Production risks for the entertainment sector during a period of industrial dispute

Author: Brian Kingman

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The Hollywood entertainment industry has been hit by coordinated strike action by the Writers Guild of America (WGA) and Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA). The principal issues are a dispute over compensation for artists, writers and other contributors and the use of artificial intelligence (AI) by content producers and production studios.

The current stalemate between unions and industry has broader consequences and may deliver a significant blow to its bottom line should action continue for an extended period. Media business leaders and production companies need to make a realistic appraisal of forecasted financial losses and their production risk exposure to navigate a challenging period.

The multi-billion-dollar Hollywood entertainment industry has been hit by dual-union strike action for the first time since 1960. Led by thousands of actors and scriptwriters, the strike has brought the production of several high-profile projects in Hollywood to a standstill.1 It started with an initial outpouring from WGA in May, followed by a protest and calls for collective action by SAG-AFTRA.2

Economic fairness, outdated contract terms and maintaining reasonable living standards in line with an evolving media business are some of the concerns being debated.

As things stand, it is difficult to predict how events will pan out, and a quick resolution to the conflict seems unlikely. However, a tentative deal struck between the Directors Guild, studios and streamers to establish a new residuals formula and preconsultation for generative AI content may provide a template to resolve the current deadlock between studios and WGA/SAG-AFTRA members. Profit participation to bring streamers in line with other major players could provide a way forward if it offers a sustainable operating model.

A lack of programming content may be the deciding factor to motivate all parties to come back to the negotiation table. With the strike passing its 114th day — surpassing the 2007-2008 strike that lasted 100 days) — recent reporting suggests that there's currently no clear path to the parties striking a deal that would deliver a workable resolution, and the cost to the industry continues to mount.

Optimism remains, however, as the unions presented a preview of the issues each side intended to bring back to the table and formal talks resumed on August 11, 2023 with a general feeling that "everyone is trying to step up and make a resolution."3

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There have been strikes before in the entertainment sector; however, as technology changes and the delivery of entertainment continue to evolve, compensation models may need to evolve too. The hope is that the unions and the industry can resolve their issues and return to work soon.
Brian Kingman, Managing Director Entertainment at Gallagher

After recovering from the business disruption and production shutdowns caused by the COVID-19 pandemic, the entertainment industry is once again staring at the possibility of extended shutdowns.

Production owners and business leaders are recommended to make a realistic appraisal of the potential scope of exposures and risks during the shutdown period and identify the best possible solutions to mitigate them. Which of the risks are avoidable versus which are not? What risks are manageable and which ones are transferable?

If strike action were to continue for an extended period — greater than six months — insurance carriers may increase premiums to reflect the extended coverage period to complete the project.

Therefore, regular communication with your insurance representative is recommended to ensure they remain up to date with any changes to the scope of insured activities and associated risks during the production shutdown period.

Risk management and general insurance guidance for interrupted production companies

Project scope

Not every production is the same — TV and movie projects have objectives and financial expectations specific to that production. Considerations include:

  • Who owns/leads these productions?
  • Is the production owner an alliance member?
  • Are they an independent ("indie") producer? Are they eligible for a waiver and therefore able to produce their production as originally anticipated?
  • What risks are associated with holding, and then moving forward?

While waiver applications have been submitted and exceptions to strike action granted, each producer and production company must still assess the scope of their individual insurance coverage and attached risk exposures, whether the project can move forward or is placed on hold.

Workers' compensation/casualty exposures

During downtime, production companies still have liability for the premises, workers' compensation and issues relating to the remaining workforce, so they have to work through the risks and ensure that everything is adequately insured.

Production halts and incomplete projects

In a scenario where a production company is halfway through a movie that's halted or interrupted due to strike action and only 50% of that movie has been completed, they have a potentially significant issue given that 50% of that project is now at risk.

There's also an integral risk of an actor or director quitting, becoming incapacitated, having a prolonged illness or serious injury, or dying. Considering that, it may be worth having cast insurance through this period and asking the underwriter, if required, to re-customize the coverage for the individual risks at hand.

Actors and directors: Unanticipated risk exposure during strike action or production downtime

At this time, it may be best to assess cast-related risks — the risk of any cast member or director being unable to return to the production as a result of death, injury or sickness. Actors on standby who are integral to a production and impacted by strike action are still exposed to risk outside the production. Some may choose higher-risk leisure pursuits during the shutdown period, such as flying their own aircraft, or participating in extreme sports or hazardous activities such as mountain climbing. The underwriters would want to know about these risks to negotiate interim coverage throughout the work stoppage.

Property risks

Productions may have their own props, wardrobe and other property used for production. For them, ensuring all premises and assets are fully secured from public access will be crucial.

For production companies that rent lighting, camera equipment, props and other connected equipment, it might be best to return the equipment to avoid potential liability risks.

Supply chain impact

Once productions resume, a spike in demand for scarce resources, talent, supplies, locations and specialty equipment required for filmmaking is likely, potentially inflating costs and further delaying production.

Looking forward

As many entertainment sector insurance policies are written on a project-specific basis, if a claim is made during downtime, the claim would be covered within the scope of the insurance policy.

If, however, the downtime will continue for an extended period, some insurance carriers might want to charge more, citing that the client needs a longer term of coverage now that policies may expire altogether. This situation calls for going back to the insurance company and renegotiating for extended terms. Some of the other urgent actions should be considered from an insurance and risk management perspective.

It has yet to be determined how current events will play out over the coming months. That said, there's room for optimism, and it's hoped that a resolution will be reached soon to offset the collateral damage associated with production shutdowns.

Author Information

Sources

1Cho, Winston and Lesley Goldberg. "Writers Guild Tells Members It Will Evaluate Offer to Resume Talks With Studios," The Hollywood Reporter, 11 Aug 2023.

2Ivanova, Rina. "Film and TV Actors Set Up Strike at End of June, Potentially Crippling Entertainment Industry," CBS News, updated 6 Jun 2023.

3Kilkenny, Katie. "Studios Reveal New Proposal to Striking Writers on Data Transparency, AI and Residuals," The Hollywood Reporter, 22 Aug 2023.

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