatically cloud the picture in the current quarter and beyond.Representation division revenue grew 6.5%, helping Endeavor beat Wall Street forecasts for the second quarter.“We live in the comp business,” Shapiro said. “We look forward to this getting wrapped up, our clients having better economics for each one of their deals, us prospering from a return to normal business, with better economics in ’24. So, that bodes for a strong picture.”Emanuel offered one key takeaway from the situation. “Unlike most negotiations we’ve all been through, the one answer that we do know: This strike will come to an end,” he said. “Both of these deals will come to an end. I don’t know when, but they definitely will.”Shapiro described the work stoppages as “one-time and temporary” and said the company’s unscripted production arm was beginning to see increased demand from media companies forced to look away from scripted fare. Under a consent decree with the WGA reached in 2021, Endeavor agreed to sell its content unit (which is now known as Fifth Season), retaining a minority stake as Korea’s CJ ENM took control in a $785 million transaction. As it has stepped away from scripted production, Endeavor has identified potential in unscripted, Shapiro said, and that upside is coming to light during the strikes.“In terms of the studios and ordering, I think everybody thought, ‘Oh! Strike. They’re shutting everything down, and now it’s SAG-AFTRA strike, they’re for sure shutting down and they’ll be ordering game shows and reality and non-scripted like crazy.’ But they didn’t do that out of the gate. They’re bankrolling cash, and that’s why you see some of this cash flow a little better” compared with the second quarter of 2022. Shapiro said the uptick in unscripted orders means media companies “foresee a long strike, and they need to fill the pipe with something.” He claimed buyers are even ordering shows they had previously passed on given the urgency of maintaining programming flow.
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