The Future of Entertainment, Part 1: Is Hollywood’s Business Model Broken?

In the following excerpt, Derek and Ben Fritz examine the Golden Age of film and TV production and the circumstances that led to the dramatic downturn of the entertainment industry.

Derek Thompson: Your latest in The Wall Street Journal is “L.A.’s Entertainment Economy Is Looking Like a Disaster Movie.” I had heard rumblings of film and TV struggling, but I had no idea that things were as bad in the entertainment industry as you ably described. So the goal of this episode is to understand how things got there. And before we get into the struggles of TV and film production today, I want you to take us back 10, 15 years to the world of the 2010s, a very different world: low interest rates and growing streamers. Television production is booming. There are hundreds and hundreds of new scripted dramas that are being produced every single year for Netflix and HBO and Amazon. The streamers are going crazy. What made the 2010s such a good decade for video entertainment—film and television—and for Los Angeles in particular?

Ben Fritz: Yeah. It was one of those golden ages where you don’t know you’re in it until it ends. And both movies and TV were really firing on all cylinders, as you say. In movies, there was this franchise formula that was really working. You could pump out a new Marvel movie, a new Fast & Furious movie, a new Transformers movie every year or two, and they were consistently successful. Audiences seemed to just want more and more, and the foreign market was booming, so you could almost be guaranteed you were going to get hundreds of millions of dollars from China, from Russia, from Brazil, from these markets where there hadn’t been a lot of money in the past. And they loved the franchise movies, the big event movies.

The movie studios didn’t have to figure out: Jeez, what are we going to do next? The answer was easy: pump out another movie in your big hit franchise. And that formula kept working. Obviously, those movies employ a lot of people. And then at the same time on television, you had the dawn of streaming. Obviously, Netflix was the pioneer. Everybody started to catch up. And Wall Street’s attitude toward streaming services was like a lot of tech startups. We want to see growth. We want to see subscriber growth quickly, and we don’t care about profits.

Well, the way to get subscribers is to have hot content that people are talking about, which means just have a lot of shows. So put out a lot of shows, and there’ll be something for everybody. And everybody will feel they’ve got to sign up for HBO Max or Disney Plus or Apple TV+. So it was the era of Peak TV. There were 500, 600, 700 new original scripted television shows being produced every year for cable and for streaming. And all those shows each employed hundreds of people in the cast and crew. And of course, because there were so many being made, the competition for talent was high, which means the pay was high. So if you were working in movies and TV, it was just a fantastic time.

Thompson: So you brought us up to 2019, and then this mini Golden Age comes to an end. And when I think about what might have caused the end, I think about COVID. I think about inflation and the resulting increase in interest rates, which shifted the psychological attitude of a lot of investors away from focus on subscriber growth toward focus on profitability, which means a lot of these streamers are going to make fewer shows and focus on making only those shows that they think can be most profitable. And then also you’ve got this strike in 2023, this writers strike. As someone who understands the ingredients but doesn’t understand their proper ratio in the explanatory dish here, what caused the mini Golden Age to end?

Fritz: Sure. Well, let’s start with TV, because TV really is the bulk of production. A lot more TV shows get made than movies. And actually, the TV Golden Age continued past the beginning of the pandemic; 2021, 2022 were actually the peak years for TV production. It really kept going because everybody was at home just watching streaming shows. And as soon as they were able to get sets going again in late 2020, the streamers went back on steroids producing shows. So everybody you talked to in the entertainment business who works on crew says there were way more job offers than they knew what to do with in 2021, 2022. What really started the turn was in 2022, Netflix’s subscriber growth started to slow and actually briefly stopped. And Wall Street freaked out. Like, oh my God, there actually is a ceiling to streaming growth. And as soon as that happened, they immediately pivoted and said, “We want to see profits. We got to see that you can turn this into a real business once the growth slows down.”

So the studio started to think, “OK, how can we make these profitable?” Well, the obvious answer is to slow down spending, stop production. And that coincided with the strikes, which happened in 2023. Because stopping production is kind of a difficult thing because productions are planned many months in advance, and you can’t just turn on a dime. But strikes for the studios were a blessing in that regard because everything stopped and provided an opportunity to reset because there was no production for four to five months. When the strikes ended, the studios were like, “OK, we’re going to reset at a much lower level. We’re going to spend a lot less money. We’re going to show Wall Street we can make a profit.” And less spending meant a lot fewer TV shows, meant a lot fewer jobs. It was shocking because before the strikes, production was at this level (I’m gesturing way up high). And after the strikes, they thought it would come back, and it was way lower; we’re like 30, 40 percent lower.

This excerpt has been edited and condensed.

Host: Derek Thompson
Guest: Ben Fritz
Producer: Devon Baroldi