Hollywood studios heaved a sigh of relief on Monday as a tentative deal with striking screenwriters raised hopes of business returning to normal after five months of disruption.
Those expectations lifted the shares of studio owners Warner Bros Discovery (WBD.O), Paramount Global (PARA.O), Walt Disney (DIS.N) and Netflix (NFLX.O) between 0.5% and 2.3% in premarket trading.
The union representing roughly 11,500 film and television writers and the group that represents the studios and streaming companies announced the preliminary agreement on Sunday.
The three-year deal, whose details were not disclosed, needs to be approved by the leadership of the Writers Guild of America and union members to officially end the strike.
But even after the approval, it will take longer for productions to resume as Hollywood actors are still on strike.
The SAG-AFTRA union, which represents 160,000 film and television actors, stunt performers and other media professionals, walked off the job in July, demanding higher wages and protection against artificial intelligence (AI) use.
“Hopes are high that it (the tentative deal with writers) will also mean the studios and streaming services will now focus fully on actors’ demands,” says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Already it’s likely that the big studios will face a significant hit in 12-18 months time, with so little in the pipeline and bosses are now desperate for new content to attract eyes to big and small screens.”
Investors of the media companies have in the recent weeks been concerned about the financial fallout of the strike that had initially boosted cash flows due to lower expenditure, but has started eating into earnings.
WBD, whose CEO David Zaslav played a key role in contract negotiations with the writers, had earlier warned that the company’s full-year adjusted core profit would take a hit of up to $500 million due to projects delays from disruptions.
Its shares have dropped nearly 14% since the writers’ strike started on May 2, while Paramount, Disney and Netflix have lost between 20% and 45%. In comparison, the benchmark S&P 500 index has risen nearly 5%.
Media reports said the agreement with the writers includes increased royalties, mandatory staffing for television writing rooms and protections over the use of AI.
Craig Huber, analyst at Huber Research Partners, said he expected “the new deal to add modestly to” studios’ expenses.
“Payments to writers for TV shows and movies historically is rather small, amounting to less than 5% of revenue,” he said