Netflix is changing the game when it comes to dealing with production companies, according to a new report out of CNBC which credits "several people" who have worked with Netflix on deals for the information. In particular, Netflix is upping the amount it invests at the beginning of a show's creation with a view to securing greater long-term rights, according to the report.
This approach is understood to be far different from the typical approach used by networks when agreeing terms with production companies, as networks typically prefer to invest less at the start and see how a show fares before making greater and grander investments in follow-up seasons. Netflix, and specifically, with its original content seems to be far more interested in paying what would be considered over the odds – typically defined as the full cost of production along with as much as an additional 30-percent as a "plus" bonus, according to the sources. This, compares with only 60 to 70-percent of the production cost normally associated with traditional network-based deals. While this is primarily good for the production company in question as it is literally able to secure full funding up front, and an additional sum on top, in doing so it typically has to give up significantly more of the rights to the show.
This greater amount of rights inevitably means that each time a show is a smash hit, Netflix is able to control and generate more income from those rights than it might otherwise, and even more so for shows that become long-term success stories. However, that is only the financial side of the benefits, as with Netflix effectively shouldering all of the financial burden of a new show, the production companies can be less concerned about finding additional sources of funding, or worrying about fitting content to match advertiser needs. In other words, in return for the greater sacrifice in rights, production companies gain an almost unparalleled level of creative freedom – something that also in turn benefits Netflix due to the ability to put out content that other networks would not be able to. The report does pick up on the fact that Netflix is not the first entity to do this (likening the approach to that of HBO in the past) or the only one who is currently doing this – with the likes of Amazon also understood to be utilizing similar deals with its original content. The difference being, however, Netflix seems to be leaving a much greater footprint with this approach.