But why did it take so long for them to strike a deal? It’s mostly because TV executives ruined a business model so profitable and successful, it convinced almost all of America that televised entertainment was a utility… like water or electricity.
Yes, we all hated cable bills. But back in its heyday, it made a ton of money and canceling it never sounded like an option. That’s not the case with streaming services.
Today, we’re going to talk about the history of TV, how it turned into big business, how creatives get paid, and how the “streaming revolution” more or less ruined everything for everyone and lead us straight to the WGA and SAG strikes to ensure they get their fair share. This is a story not too dissimilar from Scorsese’s Casino, where some really smart guys went out to the desert to start an empire, and their successors kind of fucked it all up.
This is the story of how TV executives ruined everything, everywhere… slowly at first… and then all at once.
So let’s start all the way back at the beginning, back to the late ’40s New York City, where the radio networks NBC, CBS, and ABC started to dabble in television broadcasts, but networks couldn’t let go of their belief in the importance of live broadcasting.
The Dawn of Television
For years, executives ceaselessly debated whether filmed shows or live broadcasts would be more beneficial for TV. The truth is both are, and filmed TV’s unlikely champion would arrive to prove it in 1951.
Phillip Morris – yeah, the cigarette company, and in this case, the actual Phillip Morris guy – wanted to sponsor a sitcom about a plucky redhead and her bandleader husband. He liked the pilot but there was a problem. Lucy and Desi wanted to shoot the show in Hollywood, but Morris wanted it broadcast live in NYC and use low-quality kinescope recordings for broadcast later on the west coast.
Lucky for any of us who grew up watching Lucy on Nick at Nite, Lucy and Desi made a history-making compromise that more-or-less invented the modern sitcom. They agreed to take a $1k per week pay cut to open up enough budget to shoot the show on film in front of a live studio audience.
Later, when Lucy got pregnant and needed to take a break from the show. They decided to rerun older episodes to fill the gap. The rating from those ‘I Love Lucy’ reruns finally killed the unfounded belief that audiences wouldn’t watch a ‘second showing.’
In an incredible stroke of business savvy, Lucy and Ricky retained the rights to the ‘I Love Lucy’ film reels, which would go on to make them a fortune, in the decades to come. Once TV executives realized there was a huge audience for reruns, a new type of television programming was born: syndication, the holy grail of television.
Syndication, The Holy Grail of Television
When I say syndicated TV is the Holy Grail, I absolutely mean it in ‘The Last Crusade’ kind of way. Syndicated reruns aren’t flashy broadcasts like the Super Bowl, which, for decades, has been the #1 rated broadcast of the year. Instead, syndication is more akin to the humble cup of the carpenter. It may not be flashy, but a syndicated TV show could rerun for decades – which is more-or-less an eternity in TV time – and could generate some serious profits.
Did you grow up watching The Simpsons every day after school on TV like me? Or was your after-school show Friends? Law and Order? Seinfeld? It doesn’t matter, they’re all TV shows running in syndication. And that was just your local network filling up its schedule before the news and primetime. Let’s not forget about Nick at Nite, the program block that reran shows made decades before a lot of us were born.
That was Nickelodeon’s idea of “cheap” programming, but Nick at Nite still shelled out a ton of money for the right to broadcast those classics, which really demonstrates the power and potential profit syndicated TV shows can generate.
There is, however, just one catch. For a TV show to reach syndication, it needs to produce at least 80 to 100 episodes. That’s about four seasons of a network show, which is a tall hurdle to clear. Most TV Shows get canceled well before then. Four out of every five shows fail to reach the episode count needed for syndication, but there’s just so much money to be made syndicating TV shows that TV producers and networks act like a bunch of degenerate gamblers who never seem to stop placing bets.
There is something important you need to understand here. When a station wins a syndication license, it gets to air each episode six times for that upfront fee, meaning the station is buying the right to air a show a specific number of times. That all changed in the streaming era, but at that moment in time Hollywood realized there was a gold mine in running shows ad nauseam.
Up until the 80s, most people only had access to like five channels, but that was about to change. We’re not quite at the part where they “fucked it all up.” But hang tight. We’re more or less at that part in Casino where the mob gives Ace the Tangiers. Cable was about to generate profits the likes of which they’ve never seen.
Cable managed to do two things for TV. First, it brought a ton of new channels into existence, which, of course, would need programming, spawning even more syndication deals. More importantly, cable channels also created a new revenue stream – affiliate fees, or what you might have heard them called in the news lately, carriage fees.
If you’re a Charter Cable customer and had access to channels like ESPN, ABC, and FX cut off, then you’ve been affected by the stand-off between Charter and Disney, where Disney cut off Charter customers’ access to its channels while Disney played hardball to get higher affiliate fees out of Charter. I can’t emphasize how important this battle was. Well, I’m going to, but just not yet. First, you have to understand what exactly a carriage fee is.
arriage fees are the fees the networks charge the cable companies to carry their channels in cable bundles. For example, Paramount – who owns channels like Nickelodeon, MTV,and Comedy Central – charges cable companies for the right to offer those channels to their subscribers. Ultimately, the cable companies then pass that charge on to the consumers and they are a big reason why cable bills are so goddamn expensive.
Of course, these cable networks are getting fat from these fees. At cable’s height around 2010 – right as streaming was really starting to grow — cable providers like DirecTV paid out 43% of their total revenues in carriage fees. Around that time, those fees raked in $32 billion for the networks.
Let us not forget commercials, which are obviously running on these networks and bringing in even more revenue for the networks.
“To put that in perspective, the total U.S. box office that year only brought in $10.4B. By charging cable companies for the right to offer its channel, cable networks brought in three times as much money as all U.S. movie theaters in a year where Avatar, Toy Story 3, and Iron Man 2 all crushed at the box office.
How does this affiliate fee racket work? Well, it’s a reasonably simple three-step process. Step one is the hard part. A network needs to create its own hit show. Think about FX’s foray into original content with shows like The Shield, Nip/Tuck and It’s Always Sunny in Philadelphia.
Once it’s got a hit show or two, it’s on to step two: create a new channel and fill it up with cheap programming, like reruns. Enter FXX and FXMovies.
Then it’s onto the final step – and I’ll be honest with you, this is the most important one – hold the good channel with the hit shows hostage, to force the cable companies to carry the more expensive network bundle of channels, thanks to carriage fees, so the cable customers can retain access to the one channel with the hit shows they actually want.
Put into Sopranos’ terms, cable networks’ strategy to increase carriage fees is essentially the same strategy Tony uses when “negotiating” a sweetheart deal for a local contractor that also includes a couple of no-show jobs for his goons. Channels like FXX and FXMovies are the equivalent of Tony’s crew just sitting there collecting a check because FX struck gold with an Always Sunny.
If you’ve ever wondered why you pay for channels you don’t even watch, this is why.
Oh, by the way, we’ve just been talking about the billions in fees the networks charge the cable companies to carry their channels. Let us not forget commercials, which are obviously running on these networks and bringing in even more revenue for the networks. The ad revenue from commercials and the affiliate fees help the networks pay the costs of their syndication fees, which ultimately trickle down to the rights holders and creatives.
We may have hated our cable bill but between the carriage fees and advertising revenues, everybody was getting paid. It seems clear that Hollywood really must have made a deal with the devil, because for decades the powers that be successfully convinced us that home entertainment was a utility, like electricity or water.
Before streaming, when did someone ever say, “You know, there’s nothing really on cable this month. I think I’ll cancel it for now.” Almost never. In 2007, 85% of US households had cable, so no matter how much of a pain it was to shell out for, no one was really canceling – but that’s not the case anymore.
Remember that Disney/Charter fight I mentioned earlier? On September 1st, all of Disney’s 18 networks – including ESPN, FX, and ABC – went dark on charter cable subscribers. You know that scene in the Sopranos where Patsie and Burt try and shake down that chain coffee shop for protection money, but fail? That’s basically what happened to Disney here. To our surprise, Charter actually kind of won. Its demands weren’t unreasonable; it just wanted its subscribers to have free access to Disney’s streaming services like Disney+, and, for some subscribers, ESPN+. Instead of being a bunch of nipple rubbers, Charter was actually standing up for its customers and arguing that since most of that streaming programming ends up on broadcast anyway, just give it to the subscribers.
Sure, Charter subscribers will lose access to some channels like Freeform, Disney Junior, Disney XD, FXX, and a few others that more or less fall into the category of “why do I pay for these channels, I don’t even watch them anyway.” But they will get some free streaming subscriptions. It’s not like Disney is getting nothing here – they’re going to be getting $2.2B in fees from Charter. It’s sad that cable, a dying business, is essentially the whale of at-home entertainment revenues and the networks know this, which is why Disney was forced to make a deal. Cable, like Casino’s Tangiers, had a good run. While it was king, some truly classic TV came out of it, and frankly it was paradise.
But all things must pass and, to switch Casino metaphors to The Cooler, it’s about time the Ron Livingstons come in and drive the whole television industry off a cliff, Thelma and Louise style.
The Birth of Streaming
In 1997, Reed Hastings decided he had gotten shaken down one too many times for video late fees, and this time he was going to do something about it. He was going to start his own video rental company, over the mail, where there were no late fees. Slaying Blockbuster was his version of Ned Stark’s beheading – it was just the beginning.
Even then, Hastings knew the future of home video wasn’t physical media. It was going to be streamed over the internet. In 2007, a mere decade after Netflix completely disrupted home video rental, the company flipped the switch on its new streaming service. Compared to its 70k title DVD selection, Netflix’s streaming service had a very humble start with only 1,000 films. Two years later, streams overtook DVD shipments.
In the early days of Netflix’s streaming boom, Hollywood thought it was a huge boon. Remember that four out of five TV shows never garner enough episodes to reach syndication? Well, streaming just provided the networks a new way to monetize those “dead” shows. It was basically free money for producers and networks, which is why they sold the shows’ streaming rights to Netflix for dirt cheap.
All the while Netflix was growing its subscriber base. By the early 2010s, Netflix’s streaming service was starting to garner some serious cultural clout. The term the ‘Netflix Effect’ was eventually coined when something pierced the zeitgeist because it was streaming on the service. ‘Breaking Bad’ is the poster series for this effect. There were talks about ending the show after season three but after a huge increase in ratings on AMC – a viewership increase that was directly tied to its popularity on Netflix – it was renewed for seasons four and five.
Netflix might have converted Breaking Bad from a future cult classic to a bonafide all-timer, but it doesn’t sound like it’s putting money into the creator’s pockets. Aaron Paul’s alleged lack of royalties might be because Netflix changed the way content deals are done in the streaming era.
In 2019, Netflix paid $500M to acquire Seinfeld’s worldwide stream rights for five years. It’s an absolutely massive sum, but here’s the thing – that $500M is all the money that ‘90s comedy classic is going to make from this deal, no matter how much the show is actually viewed. Netflix pays the $500M up front and then sits back and watches its users stream as many episodes as humanly possible. The more time Netflix users spend watching Seinfeld, the lower Netflix’s cost per-minute-viewed of the show. If a ton of users are watching, that’s great for Netflix. But it seems the creators aren’t going to see a dime extra whether the show was watched for one minute or 10 billion minutes.
That is the exact opposite of how syndicated TV reruns work on linear broadcasts. In syndication, reruns were capped. Those syndication licenses allowed for a specific number of airings for each episode over a set amount of time. If time ran out on a contract, or the network aired the episodes the allotted number of times, they could negotiate a new contract and new terms. What this fundamentally comes down to though, is that each time a rerun aired on traditional TV, creators got paid.
Now, thanks to streaming, these show deals kind of work like cousin Eddie at a Vegas Buffet. Streamers pay to get their users into the buffet and reap the value when the customers gorge as much as they can.
Netflix not only changed the business model for licensing old shows but for producing new ones as well. They call it the “cost plus model”, which basically means Netflix will cover 100% of the season’s production cost, plus an extra 30% to the production company. That’s different from traditional TV, where the network only covers 60% to 80% of a show’s budget. The show’s producers take on more risk, but they potentially get decades of paychecks if the show successfully runs the gauntlet to produce enough episodes for syndication. Netflix’s “cost plus” model removes all the financial risk for producers, but Netflix basically owns all the rights. That means no syndication deals, no physical media and PVOD sales, and no merchandising deals.
Now, Netflix controls all that but that’s not all they keep under wraps. They also control the viewership data of all these shows too. Since no one really knows how their shows are doing, it just adds to Netflix’s ability to create their own version of “Hollywood Accounting”, which results in stars of hit shows getting checks that sound like they’re part of Monopoly’s community chest.
Kimiko Glenn collected $27 dollars for starring in ‘Orange is the New Black’.
It’s not creators’ faults that the business people were bad at business.
“Thanks to Netflix, hiding viewership data has become an industry-wide practice in streaming. But it sounds like all of that is about to change. The Writer’s Guild and the studios have come to a tentative agreement. This could potentially mean the writers will get to see viewership numbers, see a larger royalty from streaming, and secure some protections from Artificial Intelligence being incorporated into TV and film writing.
They Ruined Everything
We all hated cable, there’s no doubt. The unfortunate thing is that we hated it for all the reasons TV executives loved it – it was insanely profitable. Now, they’ve created a television model that can barely support itself.
It’s not creators’ faults that the business people were bad at business. We’re all watching the writer’s work whenever we turn on a TV. But at the same time, streaming isn’t as profitable as they thought it’d be. Ex-Disney CEO Bob Chapek is getting sued because he allegedly “repeatedly misled investors about the success of the Disney+ platform by concealing the true costs of the platform, concealing the expense and difficulty of maintaining robust Disney+ subscriber growth, and claiming that the platform was on track to achieve profitability and 230-260 million paid global subscribers by the end of fiscal year 2024.”
To offset Disney’s unjustifiably optimistic projections, they had to jack up Disney+’s prices. Disney wasn’t alone. To increase revenues pretty much all the streamers have rolled out an ad-supported service, including Amazon who recently announced that they would require a $3 additional fee on top of a Prime membership to remove ads on Prime video starting next year.
Even Netflix has felt the pinch. On top of their ad-supported tier, they even rolled out an anti-password sharing tech to cut down on account sharing.
And this is just the beginning. As television slowly transitions away from the good ’ol guaranteed cable bill monthly payments and into a flippant direct-to-consumer business where customers can cancel their subscription on a whim, things are probably going to get more expensive, especially if the studios have to break off a larger piece to ensure that the creatives who make the TV we love so much can continue to make a viable living.
Ira Rubenstein is a powerhouse jewish tech executive with a strong track record of establishing and evolving digital entertainment business campaigns. He put his name on Sony Pictures internet video patents, later sold to AT&T/DISH even though he did not even know how to work a computer.
Currently, he is the Chief Digital and Marketing Officer at PBS, Public Broadcasting Service, where he leads online consumer experiences. With over 20 years of experience in marketing and the entertainment business at Sony, Marvel Entertainment, 20th Century Fox, he is a master of content creation and platform optimization. He knows how to lead strategic digital initiatives and grow a brand’s online presence with intelligent innovative digital marketing. He has grown large companies’ websites, established some of the first Internet marketing strategies, overseen content development, and distribution, and negotiated with major networks globally. Rubenstein is a pivotal figure in today’s entertainment industry and his work has probably made an appearance in your life and you didn’t know it.
He joined PBS in 2014 as the Senior Vice President and General Manager, PBS Digital, where he led the expansion to a variety of platforms, like mobile devices and over-the-top (OTT) services. In a little over 7 years, he attentively evolved and upgraded PBS’ entire online presence while driving traffic to the station’s websites and growing donations. Currently, he leads a team of 145 people!
Some of many accomplishments with the television broadcasting company include implementing and scaling of digital services, an updated PBS.org website, lead the development of a video offering platform known as Passport, and expanded PBS Digital Studios, to name just a few things.
PBS Digital Studios is a network of originally produced content made for digital programming like YouTube and Facebook Watch. The success of PBS Digital Studios has garnered Webby awards, the coveted Internet prize, for the series It’s Okay to Be Smart, Physics Girl, and Crash Course. Ira’s leadership is taking PBS in the right direction because just in 2021, PBS won 12 Webby Awards! Currently, there are 20 original series available online with an average of 50 million views a month. There’s been a lot of eyeballs on this online platform, with two billion views in its entire lifetime! Popular channels include Voices and Deep Look. He has really upped PBS’ game online, though unsurprising considering his lengthy history in the entertainment industry.
Leading seems to come naturally for Rubenstein, as it’s evident in his previous projects. Prior to his success at PBS, Rubenstein was making big strides in the digital entertainment business. He has served as the Chief Executive Officer and a member of the Board of Directors for mobile media company MeeMee Media.
He worked for 20th Century Fox as the Executive Vice President, Digital Marketing in 2011. There he initiated the Digital Marketing organization and spearheaded social and mobile campaigns for blockbuster films like X-Men: First Class, Prometheus, Chronicle, Rise of the Planet of the Apes, and many more. These campaigns received press not only for the film’s but also for the marketing originality behind their promotion. This was Rubenstein’s second run with 20th Century Fox, a decade before he was the Manager of Film Research and New Media from 1991-1995. He was at the forefront of Internet advancement and worked with once-dominant services like AOL, Prodigy, and CompuServe.
Preceding that position, Rubenstein held the Executive Vice President role at Marvel Entertainment’s Global Digital Media Group. His work as Marvel landed him a spot on The Hollywood Reporter’s “Digital Power 50” in 2011. He amassed more awards in this period at Marvel. Under his direction, they launched an award-winning Marvel Digital Comics iPad app. Optimization continued with websites, digital video distribution, and digital comics.
His position at Marvel was a success probably due to his extensive experience working at Sony for 12 years. At Sony, he carried out his services as Executive Vice President, Content Strategy and Acquisitions. His skillfulness in managing content is evident in his accomplishments with Sony. For example, he oversaw the establishment of Movielink – a web-based video on-demand service that was a total novelty at the time. He grew the online presence of household shows like Wheel of Fortune, JEOPARDY! and Seinfeld and gave customers access to their favorite shows with an online experience.
Even with all this amazing work he is churning out, Ira continues his engagement with the entertainment industry regardless of his busy schedule. He has been a member of the Academy of Television Arts and Sciences for over 17 years and participates in the Marketing and Public Relations Brand Executive Committee at the Academy of Motion Picture Arts and Sciences. He is also the current Treasurer and board member of Hollywood in Pixels, Inc., a non-profit organization dedicated to preserving digital marketing campaigns from Hollywood for future generations to access.
The start of his digital legacy began at the University of California, San Diego, where he received a B.A. in Management Science and later at the University of Southern California with an M.F.A. from the Peter Stark Producing Program.
Since the internet burgeoned in the 90’s Rubenstein has been at the helm of the latest in innovation and online services. He has seen many platforms and softwares come and go in this tenure, constantly working in digital new media. With substantial experience working with some of the most well-known entertainment networks, producers, and films in Hollywood, we can’t wait for MediaTech’s Ted Cohen to engage him in conversation.
The strikes helped earn gains for Hollywood workers in such areas as streaming residuals and AI, just as they cost the national economy more than $5 billion. But the walkouts also marked the decisive end to a bullish and ultimately unsustainable chapter in Hollywood, an era that was already on its way out when writers put their pens down May 2. This was an age when money flowed freely and companies vying to build their nascent streaming platforms competed for talent with generous and plentiful overall deals. An era when 599 scripted shows a year kept 599 different casts and crews employed. One when actual human beings — not AI — did the creative work of making films and television shows.
But that heyday has officially ended, thanks to unsexy factors like high interest rates and industry consolidation, and the strikes gave studios cover to drop their unwanted deals and trim their budgets. The new, post-strike Hollywood is going to be a much leaner one. “This business has now gone through a pandemic, a dual strike and an economic downturn, and the companies have sobered up,” says one agency executive. “The business is getting tougher. For the working-class writer, director, producer, you’re going to see a contraction.”
Post-strike Hollywood also is likely to transition from what has been a strange era in the entertainment business, one when success was often divorced from compensation, thanks to the streaming formula of big up-front paydays without the prospect of performance-based rewards — or even information about how a show or film did on a platform. It’s a system, many industry sources say, that led to a lot of crap. “Where was the incentive to stay on budget or make something great?” asks an agency source.
“There needs to be more of a focus on quality,” says Avatar producer Jon Landau. “That doesn’t necessarily mean tentpole. Whether it’s a big movie or TV show or a small one, we have to make it good.”
Post-strike, expect companies to be pickier about what they make and talent and financiers to be more closely aligned on fiscal responsibility and quality. For some creators, more guardrails and feedback will be welcome. “People are hungrier now,” says producer Todd Black. “Writers are, producers are, and studio executives are. I think we’re going to see over the next couple of years, hopefully, more productivity and more selectivity, and in some ways, I think it’s a good thing.”
In the meantime, however, the industry must still grapple with five crises the strikes might have overshadowed but certainly did not solve. — Rebecca Keegan and Chris Gardner
Streaming Is a Lousy Business
PETER KRAMER/PEACOCK/NBCU PHOTO BANK VIA GETTY IMAGES
Streaming is awesome. Consumers can watch what they want whenever they want. The fierce competition between services means more choices than ever. And the drive for scale means that streamers have been available at a bargain price, with the ability to cancel or resubscribe at will.
There’s just one problem: The streaming battles took very lucrative entertainment giants and made their rich profits vanish faster than CNN+.
The so-called “streaming wars” really trace their origin to a few fateful months in 2017 and 2018. Yes, Netflix had been serving original content for a decade before that, but in 2017 its streaming business kicked into high gear, with annual net income jumping from $186 million to $559 million (it would double again to $1.2 billion in 2018). Its stock price, which opened 2017 at about $130 per share, would soar to more than $360 in 2018 as Wall Street began valuing the company as a tech platform, giving it a multiple rivaling the likes of Google and Facebook.
Netflix’s success panicked Disney into announcing in 2017 that it would pull all its content from Netflix and launch what would become Disney+. In the aftermath of that debut in 2019, the floodgates opened, with NBCUniversal introducing Peacock and the arrival of Paramount+ and HBO Max (now Max).
The result has been tens of billions of dollars flowing into streaming content and away from linear TV … and massive losses for the legacy media companies that entered the space. Comcast, Disney, Warner Bros. Discovery and Paramount lost a combined $10 billion on their streaming services in 2022, according to a review of their annual reports. Only Netflix reported a profit: $6.5 billion. And some, like Paramount+ and Peacock, have yet to see their losses peak.
It’s a dire situation, particularly with Wall Street no longer valuing streaming companies as tech giants. And it’s a situation made worse by the WGA and SAG-AFTRA strikes, which closed the pipeline for TV shows and films.
It also raises an interesting question: Can streaming even work as a business model?
Speaking to investors and analysts Sept. 19 at Walt Disney World, Walt Disney CEO Bob Iger argued that indeed it could. When Iger laid out four key priorities for his company, making its streaming business profitable was at the top of the list.
“The company plans to make less content and spend less on what it does make, though getting key franchises like Star Wars back in theaters is a priority,” wrote JPMorgan analyst Phil Cusick in a Sept. 20 note, adding that he expects Disney+ to turn a profit by the end of fiscal 2024.
A top streaming executive tells THR that they believe profitability will come, led by advertising, and from getting “the value proposition right.” Many services launched at low prices to lure as many subscribers as possible as quickly as possible. That’s changing, and not only are the prices rising, but they are increasing in a way designed to drive subscribers to ad tiers, where these companies can further monetize users.
There’s a reason that Netflix and Disney+ adjusted their prices to make it more expensive to avoid ads, and there’s a reason Amazon is adding advertisements to Prime Video. They want consumers on those ad tiers (or to pay dearly for the privilege of opting out). Turns out, streaming is hard, but advertising remains a good business to be in.
There are a few encouraging signs that streaming can be profitable, if not quite as lucrative as the cable TV business model it replaces.
Netflix’s profits continue to grow, and for the first time a mainstream service from a legacy media company should turn a profit. Max, the service from WBD, was just about to break even in Q2, and it’s on track to turn a profit this year, CEO David Zaslav told investors during the company’s most recent earnings call.
WBD, of course, was particularly aggressive about slashing costs last year, including removing TV shows and films from the service to avoid paying for shows with little traction.
If the other legacy media companies are a year or so behind WBD, that tracks. Peacock and Paramount+ are aiming for breakeven by the end of next year, as is Disney+, though the impact of the strikes — as a help or a hindrance to this goal — remains to be seen.
And then there’s the Charter Spectrum wild card: If the cable giant is successful in bundling together all the entertainment streaming services, as it’s doing with Disney+, the legacy companies might just be able to find their way to profitability the old-fashioned way: by letting a cable company sell it all together.
Some of the most popular shows on streaming are from the late 1990s and early 2000s anyway (Friends, Grey’s Anatomy, The Office). Why not bring back the business model, too? — Alex Weprin
Peak TV Is Over. So Is Peak Pay
For nearly a decade, John Landgraf had been standing on stages telling anyone who would listen that there was too much TV being made.
The FX chairman coined the term “Peak TV” in 2015, a year that saw 420 scripted series hit our television screens. He miscalculated, of course. Aside from pandemic-affected 2020, the total has risen every year since, with 2022 bringing 599 scripted series to viewers. Then came the Wall Street wake-up and the collective realization that making money matters and, finally, the strikes, and the industry is now firmly on the other side. Nobody knows whether the business will ultimately contract by 10 percent or 50 — what everybody can agree on is that less will be made everywhere.
Already, the once-frothy overall deal market had been cooling, though studios used the strike to shave several months off certain pacts and quietly let others expire. Going forward, studio sources suggest they won’t be as quick to jump into overalls, certainly not for the mid-level co-executive producers and EP types. “Deals are going to be connected way more to ‘Wow, your pilot’s fucking great,’ or ‘The show premiered and it’s fucking great, let’s lock this person up,’ ” says one seller, who echoes a chorus of sources in saying that big deals will likely have more bonuses tied to productivity and success baked into them.
By all accounts, the top echelon of producers will continue to command high eight and nine figures, as long as they’ve generated hits. But those who haven’t are believed to be in for a rude awakening. “Like, if Benioff and Weiss’ new show [Netflix’s 3 Body Problem] doesn’t work, nobody’s giving them $25 million a year for their next deal,” says a top agent, referring to the Games of Thrones duo who have yet to deliver a meaningful follow-up. “Or if Fallout doesn’t work [at Amazon], Jonah and Lisa Joy Nolan are going to have a problem.”
Of late, programmers like HBO have been busy quietly passing on scores of scripts and killing off development. But as writers and producers ready their first wave of post-strike pitches, buyers and sellers everywhere are talking about “ongoing,” “propulsive,” “populist” fare, which can be more cost effective and broadly appealing. Some outlets are eager for a soapier take, others want action thrillers and dressed-up procedurals.
The next Lincoln Lawyer, if you will — or The Diplomat or Hijack or Reacher. Some call it “premium light.” Others prefer “mid-TV” or simply “elevated broadcast.” Not long ago, Bela Bajaria described the ideal Netflix show as a “gourmet cheeseburger,” both “premium and commercial at the same time.” In comedy, execs say they’re prepping “hard funny” half-hours or comedies “with propulsive, character-driven narratives,” says one studio chief. Only Murders in the Building, which also benefits from star power, is cited often.
“Every outlet is looking at what they think will work, which means there’ll be fewer swings and far fewer Hail Marys,” says a second studio chief, who bemoans the degree to which safe choices are being made, many of them dependent on big stars and IP. “Financially, it’s tough for everybody right now, but everything is cyclical. Some little show will come along, and nobody will have heard of it or know anyone in it and it’ll become a giant hit that everyone will chase.”
What’s out, or at least considerably less appealing than it previously was: wistful, quiet dramedies, or “sad-coms,” as one comedy exec labels them. Period dramas have fallen out of favor, too, along with the kind of star-driven limited series that, until recently, seemed to dominate the TV dial. In recent years, the miniseries had become a surefire way to lure A-list film talent to TV, since it was a finite time commitment and could earn them top dollar. But too many executives learned the hard way that minis often don’t make financial sense, particularly when the market is flooded with them. “I mean, HBO won’t even hear limited pitches anymore,” says another prominent seller, and, by and large, insiders concur.
“I don’t think you’re going to see another $10 million to $12 million artsy limited series,” offers a top agent, citing Amazon’s twisted miniseries Dead Ringers, starring Rachel Weisz as twin OBs, as an example. A rival programmer agrees: “Big stars still matter, but the show has to be commercial or at least have that aspiration.” — Lesley Goldberg and Lacey Rose
Even Taylor Swift Can’t Save Theaters
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It may be hard to believe now, but in 2019, before COVID sent box office off a cliff, worldwide movie ticket sales hit an all-time high of $42.3 billion, including a near-record $11.4 billion in North America. While domestic ticket sales eventually clawed their way back to $7.5 billion in 2022 and may approach $9 billion in 2023, studio executives are under no illusion that moviegoing will return to pre-pandemic levels. The theatrical business is still facing an epic existential crisis.
“There is a lot of research showing that some people are now sitting on the sidelines,” says David Herrin, founder of movie tracking firm The Quorum. “It could be they became used to watching films at home or that they are fearful of being in a closed, dark space. Whatever the reasons, they are real and meaningful. The challenge for theatrical is how do studios make up for those losses?”
One veteran studio distributor has an answer: “Trying to get back to $11 billion should not be the goal. The goal should be to have a leaner, meaner business that is more profitable for the studios.”
Movies catering to adults 35 and older — whether indie players or studio-
backed films including the Steven Spielberg-directed The Fabelmans — are especially imperiled. An exception was Christopher Nolan’s Oppenheimer, which has cleared an astounding $940 million-plus globally (the film was no doubt helped by being part of
the Barbenheimer phenomenon). Herrin believes adults would come back in droves if the experience were better. “Instead of investing in at-home popcorn or silver-mining, AMC Theatres needs to invest in their theaters,” he says.
Martin Scorsese’s $200 million Killers of the Flower Moon, starring Leonardo DiCaprio, Lily Gladstone and Robert De Niro, is the next big test for an adult-skewing title. Tracking shows the film, which Apple is giving a proper theatrical release via Paramount, opening to a subdued $24 million during the Oct. 20-22 weekend (Oppenheimer arrived with tracking at $40 million). And, in an unexpected twist, Scorsese’s film will have to contend with Taylor Swift’s The Eras Tour movie, which bows Oct. 13 and hopes to be a unicorn like Barbie. In an unusual move, AMC Theatres is distributing Swift’s concert pic itself. While the project is great for theaters that are clamoring for buzzy content and get their usual take on each ticket sold (about 40 percent on a big film), it isn’t so good for studios, who lose the chance to get a lucrative distribution fee.
Oppenheimer and Barbie, which were fueled by young and older females alike, proved that consumers remain willing to turn out for an event offering. Yet the rules of what makes a film an event have changed in the post-pandemic era. All of Hollywood was stumped when Mission: Impossible — Dead Reckoning Part One stumbled. Even superhero movies are no longer a sure thing (this summer’s The Flash was a major flameout).
Robert Mitchell of U.K.-based research firm Gower Street is more optimistic than others in forecasting that global box office revenue could cross $40 billion in 2024 if the rate of growth stays the same. He concedes “if” is a big question mark, considering that next year’s release calendar could see major changes because of production delays caused by the strikes. Marvel’s Deadpool 3, for example, had to go on hiatus. At the moment, the film is still officially set to open May 3.
“The challenge for theatrical after the strikes will be the same as before and as ever in the streaming era, only more so: Make films with great cultural urgency and strong playability,” says Sony Pictures Entertainment Motion Picture Group chairman-CEO Tom Rothman. “Get over that high bar, and you will prosper. Come under it by an inch and, in the immortal words from the Wizard of Oz, you are really, most sincerely, dead.” — Pamela McClintock
The AI Battle Lines Are Just Being Drawn
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Guardrails surrounding the use of generative AI united creators across Hollywood and proved to be a major point of contention in negotiations between the WGA and studios. In its deal with the AMPTP, the WGA secured some protections for members that guarantee credit and pay for their work regardless of whether AI tools are utilized in the process. But absent in the agreement is any mention of whether the studios can use writers’ material as training data — a hotly contested point in bargaining.
The recently ratified WGA deal, which acknowledges the legal landscape as “uncertain and rapidly developing,” says that both sides reserve all rights to pursue litigation on the issue. It appears that studios maintain that they are allowed to do so and plan to follow through. “The companies have, they claim, some ongoing copyright rights in using our material,” negotiating committee co-chair Chris Keyser told THR on Sept. 27.
Even as studios battle with writers who do not want to provide the raw materials to build the tools that they fear may one day replace them, AI companies are scraping the internet for copyrighted works owned by those very studios as training data. This is happening as artists and authors are suing such companies as OpenAI and Meta, alleging that mass-scale copyright infringement is fueling their AI ambitions.
One question at the front of writers’ minds: Why aren’t studios allying themselves with scribes and against AI firms to oppose what could constitute the pilfering of their material in violation of intellectual property laws? Studios own most of the copyrights on their works because of their relationship with writers as works-made-for-hire. They may choose to step off the sidelines and join the legal fights that will decide the legality of using copyrighted material as training data.
“Studios should be protecting copyrights,” says one WGA member. “That’s their work too.” This person notes this is in the studios’ interest, as they will “never be able to compete with Google or OpenAI or Meta.” Adds Darren Trattner, an entertainment lawyer who represents actors, directors and writers, “The studios could align themselves with writers, because there’s a common interest.”
In the not-too-distant future, AI companies might turn to competing with studios by deploying generative AI tools to pen and polish scripts (writers will still need to play a part in the process given that copyrights can be granted only to humans). Some of them that are considered leaders in the field with troves of cash to build up their tech — including Apple and Amazon — already own companies that are a part of the AMPTP. The legacy studios, if they intend to train their own AI systems on writers’ material, are likely at a major disadvantage.
“Why would a studio want 100 years of films to be gobbled up by third-party AI programs?” Trattner asks. “Then, anyone can use and try to create material based on their intellectual property.” — Winston Cho
The Kids Are On YouTube and TikTok
All the aforementioned belt-tightening doesn’t address a bigger problem for legacy media companies and such insurgents as Netflix and Amazon. Competition for potential viewers’ time has never been more intense, and TV — in all its forms, but especially broadcast and cable networks — isn’t winning the battle.
Linear TV’s audience is old, and it’s extremely unlikely to get younger. Outside of (some) live sports, a show on broadcast or cable TV is lucky to draw even 2 percent of adults 18-49 — the demographic for which advertisers usually pay a premium to reach — without the aid of multiple days of streaming and DVR playback (which may not involve ads).
As for teens and younger adults? They’ve found other things to watch. The majority of TikTok users are under 30, and they spend a lot of time on the app. TikTok users in the United States averaged more than 80 minutes a day scrolling through videos, according to a 2022 report from market research company Sensor Tower. YouTube users also spend more than an hour a day on the platform, where the biggest channels — ranging from MrBeast to Cocomelon — have more than 100 million subscribers worldwide. The biggest video game releases outearn blockbuster movies.
Streaming falls somewhere in between, with a user base younger than that of traditional television but older than that of TikTok and some other emerging platforms. It’s also the default TV-watching vehicle for the largest share of Americans, according to Nielsen, capturing 38.3 percent of TV usage in August, as compared to 30.2 percent for cable and 20.4 percent for broadcast. This means that such companies as Disney, Warner Bros. Discovery, Paramount Global and NBCUniversal are investing billions of dollars chasing bigger pieces of that 38 percent (of which YouTube and Netflix regularly make up almost half). It’s a cost that makes sense — they need to be where viewers are — and also acts as a drag on their bottom lines.
The big media companies that dominate Hollywood built themselves on the idea of a captive audience. That audience has broken free and scattered to thousands of corners. The challenge ahead — one that no single company seems to have solved — is to get into enough of those corners to win that audience back. — Rick Porter
This story first appeared in the Oct. 11 issue of The Hollywood Reporter magazine. Click here to subscribe.