Netflix, not surprisingly, is trying something very different to secure new TV shows.
The high-flying company is frequently offering to pay for a television show's production costs and throw in an additional fee on top to own original series, a different strategy than traditional TV networks have employed in the past. These moves, which come during contract talks with production companies, make it very hard for TV networks to compete, according to several people who have worked with Netflix on such deals.
These contracts change the model of how shows are typically licensed and offer way more money up front than networks usually pay to have these shows on their channels. Plus, because Netflix does not have to worry about upsetting advertisers, the streaming giant can give show creators more freedom to create the show they want.
The downside for creators of these new shows is that Netflix then seizes more of the upside on big hits. That means the creators sign away most of their future revenue opportunities, which can mean tens of millions of dollars going to Netflix on the most successful shows.
Five people who have sold TV shows to or have been in negotiations with Netflix said the company typically offers a "cost-plus" model, which covers the cost of production plus more on top. Three of the people said most standard deals get about 30 percent on top of production costs, though bigger studios have been able to negotiate larger percentages. Netflix did not immediately respond to a request for comment.
Compare that with a traditional television licensing deal, in which the network airing the first run of the show pays a fee of only 60 to 70 percent of the show's production cost, according to one executive who negotiates TV deals. The production company then makes money through licensing deals, syndication and other opportunities, especially if the show is a big hit.