Our Favorite Goons Are At It Again: How Private Equity Drains the Life from Film, Art, and Everything
It is with a heavy heart I must inform you that the equity goons are back on their bullshit
Hello, friends. Good to see you again. Thanks for your patience while I’ve been extremely at-large.
The Writers Guild of America is striking for the second time in fifteen years. The sticking point is pay, of course, and stability of work; despite film and television production budgets exploding over the last decade, writers are making proportionally less than they did before the streaming era began, and are often hired to write for ludicrously short periods of time that are subject to being cut down even further if a show is abruptly canceled.
At particular odds between the WGA and the Alliance of Motion Picture and Television Producers is residual pay - that is, what writers are paid when a production they wrote for is shown again (and again) after its initial release. The issue has particular significance because a) you can make a good argument that a production made directly for streaming is always in the residual phase of its lifecycle and b) despite the fact that residual pay for streaming productions is already quite low, production companies have been trying - successfully - to suppress it even more.
The labor dispute comes amid increasing public discussion of the dysfunctional state of film and especially television; you can find more than a dozen pieces on The End of Peak TV in 2022 and 2023 in the mainstream public prints alone, before even getting to niche culture websites. Taken altogether, it’s not what you want.
There’s a structural reason behind all this, of course. Michaeul Schur, who’s created, written, and/or produced some of the best television comedies in recent memory, including Parks and Recreation, The Good Place, Hacks, and The Office, gave a clear outline of it in a March 8, 2023, appearance on The Distraction podcast from Defector Media. The good people at Defector (which, not for nothing, is an employee-owned company born out of a labor dispute) very kindly re-released just that portion of the March 8 podcast, and I encourage you to give it a listen (and also to subscribe to the podcast and indeed to Defector itself, home to some of the best writing you can find on sports, politics, and culture).
Schur is a terrific explicator on this because he’s articulate and funny and also because he’s on the negotiating board of the WGA, so he’s had a chance to examine the structural issues in detail. The core of his explanation is that production companies operate now on the expectation that profits should increase at a substantial rate every year, without interruption. Production companies have always sought a decent profit, but it’s been generally understood that profit-making hits are hard to come by, and you’re gonna have down years in showbiz. Schur compares hits in television to hits in baseball - if you get one on three out of ten tries, you’re doing extraordinarily well. And he would know; Schur might be the most consistently successful producer of television comedies in the last two decades, and even he has some misses on his sheet.
Schur doesn’t quite name the villains behind the shift from seeking high profits to expecting and demanding gargantuan ones - kind of like Wall Street guys or venture capitalists, he says - but what he’s talking about is private equity. Private equity has poured billions of dollars into Hollywood over the past decade in the full expectation of receiving geometric returns, because that’s what Netflix was generating.
Disney has essentially locked parents in a compulsory decade-plus contract beginning no later than their first child’s toddlerdom
About that! There are two important things to note about Netflix in this context, one of which I’ll state here and the other we’ll come back to later, as a little treat. The first is that Netflix fundamentally changed the entertainment industry, in Schur’s telling, by compiling a library of other companies’ discarded properties, followed by producing their own, all while charging a monthly fee from subscribers.
When production companies saw how well this worked, they scrambled to put together their own streaming libraries. Some of them succeeded wildly. Disney is the best example, because amongst the Disney-as-Disney, Marvel, and Star Wars universes (all of which Disney owns), they have essentially locked most of the parents in the rich world into a compulsory decade-plus contract beginning no later than the advent of their first child’s toddlerdom.
But not every production company has a library compelling enough to shell out a monthly fee for, and building such a library from scratch is hard because, again, it’s hard to make commercially-popular art. The result - and now I’m both cribbing from and elaborating on Schur - is that production companies have two paths to generating profits with the reliability and on the scale they now expect: corporate mergers that yield libraries big enough to entice subscribers, and arbitrage.
Arbitrage: seeking profit by exploiting the rules of transactions, divorced from the inherent value of whatever is being exchanged. Definitionally cynical.
We’ve seen several examples of the former recently (it was a little better than a year ago that Discovery bought WarnerMedia and became Warner Brothers Discovery), but it’s the latter that’s reliably yielded, if not profit, at least some avant-garde management decisions. I’m using arbitrage in its larger sense here; technically it means buying and selling a product on different markets simultaneously and pocketing the difference, but outside that context it generally means seeking profit by exploiting the rules of transactions in a way that is divorced from the inherent value of whatever is being exchanged. Arbitrage is almost definitionally cynical.
Speaking of which! You might remember when HBOMax, owned by Warner Brothers Discovery, canceled the release of its film Batgirl, then the latest installment in a series of superhero films based in the DC Comics universe. The movie, featuring the expected A-list cast including Michael Keaton reprising his role as Batman, had already been shot and largely edited when Warner Brothers Discovery spiked it. The production company leaked stories about how bad the movie was going to be and its cancellation was a mercy-killing, but the picture that eventually emerged was clear: it was more financially advantageous to make the film a total loss for tax purposes than it was to release the picture.
HBOMax has done this on television, as well, canceling its comedy Minx in the middle of the filming of its second season and pulling it from its own network. If you missed Minx - and it’d be hard not to have, given the circumstances - you might remember Westworld, once HBOMax’s crown jewel. Same thing happened to it, just not mid-season - it was canceled with one season left on the clock and dumped off the network’s streaming service.
The value of films and television is now completely secondary to the practice of acquiring inventory and practicing arbitrage to extract profit from it.
Shows are canceled too early all the time (there’s a joke in entertainment discourse that no streaming show can, for any reason, be allowed to have a third season). For that matter, going back to the Batgirl example, films have been shut down during production before, too. But what makes these different is that the production company pulled the plug specifically so they don’t have to show their own products on their own network and pay residuals for the privilege. You can watch Minx on Starz, which bought it for a pittance. You can watch Westworld on Roku for free; they bought it for even less. Maybe Batgirl will someday appear on our streaming options; if that day ever comes, you can bet that Warner Brothers Discovery won’t be paying the residuals on it.
This is not only staggering cynical stuff, but it breaks the understood deal between the subscriber and the streaming service. We, the subscribers, would love for streaming companies to let our favorite shows have a chance to grow and build an audience and flourish, but we - beaten into submission by decades of this form of capitalism - don’t even necessarily ask that. Our expectations aren’t that a company must spend unending millions on a show without an audience; we just expect to pay a monthly subscription and in return have whatever that company has made available for us to watch. But there’s more profit to be made charging subscribers and dumping the content they paid for elsewhere.
And to be clear, while all three examples above are from HBOMax, they are not the only company doing this. They’ve just done it more egregiously than others, in a demonstration that a company can pursue both the corporate merger library-building strategy and brutal arbitrage at the same time.
What you’ll note in both of those approaches - mergers and arbitrage - is that neither strategy is at all reliant upon actually producing good films or television. The value of the product is completely secondary to the practice of acquiring inventory and practicing arbitrage to extract the maximum profit out of it.
This is not a lament for the good old days of Hollywood; showbiz production, as a rule, has been breathtakingly iniquitous at the best of times. But in the former model, before private equity, the incentives of every decisionmaker and artist were oriented around making something that audiences would like. It didn’t have to be good, necessarily, or have artistic merit; indeed, a sound strategy would be a diverse portfolio of kitsch and bullshit interspersed by actual attempts at art. This low/middle/high-brow approach, incidentally, predates film and television and indeed the written word. In the emerging model, however, the art is a secondary consideration behind, again, acquisition and arbitrage.
This story is familiar to anyone who has seen the effect of private equity investment on the media world, the result of which has largely been to hollow-out or outright destroy everything it touches (the spectacle of the shambling corpse of Sports Illustrated, which employs a significantly-reduced core of professional writers and editors to produce real writing and a legion of minimally-compensated, unedited amateurs to produce a geyser of barely-legible dreck, is a particularly disquieting example). That story is a core part of the New Disorder.
Companies have bought other companies and brutally cut costs en route to profit for as long as there have been companies. And the economy has always featured people who make their money by taking over companies without giving a tinker’s damn for the quality or even the nature of whatever that company makes. In that sense, the phenomenon of private equity and its effects is not new.
The ownership type abroad at This Moment has three core traits: fantastical profit expectations; reality-altering sums of money; obvious contempt for the actual making of things
What’s different is that the combination of the regulatory policy consensus of the last forty years and the advent of tech, which opened up the possibility of profits on a scale that had been generally unapproachable and indeed unimaginable for most industries, produced more of these people than ever before, and the funds at their disposal have reached monstrous size. In a properly-governed economy, an investor who expects uninterrupted, unending, geometrically-increasing profits would be considered a budding tyrant, a crackpot, or, at best, a dodgy quantity best handled with great care. In this economy, people exactly like that control entire industries. Their reach grows every year.
Private equity may be responsible for most of what’s gotten so fucked up in entertainment production at the moment, but they’re just one species of a broader ownership type that is substantially at large in This Moment and is defined by three core traits: 1) fantastical profit expectations 2) reality-altering sums of money with which to acquire companies on which to inflict those expectations, and 3) an obvious animus, even unto the point of outright contempt, for the actual product of that company and for the people who make it. We’ll be seeing more of these people, not less, before we make it through This Moment to whatever comes next.
So how do we get there? Short answer, straight out of the Good Democrat handbook: regulation and taxation. We have not begun to properly grapple with the need to contain the industry-and-indeed-life-destroying force of private equity; this will take executive action and also a dedicated legislative push. In previous eras, an agenda like that would have been dead on arrival, politically, but one of the products of the New Disorder is a population that is increasingly impatient with the effects of this kind of slash-and-burn, end-stage capitalism. There’s more political mileage in regulation than we might think. The tax element is straightforward: these guys need reality-altering money in order to do their work. A strong, enforced tax code is a great way to get that number down under reality-altering. There’s good politics in that, too.
Before we close this out: I promised you two things to know about Netflix. Here’s the second: Netflix, the financial unicorn that unintentionally but inevitably served as the inspiration for the current mess, lost subscribers for the first quarter ever last year, and closed out April 2023 down from its April 2022 total in North America. It is still a world-bestriding colossus, and some of its subscriber-loss is almost certainly due to market saturation - pretty much anyone in the rich world who wants a Netflix account has had the opportunity to get one. You’d expect a slowdown in subscriber sign-ups.
But what you might not expect is a sustained loss of subscribers; it’s one thing not to attract new people, another to lose customers you already had. This suggests to me that Netflix is also grappling with the core problem: if your business is art, you’ll have down years. It’s been a while since Netflix has had a big hit, the kind of thing that gathers subscribers and keeps them. The company’s response has been to reevaluate its production model - it’s going to make less, but better, according to its leadership. It’s also looking at getting into video games (the Writers Guild’s long aversion to letting video game writers into its ranks may yet bite it in the ass), and, via its password-sharing crackdown, is itself resorting to a kind of arbitrage. Hollywood’s private equity expectations are frantically chasing a dragon that is itself struggling to stay aloft in the (admittedly dizzying) heights. If that isn’t a commentary on the economics of the New Disorder, I don’t know what is.