Hits, accolades
Over the years, Sarandos’ job has gotten easier. At first, no self-respecting creator or actor would work for a streaming service when they could win awards at HBO or make millions on a broadcast series. So Netflix made absurd offers. It pledged $100 million and made a two-season commitment for the David Fincher political drama “House of Cards” starring Kevin Spacey. Few TV networks order even one full season before shooting a pilot.
The show was a major success, as was the women’s prison drama “Orange Is the New Black.” Still, agents steered clients away from Netflix, fearful they’d never make as much money. The company doesn’t disclose how many people watch its shows, a key metric in TV negotiations, and Netflix also demanded rights in perpetuity, limiting the value of reruns. “Seinfeld,” the NBC hit comedy from the 1990s, has earned more than $3 billion in syndication.
But the hits and accolades kept coming for shows like “Daredevil,” “Narcos” and “Master of None.” Perhaps no show caught more people by surprise than “Stranger Things,” a fantasy-horror series about a missing boy.
Creators Matt and Ross Duffer have said they were worried the show would fail because Netflix didn’t market it. But it was an instant sensation, and many critics list its October return as the most anticipated show of the fall season.
With Rhimes, Netflix landed one of TV’s most prolific producers. She’s had a show on the air every year since 2005, when ABC first released “Grey’s Anatomy.” She’s since made seven series for ABC and commandeered an entire night on the network’s schedule. Yet having reached the highest heights at ABC, Rhimes also craved a new challenge, along with freedom from the constraints of broadcasting. Sarandos, with a big smile and a big check, was ready.
The win had consequences. Days later, Disney said it would pull its movies from Netflix when their current deal expires at the end of 2018. Chief Executive Officer Bob Iger also said Disney would create its own streaming service in 2019.
As the flap shows, traditional media companies were eager to take the money Netflix paid for their shows yet slow to see the risk streaming posed to their golden goose, pay TV. Thanks to Netflix, consumers now expect to be able to watch shows where and when they want. Analysts forecast the company’s sales will hit $11.5 billion this year and pass both CBS Corp. and Viacom Inc. in 2018.
Sarandos’s shift from buying and licensing shows to making them in-house elevates the threat. The company has hired scores of staff from partners and rivals, and is being sued by 21st Century Fox for poaching employees.
Jeffrey Katzenberg, whose DreamWorks Animation was an eager partner with Netflix, gives the company high marks and calls Sarandos “a man of high integrity. They built their business in a thoughtful, considerate way.” Yet Katzenberg also understands the rancor Netflix causes among media companies losing viewers to online TV.
While competing media companies now look more cautiously on Netflix, none are completely cutting ties. Disney is still makes Marvel TV shows for Netflix — and gets paid handsomely. So do CBS, Fox and NBC. And Netflix won’t stop licensing shows anytime soon. It can’t yet make movies on the scale of Disney or the many animated series that DreamWorks Animation provided. It also needs to shop abroad for international audiences.
The biggest risk for Netflix is slowing growth in subscribers, who now exceed 104 million worldwide. The company needs to keep sign-ups coming in to support its burgeoning budget. It continues to burn through cash and has regularly raised money to finance TV and moviemaking despite pledges it will soon generate meaningful profit.
“The acceleration of content spend will start to moderate,” Chief Financial Officer David Wells told investors at a conference last week.
For now, Netflix is spending money to make money, believing every new show will convince people to sign up. As Wells noted last week, Netflix is poised to become the first company to spend $20 million on a single episode of TV.