Business model

“We are in the golden age of content production and the dark age of creative profit sharing” – Deadline

Jeff Sagansky, media investor and producer and former top entertainment executive, is sounding the alarm about the negative impact the now-prevalent “cost plus” business model has had on profit sharing. The setup, originally introduced by Netflix and later adopted by most major streamers and TV studios, reverses a decades-old practice whereby talent above the line on hit series is generously rewarded by a reduction in profits that continues to generate revenue for decades. after the creation of the show.

In a searing speech at a NATPE event on Wednesday, Sagansky paints a grim picture of what will happen if no one resists the new paradigm, including the cratering of buyout bonuses and the demise of big block deals, and launches a rallying cry for producers, writers, actors and agents to go to the Justice Department and Congress “to oppose this anti-competitive behavior” in an effort to “level the playing field” as the government did so in 1970 with the adoption of the fin-syn rules. They will have to do so without their main ally because “the producer-studio bond…has been irrevocably severed.”

While there has been growing frustration in the creative community privately lamenting the demise of traditional backend agreements, this is the first time I’ve seen a prominent industry figure publicly – and quite candidly – speak out. speaking out against the new talent compensation system, calling it “a rotten time to be a producer in terms of getting paid fairly for the work you do” and hinting at possible collusion between studios and streamers to impose the model.

In his remarks, Sagansky, former chairman of CBS Entertainment and Sony Pictures Entertainment and former CEO of TriStar Pictures and Paxson Communications, spoke of the “brutally unfair” and “ridiculous” deals that writers, directors, producers and actors “are forced into.” sign”. .” Employed by Netflix, Amazon, Disney and Warner Bros., among others, the agreements allow shows created today to live 50 years from now, “to be licensed and renewed and seen in every corner of the world in a way that the digital revolution now makes it possible “but the creators and producers of these shows” only get paid once upfront – 10 or 20% more than your usual production costs and would never be paid for all those shows again billion views, all that license renewal revenue, all that in-app ad revenue.

Noting the explosion of original programming over the past decade to reach approximately $220 billion in global content spending and 560 scripted series in 2021 on US-based platforms alone, “this should be the biggest moment of our company’s history to be a producer,” Saganski said. But “in my 47 years in our company, I don’t think there’s a more rotten time to be a producer in terms of being paid fairly for the work you do,” he said, adding that the comments extend to all above the line talent.

He later went further stating that “we are in the golden age of content production and the dark age of creative profit sharing”.

Calling the current situation a case of repeating history, Sagansky explained how we got here. In the early days of the American television industry in the 1950s and 1960s, television copyrights belonged to the studios and producers, but the networks – only 3 at the time, ABC, CBS and NBC – controlled 90% of the auxiliary economy. .

“In desperation, producers and studios jointly approached Congress, the Department of Justice and the FCC to address this coercive anti-competitive behavior on the part of the networks, and they were largely successful,” said said Sagansky. In 1970, the FCC enacted the Financial Interests and Syndication (fin-syn) Rule which largely prohibited networks from airing shows in which they had a financial interest.

Sagansky spoke of the “incredible creativity and success that came out of the fin-syn rule” as studios licensed the first window of their shows to the networks but owed the second window and international in perpetuity.

“The forty years after 1970 were truly the golden age of producer ownership,” he said.

In addition to fin-syn rule, which spurred the creation of independent powerhouses such as MTM, Viacom, and the companies of Aaron Spelling, Stephen J. Cannell, and Norman Lear, several other factors made ownership “increasingly valuable,” noted Sagansky, whose rise of cable in the 1980s as a major purchaser of off-network programming, the opening of the international television market following the privatization of television in Europe and Asia in the 1990s and the DVD boom of the late 1990s and early 2000s, with shows grossing up to $600,000 per episode in DVD sales.

In 2010, hit shows were making $1.5 million and more in profits per episode — and producers, writers, directors and actors were all sharing in the fruits of their labor,” Sagansky said.

“Then a neutron bomb was dropped on the business from 2010 when Netflix introduced streaming,” Sagansky said. “Suddenly the calculus of the TV industry changed very quickly.”

Aided by net neutrality and the initial willingness of TV studios to license their content to Netflix for a modest fee, streaming quickly took hold, but traditional media companies quickly changed course and focused on their own direct sales platforms faced with a linear decrease. The world of television following an accelerating cord cut.

Of Hollywood’s seven original studios — now six — all but Sony are tied to a Disney-owned streaming platform, Warner Bros. Discovery, Paramount and NBCUniversal.

“These studios are part of large walled gardens where the main master they serve are their broadcast arms,” Sagansky said. “And somehow they all quickly embraced the Netflix production model of owning 100% of everything produced by Netflix Studios” by buying out in perpetuity in most cases the backend of the producers in advance “.”

The proliferation of the so-called “cost plus” model beyond the original Silicon Valley-based streamers, Netflix, and Amazon, happened very quickly and stealthily over a few years, largely as the Writers Guild and major news agencies talents disagreed over packaging and writers. were not represented by agents, note industry watchers.

Whereas in the old linear world, shows aired on the original network before returning to the studio vault to await second window and international airings, series are now uploaded to servers roughly for the rest of eternity, with streamers able to know who is watching them. when, where and for how long. (Rather controversially, this data is largely kept away from creators.) The paradigm raises Sagansky’s questions that echo anti-trust concerns.

“We have never had this level of information and data since the beginning of the media activity. So is it fair that the producer gets bought out in perpetuity just because those streamers/studios colluded to stop you enjoying the backend? “, did he declare. “Has the Producers Guild or the Directors Guild or the Writers Guild or SAG-AFTRA ever negotiated with these media giants an end to 50+ years of backend ownership? These are some of the biggest media companies in the world – can’t they afford to share the profits from all these shows they have no part in creating? »

He made another comment referring to monopoly terminology when explaining why the new model that de facto eliminates the backend took hold.

“First, these streaming services all want to have global reach, so streamers want global rights, and second, as broadcast and cable decline in importance, streaming commands the vast majority of program dollars and in an oligopoly , when the main players all demand and apply the same model, it is impossible for a producer to break the coercive behavior.

While in the early days of streaming there were “huge buyout bonuses which in some cases can approximate the backends of some hit shows, my prediction – and we are seeing it now – is that these buyout bonuses will decrease by dramatically, and I further predict that those big brand producer deals will also go away as streamers consolidate and the competitive landscape coalesces around 3 or 4 big services,” Sagansky said.

This is exactly what happened 50 years ago with a big difference, he noted.

“Whereas 50 years ago producers and studios were fighting together, today these studios serve all these streaming giants,” he said. “The producer-studio bond that has served a common purpose for the past 50 or 60 years has been irrevocably severed. Studios are happy to relegate the creative community to serfdom – give me your best and go. We don’t want you to share in the profits of what you’ve created.

With the prospects for creative talent being so dire, Sagansky sees a way forward and implies government involvement.

“The creative community – producers, writers, actors and directors – and dare I say talent agencies – must go to the Justice Department and Congress to stand up against this anti-competitive behavior,” he said. -he declares. “It’s not an early task to bring all these disparate groups together, but it may be the only way to level the playing field.”