Impact of writers’ strike on L.A. economy could surpass 2007 stoppage, experts say

The cascading impact of the Hollywood writers’ strike could touch almost every facet of the economy in Southern California, including the housing market, and lead to economic fallout that eclipses the estimated $2.1 billion in losses during the last work stoppage, experts say.

“We believe this standstill could last three months or more,” analysts from Moody’s Investors Service wrote in a recent report. “The consequences of a very long strike could prove bothersome and even dire.”

And several factors point toward dire.

The last strike — which, like the current one, pitted Hollywood studios against thousands of film and TV members of the Writers Guild of America — began in fall 2007 and dragged on for 100 days.

Writers lost lucrative gigs. So did carpenters and caterers, prop houses and production assistants. Soon a ripple effect set in,and some consumers spent less at shops and restaurants — even car dealerships took a hit.

While it’s possible the sides may come to an agreement faster this time, it’s not likely, according to several economic experts, who noted that multiple factors make the current situation more complex — lingering instability from pandemic shutdowns, a seismic shift in the industry in the streaming era and mounting concerns that studios will replace writers with artificial intelligence.

“At the time of the last strike, we were all still making trips to Blockbuster, and Netflix mailed you DVDs,” Shannon Sedgwick, director of the Institute for Applied Economics at the Los Angeles Economic Development Corp., said in a statement. “It was a different industry and a different world then.”

A key sticking point in these negotiations is the handling of residuals for streaming projects, said Todd Holmes, an associate professor of entertainment media management at Cal State Northridge, who noted that the amounts from streamers are often lower than what writers got for broadcast TV.

If the strike drags on for three months, Holmes said, he expects it could cost the local economy $3 billion — a prediction he got from using estimates of the 2007 fallout and factoring for inflation. But because the current negotiations are more complex, he said, he wouldn’t be surprised if they dragged on even longer, outpacing the losses from last time.

“It could be even worse than the $3 billion,” he said.

After the last strike, the Milken Institute, an economic think tank in Santa Monica, released a report concluding that the stoppage had likely led to 37,700 lost jobs and $2.1 billion in losses. (The Los Angeles Economic Development Corp.’s chief economist had previously estimated the loss would be more than $3 billion.)

Coming in the midst of the 2007 financial crisis, the strike helped accelerate the onset of recession in California, said Kevin Klowden, lead author of the Milken report.

In an interview, Klowden said it’s less likely that the current strike will nudge the state into another recession — the entire country, he noted, was already teetering on the precipice last time around.

Still, the impacts of another protracted strike would be vast.

“The caterers, the accountants, the dry cleaners, the construction people, the transport people,” he said. “We saw real impacts going up and down the chain.”

Including, he said, on real estate.

The last strike overlapped, for a time, with the subprime mortgage crisis that devastated the nation, and once the stoppage began in Hollywood, Klowden said, there was a whole sector of the local economy — including some very high-earners — that abruptly stopped buying new homes.

“It’s going to have a cascade,” he said. “People will put off home purchases even further. People already being stalled by the rise in mortgage rates are going to look and say, ‘There is uncertainty here, and I can’t afford to move.’”

That could initially add a pressure that will lead to increased rent prices, Klowden said, but eventually some people in the industry, especially those not making big salaries, will decide to leave the state altogether.

“We saw an exodus in the last writers’ strike,” he said, pointing to a trend that, for the first time in many years, recently translated into a net decline in the state’s total population.

Sanjay Sharma, an adjunct professor at USC’s Marshall School of Business, who has an expertise in media and entertainment, said he also expects to see an effect on the housing market.

“Would it result in widespread defaults? The jury is still out on that,” he said. “But it also does take a lot of money out of the real estate market immediately.”

Given the high rates of inflation, he said, the timing of the strike couldn’t be worse.

“The economy is slowing and contracting,” he said. “Everything is getting more expensive every day. Interest rates are rising.”

The particulars of a writers’ strike, Sharma added, are unlike stoppages in some other industries.

“These are the storytellers,” he said. “Without them there is no medium.”

The fact that some of the studios involved are, at their core, technology companies and not entertainment conglomerates adds a new element of unpredictability to these negotiations.

“We now have streamers like Amazon and Netflix at the table,” said Sedgwick, the economist at the Los Angeles Economic Development Corp. “These newcomers may play hardball, which could extend the length of this strike.”