The Netflix-Warner Bros. deal may further upend Hollywood’s economic ecosystem of residuals, according to experts and filmmakers.
Say good-bye to the age of residuals.
Hollywood’s business model has been forever changed by Netflix, the streaming giant that up-ended front-end deals, back-end deals, actor residuals and profit participation.
And now that it is aiming to finalize its deal to buy the century-old Warner Bros. studio along with the premium TV division HBO, Netflix is looking to extend and make permanent that model, supersizing a tech behemoth worth nearly a half-trillion dollars, but at the expense of most other parts of the struggling entertainment industry.
TheWrap spoke to a half-dozen analysts, executives and creative voices who agreed that:
Netflix buying Warner Bros. gives the streamer overwhelming dominance in the Hollywood ecosystem.
The streamer has set new parameters for making content, providing rich upfront fees, but diminished profit participation or residuals for producers, directors, actors and their agents.
Other companies, including legacy studios like Disney, have followed suit in the streaming business.
Theatrical exhibition, a contracting segment of entertainment, faces a serious blow with a Netflix-owned Warner Bros. Its survival will depend on the response of other studios and whether new opportunities are to be found in a shrunken landscape.
The rise to dominance of Netflix marks the end of a century-old model for the movie business, but also the decline and sunset of participation in profits by the creative community that started in the 1950s and led to wealth across a broad swath of the industry. The streamer securing its acquisition of Warner Bros. only accelerates that trend, assuming the deal goes through — Paramount launched a hostile takeover attempt early Monday.
“They have completely wrecked Hollywood,” said a former studio chief and investor in media and entertainment, who like others who talked to TheWrap was angry at the Netflix acquisition news. “And now they’ll continue it. Less and less jobs. Less and less production. They’ve taken a bomb and dropped it on Hollywood. The business that we’ve known since Jimmy Stewart got a back end on (1950 film) ‘Winchester 75’ – that was the beginning of the creative community actually benefitting from their work. Netflix started in the other direction. They’ve done most of the damage already.”
Since Netflix instituted around profit limits on deals in the early 2010s, other studios and streamers have followed Netflix’s model, providing generous upfront producing fees but allowing little-to-no back-end profit participation.
Hollywood attempted to claw it back in the 2023 strike negotiations. As a result of that new contract, writers are eligible to receive “success-based” bonuses in streaming using a tiered system while SAG-AFTRA instituted a residual pool for actors on streaming shows that are hits. That pool, dubbed the “Robin Hood Fund,” only just launched this past September and for a show to qualify, it must be watched by 20% of a streaming service’s audience within its first 90 days on that service.
