Looking at Hollywood’s strike through an ESG lens.

A company’s treatment of its workers, including compensation and recognition of their freedom of association, are factors our ESG team assesses as part of its comprehensive analysis process for potential investment companies. Poor human capital management is a risk that can translate into financial loss. Consider the American screenwriters and actors strikes of the past summer.

Two movies (Barbie and Oppenheimer) dominated the box offices in the summer of 2023. And while studios relished in the financial success of these blockbusters, not everyone involved was as enthusiastic. When 160,000 Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) members went on strike in July 2023, they joined the 11,500 Writers Guild of America (WGA) screenwriters who’d been on strike since May, the latter of which only reached an agreement at the end of September after five months of walking the picket line.

Compensation and working conditions usually form the key points of dispute in most job action and these strikes were no different. But what was unique about them was the threat posed by artificial intelligence (AI) and its impact on a worker’s compensation and employment. Generative AI (content that can be generated based on a variety of data inputs) is already being used in many movies and TV series. As the technology evolves, the threat of studios replacing writers with AI becomes increasingly more real. ChatGPT can already write a story and more advanced models may be capable of generating movie or TV series scripts — effectively eliminating or drastically reducing the need for human screenwriters.

AI presents just as big a threat to actors. The majority of SAG-AFTRA’s members are not wealthy celebrities. Less than 13 per cent of members make more than the annual minimum $26,470 salary required to qualify for health insurance. The US Bureau of Labor Statistics states that the average pay for California actors in 2022 was $27.73 per hour, with work being intermittent throughout the year.

Most actors perform in background roles. But with AI, a studio could hire 200 actors and make them look like a crowd of thousands, just as they did for a scene in Creed III. Or worse, a studio could hire an actor for a day, then clone their likeness using the collected footage and use it in several scenes or even different projects. Effectively, the actor would only be paid for the few hours that was required of them to generate the scans and not for any subsequent scenes or projects where their likeness would be featured. This presents a case where safeguards need to be put in place to limit how AI can be used so actors can protect their likeness and be properly compensated.

Another sticking point of the actor’s strike is residual pay for streaming services such as Netflix and others, which many categorize as unfair and dismally low. Several prominent actors even disclosed that they were receiving residual payments of less than a dollar despite the popularity of their shows on the streaming platforms. The streaming companies benefit, whereas the actors don’t.

It’s estimated the two strikes will result in $3 billion USD of economic fallout in California alone. In this case, we can assume that if the actor’s strike drags on this number will only increase and economic fallout will be felt for a long time. These Hollywood strikes exemplify the importance of assessing how a potential investment company treats and compensates its employees. Companies that invest in their employees are more likely to deliver durable, long-term financial performance.