Hollywood Needs to Adopt a Pay-Per-Stream Back-End System
None of Hollywood's currently striking writers and actors will come right out and say it, but they’re all pining for the past when box office tallies and video rental receipts made it easy to keep score.
Who can blame them? It was a time when the industry knew when a hit was a hit. The score was kept in near-real time and the winners were showered with riches and eventually, royalties.
These days, digital disruption courtesy of streaming has players big and small in Tinseltown complaining that they just don’t know what constitutes a hit anymore.
Translation: we don’t know if we’re winning or losing, but we’re pretty sure we’re getting screwed by Netflix.
Anyone with an ownership interest in Tiger King or Squid Game certainly got the short end from Netflix.
That’s because both properties--neither of which had any hype or expectation--were purchased at a bargain rate and became juggernauts that found a worldwide audience. Yet, none of the people who created the properties–the writers, actors, and producers–saw a dime after their property was purchased.
To be fair to Netflix, a deal is a deal. The creators didn’t have to sell their property and agree to terms, but they did. And I’ll bet, they were happy about it….at least at the time of the sale.
Netflix has been vocal about overpaying for properties in a way that seeks to compensate creators on the front end for what would otherwise (in the old days) be realized on the back end.
Translation: Netflix took a risk when it bought the project and paid more than was necessary to compensate the creators for a non-existent back end regardless of whether anyone ended up watching the creation or not.
Suppose Tiger King had been released twenty years ago.
Whatever distribution deal it might have landed as a low-budget documentary in the early 2000s would likely be minuscule-to-modest on the front end with creators pocketing very little at the time of the deal. The real money would come if the film performed at the box office, in video rentals, and then (by some miracle) found its way to cable TV.
In the old days before streaming, if John and Jane Q Public spent their hard-earned money to watch a specific movie, that movie earned money and the creators were compensated accordingly.
Everybody won if (and only if) the movie performed.
It’s different these days. A movie (or a series) can win if it doesn’t perform on Netflix. Most don’t. But everything on the platform was purchased. That means the creators signed a contract, agreed to established terms, and were compensated according to those mutually accepted terms.
Now, cry the striking writers and actors, those terms don’t pay us what we should be earning and must be renegotiated!
Hence the strikes.
Former 1990s sitcom star and current president of the actors’ union Fran Drescher harkened back to the good ol’ days when she said at the outset of the actors’ strike “When I did ‘The Nanny,’ everybody was part of the gravy train. Now it’s a walled-in vacuum.”
The walled-in vacuum she’s referring to is Netflix and other streamers’ back ends. No one outside the streamers themselves really knows what happens on the other side of that “wall,” and that’s a big problem.
It’s a problem both the music and book industries know all too well and have made strides in figuring out over the last twenty years.
Online platforms in the music and book industries pay creators based on their works' performance.
Hollywood should take note.
Consider Spotify or any music streaming platform and the way creators earn based on performance defined as how many people consume their work. Creators from Taylor Swift to your nephew’s punk band earn royalties based on each stream.
That Taylor may earn more than your nephew per stream is between Taylor, the streamer, and the contract signed by the two parties. She’s in demand, and your nephew is not.
The same is true for the book industry, which like the music industry, was forced to deal with digital disruption before the movie industry.
Stephen King can negotiate better terms on Amazon than I can as an independent author. He’s earned it. I haven’t. I can pull my books and go home, or I can accept the offered terms and get into the game.
That game involves me doing my own marketing (paid out of my own pocket) which, in turn, drives traffic to Amazon’s site. Your nephew’s punk band is in the same boat.
It’s in our best interest as creative entrepreneurs to promote that our work is available on a given platform so people can find it and buy it and we can get paid.
Suppose Netflix were to adopt a pay-per-stream similar to Spotify. Now, there is a back end through which creators have the potential to earn if their work is consumed.
The platform would still purchase movies or series from creators, but the deal would no longer include an inflated upfront payment to compensate for a non-existent back end.
Instead, the purchase price would be smaller. But a runaway performer such as Squid Game would now be financially rewarded (big time) for becoming a worldwide phenomenon watched by virtually every Netflix subscriber on Earth.
Netflix, in all likelihood, would come out ahead with a pay-per-stream system. The company would pay less for all the content it acquires and would pay next to nothing for the overwhelming majority of properties that do NOT garner streams once on the platform.
All the while, Netflix would benefit from the advertising the creators make and pay for to promote their titles.
Currently, there is no incentive for creators to advertise their property after it has been sold to Netflix.
Once the money changes hands during the initial purchase, the deal is done for the creators. Why spend money on promotion if there is no chance for a return on investment with future earnings?
Just as the music industry learned the hard way that it couldn’t go home in a post-Napster world, the film and TV industry has to realize that once its precious, celluloid creations became ones and zeroes that could be seamlessly streamed into living rooms via broadband, the party was officially over.
It would appear, based on the gripes on both sides of the picket lines, that a pay-per-stream arrangement would go a long way toward pacifying the actors and writers who cry foul that they are not being treated fairly when the money changes hands.
Now, if we could just get a handle on that pesky, generative AI.
Fred Smith is an author and screenwriter who's never sold a project to Netflix or any of the major streamers--but not for a lack of trying.
His debut novel, The Coolest Labels is available on Amazon.com.