Hollywood actors and writers are teaming up on the picket line for the first time since 1960. Milken Institute Chief Global Strategist Kevin Klowden claims the strikes could cost the economy as much as $4 billion. Klowden explains how the Milken Institute studied a variety of businesses that support the entertainment industry and found that the strike was "impacting all sorts of things in daily life that you don't think about." Klowden details that the longer-term impacts of the conflict could affect local businesses nationwide, such as hotels, dry cleaners, restaurants, and many others.

Video Transcript

AKIKO FUJITA: Hollywood actors and writers are back out on the picket lines today for the second week of a historic double strike. Our next guest says the work stoppage could result in a $4 billion hit to the economy, and it won't just be limited to Hollywood. Let's bring in Kevin Klowden. He's a chief global strategist at the Milken Institute.

And Kevin, that $4 billion number you have put out has really been shared widely because when you think about the impact here, we're not talking just about studios, not just the content space, but much broader than that. How do you break down that $4 billion?

KEVIN KLOWDEN: Well, what you look at is start with what happened back in the 2007/2008 strike. And when we looked at that and we did the analysis a number of years ago on it, we found that it was an impact in California. That number was really about what was going on when the industry was way more concentrated in California than it even is now.

And we saw it impacting all sorts of things in daily life you don't think about. We looked at it and we talk to people, and it was affecting restaurants and catering companies. It was affecting trucking companies, it was affecting welders, it was affecting construction people, it was affecting dry cleaners, it was affecting all sorts of businesses in hospitality and otherwise.

And what you realize is that and a strike like this, especially as it's expanded as it's not just the writers this time with the actors, it's a total stoppage and almost everything that's scripted that it's not just impacting these industries in California. But it's really doing so in New York, it's doing it in Atlanta. It's doing it in Albuquerque, it's doing it in Pittsburgh. It's doing it in all sorts of places where filming actually takes place.

And we think of Hollywood as this great center, but it's because of film incentives and because of the way that the industry works, a huge amount of that filming is scattered all over that country. And that means that the economic impacts aren't just in California, but they're elsewhere.

ALEXANDRA CANAL: And Kevin, it's worth noting that $4 billion number, that would be double the damage caused from the last strike which happened in 2007 with the writers. And I'm curious to get your perspective, given how far apart the unions seem to be from the studios, how long could this go, and who do you think will be first to cave?

KEVIN KLOWDEN: Well, I think ultimately, both sides will have to cave. And the problem is, you have to get to that point. Right now, it doesn't seem like either side is ready to. The studios think that they can outlast the writers and the actors because they'll undergo economic pressures, they'll have rent payments, mortgage payments, basic utilities, cost of life issues.

And the actors and the writers think that the studios are going to run into issues with content. And it really depends for each of them who will be under the biggest amount of pressure. Netflix likes to say, hey, we've got enough that we can last into next year. But Netflix is just streaming, and they do have other things they can bring in.

The question is, as they bring in international content like they did during the pandemic, do they start bleeding out subscribers? They've been adding them recently, especially with some of the moves they've made. But what happens if they take a hit? What happens if the studios don't have enough for the networks? What if they don't have enough for their fall slots? And all of those are issues that are going to come in.

And right now, nobody's really in a great position coming out of the damage from the pandemic, coming out of the issues that have been placed in this. And the uncertainty around revenue on streaming. Everybody's in a precarious position. Nobody really wanted the strike. But at the same time, both sides see the current situation as not viable.

AKIKO FUJITA: And Kevin, you have to wonder the longer this goes on, whether there's going to be some kind of division between what we like to think is more of the tech-facing companies like an Apple or a Netflix, and then the traditional studios like a WarnerMedia as well as Paramount. I want to get back to that number, the 4 billion number that you mentioned. If you think about SAG-AFTRA, you think about WGA, they've obviously got funds that are helping support some members.

There's the below the line-- what's described as below the line, I should say-- the craft services, others who are all part of that team that goes into movies. What do you anticipate the impact there to be? If we're talking restaurants, for example, that are fundamentally supported by some of these shoots, I mean, what's going to happen there? How do you assess the economic impact on that front?

KEVIN KLOWDEN: Well, unfortunately, you have to watch and wait. That's part of what we're looking at when we're estimating an impact is that last time around-- and this is a number of years ago before we had a whole bunch of inflation and other issues. But when we were estimating it, we had to look at things on, did it impact rentals of apartments?

Did it impact business closures? How many people got laid off in hospitality? How many people got laid off in other secondary businesses? What kind of longer term impacts do you actually wind up seeing? And unfortunately, that data is lagging. So we're only guessing a very educated guess. But we're still trying to sort that out.

The longer this goes on, the more that a number of these businesses who were already hit by the pandemic and having to stay closed or only have to deal with customers coming in doing takeaway if you're a restaurant or even if you're a dry cleaner, whether there's very limited activity or anything else. Those kinds of pressures are already there.

So a number of these businesses may be more cash-poor than they might have been otherwise. And so we're watching and waiting to see, do they operate by basically reducing the number of employees? Do they operate by potentially shutting down a number of days? Or are they not able to make rent?

And let alone, you have a number of real estate companies who had gone in, who had bought studio spaces because the increase in the amount of filming, they've invested heavily in this industry, not just in California, but all over the country. How much do they get hit? How much do investors get hit? How much does all of these secondary groups get hit.

And meanwhile, you have a whole bunch of content creators who are like, well, I can just go on YouTube or TikTok, I can film from my own personal camera, do something to see if they can find alternate ways. And for the below the line people in particular, there are a lot of people we found in the last strike where they left.

We found it took a year for the industry to recover because a lot of people basically were like, I can't make ends meet. This is too much. They moved, they go into different jobs, other things happen, let alone all the delays in filming.

ALEXANDRA CANAL: And Kevin, speaking of businesses that were hard hit by the pandemic, I want to talk about the theater chains because Moody's was out with a new report last week saying that movie theaters will be hardest hit by the double strike the longer it goes on considering their reliance on new content. Do you agree with that? And what do you think it could mean for the future of the box office?

KEVIN KLOWDEN: Well, the future of the box office has already been hit. If you looked at it pre-pandemic, you were already seeing a declining number of people going to the movies except for events, for things that they were particularly motivated by like "Barbie" and "Oppenheimer." and what this means now is if you don't have those polls to get people into the theaters, they're going to have to rely on coming up with various alternatives that try and draw people in. But nothing brings people in like a new release. And the movie theater chains already were hit very hard during the pandemic because they were shut down in a number of different parts of the country for extended periods. So for them, this could be even more of a make or break moment, especially if the content disappears for an extended stretch of a few months.

AKIKO FUJITA: The Milken Institute's Kevin Klowden, good to get your insights. We'll continue to follow the strike to see where things go. Appreciate the insight today.

KEVIN KLOWDEN: My pleasure.