Jeff Sagansky, a media investor and producer and former top entertainment executive, is sounding the alarm on the adverse impact the now prevalent “cost plus” business model has had on profit participation. The setup, originally introduced by Netflix and subsequently adopted by most major streamers and TV studios, reverses a decades-long practice of above-the-line talent on hit series being handsomely rewarded with a cut of the profits that continues to generate income for decades after the show’s creation.
In a blistering speech as part of a NATPE event Wednesday, Sagansky paints a bleak picture of what is to come if noone stands up to the new paradigm, including cratering buyout premiums and disappearing big overall deals, and issues a rallying cry for producers, writers actors and agents to go to the Justice Department and Congress “to argue against this anti-competitive behavior” in an effort to “level the playing field” in a way the government did in 1970 with the passing with the fin-syn rules. They will have to do that without their main ally as “the producer-studio bond…has been irrevocably broken.”
While there has been growing frustration in the creative community who have been privately bemoaning the demise of traditional backend deals, this is the first time I have seen a prominent industry figure publicly — and very bluntly — speak up against the new talent compensation scheme, calling this a “rotten time to be a producer in terms of being paid fairly for the work you are doing” and hinting at a possible collusion among the studios and streamers in imposing the model.
In the address, Sagansky, former President of CBS Entertainment and Sony Pictures Entertainment and former CEO of TriStar Pictures and Paxson Communications, referred to the “brutally unfair” and “ridiculous” deals writers, directors, producers and actors “are being forced to sign.” Employed by Netflix, Amazon, Disney and Warner Bros., among others, the deals allow for shows created today to live on 50 years from now, “be licensed and relicensed and seen in every corner of the world in a way that the digital revolution is now making possible” but the creators and producers of those shows “get paid just once upfront – 10 or 20% more than your usual producer fee and would never again get paid for all those billions of views, all that relicensing revenue, all that advertising revenue that was embedded.”
Noting the explosion of original programming over the past decade to an estimated $220 billion of global content spend and 560 scripted series in 2021 on US-based platforms alone, “this should be the greatest time in the history of our business to be a producer,” Sagansky said. But “in my 47 years in our business I don’t think there is a more rotten time to be a producer in terms of being paid fairly for the work you are doing,” he said, adding that the comments extend to all above the line talent.
He later went further, stating that “We are in a golden age of content production and the dark age of creative profit sharing.”
Calling the current situation a case of history repeating itself, Sagansky explained how we got here. In the US TV business’ early going in the 1950s and 1960s, the copyrights of TV shows were owned by the studios and producers but the networks — only 3 at the time, ABC, CBS and NBC — were commanding 90% of the ancillary economics.
“Out of desperation, the producers and studios jointly went to Congress, the Justice Department and the FCC to address this coercive anti-competitive behavior on the part of the networks, and they succeeded big time” Sagansky said. In 1970, the FCC passed the Financial Interest and Syndication (fin-syn) Rule that largely prohibited networks from airing programming that they had a financial interest in.
Sagansky spoke of “the incredible creativity and success that came out the fin-syn rule” as studios were licensing the first window of their shows to the networks but owing the second window and international in perpetuity.
“The next forty years after 1970 was truly the golden age of producer ownership,” he said.
In addition to the fin-syn rule, which spurred the creation of indie powerhouses such as MTM, Viacom and the companies of Aaron Spelling, Stephen J. Cannell and Norman Lear, several other factors made show ownership “increasingly valuable”, Sagansky noted, including the rise of cable in the 1980s, which became a major off-network programming buyer, the opening up of the international TV market following the TV privatization in Europe and Asia in the 1990s and the DVD boom in the late 1990s and early 2000s, with shows raking in as much as $600K per episode in DVD sales.
By 2010, successful series were making $1.5 million and more in profit per episode — and producers, writers, directors and actors were all participating in the fruits of their labor,” Sagansky said.
“Then a neutron bomb was dropped on the business starting in 2010 when Netflix introduced streaming,” Sagansky said. “Suddenly the calculus of the TV business changed very quickly.”
Helped by net neutrality and the initial willingness of TV studios to license their content to Netflix for modest fees, streaming quickly took hold but traditional media companies soon switched course and focused on their own direct-to-consumer platforms in the face of a dwindling linear TV universe as a result of an accelerating cord-cutting.
Of Hollywood’s original seven studios — now six — all but Sony are tied to a streaming platform owned by Disney, Warner Bros. Discovery, Paramount and NBCUniversal.
“These studios are part of big walled gardens where the main master they serve are their streaming arms,” Sagansky said. “And somehow they all have quickly adopted the Netflix production model which demands to own 100% of whatever is produced by Netflix Studios ‘buying out in perpetuity in most cases the producers’ backend up front’.”
The proliferation of the so-called “cost plus” model beyond original Silicon Valley-based streamers Netflix and Amazon happened very quickly and stealthy over a couple of years, largely while the Writers Guild and the major talent agencies were at odds and writers were not represented by agents, industry observers note.
While in the old linear world shows would get their original network airings before returning to the studio’s vault to await second window and international runs, now series get uploaded on servers pretty much for the rest of eternity, with streamers able to track who is watching them when, where and for how long. The paradigm is raising questions by Sagansky that echo anti-trust concerns.
“We have never had this level of information and data since the media business was started. So is it remotely equitable that the produce gets bought out in perpetuity only because these streamers/studios have colluded to prevent you from enjoying the backend?,” he said. “Did the Producers Guild or Directors Guild or Writers Guild or SAG-AFTRA ever negotiate with these media behemoths the end to more than 50 years of backend ownership? These are some of the biggest media companies in the world — they can’t afford to share in the profits of all these shows that they have no role in creating?”
He made another comment evoking monopoly terminology when explaining why the new model that de facto eliminates backend took hold.
“First, these streaming services all want to be global in scope, so the streamers want worldwide rights, and secondly, as broadcast and cable retreats in importance streaming commands the great bulk of program dollars and in an oligopoly, when the principal players all demand and enforce 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 premiums that may have in some cases come close to approximating the backends for some hit shows, my prediction — and we are seeing it now — is that these buyout premiums are coming down dramatically, and I further predict that these big deals given to the brand name producers will also disappear as the streamers consolidate and the competitive environment coalesces around 3 or 4 big services,” Sagansky said.
This is exactly what happened 50 years ago with one big difference, he noted.
“Whereas 50 years ago you had the producers and studios fighting together, today those studios all serve these streaming giants,” he said. “The producer-studio bond that has served a shared purpose for the last 50 or 60 years has been irrevocably broken. The studios are happy to relegate the creative community to serfdom — give me the best you have and be gone. We don’t want you to share in the benefits of what you have created.”
With prospects for creative talent being so dire, Sagansky sees one path forward and it is getting the government involved.
“The creative community — the producers writers, actors and directors — and dare I say the talent agencies — have to go to the Justice Department and Congress to argue against this anti-competitive behavior,” he said. “Not an early task getting all these disparate groups together but this may be the only way to level the playing field.”