How are the cast and crew of Orange is the New Black making any money?

June 19, 2014 7:09 AM

How does an on-demand streaming site pay a cast and crew?

Orange is the New Black is exclusively on Netflix, so unlike YouTube, no advertisements. The subscription fee is not very high, and I assume that that's what was being used to run Netflix in the first place before it started having its own shows. So where is all the money coming from to fund them? Did Netflix have a bunch of extra money around from subscriptions that they could use to pay the cast and crews of two original shows (House of Cards as well)? They're hiking the price by $1, but I can't see that making enough money to pay all the people involved in these shows with gigantic casts. How does this work?

posted by Enchanting Grasshopper to Grab Bag (26 answers total)

DVD sales might also make them some money. Interesting question!
posted by chaiminda at 7:10 AM on June 19, 2014

Netflix had a revenue of US$4.37 billion in the last fiscal year.

Source: Their Form 10-K annual report.
posted by travelwithcats at 7:13 AM on June 19, 2014 [3 favorites]

According to this article, they have revenues of 1.2 billion.
posted by Marie Mon Dieu at 7:14 AM on June 19, 2014

It's more than just those two shows.

They make a lot of money from subscriptions around the US and internationally. It's important to ensure quality content on their service, otherwise those subscriptions will dry up.
posted by Magnakai at 7:14 AM on June 19, 2014 [1 favorite]

Netflix had revenues of $4.37 billion, not $1.2 billion (that latter number is probably its quarterly revenues).

But that revenue number doesn't tell you much about how the cast and crew of Orange is the New Black earn money. Presumably they are all members of SAG and whatever the crew's union is, and are paid accordingly.

Nonetheless, Netflix's revenues do suggest that it is well able to pay the salaries. Finally, it is entirely possible that its production is financed externally from Netflix, and that Netflix only licenses it, etc. Lots of ways this can play out; possibly Netflix's annual report gives details.
posted by dfriedman at 7:17 AM on June 19, 2014 [2 favorites]

It's been a long time since I saw season one. But it seems like there was a smidge of product placement going on in season two. So don't count out advertising dollars completely. I don't remember the specific examples but if you watch with that in mind you will definitely think why that brand of _________.
posted by aperture_priority at 7:24 AM on June 19, 2014 [2 favorites]

Since you mentioned the $1 increase:

"Gould said the company is approaching 50 million global subscribers, and a $1-2 price increase would raise $600 million to $1.2 billion."

Let me add: per month!
posted by travelwithcats at 7:27 AM on June 19, 2014

Netflix had revenues of $4.37 billion, not $1.2 billion (that latter number is probably its quarterly revenues).

Correct. I fail at reading comprehension. It is a quarterly figure.
posted by Marie Mon Dieu at 7:28 AM on June 19, 2014

Orange is the New Black appears to be produced by Lionsgate Television. House of Cards was produced by MRC. I don't know the details of either deal, but presumably Netflix payed Lionsgate and MRC for the rights to broadcast their show, exactly like any other cable channel would.

Money from DVD sales would presumably go to the production company, not to Netflix, although again I don't know the details of the deal.

Netflix has two basic costs: paying companies for streaming access to their products, and the hardware and labor involved in providing that streaming. In a sense, paying Lionsgate now to stream a television show isn't philosophically any different than paying them later (as they did with Mad Men, which was broadcast on AMC but then streamed on Netflix). It's likely that they're paying more for House of Cards or Orange is the New Black then for an already-distributed show like Mad Men, but they're paying either way.
posted by muddgirl at 7:29 AM on June 19, 2014 [2 favorites]

Netflix spends, very roughly, about $100 million on original programming and that number is going up to $200-300 million, maybe more. They spend similarly to a premium cable channel per show.
posted by michaelh at 7:31 AM on June 19, 2014

Best answer: The same question could be asked, "How does HBO produce original content if it doesn't have paid advertisers?" Netflix is operating just like most subscription-only cable services -- they get their money from subscribers rather than advertising, and it's been an effective model since the early 1980s.
posted by AzraelBrown at 7:33 AM on June 19, 2014 [11 favorites]

The cast and crew makes money because Netflix pays them.

Long game Netflix will also be licensing this content to other outlets. DVD sales and subsequent licensing means Netflix will make money back.
posted by cjorgensen at 7:35 AM on June 19, 2014

At some point, the cost to license a popular show is more than it costs to create a popular show, and Netflix is near that point.
posted by smackfu at 7:35 AM on June 19, 2014 [1 favorite]

Money from DVD sales would presumably go to the production company, not to Netflix, although again I don't know the details of the deal.

That would be how it generally works, and the production company would also be handling payroll. Netflix pays Lionsgate, Lionsgate pays the cast and crew.

Actually, it's probably more like: Netflix guarantees Lionsgate it will pay them, which is one of the advantages Netflix has with its full-season commitments rather than the network model of "let's see how many we let you make". Lionsgate gets financing from multiple sources just like any other tv/film. That financing pays the bills and payroll. Then Netflix writes Lionsgate a check, and Lionsgate pays its investors.

I suspect the other major revenue stream is international distribution. Now that the show's second season is complete, it will probably begin to appear on TV in other countries.

Here's a kind of dry article about financing in the digital age that doesn't explain a ton but kind of breaks down how it works.
posted by Lyn Never at 7:41 AM on June 19, 2014 [2 favorites]

Here's a column on the business model of Netflix's original content, along with a link to and discussion of a longer report.

"No one today is likely to subscribe to Netflix just on the grounds that they think they might like to watch Arrested Development at some point. But when there are dozens such shows — none of which are available anywhere else — that begins to add up. At that point, not only does Netflix provide something for everybody; it also becomes the only place to watch certain shows with cultural-touchstone status. And presto, the decision is no longer whether Netflix is worth the subscription price; rather, the question is whether you can afford not to have it."
posted by Mr.Know-it-some at 8:08 AM on June 19, 2014

Best answer: Netflix is operating just like most subscription-only cable services

Definitely, and they've been explicit about it to the media:

But to services like HBO and Netflix that are supported by subscriptions, and not advertisers, talk means buzz, and buzz draws new customers. That’s why Netflix is punching up, constantly comparing itself to a more established brand that for consumers represents high-quality programming. Ted Sarandos, Netflix’s chief content officer, put it plainly a year ago: “The goal is to become HBO faster than HBO can become us.”

posted by bcwinters at 8:09 AM on June 19, 2014 [3 favorites]

Not mentioned above is the fact that when Netflix streams content owned by others (movie studios, for example), they have to pay royalties to the owners. When they stream their own original content, they have an up-front cost but they pay no royalties. So there is actually a straightforward return on investment: the investment is the cost of production, the return is the royalty stream they can put in their own pocket instead of paying it out to others. Any additional benefit in terms of added subscriptions and loyalty is just gravy.

HBO moved into original content, as mentioned above, for the same reason. So did MTV — which was originally nothing but music videos on which they had to pay royalties, but now is mostly original content they produce themselves. Hulu is doing the same thing — it used to show only content from their network investors, but now they are doing original programming. I'm sure there are other examples. They all do it because of the ROI.
posted by beagle at 8:27 AM on June 19, 2014 [1 favorite]

travelwithcats: "Since you mentioned the $1 increase:

"Gould said the company is approaching 50 million global subscribers, and a $1-2 price increase would raise $600 million to $1.2 billion."

Let me add: per month!"

Er, you mean per year!. 50 million * $1 * 12 months = $600 million. 50 million * $2 * 12 = $1.2 Billion
posted by namewithoutwords at 8:31 AM on June 19, 2014 [3 favorites]

You're right namewithoutwords! Thanks!
posted by travelwithcats at 8:44 AM on June 19, 2014

Not only can Netflix afford to foot production costs for a few shows on its own, the product placement in House of Cards and Orange is the New Black is rampant. It's not just that everyone is using Apple electronics and Canon cameras--characters have actual conversations with each other about products and product features in the narrative of the show. The PS Vita in HoC, Dunkin Donuts, iPods, and The Fault in Our Stars in OitNB, for example. Neither Netflix nor the production companies will comment on whether they're getting any money for product placement, but it stretches credibility that they would have a character actually say something like, "I gotta get me one of them [a PS Vita] for the car" unless money is changing hands. Especially since this pronouncement follows a discussion of specific product features and names the product outright.
posted by xyzzy at 10:09 AM on June 19, 2014 [1 favorite]

Response by poster: Thanks! (I know nothing about HBO, so it didn't even occur to me that this is a pre-existing model.)
posted by Enchanting Grasshopper at 12:46 PM on June 19, 2014

This is a question with multiple answers.

Firstly, the crew. They get paid the same way anyone in any job gets paid. Show up to work, clock your hours (usually, in TV and film, via a time card you fill out), get paycheck. This happens long before a show like OITNB ever airs, and distribution model has nothing to do with it. If some catastrophe took place and the season was never aired for some reason, everybody who worked on it still got their money, because if you show up, you get paid, period. Generally in most legit productions, you get paid on Thursday for the prior week worked, so there's no option to defer or anything like that. (In some cases, such as for directors and writers, you may get one lump sum "fee" for each episode rather than paid for time worked. I think some writers sometimes get both, though? And it might depend whether you're also a producer? It's complicated.)

Secondly, the actors. There are two types of actor pay.

1. Just like the crew, you show up, you get paid. For some cast members, they may be paid even if they aren't needed for whatever reason. The pay rate and conditions depend somewhat on SAG bylaws, but there are also contractual negotiations handled by one's agent. At the end of the day, though, it's just like any other worker at any other job. Show up, do the work, get paid on Thursday along with everyone else.

2. Residuals*. This is where a digital series' distribution model has an impact on how much actors make. IIRC, SAG provides for residuals on digital transmission in addition to the old broadcast scheme. I'm not sure what the rates are like or how exactly they are calculated, but there is a plan in place, and you get residuals according to that plan. In my understanding residuals for a digital series are much, much lower than they are for a broadcast series. There are also all kinds of fees actors on broadcast series can potentially get upon re-broadcast that digital series casts don't get, for example there are special policies for re-runs, syndication, etc. which presumably a digital series wouldn't be party to. My guess is that the actors' agents take this into account when negotiating rates. Certainly it would be something that the agents of people like Kate Mulgrew, Laura Prepon, Pablo Schieber, etc would negotiate, since those actors could presumably be working on a broadcast series if they weren't tied up with OITNB.

*Some crew members also get residuals, but different guilds have different policies on digital transmissions. SAG is the only one I'm 100% positive DEFINITELY requires residual payments based on digital transmission. The DGA might, as well, in some cases? Not sure. The WGA definitely doesn't, as it was a condition of the 2008 writers' strike that never got resolved.
posted by Sara C. at 7:51 PM on June 19, 2014 [2 favorites]

Also, FWIW, HBO has absolutely nothing to do with pay rates for digital series, as they are a broadcast network. SAG has a totally separate contract type for pay cable as opposed to digital.

Residuals have absolutely nothing to do with Nielsen ratings, it should be mentioned, which is the major difference between pay cable, network, and digital.
posted by Sara C. at 7:52 PM on June 19, 2014 [1 favorite]

Aaaaaaaaand I realize I didn't at all answer where the money comes from.

It comes from the same place it comes from in all other media: the studio. In Netflix's case, yes, clearly their subscriber base is large enough to enable them to fund original series, since unlike some of the other streaming services* there is no other revenue stream. (And Netflix wouldn't be doing this if they didn't have the capital.) There might also be some outside investors, though it's unclear what their profit motive would be since, unlike feature films, there's no opportunity to make more money via distribution in other media/outside the US.

It is possible that outside investors ponied up the cash to jumpstart Netflix's ability to finance original projects, but, yes, ultimately the money is coming from subscriptions.

*Hulu seems to work really differently from Netflix, for instance a lot of their "original series" are actually broadcast series from other countries with rights negotiated just like any other legacy media.
posted by Sara C. at 8:04 PM on June 19, 2014 [1 favorite]

But it seems like there was a smidge of product placement going on in season two.

Nowadays, most "product placement" only covers the cost of the props. It's very rare that companies give the studio money over and above what it would cost to acquire the item in the first place. Every once in a while they'll kick in a deal for freebies for the crew (soda at craft service in the case of Coke, crew hoodies in the case of Carhartt, etc), but beyond that there really isn't a ton of money that comes from product placement. If we were talking Mad Men, where the show on the whole could be seen as an elaborate form of "branded media", that would be one thing. But for the occasional Snickers bar or pair of Nikes, no, it's really not much money at all.
posted by Sara C. at 8:09 PM on June 19, 2014 [1 favorite]

The PS Vita in HoC, Dunkin Donuts, iPods, and The Fault in Our Stars in OitNB, for example. Neither Netflix nor the production companies will comment on whether they're getting any money for product placement, but it stretches credibility that they would have a character actually say something like, "I gotta get me one of them [a PS Vita] for the car" unless money is changing hands.

Money pretty much as a rule does not change hands for verbal mention. Could be different on a show like Mad Men, where in a way the show itself is a giant commercial for certain very specific products. But in the case of OITNB or House Of Cards, almost certainly not.
posted by Sara C. at 8:12 PM on June 19, 2014 [1 favorite]