If you call a slew of Hollywood’s most powerful showrunners, studio chiefs, agents, and operators and ask them to describe the state of the television business, they will say things like:
Across the town, there’s despair and creative destruction and all sorts of countervailing indicators. Certain shows that were enthusiastically green-lit two years ago probably wouldn’t be made now. Yet there are still streamers burning mountains of cash to entertain audiences that already have too much to watch. Netflix has tightened the screws and recovered somewhat, but the inarguable consensus is that there is still a great deal of pain to come as the industry cuts back, consolidates, and fumbles toward a more functional economic framework. The high-stakes Writers Guild of America strike has focused attention on Hollywood’s labor unrest, but the really systemic issue is streaming’s busted math. There may be no problem more foundational than the way the system monetizes its biggest hits: It doesn’t.
Just ask Shawn Ryan. In April, the veteran TV producer’s latest show, the spy thriller The Night Agent, became the fifth-most-watched English-language original series in Netflix’s history, generating 627 million viewing hours in its first four weeks. As it climbed to the heights of such platform-defining smashes as Stranger Things and Bridgerton, Ryan wondered how The Night Agent’s success might be reflected in his compensation.
“I had done the calculations. Half a billion hours is the equivalent of over 61 million people watching all ten episodes in 18 days. Those shows that air after the Super Bowl — it’s like having five or ten of them. So I asked my lawyer, ‘What does that mean?’” recalls Ryan. As it turns out, not much. “In my case, it means that I got paid what I got paid. I’ll get a little bonus when season two gets picked up and a nominal royalty fee for each additional episode that gets made. But if you think I’m going out and buying a private jet, you’re way, way off.” (...)
Nobody is crying for Ryan, of course, and he wouldn’t want them to. (“I’m not complaining!” he says. “I’m not unaware of my position relative to most people financially.”) But he has a point. Once, in a more rational time, there was a direct relationship between the number of people who watched a show and the number of jets its creator could buy. More viewers meant higher ad rates, and the biggest hits could be sold to syndication and international markets. The people behind those hits got a cut, which is why the duo who invented Friends probably haven’t flown commercial since the 1990s. Streaming shows, in contrast, have fewer ads (or none at all) and are typically confined to their original platforms forever. For the people who make TV, the connection between ratings and reward has been severed.
So who is getting rich off hits like The Night Agent? Not streaming services, no matter how many global viewing hours they accumulate. Many streamers have spent themselves into billions of dollars of debt building their content libraries, and subscription fees haven’t grown fast enough to close the gap. If platforms like Netflix make any money at all, it is only a fraction of what entertainment companies used to make back when more than 105 million U.S. households spent an average of $75 per month on cable.
“The entire industry,” says the director Steven Soderbergh, who has been navigating structural changes in Hollywood since 1989’s Sex, Lies, and Videotape, “has moved from a world of Newtonian economics into a world of quantum economics, where two things that seem to be in opposition can be true at the same time: You can have a massive hit on your platform, but it’s not actually doing anything to increase your platform’s revenue. It’s absolutely conceivable that the streaming subscription model is the crypto of the entertainment business.” (...)
If you’re wondering whom to blame for TV’s predicament, that’s easy: It was Netflix. “Netflix completely revolutionized a 100-year-old industry,” says Mike Schur, who created The Good Place. “Everything changed, and everything changed the way they changed it.” In 2013, Netflix released the entire first season of House of Cards on the same day, overthrowing the time-honored orderliness of weekly schedules and giving viewers a brand-new way to spend 13 consecutive hours. Then the company embarked on what was probably the biggest spending spree in entertainment history. Wall Street treated Netflix not like the next HBO but more like the next Tesla, ignoring the profit factor to focus on growth.
“This is the single worst time to be making anything in the history of the medium. It’s just as dark as it’s ever been.”It’s been a little more than a year since the Great Netflix Freak-out, when the streaming pioneer’s first-ever loss of subscribers and ensuing stock drop sparked overdramatic proclamations that TV as we’d come to know it was finished. In that time, it’s become clear that the business model dominating modern Hollywood is deeply broken but also that it probably isn’t going anywhere — at least not yet.
“It’s such a fucking disaster, isn’t it?”
“It’s like the entire system has snapped.”
“These companies took what was an extraordinarily successful economic model and they destroyed it in favor of a model that may or may not work — but almost certainly won’t work as well as the old model.”
“Everything became big tech — the Amazon model of ‘We don’t actually have to make money; we just have to show shareholder growth.’ Everyone said, ‘Great. That seems like the thing to do.’ Which essentially was like, ‘Let’s all commit ritual suicide. Let’s take one of the truly successful money-printing inventions in the history of the modern world — which was the carriage system with cable television — and let’s just end it and reinvent ourselves as tech companies, where we pour billions down the drain in pursuit of a return that is completely speculative, still, this many years into it.’”
“The reason nobody really wants to open the books on this is because if Wall Street got a look, they’d have a collective stroke.” (...)
“I think we may be in the world’s biggest Ponzi scheme.”
Just ask Shawn Ryan. In April, the veteran TV producer’s latest show, the spy thriller The Night Agent, became the fifth-most-watched English-language original series in Netflix’s history, generating 627 million viewing hours in its first four weeks. As it climbed to the heights of such platform-defining smashes as Stranger Things and Bridgerton, Ryan wondered how The Night Agent’s success might be reflected in his compensation.
“I had done the calculations. Half a billion hours is the equivalent of over 61 million people watching all ten episodes in 18 days. Those shows that air after the Super Bowl — it’s like having five or ten of them. So I asked my lawyer, ‘What does that mean?’” recalls Ryan. As it turns out, not much. “In my case, it means that I got paid what I got paid. I’ll get a little bonus when season two gets picked up and a nominal royalty fee for each additional episode that gets made. But if you think I’m going out and buying a private jet, you’re way, way off.” (...)
Nobody is crying for Ryan, of course, and he wouldn’t want them to. (“I’m not complaining!” he says. “I’m not unaware of my position relative to most people financially.”) But he has a point. Once, in a more rational time, there was a direct relationship between the number of people who watched a show and the number of jets its creator could buy. More viewers meant higher ad rates, and the biggest hits could be sold to syndication and international markets. The people behind those hits got a cut, which is why the duo who invented Friends probably haven’t flown commercial since the 1990s. Streaming shows, in contrast, have fewer ads (or none at all) and are typically confined to their original platforms forever. For the people who make TV, the connection between ratings and reward has been severed.
So who is getting rich off hits like The Night Agent? Not streaming services, no matter how many global viewing hours they accumulate. Many streamers have spent themselves into billions of dollars of debt building their content libraries, and subscription fees haven’t grown fast enough to close the gap. If platforms like Netflix make any money at all, it is only a fraction of what entertainment companies used to make back when more than 105 million U.S. households spent an average of $75 per month on cable.
“The entire industry,” says the director Steven Soderbergh, who has been navigating structural changes in Hollywood since 1989’s Sex, Lies, and Videotape, “has moved from a world of Newtonian economics into a world of quantum economics, where two things that seem to be in opposition can be true at the same time: You can have a massive hit on your platform, but it’s not actually doing anything to increase your platform’s revenue. It’s absolutely conceivable that the streaming subscription model is the crypto of the entertainment business.” (...)
If you’re wondering whom to blame for TV’s predicament, that’s easy: It was Netflix. “Netflix completely revolutionized a 100-year-old industry,” says Mike Schur, who created The Good Place. “Everything changed, and everything changed the way they changed it.” In 2013, Netflix released the entire first season of House of Cards on the same day, overthrowing the time-honored orderliness of weekly schedules and giving viewers a brand-new way to spend 13 consecutive hours. Then the company embarked on what was probably the biggest spending spree in entertainment history. Wall Street treated Netflix not like the next HBO but more like the next Tesla, ignoring the profit factor to focus on growth.
