Netflix’s Hollywood Red Line

Reed Hastings and Ted Sarandos
Photo by Stefania D'Alessandro/Getty Images
Eriq Gardner
May 2, 2022

I’ve been talking with a lot of transactional attorneys in Hollywood, and the No. 1 topic by far right now is what’s going on with Netflix. The streamer was, until very recently, the most profligate content machine in Hollywood, spending tens of billions of dollars every year on dozens upon dozens of shows, many of them low quality. Now, with its stock in the toilet and layoffs on the horizon, everyone in town is looking to Reed Hastings and Ted Sarandos for clues as to how Netflix might begin to pare back or restructure future deals.

So what can we learn from those who are sitting on the other side of the negotiating table from Netflix? The streamer is thinking a lot these days about new revenue opportunities. The company is pushing hard to capture ancillary rights including live stage adaptations, merchandising, and especially the ability to do video games. Perhaps a bit more surprising, Netflix wants the contractual ability to take content off platform. Why? Dealmakers can only speculate about syndication plans or even an eventual sale of the entire company. Also, while there hasn’t been much pullback just yet on new projects and renewals, talent lawyers are deeply concerned that Netflix’s free-spending days are over.

But the bigger question on the minds of many dealmakers is what the Great Netflix Correction could mean for how creatives get paid. In the past, Netflix dished out humongous nine-figure packages for the likes of Ryan Murphy, Shonda Rhimes, and Kenya Barris, but these deals were frontloaded with fixed fees rather than allowing creators to share in the financial success of whatever they created. So, no profit participation or stock options. The benefit is that Netflix could keep all the rewards for a hit like Bridgerton for itself plus keep viewership data secret and avoid those “Hollywood Accounting” fights. But, of course, Netflix also shouldered a lot of expense for shows and showrunners that bombed.

Now that Netflix is reconsidering quite a bit about its business model—including its previous hostility to advertising (which may necessitate more revelations of viewership data)—the streamer in theory could pursue an alternative approach that keeps costs light on the front end in return for sharing more riches on the back end. This might be appealing to talent, whose attorneys have been counseling clients that they should take the long view and push harder on this front. “Think about holograms,” they say.

But fuggedaboutit. At least for now, Netflix is not open to backend compensation for show TV creators, I hear. And the same really goes for many of the streamers who have been following Netflix’s lead and moving away from the profit participation model (HBO Max, for instance, is adopting fixed bonuses upon production and distribution milestones). Which, given the headspace devoted to everything from merchandising to videogames (maybe, NFTs, holograms, and the metaverse to come), could become ever more meaningful.