Hollywood’s unofficial wake-up call came on February 1, 2013, when Netflix dropped the first season of House of Cards in a single, binge-able chunk.
While that distinctive release pattern hasn’t yet become the official norm — many new rivals to Netflix insist on the traditional episode-at-a-time approach — the whole gestalt of the show signaled the arrival of a bold new era. A-lister David Fincher directed the pilot, his first-ever series gig. Kevin Spacey, best known for his Oscar-winning film performances, had the starring role. Soon, Netflix followed House of Cards (a remake of a British series) with Orange is the New Black. Amazon then brought forth Transparent and Hulu hit big with Handmaid’s Tale, and the streaming era was on its way to upending long-held business assumptions and talent relationships. It has challenged the established media guard in a more comprehensive way than any previous technology, and will continue to do so in the 2020s and beyond.
Netflix’s House of Cards game-changer came just a year after a rocky period for the company. In 2011, it devised an ill-fated scheme to stop offering customers a $10-a-month combo subscription plan for DVDs by mail as well as streaming. Instead, it would spin off its legacy DVD business and charge streaming customers (in those way-pre-Stranger Things days) the same fee. The capper: The spun-off new entity would bear the ungainly name Quikster.
Reaction came swiftly. Netflix stock dropped 77% in just four months, and more than 800,000 subscribers jumped ship. The Qwikster plan was promptly shelved and CEO Reed Hastings offered an effusive apology.
The episode now seems like a distant memory. Netflix is now worth nearly $150 billion, its name a shorthand for revolution. It got early traction thanks to programming licensed from the same traditional media companies that ended the 2010s having decided to try their own hands at streaming. Disney launched Disney+ and now controls Hulu, which had been run for its entire existence by a coalition of media giants. WarnerMedia and NBCUniversal will join the fray next spring.
It is impossible to find a corner of the industry that has not been reshaped by streaming, from the pay TV ecosystem and movie exhibition to labor negotiations and talent deals. The $70 billion TV advertising business is also hanging in the balance, as audiences become trained to expect limited, if any, commercials during programming. Further clouding the crystal ball, Netflix and other SVOD players release very little viewership data, emphasizing that they are more focused on subscriber acquisition than customary ratings metrics.
The streaming executive hierarchy features several new faces, including Hastings and his head of content, Ted Sarandos, and film boss Scott Stuber, a former Universal exec and producer, as well as rising stars like Kevin Mayer, who heads Disney’s Direct-to-Consumer & International unit. NBCUniversal’s management suite has been reshuffled in recent months, in large part due to the importance of Peacock, the streaming service the company will introduce to Wall Street analysts in mid-January.
The configuration of the industry itself also bears the imprint of streaming. Disney CEO Bob Iger cited it as the primary reason the company shelled out $71.3 billion for most of 21st Century Fox, a mega-deal that followed the acquisition of streaming specialist BAMTech. Beaming content directly to consumers also drove the AT&T-Time Warner, Discovery-Scripps Networks Interactive and Comcast-Sky mergers. With these billions have come great expectations of a more competitive space, a remarkable shift from the era (long after the debut of House of Cards) when “TV Everywhere” — traditional networks’ strategy for allowing streaming primarily to pay-TV customers. In the span of six months between November 2019 and May 2020, Apple, Disney, NBCUniversal and WarnerMedia will have launched major new streaming services. Quibi, a mobile-only platform nurtured by Jeffrey Katzenberg and Meg Whitman, is also due out next spring.
Instead of merely licensing out their content, many companies have decided to make and release their own, going directly to consumers instead of through middlemen such as MVPDs. HBO and CBS were the first major networks to test the waters, in 2015. “Remember, you need broadband to get HBO into the home and our cable and telco partners have that broadband, so it’s I think a win-win for everybody,” he explained.
Attempting to control their destiny in streaming is requiring a dramatic turning of the battleships. For years, the industry had been content to simply cash checks reaching into nine figures from Netflix, Amazon and Hulu for studio film slates and syndicated mainstays like Friends and The Office. The influx of cash was considered found money, given that linear ratings in secular decline afforded media companies no option to ignore such revenue opportunities. Holding onto content isn’t cheap. Disney has become the most assertive in clawing back its titles from Netflix and other outlets, warning Wall Street of a $500 million hit to profit due to foregone licensing revenue over the next year.
All new entrants are racing to close the gap with Netflix, which has about 158 million global subscribers and enjoys a distinct first-mover advantage. House of Cards was significant not only for its talent pedigree and binge release. It was a show for which Netflix outbid other companies, committing to two seasons and 26 episodes of the political drama in a deal worth north of $100 million.
That pact had a wide-reaching impact on the way current TV programming is bought and sold. With deep-pocketed streamers willing to commit to multiple seasons, like Amazon with The Lord of the Rings series and Apple with The Morning Show, for example, traditional networks had to adjust their models and step up. HBO, for instance, had not committed to more than a pilot off a pitch before House of Cards. In order to remain competitive, It started to give straight-to-series orders to big packages like True Detective, starring Matthew McConaughey and Woody Harrelson, or Big Little Lies, toplined by Reese Witherspoon and Nicole Kidman. The others followed suit.
Streamers also have had a profound impact on the overall deal market. Netflix’s massive deals for top creators/showrunners Shonda Rhimes and Ryan Murphy triggered the current arms race for talent that has sent prices soaring. Eight-figure overall deals are now commonplace for creators with proven track record, while prolific showrunners command nine figures.
Netflix’s nine-figure deals with the likes of Rhimes, Murphy, Kenya Barris and Game Of Thrones’ David Benioff and Dan Weiss spurred a feeding frenzy. Warner Bros. TV shelled out $400-$500 million dollars each to keep Greg Berlanti and J.J. Abrams, while Sony Pictures TV spent nine figures to land Phil Lord and Chris Miller.
FX Networks CEO John Landgraf described the dealmaking climate during his executive session at the 2018 TCA summer press tour. “It feels like we’re standing in a crystal clear stream like in A River Runs Through It,” he said. “We’re fly fishing, and our neighbor, [HBO programming chief] Casey Bloys, is up the river, and then somebody comes in with a bag full of hand grenades, pulls the pins, throws them into the river, scoops up all the fish, and then says, ‘We’re better fishers than you are!” Okay, that’s some beautiful fish that just got blown out of the river.”
SVOD players also helped push up the prices of acting talent and studio libraries. An untitled David O. Russell series, which would have re-teamed him with his Silver Linings Playbook star Robert De Niro and Julianne Moore, flirted with the $1 million per-episode fee and then landed at Amazon in a $160 million deal. The project, from Weinstein TV, was scrapped in the fallout from the Harvey Weinstein scandal, but the high bar for talent salaries had been set.
Witherspoon and Kidman both commanded $1 million per-episode for the second season of HBO’s Big Little Lies; Kidman is being paid $1 million per-episode for Hulu’s Nine Perfect Strangers; Witherspoon and Kerry Washington landed $1 million+ an episode for Hulu’s Little Fires Everywhere, while Witherspoon and Jennifer Aniston made headlines over their $2 million per-episode paychecks for Apple’s The Morning Show.
The rise of the streamers also has accelerated the globalization of the TV business, ramping up the interest in non-U.S. local production.
The blockbuster success of Friends and The Office repeats on Netflix sent prices of comedy series libraries through the roof. NBCUniversal paid $500+ million to move The Office to its upcoming streaming platform Peacock, WarnerMedia spent $425 million on Friends and $600+ million on streaming rights for The Big Bang Theory while Netflix shelled out $500+ million for Seinfeld. The feeding frenzy has prompted players like Carsey-Werner to take out their libraries. Apple, meanwhile, has held exploratory talks with MGM and others, eyeing their IP-rich libraries.
The hunger for content has spilled over to the drama side, raising the value of libraries across the board. Dick Wolf and Universal TV are getting interest for the massive portfolio of Wolf-produced procedurals.
Streamers have smoldered at the negotiating table the past years in overall contract talks between the Hollywood guilds and the Alliance of Motion Picture and TV Producers. They are now starting to play a major role in Tinseltown labor relations and are set to be a key factor in 2020 in the WGA’s upcoming contract negotiations with the studios.
As the guild’s standoff with the big agencies over packaging and production grinds on in the courts, the Writers Guild have indicated that the increasing dominance of streaming services for their members services will make up a significant portion of their stance with the AMPTP and the sometime treacherous bottom line – and remember, to paraphrase Alien, no one hears the screaming of the death of syndication in the space of streaming.
Most major TV entertainment companies members of the AMPTP, including Disney, WarnerMedia and NBCUniversal, are launching streaming platforms to take on incumbents like Netflix and Amazon and upstarts like Apple TV+. As part of established entertainment congloms, Disney+, HBO Max, Peacock and Disney-controlled Hulu will be impacted by a possible work stoppage, while their counterparts may not be.
“Though companies like Netflix and Apple have to adhere to the MBA if they want to use Guild writers, those companies are not represented in the AMPTP negotiations,” WGA West boss David Goodman said last week. “The AMPTP companies understand that, if they pushed us to a strike, the threat that Netflix or another company would make an interim deal and keep producing new product is very real. The billions that the AMPTP companies have invested in their new streaming services would be at risk.”
Netflix, mostly an observer at the previous contract negotiations, could play a key part in the contract negotiations this time around.
The streaming giant announced itself on the union negotiations scene this past summer when it cut its own film and TV contract with SAG-AFTRA. Netflix may shake up the status quo in a major way if the company bypasses AMPTP and makes a deal with the WGA.
On the other hand, as the revenue from syndication withers, data from Film L.A. has revealed in the years since California’s film and TV tax credit program was expanded to $330 annually back in 2014, that production on series from Amazon, Hulu and Netflix has leapt triple digits. In fact, the harsh scarcity of sound stages and production facilities in Southern California the past three years is in no small part due to the plethora of originals from the initial trio of streamers. With AppleTV+, Disney+, and HBO Max in the game now too, one of the top priorities for the relatively newly arrived California Film Commission director Colleen Bell is the creation of more stages and a greater “investment in infrastructure,” as the former Ambassador to Hungary told Deadline in August. (Similar efforts are also under way in New York, which has seen a record production boom.)
The long legal battle between Netflix and the now-House of Mouse owned Fox over the former poaching executives from the latter, as they have from others like Viacom, and seeking to re-focus California employment law has pretty much ended with Fox victorious. Even so, expect the courts to be filled with streaming cases in the coming decade.
Revivals, remakes and re-imaginings with attract the usual rights holder actions, as will the fallout from cutthroat contracts as competition for content increases with more deep pocket players enter the game over the next year or so. The new twist on an old chestnut will come when one of the big-name talents signed to a big bucks overall deal with the streamers or their corporate overlords decides to bolt. How that divorce of sort breaks down could re-write the rules of Hollywood.
The movie business has been the latest area of streaming disruption, though the indie business has grappled with “day-and-date” VOD strategies for more than a decade. Amazon spent aggressively at the 2019 Sundance Film Festival, netting films like Late Night, Brittany Runs a Marathon and The Report, though none has broken out theatrically. The company says Late Night, which was written by and stars Mindy Kaling, may not have made waves in theaters but is its top streaming original movie yet.