Agencies, Wall St. fret

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Agents and Wall Street didn't need to wait for an official strike announcement from the WGA on Thursday night to exhibit signs of high anxiety over a potential work stoppage.

Hollywood talent agencies with big lit departments were busily buffering their bottom lines with moves designed to cut costs.

UTA expects to chop top salaries of senior-level agents and executives across the board, beginning Jan. 1, if a strike is in progress or on the horizon. That's what the agency did in 2001, when just the threat of strikes by writers or actors triggered a brief rollback of senior salaries that was later refunded.

At ICM, word recently went out that employees would see a week's less in salary in a mid-November pay period to help cushion the impact of a strike on company cash flow. Implementation was planned for late December but recently was accelerated.

CAA brass appears to already have put into play a plan to reduce staff, evidenced by a spate of recent departures. Last week, veteran CAA agent Brandt Joel left and joined Endeavor as a partner.

"I don't think all of a sudden people start leaving CAA," said one agency-community insider.

Endeavor and WMA are taking a wait-and-see approach and hope to avoid cutbacks and layoffs by clamping down on expenses and other expenditures in the event of a protracted strike.

"We're in good shape, but no one can say what they are going to do if the strike drags on for 22 weeks," a WMA insider said.

The reverberations were being felt on Wall Street, too.

"I'm definitely worried about it," Pali Research analyst Richard Greenfield said. Most analysts were reluctant to attach a dollar figure to the toll a prolonged strike would take, but several suggested that a long stoppage could cost entertainment companies more than the estimated $500 million lost in the 22-week writers strike in 1988.

Merrill Lynch analyst Jessica Reif Cohen on Thursday noted that during the '88 strike -- and even ahead of it -- media and entertainment stocks underperformed the S&P 500 index. But while shares rebounded after the work stoppage back then, Cohen predicted that upcoming labor talks with the two other major Hollywood guilds, SAG and DGA, could keep a lid on industry stocks this time.

"The WGA could also set the tone for upcoming discussions with the SAG and DGA," the analyst said.

Wall Streeters generally agree that CBS Corp. is the most vulnerable to a bottom-line hit from the strike, as a majority of its operating cash flow comes from broadcast TV. As such, strike fears might well have been a factor in the 9% decline that CBS stock saw in September.

According to Merrill Lynch estimates, 57% of CBS' total revenue for fiscal year 2007 is exposed to a strike, compared with 36% for News Corp. and 27% for Disney.

In a quarterly earnings conference call, however, CBS president and CEO Leslie Moonves said his network is fully prepared for a strike. "We have a full slate of new, first-run programming ready to go, both now and midseason," he said. "We're fully prepared to offer alternative programming options."

Miller Tabak + Co. analyst David Joyce said News Corp. "should be least affected due to their broadcasting business model requiring fewer network hours and relying on 'American Idol' in January, which does not need writing. However, their studios do produce TV shows for a range of networks."

Time Warner is seen as relatively strike-insulated as it has a strong presence in the cable networks space, which is less affected.

"Likewise, Viacom's MTV Networks would be relatively sheltered due to its reality-themed content and Nickelodeon's reliance on animated programming, which now falls outside WGA's jurisdiction," Reif Cohen noted. "Comedy Central would be the only major MTVN network to be significantly impacted as 'The Daily Show With Jon Stewart' and 'The Colbert Report' would come to a halt quickly."

Many on the Street say the key variable in predicting the financial impact of a possible strike on sector companies would be its duration.

"The issue is only relevant if the strike lasts months," Pali's Greenfield said. "Days and weeks are not material."

Added Reif Cohen: "Given limited progress to date and steadfastness on both sides, it seems increasingly likely that a strike will occur and that it could quite possibly last for a significant period of time. And the terms of any agreement that will eventually be reached will also have some impact on entertainment companies."

The strike could have broader ripple effects, too.

"This could end up costing the California economy much more than $1 billion if it lasted a month and dragged in other guilds," said Hal Vogel, president of Vogel Capital Management.

George Szalai in New York and Borys Kit contributed to this report.


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