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As Netflix leaders unveiled Q3 earnings that are the envy of the media industry, co-CEO Ted Sarandos doubled down on the streamer’s commitment to dealmaking terms that have been vital to Netflix’s business model, as well as its preference for select and short theatrical runs for its original movies.
During Netflix’s Q3 video conference call, Sarandos addresssed head-on the recent industry chatter about the streamer implementing a big change in the financial terms of its standard licensing deals for series and movies.
For nearly a decade, Netflix has done business with Hollywood creatives on the basis of cost-plus licensing deals — an arrangement whereby Netflix covers the entire budget for a production, plus it adds a 10% to 20% (or higher) bonus to provide some profit for producers. That’s been a big shift from the deficit-financing model that was the norm for traditional TV networks and studios. That model was rooted in the concept of creative talent sharing in the backend profits of a series or movie if it became a big hit. Under the cost-plus model, the commissioning platform typically buys out the syndication and international rights to a title in order to keep it available and exclusive to the platform for years to come.
With the growth of Netflix and other streamers, top creators are starting to feel the loss of the long-tail income from syndication runs and international licensing, which is now limited on streamers with global scope such as Netflix, Amazon Prime Video, Apple, Max and Disney+. Despite eye-popping upfront fees paid to top creative talent, the loss of annuity-like income from successful TV shows and movies has hit Hollywood hard in the pocketbook.
Sarandos poured ice water on speculation that Netflix was tightening the terms of its deals but at the same time adopting a more traditional licensing approach. It’s understood that a few deals for modestly budgeted films have been done under unusual licensing terms, by Netflix standards. When asked by analysts about the possiblity of a major shift in its licensing paradigm, Sarandos was clear: “We think we have the right model and we are not looking to change it,” he said.
Sarandos asserted that creative talent favors upfront payments, for obvious reasons in an unpredictable industry. He addressed recent reports of a meeting that the streamer’s content chief, Bela Bajaria, recently held with a clutch of top talent agents and lawyers — the reps in the trenches of day-to-day dealmaking.
“Bela said this very clearly a couple of weeks ago to all the talent agencies: We’re not changing our compensation structure,” he said. “Paying upfront, something that Netflix actually pioneered, benefits creators and it benefits Netflix. For creators, Netflix takes all the financial risks so that they can focus on making the best possible version of what they’re working on, and for Netflix, that model enables us to attract the best talent in the world.”
In the same breath, Sarandos acknowledged, “We have been, and we continue to be, open to more bespoke deals where talent is interested.” But he added: “They rarely happen, because typically the talent chooses the upfront model.”
Sarandos also fielded what he called the “perennial” question about Netflix’s strategy on initiating very few theatrical releases for its original films, and keeping those runs short. He made no apologies for the streamer’s focus on using buzzy movie titles to stir up pop culture buzz — and Netflix subscriber engagement — on its own air rather than at a multiplex.
“I’m just going to reiterate — 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,” Sarandos said. “Our top 10 films that premiere on Netflix all have over 100 million views, among the most watched films in the world. It’s our desire to keep adding value to our consumers for their subscription dollar. We believe that not making them wait for months to watch the movie that everyone’s talking about adds that value.”
After unveiling strong Q3 results and delivering a promise of low double-digit growth in 2025, Sarandos wasn’t shy about pointing out the benefits of the Netflix platform to 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 said. “That could be any one of the nine Best Picture nominee films that we’ve released so far, or it could be any of those top 10 films that are as big as billion dollar box office movies. So I I’m sure that we can continue to pierce the zeitgeist and have those moments in the culture, even when those moments begin on Netflix.”