Say good-bye to the age of residuals.
Hollywood’s business model has been forever changed by Netflix, the streaming giant that up-ended front-end deals, back-end deals, actor residuals and profit participation.
And now that it is aiming to finalize its deal to buy the century-old Warner Bros. studio along with the premium TV division HBO, Netflix is looking to extend and make permanent that model, supersizing a tech behemoth worth nearly a half-trillion dollars, but at the expense of most other parts of the struggling entertainment industry.
TheWrap spoke to a half-dozen analysts, executives and creative voices who agreed that:
- Netflix buying Warner Bros. gives the streamer overwhelming dominance in the Hollywood ecosystem.
- The streamer has set new parameters for making content, providing rich upfront fees, but diminished profit participation or residuals for producers, directors, actors and their agents.
- Other companies, including legacy studios like Disney, have followed suit in the streaming business.
- Theatrical exhibition, a contracting segment of entertainment, faces a serious blow with a Netflix-owned Warner Bros. Its survival will depend on the response of other studios and whether new opportunities are to be found in a shrunken landscape.
The rise to dominance of Netflix marks the end of a century-old model for the movie business, but also the decline and sunset of participation in profits by the creative community that started in the 1950s and led to wealth across a broad swath of the industry. The streamer securing its acquisition of Warner Bros. only accelerates that trend, assuming the deal goes through — Paramount launched a hostile takeover attempt early Monday.
“They have completely wrecked Hollywood,” said a former studio chief and investor in media and entertainment, who like others who talked to TheWrap was angry at the Netflix acquisition news. “And now they’ll continue it. Less and less jobs. Less and less production. They’ve taken a bomb and dropped it on Hollywood. The business that we’ve known since Jimmy Stewart got a back end on (1950 film) ‘Winchester 75’ – that was the beginning of the creative community actually benefitting from their work. Netflix started in the other direction. They’ve done most of the damage already.”
Since Netflix instituted around profit limits on deals in the early 2010s, other studios and streamers have followed Netflix’s model, providing generous upfront producing fees but allowing little-to-no back-end profit participation.
Hollywood attempted to claw it back in the 2023 strike negotiations. As a result of that new contract, writers are eligible to receive “success-based” bonuses in streaming using a tiered system while SAG-AFTRA instituted a residual pool for actors on streaming shows that are hits. That pool, dubbed the “Robin Hood Fund,” only just launched this past September and for a show to qualify, it must be watched by 20% of a streaming service’s audience within its first 90 days on that service. If it does, 25% of the show’s performance bonus will go to the fund, which SAG-AFTRA estimates will generate $120 million in its first contract cycle.
Still, SAG-AFTRA and AMPTP have to determine how the funds will be distributed among actors who have performed on streaming titles going back to the start of 2024, and if Netflix makes good on its vow to cut back the theatrical window for Warner’s titles, there will be growing demand among actors, especially A-listers, for films to be included in that fund.
So when downstream revenue flows from production, most of it stays with the streamer and is not shared with creative partners, as had been the model for producers and above the line talent.
“You can trace the disintegration of Hollywood to Netflix making original series,” said the former studio chief. “It’s all coalescing around three companies,” referring to Amazon, Netflix and Disney. “They’ve all taken their cue from Netflix. They’ve cut back. They own all of what’s on the air. No one gets any other participation. They’ve consistently ratcheted prices to the consumer, every year, way above inflation. So they control every aspect of being in control of them. They only have 8% of viewing time, but they dictate and provide the roadmap for how the whole industry is functioning – to basically screw the creative community.”
If Netflix’s acquisition of Warner Bros. goes through, it will effectively have won the streaming wars, inching closer to eclipsing YouTube’s 13% hold on total viewing time with user-generated content, and asserting further dominance in setting the economic model.
The movie effect
As with any merger of this size, the filmmaking community also expects fewer movies to be made, despite Netflix co-CEO Ted Sarandos’ comments Friday that the acquisition shouldn’t be looked at as “a change in approach for Netflix movies or for Warner Bros. movies.” However, the industry remembers all too well the assurances Disney gave when acquiring 20th Century Fox, only to see that studio’s output diminished from 15 movies a year to five, with several 20th Century Studios films now relegated to Hulu streaming releases.
The fear, too, is that under Netflix ownership, mid-budget or original fare that has been a hallmark of Warner Bros.’ slate for decades could be shifted to streaming-only releases. In contrast to the streaming boom of 2020 and 2021, Netflix right now is the only major streamer still producing a significant amount of streaming original movies, as entities like HBO Max, Paramount+ and Peacock swung their feature film efforts back to theatrical after seeing little viewership or cultural impact from their streaming-only films.
This year alone, Warner Bros and New Line Cinema’s.’ “Weapons,” “Final Destination: Bloodlines” and “The Conjuring: Last Rites” accounted for over $467 million at the domestic box office. But horror traditionally does great on streaming (especially HBO Max) and Netflix is accustomed to letting its algorithm serve its movies to their intended audience. So, would it pocket the money it would spend to market one of these movies for a theatrical release and instead throw it directly onto streaming?
As one filmmaker who’s worked with several major studios put it, “If Ted Sarandos is looking at a spreadsheet and it says in order to get people to see this we’re gonna have to spend $25 million on P&A or marketing costs, if I were Ted Sarandos I’d be like, ‘Why? I’ll spend that on The Batman 2.’”
The filmmaker went further, gaming out that in the wake of a “monopolistic” Netflix-Warner Bros. giant, other studios will lean even harder into IP in order to compete, further saturating the marketplace with sequels and reboots and restricting the number of gambles on original films, despite the smashing success of “Sinners” and diminishing returns of Disney’s Marvel movies this year alone.
Sending more movies straight to streaming cuts off box office profit participation, and in turn leads to less product in movie theaters which are already struggling, and that’s where you can see the trickle down effects of a Netflix-run strategy writ large.
The TV effect
Sarandos said on Friday that HBO and HBO Max provide “a compelling, complimentary offering for consumers,” indicating that those entities will remain intact after Netflix buys Warner Bros. But again, as any M&A historian will tell you, everything is on the table and even if HBO Max stays separate from Netflix, the fact that both have the same owner will result in a tighter market for producers trying to sell TV projects.
HBO Max could go the way of Hulu, eventually becoming integrated into Netflix as a tile and the two sold together as a bundle for consumers, which could impact HBO Max’s existing bundle deals with Disney+ and Hulu.
And as Netflix takes ownership not just of HBO but Warner Bros. Television, a major producer of TV for numerous networks and streamers, most insiders expect TV production on the whole to diminish at a time when the industry is already trying to pull out of the devastating effects of the pandemic and dual strikes.
“This is terrible for television production,” one prolific producer and filmmaker told TheWrap. “As an independent TV studio, WBTV was one of the only places to keep the self-dealing sweetheart deals of the streamers at bay. American consumers have largely benefited from the streaming era. More choice, less expense. But this will mean less choice, fewer shows and a landscape even more saturated with reruns.”
The former studio chief who is a leading investor in media disputed that consumers have benefitted. Netflix, he pointed out, has raised prices three times in the last three years, including a jump to $17.99 from $15.49 per month in January 2025. That’s a massive leap from where it started in 2009 at $7.99 per month.
“Go look at the increases in prices,” he said, referring to rising prices for Netflix and other streamers. “And everyone has followed suit. It’s a fantastic little oligopoly. It all works together.”
As has been noted, the Netflix-Warner Bros. deal is far from assured — there are plenty of regulatory hurdles in its way, and Paramount is going down swinging. But if all goes according to Sarandos and Zaslav’s plan, the Hollywood economic landscape will be forever changed.
Drew Taylor contributed reporting to this story.
