by Ben Fritz
Lynton lost that battle, as he so often did when it came to the details of moviemaking. Smith got $10 million, though nothing close to the fifteen gross points that CAA had asked for. He would take up to 50 percent of the movie’s profits only after Sony made at least $10 million.
That didn’t turn out to be an issue. Released a week after Star Wars: The Force Awakens in December 2015, Concussion barely registered at the box office—proving once again the power of franchises over movie stars. Produced for $43 million, Sony was targeting $135 million in global box office. But it grossed just $49 million, losing the studio more than $25 million.
Sandler’s years of enmeshment with Sony also ended with a whimper in 2015. Pixels was, like After Earth, meant to catapult an aging star into the new world of global franchises. It was based on a two-minute short film about classic video game characters like Pac-Man and Donkey Kong invading Earth, and Sony thought it could become an action-comedy franchise in the vein of Ghostbusters. Some questioned whether Sandler and his costar, Kevin James, were the right match for a video-game-themed movie meant to appeal to younger audiences. But Happy Madison had originally optioned the short film, and executives like Belgrad, who had built their careers alongside the former Saturday Night Live comedian, still believed in Sandler.
Lynton pressured his executives over the budget for Pixels, looking to keep it to a tight $110 million despite the extensive visual effects involved. Sandler took only $5 million up front, his lowest paycheck on a major production since the 1990s, in exchange for a big cut of the profits.
After attending a read-through, Pascal promised Lynton that the movie, which also starred Peter Dinklage from Game of Thrones and Josh Gad, the voice of Olaf the snowman in Frozen, would be different from the typical Sandler fare. “It was brilliantly funny and engaging . . . no boob jokes, no poop jokes, the cast was fantastic and classy,” she assured her boss. “Its big and insanly commercial.”
Critics largely disagreed, though, calling Pixels “dimwitted . . . slapdash, casually sexist.” American audiences stayed away, but a decent international performance got Pixels to a $245 million worldwide gross. That was enough for Sony to eke out a profit of about $10 million—not a disaster but well below its target of $25 million and certainly not enough to give Sandler and the studio the new franchise they desperately needed.
Despite these disappointments, Sony wouldn’t abandon the two stars completely. Sandler was still valuable as the lead voice in the hit animated franchise Hotel Transylvania, and Smith was needed to help reboot the dormant Bad Boys series. But the days of building star vehicles around them were over.
Star power throughout Hollywood, in fact, was now fading fast. As studios sped toward a promising future of franchises while trying to shove movie stars out onto the curb, Adam Sandler and Will Smith were two names on a long list of A-listers who faced a diminished and depressing future. What they didn’t know yet is that a new future was being plotted for them, and other stars, by a man who had dropped out of college to manage a video store.
7
A Star Is Born
Netflix, the New Home for Movie Stars
Ted Sarandos wasn’t an obvious candidate to revolutionize the entertainment business. A journalism major at Arizona State University who left in 1983 without a degree to manage a video store, the compact, square-jawed Sarandos was a fast talker with a quick mind for business. By the late 1990s, he was vice president of product and merchandising at West Coast Video, which had about five hundred stores. In 2000 he joined Netflix, where his background seemed to match what the fledgling dot-com needed: someone who could buy and manage the millions of DVDs it sent in red envelopes to subscribers each month.
As Netflix evolved from mailer of DVDs to the leading video-streaming service later in the decade, though, its chief content officer became a power player in Hollywood. The TV repeats and years-old movies Sarandos acquired were sucking up more and more of consumers’ time, causing studio and network executives to wring their hands over whether the huge checks Netflix wrote were ultimately a drug destroying their health.
One of the beneficiaries was Sony Pictures. The studio made hundreds of millions of dollars annually from the pay channel Starz, an HBO competitor that aired movies for its cable subscribers. Starz was able to afford that cost in part because it resold the Internet rights to Netflix for about $30 million per year.
Starz ended that deal in 2011, even though Netflix offered to pay more than $300 million annually to renew it. Like other studios and networks at the time, Starz concluded that it needed to endure short-term financial pain in order to kick the Netflix addiction and stop making its content so easy and cheap for consumers to watch without a cable subscription. Not coincidentally, that was the year Sarandos decided to start buying original programming.
If Netflix couldn’t count on Hollywood to provide the content it needed, it would start producing content itself. But, Sarandos reasoned, its selection process should be entirely different. Rather than rely on focus groups, subjective comparisons to similar content, and executives’ gut feeling, Netflix used data.
House of Cards was an early and compelling example of how well this approach would work. From its database, Netflix could easily see that Kevin Spacey movies had long done well on the service, and many subscribers had watched the director David Fincher’s The Social Network, a Sony hit obtained through the Starz deal, from start to finish. Finally, the company knew that the British political drama House of Cards was also surprisingly popular among its American subscribers.
So when Spacey and Fincher teamed up on an American remake of that series, Sarandos made a huge bet: $100 million for two seasons. The rest, of course, is history. House of Cards was a hit. Not measured by the viewership numbers, which Netflix wouldn’t release, but by the way everyone was talking about it and the multiple Emmy nominations it earned, including one for best drama series, in its first season. It was followed by Orange Is the New Black, Bojack Horseman, The Unbreakable Kimmy Schmidt, Master of None, and Stranger Things—shows with a cultural impact that was easily as significant as anything on HBO, Showtime, or FX.
Marvel even got in on the action, taking superheroes too dark to ever turn into a PG-13-rated global blockbuster and releasing them as more violent, less lighthearted Netflix series like Daredevil, Jessica Jones, Luke Cage, and the poorly received Iron Fist.
As Netflix’s original hits piled up, Sarandos became one of Hollywood’s most powerful and celebrated moguls. The former video-store manager traveled to the annual Sun Valley conference for the media elite, attended award shows, and hosted his own splashy premieres.
Movies Show Their Strength
When Netflix started as a DVD service in the late 1990s, 80 percent of the content subscribers watched was movies. As it became more of a television company, that number dropped dramatically, until by the 2010s only one-third of total content viewing was movies.
The surprising thing about that statistic is that it wasn’t lower. Nearly all of Netflix’s movies were a year old or more, and by the time they showed up on the streaming service, they had already been in theaters, on DVD, and available to rent from iTunes. Most TV shows, by contrast, were either original or available to watch for the first time after airing on traditional TV.
But no matter what happened to Netflix’s content mix, movies never fell below one-third of what its users chose to watch. “It’s incredible how consistent that stayed, especially considering how great television has become,” said Sarandos. “People do want to see movies. The art of the two-hour story is different than the sixty-hour series.” Still, people regularly complained that Netflix’s movie selection wasn’t that great and that its algorithms frequently suggested films they had already seen. Sarandos knew they were right and also knew he couldn’t do much about it.
Hollywood’s entire business model has long been predicated on holding back movies from services like Netflix. In order to maximize revenue, most films are
released first in theaters. Three or more months later, they’re available to buy or rent from digital stores like iTunes and on DVD or Blu-ray. Several months after that, usually at least eight after debuting in theaters, they start airing on pay cable services like HBO or Showtime. The films then eventually make their way to cable television networks and, finally, to broadcast TV or the bargain bin at Wal-Mart.
Sometimes Netflix could get movies at the same time as the pay cable networks, though as the end of its deal with Starz illustrated, that was becoming increasingly difficult. In most cases, Netflix got films at the very end of the “windows” process described above—years after they first played in theaters.
This convoluted system developed because it’s the best way for studios to earn a profit on movies that cost hundreds of millions of dollars to make and market, and to cover their hundreds of millions per year in overhead. The system relies on what economists call “price discrimination”—making sure consumers who want to consume a product the soonest have to pay the most, while those who are unwilling to pay top dollar for it have to wait. The biggest fans, who want to see a movie in theaters and at home, sometimes even pay twice, for a ticket and then again for the Blu-ray.
But to make Netflix’s $10 per month service as valuable as possible to current and potential subscribers, Sarandos needed movies sooner. Even when he outbid Starz to get the pay cable rights to Disney movies—uniquely valuable because kids watch them over and over again—Netflix would still need to wait more than six months from the big-screen debut to availability for streaming. The solution, Sarandos concluded, was the same one he’d previously reached for television: Netflix should start making its own movies. And thanks in part to the end of the Starz deal, for which Netflix had been prepared to pay about $1 billion for Sony movies over three years starting in 2012, he had cash to do so.
People called Netflix’s move into original programming audacious. It was certainly innovative. Netflix series were the first ones with network quality to be distributed over the Internet. Also, Netflix posted every episode online together, rather than make viewers wait a week for each new one.
But these changes were nothing compared to how Sarandos wanted to transform film distribution. With its original movies, Netflix would ignore Hollywood’s “windows” and make movies available to watch online the same day they debuted in theaters—if they played in theaters at all.
Many objected, of course. Motion pictures were made to be seen on the big screen. But Sarandos believed that except for the biggest-budget “event” movies like The Avengers, this view was elitist. Most film consumption takes place at home, whether on DVD or on TV. Thanks to rising ticket and popcorn prices and better television offerings on networks and Netflix, theater attendance had been falling for most of the twenty-first century, from 1.57 billion tickets sold in the United States and Canada in 2002 to 1.31 billion in 2016.
When filmmakers complained that Sarandos was degrading their work, the Netflix executive liked to ask them a question: where had they, as children, watched the movies that inspired them to become directors? Most had to admit it was at home, on a VHS tape or a DVD that they played over and over again. For a generation growing up with on-demand viewing, Sarandos argued, that would be even truer. “With the exception of big tentpoles like The Avengers or Suicide Squad, most every movie I see, I feel like it would have worked better on Netflix,” Sarandos said.
Still, landing movies wasn’t easy. Netflix’s first film was set to be The Walk, the director Robert Zemeckis’s adaptation of the documentary Man on a Wire, starring Joseph Gordon-Levitt as the French daredevil who crossed New York’s Twin Towers on a tightrope. Sarandos had an all-but-done deal to release the movie simultaneously on Netflix and on 3D IMAX screens until Zemeckis got a last second offer from Sony. Tom Rothman wanted to use his TriStar label to release the movie traditionally, on IMAX and regular screens, and would spend $37 million making it. So Zemeckis went with the studio, and The Walk bombed, grossing only $10 million domestically and $61 million worldwide. Sony lost more than $10 million.
Ultimately Netflix’s first release, in the fall of 2015, was Beasts of No Nation, a haunting, well-reviewed drama starring Idris Elba as the commander of an African military squadron made up of young boys. Only thirty-one theaters played the film and it was, by box-office standards, a disaster, grossing just $90,000. But the theatrical run was really just to get film critics and awards voters to pay attention.
Sarandos insisted that for Netflix, it was a streaming media hit. “It was probably the more watched independent film of the year,” he boasted.
Movie Stars Welcome
It didn’t take long for Netflix to establish a steady diet of original low-budget films. Some, like the Paul Rudd drama The Fundamentals of Caring and Elijah Wood’s I Don’t Feel at Home, it bought at festivals such as Sundance. Others, like the director Christopher Guest’s mockumentary Mascots, were backed by Netflix from the start because studios weren’t interested. But the true shock to the Hollywood system came with Sarandos’s deal in 2014 with Adam Sandler, a major movie star who was struggling with the harsh new realities of the studio business.
As he finished up work on Pixels, Sandler was itching to find a home for his latest signature lowbrow comedy, a Western spoof called The Ridiculous 6. Sony had already told the star something it never had before: “pass.” Paramount developed it for a while, but ultimately didn’t pull the trigger. Warner Bros. flirted with it too, but after Sandler’s movie Blended flopped for that studio in May 2014, Warner said “no thanks” as well.
A few months later, Sandler got word that Netflix, newly interested in movies, had set its sights squarely on him. Using data gathered from Sony movies that Netflix had played through its Starz deal, Sarandos’s team knew that even as his box-office power waned, Sandler remained one of the most popular stars on the streaming service. His aging audience might be less likely to pay to see him in a theater, but they still loved laughing at his antics at home.
“We knew he was popular in markets where his movies had never even opened,” Sarandos said.
The mid-budget star vehicle, in other words, still worked great for Netflix. When people went to theaters, they preferred brand-name franchises. But when they were browsing for something to stream rather than pay fifty dollars for a night out, a familiar face doing the familiar shtick was perfect. Movies without massive visual effects were just as enjoyable at home, after all, if not more so. And if the stars had chosen to stretch their wings and you didn’t like the movie you clicked on, you could turn it off immediately. You lost a little bit of time, but not any money.
And though there may not be as many fans of Adam Sandler, or any movie star, as there used to be, that didn’t necessarily matter to Netflix.
All studios care about is how many people buy tickets or DVDs. They get their money whether you loved the movie or hated it. But Netflix measures success by how many people finish a movie and are satisfied enough to keep subscribing as a result, or who sign up just in order to watch it. Adam Sandler’s fan base may have shrunk, but those who remained were loyal and they were global—just what Netflix wanted. Additionally, Netflix wouldn’t have to spend millions of dollars on billboards and TV ads to market each film. Its algorithm would prominently suggest each Sandler movie to his fans on their home screen the moment it was available.
So Ted Sarandos and his team started wooing Adam Sandler. They met him at Netflix’s office in Beverly Hills, at the Happy Madison offices on the Sony lot, and on the set of Pixels in Toronto. Naturally, Sandler was skeptical. He had escaped television twenty years earlier to become a movie star. Wasn’t making movies that people would watch on TV, or even on an iPad, a step backward? But Sarandos told him that by working with Netflix, he’d be on the cutting edge of the business, taking his brand directly to the fans on the platform where they preferred to watch him. Instead of begging for a yes from studio executives who were souring on his commercial appeal
and often looked down their nose at his juvenile comedy, why not go with a distributor that valued exactly what he had to offer?
To test Netflix’s seriousness, Sandler offered The Ridiculous 6. Sarandos immediately said he wanted the project to which all the major studios had given a pass. And when the star and his agents worried that if he made a movie with Netflix, studios would view him as the “enemy” and stop working with him, Sarandos signed Sandler to a four-picture deal, during which the streaming service would be the exclusive home for all his new comedies.
Perhaps best of all, after Sony had cut his fee on Pixels, Sandler’s paycheck at Netflix skyrocketed again, to nearly $20 million per movie. The difference this time is that there were no gross points, or profit sharing, as he had enjoyed in his heyday with Sony. It was one big check up front, and that was that. Because there would be no box office—Sandler’s Netflix movies aren’t released in theaters at all—or DVD sales, there was no money directly attributable to a movie to share. Sandler would make the same money, whether the film succeeded or failed.
Sandler’s first two movies for Netflix, 2015’s The Ridiculous 6 and 2016’s The Do-Over, in which he and David Spade fake their deaths, were like old times at Sony. Critics hated them, but the company that made them was thrilled. By April 2017, Netflix users had spent more than 500 million hours watching Adam Sandler movies. That same month, his third original film for the streaming service, the show-biz satire Sandy Wexler, debuted to less terrible reviews and Netflix signed Sandler to make another four pictures.
“The Sandler deal has been hugely successful,” Sarandos declared.
Adam Sandler wasn’t the only A-lister to find Netflix willing to embrace the mid-budget star vehicles that the major studios were abandoning. When Brad Pitt, another huge talent who once commanded $20 million for most anything he wanted to do, started shopping a satirical comedy about the U.S. war in Afghanistan, studios weren’t willing to offer much more than the planned $30 million production budget. The star, along with his producing partners and director, would have to take little money up front in exchange for a chunk of the profits, should they ever materialize.