Netflix (NFLX) is famous for its mouth-agape talent deals—$300 million to Ryan Murphy, $250 million to the Game of Thrones creators, $100 million to Shonda Rhimes. The streamer’s talent contracts generate the type of envy-inducing headlines that make you question all of your career choices. But one reason why Netflix is shelling out wealth on a regular basis is because streaming does not operate in the same way as linear entertainment. There is no syndication or backend profit opportunities because streaming content isn’t met with box office grosses or hefty third-party licensing revenue. All of the original shows and movies stay right where they are forever, and that is changing the way Hollywood does business.
We’ve seen traditional entertainment offload movies to streaming before. Recently, Warner Bros./New Line shifted the Melissa McCarthy comedy Superintelligence from a theatrical release to HBO Max; Universal relinquished the rights to Dwayne Johnson’s Red Notice over budget concerns and Netflix swooped in; and even Paramount (PARA) Pictures banished The Cloverfield Paradox to the realm of over-the-top viewing. These are largely studio-driven decisions to protect their downside. As Disney, WarnerMedia and NBCUniversal all launch streaming services, more and more films will be diverted to direct-to-consumer releases. But for talent, there are generally no contractual protections in place that ensure the agreed-upon backend profits should a film be moved from theatrical to streaming.
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Warner Bros. did not buy out McCarthy’s backend when it moved Superintelligence, according to The Hollywood Reporter. Why? Because this new exchange of content operates on a case-by-case basis. For example, Netflix is paying Johnson and Red Notice co-stars Ryan Reynolds and Gal Gadot a mouth-watering amount of upfront money to buy out their backends in a sign of good faith. The streamer is also developing its own bonus system for filmmakers based on viewership and awards. But for the majority of stars that don’t hold the same leverage as a major A-lister, there is little recourse to recoup that lost payday.
Per THR, “reps are now seeking ways to protect clients against streaming pitfalls. Those with actors appearing in independently financed films are including streaming bonus language.”
By 2020, there will be eight major streaming services backed by deep-pocketed technology giants and well-resourced legacy media empires. These platforms will aggressively develop original films, one of the marquee attractions that drives subscription growth. In some instances, studios are siding with streaming—A24 and Paramount Pictures have signed deals with Apple (AAPL) and Netflix, respectively. But as the lines continue to blur, a new normal will need to emerge to assure talent that they aren’t missing out on money that otherwise would have reached their pockets.
