So, Which TV Networks Will Be Around in Five Years?

Sarandos and Hastings
Photo: Drew Angerer/Getty Images
Matthew Belloni
July 4, 2022

It’s a no-brainer for Netflix to add an advertising tier, but Reed and Ted seem hell-bent to launch it before the end of this year. Why so damn fast? Are they really that desperate?

In a word: Yes. Co-C.E.O. Reed Hastings basically admitted the end-of-year 2022 goal puts Netflix on a crazy timeline, telling employees in a recent note that “it’s fast and ambitious and it will require some trade-offs.” Most analysts think the ad tier will launch only in selected foreign markets at first, but given the company’s deflated stock price and subscriber plateau, plus the competitive ad tiers at other streamers, Hastings clearly feels the situation is urgent. People I talk to in and around Netflix say this ad urgency is tied to the coming crackdown on password-sharing. Netflix could no longer ignore the free-riding, but the leadership has no idea how the policing will play with customers, and how many freebies can be converted to upcharges or separate memberships. So Netflix really wants to have that lower-priced, ad-driven tier ready to go as a lure to keep those cash-strapped college kids and cheap-ass ex-boyfriends in the Netflix family.

One other note on Netflix ads: Is Hastings really going to let the Google fox into his henhouse? Netflix is reportedly deciding whether to initially outsource its ad business to either Google or Comcast. If Hastings can’t see why it might be problematic to turn his platform over to perhaps the tech industry’s biggest, most ruthless and data-mining competitor, he deserves whatever happens.

Is it just me or does Netflix get sued more often than the other media companies?

I’ve often thought the same thing, so I asked Puck’s legal expert Eriq Gardner, whose private email, The Rainmaker, you should definitely be reading. (Subscribe here.) Eriq writes…

Oh, it’s absolutely true that Netflix is hauled into court more than other media companies. Every week, it seems, comes a strange new case. For example, I just came across two privacy suits launched in Indiana over Our Father, the recent documentary about a fertility doctor who secretly used his own sperm to impregnate victims. Two of the children complain they were identified by name. 

So why is Netflix a litigation magnet? Here’s my theory: It’s a very successful, deep pocketed corporation with a non-fiction division that doesn’t get nearly as much credit as it should for being edgy. Is the company reckless in fact-checking or attention to detail? I haven’t seen evidence of that, but I’m definitely watching these cases to see what is revealed about Netflix operations.

Would Disney have had the same rough year if Kevin Mayer was made C.E.O. over Bob Chapek?

The stock price? Yes, I think so. The other self-inflicted controversies? Probably not.

Why are most movies and shows too damned long? 

Consider this: Universal executives really wanted to cut the opening mountain cabin sequence from this summer’s Jurassic World: Dominion. But star Bryce Dallas Howard had a meltdown, I’m told, and filmmaker Colin Trevorrow also was opposed. So after many conversations, Universal left it in, even though the movie ended up at 2 hours and 26 minutes, and it probably made more sense to start the story with dinosaurs roaming the cities. 

So, that’s why movies (and TV episodes) are too long; the talent wants what it wants, and studios need to at least listen. Plus, if you look at the numbers, audiences tend to agree with the old Roger Ebert line: No good movie is too long, no bad movie is too short. There’s also a sense at studios—misguided, in my opinion—that shorter movies don’t feel as “theatrical.” That’s also why big tentpole movies tend to end twice or three times; studios want to create the perception of value. And on the streaming side, it’s all about hours and minutes spent on the service, so the longer the better—if the audience’s attention can be held. Hence a 2-and-a-half-hour episode of Stranger Things

Given the CAA-ICM merger, the end of TV packaging fees, and the consolidated market power of the major talent agencies, is there anything that could disrupt the Big 3’s dominance?

Let’s not start a gofundme page for Canali suits, but from my perspective, there are two related threats to CAA, UTA and WME: talent managers and high commissions. Neither factor is likely to dethrone the Big 3 from their position at the center of the talent ecosystem, but let’s break it down:  

1. Managers

Agencies are regulated, cannot charge more than 10 percent commission (with exceptions), and, as of the latest Writers Guild settlement, cannot own more than 20 percent of a film or TV production entity. The guild has, somewhat surprisingly, not similarly targeted managers, so that gives them a big advantage. Managers can charge any fee (subject to legal conscionability), produce with clients or on their own, and generally do whatever they want. For many, the overriding agenda is to produce—the money is just much better there—though, as I wrote Thursday, it’s not that easy. 

Outside of producing, many duties of agents and managers are identical—namely, get the client a job! Though managers technically can’t “procure” employment—so the management community now essentially acts as a check on the agents, in addition to a supplement to their services. Most agencies are fine with that. They prove their value as hubs of information and opportunities, and with the power of scale in negotiations. A studio head can jerk around Chris Pratt’s manager, but jerk around UTA and that studio head has a potential bigger-picture problem.

Yet that won’t necessarily always be the case. If the agents stop showing value, or fail to return enough phone calls, some clients will simply go without, and that could snowball in an ecosystem where there are only three big agencies to choose from. Michael Ovitz’s goal with Artists Management Group in the late ‘90s was nothing short of destroying the traditional agency business by providing the same value with managers. Instead, the agencies destroyed him. And so far, we haven’t seen these management-production companies coalesce into an entity that could challenge the skills and scale of a CAA or WME, but that doesn’t mean it won’t happen.  

2. Commissions

A couple people responded to my Thursday analysis of the CAA-ICM deal and the end of TV packaging by predicting a huge reckoning on talent commissions. It’s not hard to see why: When agents packaged shows, they agreed not to collect their 10 percent on those writers and stars, taking their cut of the series’ license fee instead. In its litigation with the guild, the agencies argued that they waived more than $100 million in commissions each year (though, of course, they made far more than that on packaging fees). So the artists often only paid a lawyer 5 percent, or they could bring on a manager for the 10 percent the agency wasn’t getting, allowing the management community to flourish.

Now? Most talents with an agent, manager and lawyer will pay 25 percent of their earnings off the top, not including a business manager (often another 5 percent) or a publicist (a monthly fee). That’s a lot, and for many clients the difference between a sustainable and unsustainable career, so it’s easy to see why they might question whether they really need all those reps.

That already happens at the upper end of the TV spectrum, where, with exceptions, the mega-deal people (David E. Kelley, Greg Berlanti, Ryan Murphy, Benioff and Weiss, Seth MacFarlane, Shonda Rhimes, Steve Levitan, Dan Fogelman) don’t have managers. It’s just too expensive, and the agencies really excel at extracting the most meat at the top of the food chain. But how many lower and mid-level writers will want a manager and an agent at full freight? And if the agents aren’t incentivized to care about the writers because they can’t package them, maybe it’s the agent, not the manager, who’s expendable now?  

What’s the over/under on talent refusing to film in locations that restrict abortion?

Honestly, I’m shocked we haven’t seen boycotts yet. I know there is hesitation over who these pull-outs would actually hurt, but if states like Georgia and Florida start criminalizing crossing state lines to terminate a pregnancy, look for the talent—and, probably, the studios—to start speaking up. 

It’s been almost two years since your alma mater, The Hollywood Reporter, was sold to Jay Penske, who now owns all the major Hollywood trade publications. Why hasn’t he merged or shut down at least one of them?  

The trades make their money almost exclusively through ads and sponsorships, and the simple fact is that the For Your Consideration ad market is strong enough to support THR, Deadline, Variety and all the others. So Jay can simply stay the course and raise prices because he knows the FYC buyers, who once played the trades against one another, feel like they have to do business with him. Plus, I don’t think the market share of, say, THR, would necessarily transfer over to another Penske outlet if it was merged or killed. So, at least for now, it makes financial sense to keep the brands separate. Caveat: There’s never been a recession during the streaming age, so if that happens and those big awards spenders cut back, the FYC economics could change quickly. They certainly did in 2008, when THR and Variety suffered layoffs.    

The Trump tell-all books aren’t selling anymore. What does that mean for the Trump-era books already optioned for TV and film?

I asked a couple development nerds, and both said they think that trend is mostly over, at least on the scripted side. But the Trump-era documentaries will continue to be a thing.

What cable TV networks do you think will exist as ad-supported linear services five years from now? My predictions:

-A+E: A&E, History, Lifetime

AMC: AMC, IFC-Sundance (combined)

Disney: ESPN, Freeform, FX, FXX, NatGeo

Paramount: BET, CMT, Comedy Central, MTV, Nickelodeon, Paramount Network

Warner Bros. Discovery: CNN, Headline News, Adult Swim, Cartoon Network, TBS, TNT, Animal Planet, Discovery, Discovery ID, Food, Travel, HGTV, TLC, OWN

Comcast:  CNBC, MSNBC, Bravo, USA

Fox: Fox News, Fox Business

Hallmark

This is very detailed! I’m not gonna predict specific deaths (though I’ll admit I thought TV Land perished a few years ago), but the trendline for cable networks is certainly not great, and a contraction seems inevitable. When I talk to TV distribution experts, though, they seem most interested not in what outlets might go away, but in whether the digital distributors will figure out how to effectively re-bundle a bunch of cable brands into cable-like offerings that give these niche outlets a new lease on life.

This is already happening, of course, with products like YouTubeTV and Hulu + Live TV, but the number of channels is limited. Most outlets simply won’t justify themselves, and if we’re honest, they never actually did. The proliferation of all these cable channels was simply a big media cash grab that capitalized on the ubiquity and convenience of the cable bundle. So good riddance to most of them.

That said, the utopia for network owners is a digital ecosystem that can support dozens of legacy TV brands and the various free and subscription streaming services through one platform. These gatekeepers—Roku, Amazon, Apple, whatever Charter and Comcast are working on—may ultimately hold that kind of promise.

I just closed a deal for a writer that took over a year to negotiate. Sadly, these elongated time frames have become more the norm than the exception. It’s bad for business on both sides. Perhaps an arbitration should be triggered after a set period of time?

Love this idea, but I doubt studios would go for it, so it would have to be part of a guild negotiation, which seems highly unlikely.  

Can you please tell me how much money Tom Cruise is actually going to take home given that Top Gun: Maverick crossed $1 billion worldwide?  

It’s past $1.1 billion now, actually, and probably on track for $1.3 billion or so, all without a China release. Pretty amazing. With Cruise, there are things we know and things we don’t (and neither CAA, his attorney Matt Galsor, nor David Miscavige are talking), so any estimate of his actual take-home pay must come with caveats.

I’ve previously reported that Cruise was paid $12.5 million upfront against 10 percent of first dollar gross, with escalators that increase his percentage at certain milestones. So that would mean Cruise starts getting backend once Paramount hits about $125 million in revenue (the studio generally takes in about half of box office gross; a little more domestically, a little less internationally). 

If the film gets to $1.3 billion, assuming an overall 50-50 split with theaters, that would give Cruise 10 percent of a little less than $600 million, minus some deductions off the top—so let’s say $55 million, just from theatrical. Plus his cut of home video, pay TV, streaming, and all the other revenue streams forever. That number is unknowable, especially with all the uncertainty over how much streaming is impacting other windows, and the pay TV deals cap out at the upper end of hit movies. I doubt CAA even knows what the ultimate number will look like. And that doesn’t account for the “escalators,” which are also unknown (to me) and which likely increase Cruise’s share. Escalators often are not based on box office but on specific “breakpoint” thresholds that occur later in the revenue waterfall.  

At this level, it’s all pretty complex, so I surveyed a few top agents and lawyers, and most believe Cruise will reap about $80 million or $90 million based on the known deal and the film’s performance so far. Those are also the numbers being thrown around at David Ellison’s Skydance Media, which will reap its own windfall from financing 25 percent of the movie. But the payout could ultimately get to nine figures all-in for Cruise, given the long tail of this phenomenon. And, everyone agrees, his deal for the inevitable next sequel will be even better.   

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