Five years ago Hollywood collectively gasped when Netflix started throwing wild sums of money around for talent deals. It was as if the company had lined up some of TV’s most powerful showrunners and shouted, Oprah-style, “You get $100 million and you get $100 million…” The spending spree hiked up deal prices across town, leaving other streamers and studios scrambling to keep up—and questioning whether it was fiscally responsible to compete. Netflix’s lavishness extended to its staff, too, as it lured executives and other employees away from competitors with wage increases that others couldn’t match. The result was an unsustainable bubble driven at least partly by hubris. Many in the industry were just waiting to see it pop.
They got their wish last month. In its quarterly earnings report, Netflix announced that it had lost 200,000 subscribers and expected to lose 2 million more in the coming quarter, which led to a stock market debacle costing the company about $54 billion in market cap overnight. The streamer’s stumble not only provoked schadenfreude from its competitors, but also revealed discontent from some of the people who actually make its shows.
Netflix’s original appeal for TV creators wasn’t purely financial: The streamer had blazed a disruptive trail by upending the television industry’s most basic (and in many cases most tired) ways of doing business. Hollywood’s creators and writers were drawn to the promise of freedom from traditional network micromanaging. One Netflix showrunner, whom I’ll call Showrunner X, remembers the streamer’s early pitch being a golden dream: “We’ll leave you alone, and we’ll order your show straight to series. You don’t have to go through all the bullshit of the pilot process and take a gazillion network notes. We’ll give your show a lot of support, we’ll give it the time and space to find its audience, and we’ll give you almost total creative freedom.”
Recently, though, that dream has been unraveling for some showrunners. “Well, we actually are going to interfere with it,” Showrunner X continues, still channeling a Netflix exec. “We actually are going to start canceling stuff pretty expeditiously, and we actually are going to give you a gazillion notes based on our data. And we actually are going to appeal to the lowest common denominator audience. But we’re also not going to pay you as much as network television.” Here, the showrunner reverts to their own voice. “So people are left wondering, Why did I make this deal with you?”
Netflix famously lives by internal metrics, which have always been opaque, even to the streamer’s own creators. “People joke about it, but Netflix is run by the algorithm,” says an executive producer on one of its shows. “When you have a consumer insights meeting, it’s not about what audiences want. It’s about: Here’s what our viewership numbers tell us. Which are two completely different things because Netflix makes up their own metrics about what is successful.”
Instead of telling the press and public how many viewers watched an episode, the streamer released information on how many people watched the first two minutes, explaining that that length of time showed the decision to watch was intentional. More recently, in a step toward transparency, Netflix began showcasing the total number of hours that top shows were watched by viewers in their first 28 days. “We believe engagement as measured by hours viewed is a strong indicator of a title’s popularity, as well as overall member satisfaction, which is important for retention in subscription services,” V.P. of content strategy, planning & analysis Pablo Perez De Rosso explained in a blog post.
Netflix has also put increasing importance on “completion rate,” so that if not enough viewers finish a series shortly after it drops, its chances of cancellation rise. “Netflix has this philosophy that the way [a show] does the first month of season one is the best indicator of how it will do forever,” says Showrunner X. “That doesn’t seem to be true anywhere else. So many shows grow their audiences over time because of word of mouth. Especially in this environment where there’s so much TV, very few things are overnight hits.”
Shows like Succession and Ted Lasso picked up speed as their weekly episodes unfurled. But Netflix, which most often drops all of a series’ episodes simultaneously, has decided that it wants its viewers to devour them quickly, even if that’s not always the way its viewers choose to watch. Says the showrunner, “It’s less about giving the consumer what they want than trying to train the consumer to consume their content however Netflix decides they need to. And that changes constantly.”
Ever since Netflix began handing out megadeals to Ryan Murphy, Barack Obama, and Prince Harry, the place has felt like a two-tier system to many creating the content—especially since few of those extravagant deals have yielded much of note. (A new animated series being developed for the platform by Meghan Markle was scrapped in the wake of the earnings report.) The one big bet that’s paid off so far is Shonda Rhimes, whose Shondaland stable has produced buzzy hits with Bridgerton and Inventing Anna. But as an insider points out, most of Netflix’s biggest shows, like Stranger Things and Squid Game, did not emerge from these kinds of lavish deals: “Those are things that just caught people’s attention and became hits on their own.”
Despite the streamer’s spendthrift reputation, showrunners there find themselves operating under increasingly tight constraints. “They are much more interested in maximizing the audience that they can get on a budget,” says the Netflix executive producer. “That seems to be the current way that they’re really looking at their development and production: How many different corners can we reach for the least amount of money? The days of the blank check are over.”
“I think there are clear signs already that they are paring back,” says Dade Hayes, coauthor of the new book Binge Times: Inside Hollywood’s Furious Billion-Dollar Battle to Take Down Netflix. “What’s going to be interesting to watch is when a hot property comes along that everybody’s bidding on. They’re gonna have to be much more disciplined than they ever have as a company.”
Even those working on popular Netflix series have felt the pinch, starting well before the fallout of the last few weeks. “Budgets definitely got tighter,” confirms a veteran showrunner I’ll call Showrunner Y. “You think, Okay, now we’ll get the money to really make it the way we want. But it actually tightens up! It’s so antithetical to the way it should run.”
While the company is known for paying its own internal staff very well—sometimes offering double or even triple what the market will bear—insiders say it can be penny-pinching with the writing staff. A common complaint is that it often merges two separate assistant jobs into one for a bargain price. “A lot of showrunners have tried to say: We need one person per one position,” says an insider. “But Netflix has been insisting on these god-awful combinations that are basically burning through assistants and treating them as though they are a renewable resource: When one burns out, you just replace them with the next one.” Netflix had no comment.
The streamer has also normalized the use of what are known as mini rooms. Unlike the traditional writers room—in which TV writers generally are paid to stay on through the production of a series—the far less expensive mini room is a freelance gig that pays a small number of writers to generate scripts for a number of weeks, then sends them on their way. Mini-room writers end up being gig workers, hoping to stitch together enough work to make a living and secure their union health insurance. “But the other problem is that no one’s learning how to do anything,” says Showrunner X. Writers used to learn how to produce the episodes they wrote—going on set, participating in meetings—so that they could eventually step up and become showrunners. But with mini rooms, that doesn’t happen. “I don’t know where this next generation of showrunners is really going to come from.”
The traditional TV model helped writers survive lean times with built-in syndication fees and residuals (i.e., payments that talent received each time a show aired). Netflix disrupted that model when it disrupted everything else. After the streamer acknowledged that it was considering an ad-supported subscription option, Rutherford Falls showrunner Sierra Teller Ornelas tweeted, “So when Netflix starts offering a tier with commercials, it’s [sic] that regular TV? Does that mean better residuals? Will newer writers NOT have to work in 6 mini-rooms/yr to make what I made ten years ago on one show?”
It’s because frustrations with Netflix have been mounting that its comeuppance was met with unconcealed glee in some quarters of the industry. The company created the streaming television universe, but it’s no longer the uncontested center of it, thanks to the likes of HBO Max, Disney+, Paramount+, Hulu, Apple TV+, and Peacock.
Netflix now must reassess how it lands talent and retains subscribers—and how it can address its reputation as having operated in an unrealistic financial bubble. CFO Spencer Neumann said in an earnings interview last month that Netflix would pull back on “spend growth across both content and non-content spend.” A source close to Netflix clarified that it is actually going to continue to increase its spending on content, but do it more slowly. The streamer’s content budget is estimated at between $17 billion and $18 billion this year, which is still among the highest in the industry. It’s still investing in high-profile projects too, including political thriller The Diplomat, starring Keri Russell; sci-fi epic The Three-Body Problem, created by David Benioff, D.B. Weiss, and Alexander Woo; and David E. Kelley and Regina King’s limited series, A Man in Full.
I recently wrote about Netflix and other streamers’ desire to create “elevated broadcast” programming, to make shows that reach broad audiences as network television once did. Netflix’s current wish list for content includes “big, broad stories that can be told on a budget,” according to Insider, which viewed multiple documents from top agencies outlining the streamer’s programming needs. Among its requests were “down-the-middle genre shows," auteur-driven awards-bait shows that could be made inexpensively, and “not too complicated” science fiction series.
Hayes, the author, suggests part of the company’s reevaluation might involve rethinking its model of paying upfront for the right to keep content locked onto Netflix forever. “As successful as [that model] is and as much as it can drive conversation for a few weeks, it doesn’t have a long tail of viewership,” he says. Shows burst out onto the stage and quickly vanish into the black hole of the Netflix app, replaced by the next hot binge. That doesn’t seem ideal for the people who spend years making these projects. Why not syndicate content to other platforms after an initial exclusive run and give shows like Orange Is the New Black or When They See Us a new afterlife? “I know I’m speaking, like, heresy here,” Hayes says. “This is so contrary to everything that they’ve spent 20 years trying to do as a company.” Then again, so is its potential embrace of commercials. “[That] news was just the latest affirmation that they’ve come to Jesus on needing to change their ways,” says Hayes.
There have already been layoffs in Netflix’s marketing department and at the in-house website Tudum, which I hear were part of a restructuring in the works before the earnings report. More layoffs will likely follow soon. On the content side, a handful of series have been canceled, and development projects axed. Whatever happens next, Netflix will have to figure out how to continue attracting top talent in this cutthroat environment and cementing viewer loyalty.
On the Netflix earnings call last month, co-CEO Ted Sarandos said, “We have to have an Adam Project and a Bridgerton every month and to make sure that that’s the expectation of the service constantly.” No TV creator or actor wants to feel like their shows are being treated like easily replaced widgets, though. Netflix has very few series that are allowed to run longer than three seasons these days; fans still mourn shows like One Day at a Time, Tuca & Bertie, The Baby-Sitters Club, The OA, and GLOW for being axed too soon. “People don’t like it when you cancel stuff that they love and are invested in, and when they feel like you’re going to cancel stuff all the time, they don’t bother watching it,” says Showrunner X. “I think there’s no loyalty to the audience.” That was fine when Netflix was on its own, but now that competition is fierce, viewers and talent can easily bounce elsewhere.
As tricky a spot as Netflix is in—and as vocal as its detractors are because of years of accumulated frustration—it would be foolish to write its obituary. “Everybody’s saying, ‘Their days are numbered. They’re never going to get out of this jam,’” says Hayes. “But I wouldn’t bet against them. Look, they defined what streaming is.”
Some believe the answer may be less complicated than it appears. “Tech companies always come up with these incredibly baroque, disruptive solves for problems that are relatively simple,” says Showrunner X, who suggests that the answer might just be to make risk-taking content on a responsible budget, give people time to watch it, and support it with marketing. “It’s just fucking television.”
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May 12, 2022 at 10:00PM
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Netflix Stumbles and Hollywood Gloats: “The Days of the Blank Check Are Over” - Vanity Fair
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