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When Will Netflix’s Megadeals Finally Produce Actual Movies & TV Shows?

Two years ago today, Netflix signed Shonda Rhimes to an exclusive megadeal in a move which immediately upset the balance in the TV industry. Today, Netflix has now paid nearly a billion to poach away TV’s top producers. The result: zero new TV shows so far. How can they afford this?

This past week, TV mega-producer Ryan Murphy – the man behind Nip/Tuck, Glee, American Horror Story, and seemingly half of FX’s entire schedule – was in the news again. His newest season of American Crime Story, the anthology series which previously tackled the O.J. Simpson trial and death of Gianni Versaci to Emmy-winning acclaim, will take on the Bill Clinton impeachment hearings of the late 1990s. The twist: Monica Lewinsky is involved as a producer, and the story will largely be told from the woman’s point of view, especially highlighting Lewinsky (to be played by Bernie Feldstein), Linda Tripp (Sarah Paulson), and Paula Jones (Annaleigh Ashford). Bill and Hillary might not even be in it.

Simply titled Impeachment and set to debut in late September 2020, the announcement was quickly met with the following question: have they considered what kind of effect this might have on the next presidential election? Murphy will be running out a dramatization of the Clinton impeachment at exactly the same time that Trump and TBD – TBD 2020! – will be duking it out for the future of America. By scheduling the series to overlap with the homestretch of election campaigning, is Murphy inadvertently gifting Trump with another tool which can be used to galvanize his base and demonize the Democrats? The show will probably have plenty of nuance, but a man who just accused Bill Clinton of assassinating Jeffrey Epstein surely won’t have any problem twisting Impeachment into another indictment of the Clintons.

That’s giving Trump too much credit, others have argued. Who actually thinks he watches anything other than Fox News, CNN, and the cold open of SNL to see if they’re going to make fun of him again? Moreover, if we live in a country in which a relatively little watched TV show can tip the political balance then we freakin’ deserve whichever leaders we get.

Absent from all of this talk has been the – hmmm, I was going to say “elephant in the room” but considering the Republican party’s connection to the elephant that might conjure political imagery I don’t intend. So, I’m just going to go with “polka-dotted unicorn in the room” because you sure as hell notice it but also wonder if maybe someone slipped something into your drink because last you checked unicorns aren’t real, let alone unicorns of the polka-dotted variety. Surely you’re just seeing things.

Similarly, when you look at Ryan Murphy right now you might think you see a Netflix employee. After all, in 2018 the streaming giant did hand him a five-year contract worth $300 million. All of this Impeachment scuttle-butt is probably just the echo chamber noise of #FilmTwitter and #TVTwitter, but at least it adds buzz and elevates the show’s profile. Netflix will surely use that in its marketing next year.

Small problem: Impeachment isn’t a Netflix show. Like the prior seasons of American Crime Story, it will air on FX and is being produced through Fox 21 Television Studios.

So, wait, Netflix is paying this man $300 million to generate buzz and headlines for someone else?

Kind of.

Luckily for Netflix, Murphy moves fast – so fast that he often relies on an IV bag to stay healthy during 18-hour days – and his aggressive provocations and of-the-moment messaging ensures he’s always making waves somewhere. While Netflix won’t benefit from the Impeachment controversy, it is already building buzz for Murphy’s first Netflix Original, The Politician, one of the most anticipated new shows set to debut next month.

9/27 is the exact premiere date

The Politician, starring Gwyneth Paltrow, Ben Platt, Zoey Deutch and Jessica Lange, eviscerates the absurd lengths the .001  percent will go to stay on top — and the writers even predicted the college cheating scandal” reads the lede of a recent THR profile. Later in that same piece, Murphy and Netflix execs dish about their shared excitement over finally doing their first series together.

Again, small problem: Even though it will stream as a Netflix Original, The Politician isn’t technically a part of Murphy’s Netflix deal. As THR points out, “Of the growing list of creators Netflix has poached from traditional studios with jaw-dropping deals (Shonda Rhimes, Kenya Barris), Murphy is the first to actually launch a Netflix original, albeit one that was picked up under his previous pact and is thus produced by Fox 21 Television Studios.” (The same goes for Murphy’s One Flew Over the Cuckoo’s Nest prequel Ratched.)

When you step back and add it all up, you realize Netflix has paid out nearly a billion to poach away TV’s top producers – Murphy for $300 million, Grey’s Anatomy’s Shonda Rhimes for $150m, Blackish’s Kenya Barris for $100m, and Game of Thrones’ Benioff & Weiss for $200m – and has nothing to show for it so far. (And that’s even getting into the streamer’s production deal with the Obamas.) To be fair, the deal with Benioff & Weiss is so fresh the ink has hardly dried yet, but Rhimes was signed exactly two years ago to the day and does not appear to be close to debuting her first Netflix Original. What gives?

These things take time. The downside of hiring away TV’s most prolific (Rhimes, Murphy, Barris) or at least buzziest (Benioff & Weiss) producers is that they come with a wide variety of prior contractual obligations and pre-existing shows which can be delegated away to proteges and partners but can’t be outright, 100% abandoned. Moreover, these producers have to fortify their production companies now that they are being contracted to create content directly for Netflix without going through a middleman like Fox 21, ABC TV, or WB.

Also, it’s not quite as simple as Netflix paying them to do nothing. According to Variety, Netflix uses a complicated off-the-book accounting procedure to handle all of these megadeals. Get ready for some accountant-speak:

The salary components of the overall deals are expensed on a straight-line basis (if no projects are in production). Then, when a specific project that’s part of the deal goes into production, Netflix capitalizes a portion of the expense during the production period into the new content/title asset, which is amortized after launch on the service like other titles.

What that means: Netflix doesn’t actually record any of the content under those deals as expenses or liabilities until individual titles become available on the service. Only when a TV show or movie starts streaming to customers does it add a “content liability” to its consolidated balance sheets, according to the company’s SEC filings. So, for example, the costs for the slate of eight shows from Rhimes’ Shondaland is developing for Netflix (and whatever upside Rhimes is due under the contract) aren’t even on the books at this point.

That lets Netflix defer a big portion of the expenses for what it has promised to pay talent, production companies and licensors for years into the future.

It might almost be better for the producers to take their time getting Netflix Originals off the ground. That way the streamer doesn’t have to pay them anything other than salary, and during that time they can’t create anything new – other than new seasons of pre-existing shows – for the competition. Benioff & Weiss, for example, won’t be making Confederate at HBO Max now, but they will be pushing forward with that new Star Wars trilogy they agreed to before their Netflix deal.

The bill, however, will eventually come due and add to Netflix’s legendary long-term debt. They’re clearly betting that adding such big name talent will equate to new subscribers, but every time Ryan Murphy makes headlines for some other network it adds to the confusion: does he work for Netflix or not?

Yes, but as far as the accountants are concerned the big money doesn’t flow until the shows finally arrive. Given Murphy’s productivity, there will soon be plenty of them, including movie adaptations of Boys in the Band and The Prom (the latter will star Meryl Streep and Nicole Kidman) and an as-yet unexplained series called Hollywood, to name just a few.

Plus, of course, Impeachment. On FX.

Source: Variety

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