For a century, the business of running a Hollywood studio was straightforward. The more people watched films, the more money the studios made. With Netflix, however, audiences don’t pay for individual films. They pay a subscription to watch everything, and this has enabled a strange phenomenon to take root. Netflix’s movies don’t have to abide by any of the norms established over the history of cinema: they don’t have to be profitable, pretty, sexy, intelligent, funny, well-made, or anything else that pulls audiences into theater seats. Netflix’s audiences watch from their homes, on couches, in beds, on public transportation, and on toilets. Often they aren’t even watching.
Over the past decade, Netflix, which first emerged as a destroyer of video stores, has developed a powerful business model to conquer television, only to unleash its strange and destructive power on the cinema. In doing so, it has brought Hollywood to the brink of irrelevance. Because Netflix doesn’t just survive when no one is watching — it thrives.
Netflix’s DVD catalog was not constrained by the size and shelf space of a brick-and-mortar store. Whereas Blockbuster might have to stock fourteen copies of a “big” title — like Steven Spielberg’s A.I. — at the expense of other options, Netflix could stock A.I. and Mario Bava’s Four Times That Night and Richard Lester’s The Three Musketeers, too. But even with fewer spatial constraints, housing several hundred thousand DVDs in the Netflix warehouse was inefficient. “Reed and I began riffing,” Randolph later explained. “‘It’s kind of a shame that we have all these DVDs sitting here in a warehouse doing no good. I wonder if there was some way to store them in our customers’ houses? Can we let them keep the DVDs? Can they just hold on to them as long as they want?’”
A decade before Airbnb persuaded homeowners to transform their homes into hotels, Netflix convinced its users to turn theirs into mini Netflix warehouses. Customers who held onto their DVDs for longer meant fewer shipping costs for Netflix, and fewer DVDs for the company to manage and store. Netflix tracked heavy users of its service — labeling them internally as “pigs” — and secretly throttled their deliveries. It didn’t matter if Netflix rented fewer DVDs than Blockbuster, because the company would keep collecting its monthly fee. The difference between Blockbuster and Netflix was this: Blockbuster punished customers for being forgetful; Netflix rewarded them for being mindless.
Residuals had been a fixture of Hollywood since the collapse of the studio system in the 1950s, providing job security for tens of thousands of professional artists. But streamers, which by 2014 included Hulu and Amazon, saw residuals in a new light. They had no intention of rebroadcasting their shows on linear television networks, in foreign territories, or on planes. They already owned exhibition platforms — Netflix.com, Hulu.com, and Amazon.com — that were increasingly accessible from all over the world and from the most common internet-connected devices.
“The philosophy of the guilds was always, ‘If you reuse our material, and you make money off the reuse of our material, then we should be compensated for that,’” a former Writers Guild of America officer told me. The officer recalled a 2014 conversation he had had with a studio executive about streaming. “His response was, ‘I don’t pay my plumber every time I flush my toilet.’” Netflix pioneered a different model. Instead of residuals, the streamer offered producers a payment model known as “cost-plus.” With cost-plus, Netflix offered to pay for an entire season up front — as it did with House of Cards — plus a “premium” that Netflix calculated, as Sarandos once explained in an interview, “via what we think the back end would have been.”
But the guilds like the WGA and the Screen Actors Guild under-estimated just how quickly Netflix would take over the industry. Suddenly, most of the work in Hollywood was in streaming. And as the journalist Nicole LaPorte found in an investigation for Fast Company in 2018, little of it paid well. While A-list showrunners like Shonda Rhimes and Ryan Murphy signed nine-figure streaming production deals, everyone else saw their salaries shrink. Writers who were paid per episode noticed that Netflix’s varying season lengths really meant shorter seasons and smaller paychecks overall. Without residuals, small jobs that used to generate reliable income for years became worthless. Some actors learned they were making thirty times less than they would have on a network show. Five years before the WGA and SAG’s historic overlapping strike, which in part sought to redress the streamers’ elimination of back-end payments, LaPorte concluded what it would take major newspapers and magazines years to report: streaming had brought about “the death of Hollywood’s middle class.”
“It’s not enough to do something that a few million people might really love when you’re trying to reach twenty-five million people or fifty million people,” a former Netflix executive told the journalist Reeves Wiedeman in a 2023 article in New York about the documentary streaming “boom.” “A lot of documentaries — I would say the majority of documentaries — don’t meet that bar.” So what did? Grisly true crime, garish cult exposés, celebrity hagiography, sports and food miniseries, pop science, and pets. Netflix’s documentary slate quickly became a supermarket aisle of tabloid magazines.
That audiences clearly prefer the films of the past has been an inconvenient fact for the streamers who tout themselves as the future of entertainment. But rather than address the problem by improving the quality of their programming and distribution, the streamers obscure the failure of their originals even further with PR bluster. Ever since it moved into original content, Netflix had been making ridiculous claims about its films and shows with little to no pushback from the Hollywood press. In a 2018 article about Netflix published in New York, Sarandos described The Kissing Booth, an unmemorable teen romance starring Jacob Elordi and Joey King, as “one of the most-watched movies in the country, and maybe in the world.” His evidence? The rankings of Elordi and King on something called the “Star-o-Meter,” a user-derived measurement for the popularity of celebrities on IMDb.com. “Three weeks ago on the IMDb Star-o-Meter, which is how they rank their popularity, [Elordi] was No. 25,000. Today he is the No. 1 star in the world,” Sarandos claimed. “And Joey King, the female lead, went from like No. 17,000 to No. 6. This is a movie that I bet you’d never heard of until I just mentioned it to you.”