Netflix Series Spending Revealed

Streaming service's production costs exceed typical TV fare

Netflix may be notoriously secretive about the economics of its original programming, but not everyone who works with the streaming service works quite the same way.

CAA TV literary agent Peter Micelli was forthcoming about how Netflix — and other digital media upstarts — do business with Hollywood during a panel discussion Friday at the UCLA Entertainment Symposium. He went so far as to specify how much was spent to produce some of the series CAA has sold to Netflix.

“The cheapest show is $3.8 million an episode,” Micelli told a crowd of more than 500 lawyers in the entertainment business. “‘House of Cards’ started at $4.5 million and (executive producer David) Fincher took it way above that.”

Micelli ventured further into the Netflix programming pipeline, referencing dollar figures for the upcoming Eli Roth horror series “Hemlock Grove” and the Jenji Kohan comedic drama “Orange is the New Black.”

“The next series is ‘Hemlock Grove’ and they’re doing that for about $4 million an episode,” he said. “‘ ‘Orange is the New Black’ is just under $4 million as well. They’re huge budgets shows, they’re doing things in a huge way.”

Micelli later clarified for Variety that these numbers were only his estimates, as he is not privy to the final studio or network budgets or spends.

Micelli also noted during the panel that Netflix was spending even more than broadcast networks were doling out for hourlong series, which rarely exceeds $4 million per episode. He provided insight on the deals, which are structured to cover multiple regions around the world.

“They’ll pay a large percentage of the budget for it,” he divulged. “They control it for four years exclusively and then you can turn around to re-sell to a linear cable channel.”

But Micelli noted that Netflix may get some competition soon for high-end programming buys from Microsoft.
“But right behind them is XBox and Nancy Tellem,” he said, citing the tech giant’s hire of the CBS veteran last year. “She’s going in looking at it in a similar way to Netflix.”

Micelli also dished on Amazon Studios, the programming arm that is avoiding Netflix’s focus on dramas so far but developing multiple projects outside the genre. “Amazon is looking at it on a smaller scale, with comedies, but spending a million dollars per episode,” he said.

Netflix et al could be followed by still more digital content buyers, including Redbox and Verizon, who he indicated came in inquiring about programming opportunities — a fact the companies have yet to reveal about their upcoming joint venture, Redbox Instant By Verizon.

“Almost every month someone comes in to get into high-end scripted programming,” said Micelli. “It’s an unbelievable thing to see.”

Micelli returned again and again to the notion that the broadcast networks were doing themselves a disservice by diverting tens of millions of dollars into promotion that would otherwise go into the programming. He believes Netflix’s focus on Big Data to guide viewers to content is a big advantage.

“They’re also not spendng $40 million a show on a marketing campaign,” said Micelli. “They have a guy in a room who writes an algorithm.”

Micelli also said Netflix’s focus on serialized programming was the opposite of broadcast TV, where one of his clients, “Lost” executive producer Damon Lindelof, would get grief from ABC about changing the show’s complex storylines be more inclusive of viewers each episode. “They would grind him,” he said. “That’s all gone now.”

Micelli also forecast that a fundamental shift was coming to basic cable that would create demand for even more original programming. “You’re also going to see TNT and USA will not buy the reruns like they once did,” he predicted. “They’re not getting the value. Original content will become more and more the norm at all of these places.”

Micelli even revealed that Netflix’s motivation to be so secretive is rooted in something one of its competitors discovered the hard way. He explained that HBO came to regret its decision to release ratings information when “The Sopranos” emerged as a big hit, only to see much of the programming that came afterward pale by comparison in terms of audience.

“Netflix learned from that and they’re not going to do it,” he said.

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