MUMBAI: Fitch Ratings believes the decision to strike by the Writers Guild of America (WGA) has limited impact on the credit profile of the media and entertainment sector over the short-term. However, a prolonged strike could impact specific sub-segments of the industry.
Fitch classifies the sub-segments reliant on the WGA into six areas:
Broadcast TV Networks, TV Studios, Cable TV Networks, Movie Studios, Movie Exhibitors, and the TV Broadcast Affiliates.
Each of these entities has revenue streams that are not dependent on the WGA, especially over the short-term, as well as various alternatives (i.e., reality programming, repeats, live news) to at least partially offset down time from WGA programming. In addition, many of the companies have capacity at existing ratings and outlooks to withstand temporary pressures to operations.
Fitch believes the TV studio side of these businesses should be able to continue much of their first-run syndication programming and continue to build-out their off-network syndication and DVD sales pipeline over the short-term. The stoppage on the primetime shows could have some short-term working capital impacts for the studios.
Movie Studios and Distributors:
There is typically a nine to 15-month lag time between the script-writing pre-production stage of a movie until it is finally released. Because of this lag time, Fitch does not expect any short-term impact for the movie studios and distributors as many of them already have first-half 2008 movies in the can and have already started production on second-half 2008 releases.
While the independent studios specialize in acquiring low budget independent films, it is not uncommon for these films to be written by WGA members. As a result, while the independent studios are susceptible to a longer term strike (the independent hit Little Miss Sunshine for example was written by WGA members), they should have slightly more flexibility than their major studio counter-parts.
Importantly, in addition to the lag time that these studios enjoy, the movie studios of many of these entities are low margin businesses that account for a small portion of overall company cash flows, thereby making any prolonged strike not a material concern for Fitch to the overall credit profiles of the conglomerates when taking into account the scaleable cost structures that would accompany a long-term shut down of operations.
Movie Exhibitors:
Movie exhibitors such as AMC Entertainment (‘B‘; Stable Outlook), Regal (‘B+‘; Stable Outlook), and Cinemark (NR) will be impacted by this strike over the short-term as they can rely on the lag time between pre-production and final film release giving them a slate of film product over the next nine to 12-month period. Obviously, a more protracted strike would have substantial impact on these entities as they are solely dependent on the studios product while maintaining a very high fixed cost base and, generally speaking, weaker capital structures.
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