Italian
Netflix CEO sticks to dealmaking strategy amid record earnings
In a recent quarterly earnings update, Netflix leaders proudly revealed their Q3 earnings that have become the envy of the media industry. Co-CEO Ted Sarandos took this opportunity to reaffirm the streaming giant’s unwavering commitment to its tried-and-true dealmaking terms and selective, short theatrical runs for original movies.
Standing firm on financial strategy
During the Q3 video conference call, Sarandos directly addressed the buzzing industry chatter about potential changes to Netflix’s standard licensing deals for series and movies. For almost a decade, Netflix has relied on cost-plus licensing deals, an arrangement that shifts completely from the traditional deficit-financing model prevalent among TV networks and studios.
Under this model, Netflix covers the entire production budget and adds a 10% to 20% bonus, ensuring a profit for producers. Unlike the previous norm, where talents shared backend profits if a project hit big, Netflix buys out syndication and international rights. This retention keeps content exclusive to Netflix for years.
The paradigm shift’s impact on creators
While Netflix’s approach has driven phenomenal growth and unprecedented upfront fees to top creative talent, it has also altered the long-standing dynamics of Hollywood. Many creators are now seeing a decline in long-tail income from syndication runs and international licensing—income that was previously a cornerstone of a successful TV show’s or movie’s financial model. Despite this, Sarandos was quick to dismiss any speculation of a significant shift toward traditional licensing approaches.
He emphasized that any modest-budget films done under unusual terms have been outliers, asserting, “We think we have the right model and we are not looking to change it.”
Embracing an evolved compensation structure
Sarandos underlined that Netflix’s practice of offering upfront payments is favored in this unpredictable industry. According to him, creators find this approach beneficial as it eliminates financial risks, allowing them to focus solely on delivering their best work. This model has enabled Netflix to attract premier global talent.
Even so, Sarandos noted their openness to more bespoke deals tailored to specific talent, although he mentioned this is a rarity due to the general preference for the upfront model.
“Paying upfront, something that Netflix actually pioneered, benefits creators and it benefits Netflix,” he said, relaying words previously expressed by Netflix’s content chief, Bela Bajaria.
Limited theatrical releases: a focused strategy
Addressing a perennial question, Sarandos elaborated on Netflix’s strategy of initiating few theatrical releases and keeping them brief. This approach isn’t about minimizing the cinematic experience but rather about maximizing engagement on the Netflix platform. By leveraging buzz from exclusive releases, the streamer boosts subscriber engagement and stays relevant in pop culture.
Sarandos confidently remarked, “We are in the subscription entertainment business, and you can see in our results, it’s a pretty good business. It appeals to a very large segment of consumers and fans.”
Record-breaking viewership and content value
With Netflix consistently delivering films that garner over 100 million views, Sarandos emphasized the immense value this approach brings to subscribers. Netflix’s model eliminates prolonged waits for films after theatrical releases, driving sustained value for subscription dollars.
“We believe that not making them wait for months to watch the movie that everyone’s talking about adds that value,” he said.
Championing filmmakers and storytelling
After presenting impressive Q3 results and promising low double-digit growth by 2025, Sarandos didn’t hesitate to spotlight how Netflix revolutionizes opportunities for Hollywood storytellers.
“What we do for filmmakers is we bring them the biggest audience in the world for their films, and then we help them make the best films of their life,” he proclaimed. This philosophy is backed by Netflix’s track record, which includes nine Best Picture nominees and an array of top-performing films comparable to billion-dollar box office hits.
“We can continue to pierce the zeitgeist and have those moments in the culture, even when those moments begin on Netflix,” he concluded, reaffirming Netflix’s role as a formidable force in the entertainment landscape.
For insights into this transformative model, explore titles like The Irishman on Netflix.
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