Are Netflix TV series showrunners like Ryan Murphy or Kenya Barris responsible for delivering those eyeballs? Or is it Netflix?

parqor Netflix

I was interviewed for this really good piece about Netflix’s nine-figure deals with Hollywood showrunners, written by Brandon Katz at The Observer.

Brandon asked some really good questions, and in answering them I had an “Aha!” moment, captured in this quote below:

“We really do not know the details of these nine-figure deals beyond the final amounts, which in turn are amounts that are paid out only if conditions are met or benchmarks are reached,” Rosen told Observer. “We do not know those conditions or benchmarks, either. So, on Netflix’s side, it is about ROI. And on the creator’s side, it is about working towards contractual incentives and benchmarks for payout.”

Part of this was reflected in recent news that Kenya Barris is in talks to be an equity partner in a new ViacomCBS venture, which I believe:

“implies that Barris feels unlikely to be able to reach his conditions or benchmarks for a $100 million payout at Netflix,” Rosen said. “We can also comfortably conclude from Netflix’s reported numbers that Ryan Murphy is not being paid $300 million for Ratched to reach 60% of the total households who consume The Witcher.”

Which is how I got to this conclusion:

“I think the writing is very much on the wall for these deals, and it may be easiest to sum in up in terms of incentives: Netflix is no longer seeing the ROI incentives for producing and marketing this content, and with underperformance of their content on Netflix, creators like Murphy and Barris are no longer seeing their contractual incentives and benchmarks within reach.”

And therein lies the tension: if content from nine-figure deals on Netflix underperforms, the question becomes “Why did it underperform?” Was the burden on Netflix? Or was the burden on the content creator? Or, is the problem something that a concept like “product channel fit” can help to explain, but not fully capture?

The Core Tension between Netflix and Hollywood Showrunners

Investors and studio heads like FX Chief John Landgraf are on the record for hating these deals, both for the dollar value and on principle, as Landgraf famously said two years ago:

“It’s amazing for me to think Ryan Murphy is receiving as much, or more, as any professional athlete in the history of American sport,” Landgraf said. “I’m the first to tell you he’s a genius. I’m not all that worried about that part of it. We’re not the Yankees or the Red Sox. We’ve never been the biggest payroll. We’ve never been the ones who sign talent away from others. I don’t believe anyone can corner the market on talent. It feels like we’re standing in a crystal clear stream like in A River Runs Through It and we’re fly fishing, and our neighbor [HBO chief] Casey Bloys is up the river, and then somebody comes in with a bag full of hand grenades, pulls the pins, throws them into the river, and scoops up all the fish, and then says, ‘We’re better fishers than you are!’ Okay, that’s some beautiful fish that just got blown out of the river.”

The perception, before, was that the nominal figures of these deals were overestimating the value of showrunners like Murphy and Barris to Netflix and outside of the traditional TV and cable content ecosystems.

All evidence, now, suggests that Netflix may have indeed been overestimating the value of showrunners like Murphy and Barris to Netflix. In turn, Barris in particular seems to be realizing that the incentives to continue creating for the Netflix ecosystem feel less within reach.

As I told Brandon:

I think the writing is very much on the wall for these deals, and it may be easiest to sum in up in terms of incentives: Netflix is no longer seeing the ROI from incentives for producing and marketing this content, and with underperformance of their content on Netflix, creators like Murphy and Barris are no longer seeing their contractual incentives and benchmarks within reach.

The Future for Hollywood Showrunners at Netflix

Lacey Rose and Lesley Goldberg delivered behind-the-scenes reporting on the implications of Netflix’s restructuring for Hollywood showrunners  in The Hollywood Reporter:

Under Bajaria, who garnered a reputation for her financial efficiency in her international role, the company’s producer deals — in many cases, eight- and nine figure pacts — are already getting a closer look. And plenty inside say that her push for more financial discipline and an explicit focus on delivering at least one “loud” series (and not simply a cadre of smaller passion projects) is justified given the paychecks being doled out to Netflix’s creators. Says one exec there who’d watched as budgets ballooned in the past regardless of a project’s commerciality: “The idea of doing more prestige shows that nobody knows are on isn’t interesting.”

At the same time, Bajaria’s decision to move Netflix’s overall deals business under a single executive, Brian Wright, is an acknowledgment that getting the most out of well-paid talent is, or at least should be, a full-time job — and hardly an easy one, especially given the earlier promises of complete creative freedom often made by Sarandos himself. Until now, Wright had been one of several execs who oversaw a handful of key deals (in his case, Ryan Murphy’s and the Duffer brothers’) in addition to a giant content purview. “These overalls are a long-term investment for us,” says Bajaria, squashing any early rumblings that she may be looking to move out of the overall deals business. “This new structure reflects the dedicated focus we have on investing in these relationships.”

In these two paragraphs we get more details about why these “mega-deals” have been underperforming than we have gotten from anywhere else over the past two years. We learn:

  1. Murphy’s and Barris’s shows are perceived internally at Netflix as “prestige shows that nobody knows”
  2. Under Holland, Netflix had not devoted full-time resources to “getting the most out of well-paid talent”
  3. Bajaria and Brian Wright are not looking to exit these expensive deals… yet?

Put all these together with the Barris story above, and the answers to the question of why the content has underperformed become a little more complicated:

  • Netflix as a company seems to accept some responsibility for the underperformance of shows from Barris and Murphy
  • Barris in particular may not be happy with both the underperformance of his shows and the lack of full-time attention from Netflix
  • But, underperformance is still underperformance, which results in lower ROI, which in turn invites scrutiny under the standard “dollars have to equal eyeballs”
  • So, Bajaria and her team remain invested in these deals, for now, with positive buzz for Shonda Rhimes, but Barris is actively looking for an exit strategy and Murphy could be, too

I wrote last week about what Netflix’s strategy could look like moving forward now that it is re-evaluating its content strategy after having achieved ubiquitous access:

The difficult question for Netflix going forward is, which content offers the highest ROI and cost efficiency now that it has achieved ubiquity? The answer appears to be a mix of Hollywood blockbuster movies, local language TV series and movies, and unscripted shows. It does not include Hollywood-produced scripted TV series.

Now, it is clear that the strategy is going to include Hollywood-produced scripted TV series, but there is a burden is on Netflix to keep showrunners like Barris happy. There is also a burden on those showrunners to deliver content that can achieve a reputation beyond “prestige shows that nobody knows”. There is also is a bigger question lurking in the background: what if TV series produced by Hollywood showrunners simply cannot achieve product channel fit on Netflix? And instead, it is clear these showrunners belong outside of the Netflix ecosystem, perhaps even as “arms dealers”, like the studio model Barris is pursuing with ViacomCBS?

There is growing evidence for that (Ryan Murphy’s content conitnues to perform well on FX), and it all makes for continued uneasy footing between Netflix and three showrunners with over $550MM of budgets and incentives attached to them.

Email to Brandon Katz, Senior Entertainment Reporter for Observer

[NOTE: Below is what I sent Brandon when he asked for a quote. Posting because it fleshes out my thinking a little more.]

The problem with answering a question about Netflix is there is no single way to define the value of a show.

VP of Original Films Tendo Nagenda described it for films as:

There are a lot of metrics that go into determining what is successful for us. Not just viewing but quality, awards, representation. Did it service a particular audience that we value at Netflix, in a particular region, or demographic, or viewing habit? Any movie that we make, regardless of how it does in the first month on Netflix, will be on Netflix forever. So it’s possible that something gets more attention and viewing two years after it’s released. You don’t have to think in terms of hits and bombs.

Obviously, Nagenda is in a different group (films) than Cindy Holland (TV), so what when he says “You don’t have to think in terms of hits and bombs”, he is describing movies and not necessarily a series.

That said, ROI is very much a factor in the value of a show, something David Fincher summed up about the end of Mindhunter to Vulture: “dollars have to equal eyeballs”. We really do not know the details of these nine-figure deals beyond the final amounts, which in turn are amounts that are paid out only if conditions are met or benchmarks are reached. We do not know those conditions or benchmarks, either.

So, on Netflix’s side, it is about ROI. And on the creator’s side, it is about working towards contractual incentives and benchmarks for payout.

We can comfortably conclude that the story about Kenya Barris negotiating with ViacomCBS implies that Barris feels unlikely to be able to reach his conditions or benchmarks for a $100MM payout at Netflix.

We can also comfortably conclude from Netflix’s reported numbers that Ryan Murphy is not being paid $300MM for Ratched to reach 60% of the total households who consume The Witcher.

That said, Netflix is also betting on at least three original series and three documentaries from Murphy. So Murphy has more “at bats” coming, so to speak, but Ratched and Hollywood do not augur well for him because they objectively have not delivered the eyeballs that will deliver the dollars. [NOTE: The Politician is a separate question because it is a separate deal, but it is fair to say it’s a symptom of the dilemma Netflix faces with Murphy’s $300M deal.]

The potential move of Barris to ViacomCBS also raises questions about how long Murphy will stay within the Netflix ecosystem if it seems unlikely he can hit the conditions and benchmarks in his contract to reach $300MM. That will also be a function of how much leeway Bajaria will continue to give Murphy if his next series underperforms. I think that’s Halston with Ewan Macgregor.

Rhimes is TBD – there is good buzz about Bridgerton. It helps that she will have a Christmas release. I think that Bridgerton could be “make or break” for the legacy of Cindy Holland’s big spending spree.

Last, the hardest thing to calculate is how Netflix recoups these deals. That’s their secret sauce. Meaning, it’s not clear how they attribute someone who watched Hollywood to growth or retention when that person watches other shows or movies on Netflix over a period of time. It is probably clearer when a user who watched Hollywood or Ratched, possibly even signed up or restarted their account to watch it, and then that user churned out.  It’s probably clearest when they obtained a new subscriber from marketing Ryan Murphy or Kenya Barris content.

If Murphy or Barris were driving growth overseas, it might be an easier decision for Netflix. But, Bajaria has had more success with productions that have costs exponentially lower than both Murphy and Barris deals individually and combined.

So, I think the writing is very much on the wall for these deals, and it may be easiest to sum in up in terms of incentives: Netflix is no longer seeing the ROI incentives for producing and marketing this content, and with underperformance of their content on Netflix, creators like Murphy and Barris are no longer seeing their contractual incentives and benchmarks within reach.

Last on a separate note, I think Netflix is increasingly worried about franchise IP, and these deals are expensive detours from that objective.

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