On Netflix's earnings call, Co-CEO Ted Sarandos stated he is "super committed" to reaching agreements with striking SAG-AFTRA and WGA members. But amid a falling stock price, how else could streamers like Netflix start to feel the pain from the writers and actors' strikes? Moody's Investors Service SVP Neil Begley gives his outlook on the ways streaming services could suffer more in the long term than traditional media counterparts.

This post was written by Luke Carberry Mogan.

Video Transcript

TED SARANDOS: So you should know that nobody here, nobody within the AMPTP, and I'm sure nobody at SAG, or nobody at the WGA took any of this lightly.

But we've got a lot of work to do.

There are a handful of complicated issues.

We're super committed to getting to an agreement as soon as possible.

One that's equitable.

And one that enables the industry and everybody in it to move forward into the future.

ALEXANDRA CANAL: That was Netflix co-CEO Ted Sarandos, highlighting the streaming giant's commitment to reaching an agreement on new labor deals.

Shares of the company under pressure, closing down more than 8% today after guidance for next quarter came in below analyst estimates.

But according to our next guest, Netflix is one of the least at-risk companies in the wake of the strikes.

Joining us now is Neil Begley, Moody's Investors Service Senior Vice President.

And Neil, you know, we did see Netflix boost its free cash flow guidance, saying it now expects $5 billion instead of the prior $3.5 billion, citing the strike specifically.

You also credited Netflix's wide range of content, their international exposure.

But at what point does this strike start to hurt Netflix from a term perspective and even ad revenue perspective?

NEIL BEGLEY: Well, Netflix is no different from any of the other players in the streaming business or frankly, in the linear business.

So for all of them, they've stockpiled content.

And when that content runs out, that's when it starts to hurt.

They'll smooth out their distribution of the new content for as long as possible.

They've stockpiled a lot of new original shows.

And they've got lots of library content.

But once subscribers start to notice that the originals are not to be found, they'll start-- they'll start acting with their feet.

SEANA SMITH: Neil, you've been covering this industry for quite some time.

From your perspective, the demands that the actors and the writers are making versus what we're hearing from the studios, do you think it's likely that this is going to be a lengthy holdout?

NEIL BEGLEY: I think so.

I think it's basically a perfect storm, because you've got a period of time when you've got the linear business in decline and putting pressure on a lot of the traditional media companies.

At the same time, they're launching streaming platforms that have experienced nothing but losses now for the most part for, you know, two, three, four years.

A lot of them are starting to see the light with regard to potentially breakeven.

Some have passed the point of the worst of it, where they're had peak losses.

And some are just at that point right now.

So that means these companies are under a lot of stress.

And at the same time, on the labor side, these people who are essentially fighting for their lives essentially, their livelihoods, have experienced a time of transition as well.

And a lot of the way they get paid is based upon the old guard, where a lot of product is then sold to third parties.

And when it's sold to third parties, you can measure the value.

When you're putting it on your own platform, it's harder to measure that value and get paid.

ALEXANDRA CANAL: And you said that the DGA contract, which was ratified and signed, coupled with potential new WGA and side contracts, that will cost media firms $450 million to $600 million more per year.

How do you see those extra costs impacting these companies and their credit ratings?

NEIL BEGLEY: So that's on a static assessment of what they produce.

If they decide to produce less, obviously, they'll spend less.

They also will look to cut costs in other ways, whether they essentially reduce post-production, whether they reduce special effects.

They have fewer stars in their programming.

Or frankly, they try to pass along those costs to whoever they sell that content to or to consumers.

SEANA SMITH: Neil, who's hit the hardest?

So Netflix is best positioned, although, obviously, not in a great position, given everything that's going on.

Who's going to feel it the-- I guess, fastest?

And how big of a hit are they going to take?

NEIL BEGLEY: Well, everybody's going to-- everybody's going to feel it if this is a long strike.

However, in the interim, there's actually more money to be made by many of the media companies, because they're spending less on production for a while.

Just like we saw initially in COVID.

And frankly, with Netflix as well, they generated free cash flow before anyone thought they would, because they weren't producing any new content.

However, once that content evaporates, the cinemas, for example, I mean, they rely on new content only.

They have to put people in seats.

They have to sell popcorn.

And when the new content evaporates.

And there's a lull in the new original films coming out, they're going to feel it the Worst, Not only because of that, but because their models are not very well diversified and also because their balance sheets are weak.

SEANA SMITH: When would we see that low?

NEIL BEGLEY: I would think that would be sometime in 2024.

I believe most of the films that are in the can for a while with the plan that this strike could last throughout the rest of the year are fine.

ALEXANDRA CANAL: Yeah.

Because I was going to ask about that, because movies tend to have a way longer lead time than, say, some of the cable shows that are on.

Some of those more diversified linear networks, like Comcast, for example, right?

NEIL BEGLEY: Yep.

So Comcast is very diversified.

So if you've got a very diversified business, they make a lot of money in broadband, for example, that generates essentially 70% of their revenues.

They're not as reliant upon their media businesses as many other companies are.