The Talent Compensation Question Hanging Over Netflix Earnings
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With Netflix’s Q3 earnings call set for Thursday, perhaps an analyst might ask co-CEOs Ted Sarandos and Greg Peters about recent rumors that the company is changing the way it pays talent.
Not that the answer would likely be particularly illuminating. Despite reports that the company is shifting its film and TV deals away from the “upfront buyout” structure it pioneered, Netflix leadership insists this is not true.
“We are not changing our compensation model,” Chief Content Officer Bela Bajaria said at Bloomberg’s Screentime conference last week, adding that while “there have been a few bespoke deals on a couple of movies … it’s a very tiny thing that has blown up to this story of [how] we’re changing our business model. We’re not.”
That may be the case, at least for right now, but I hope I can be forgiven for treating this with some skepticism. Remember how vociferously Netflix used to deny it would ever launch advertising on its platform? And Bajaria, in the same breath, even made a point of stressing the company’s “dynamic” nature as a virtue: “We’re willing to pivot and grow and evolve and innovate … I think that’s an amazing thing.”
At issue here is whether Netflix will shift to a compensation model more in line with the way studios traditionally did business in the pre-Netflix era: less money up front in exchange for potential backend payment contingent upon a certain level of success.
We all know the story of how Sarandos & Co. stormed the gates of Hollywood by upending that model, paying vast sums up front — paying, as others have put it, “as if everything was a hit” — to woo A-list talent to its nascent content business.
It would make perfect sense if Netflix were now looking to change that. Having ascended to its dominant position in the entertainment space and with most of its rival content buyers flailing, the streamer obviously possesses the market power needed to slash the prices it pays for movies and TV shows.
This would also fit with the more cost-conscious strategy Netflix has followed since its momentous stock correction of 2022. Company filings show the streamer spent about $7.8 billion on content in the first half of 2024 — up substantially from the same period in strike-impacted 2023 but still down from 2022’s $8.3 billion.