by Jay Joseph ‘22

Netflix’s most popular series of all time, Squid Game, generated over 1.65 billion hours of viewership and about a billion dollars in revenue in the first 28 days after its release. However, Squid Game creator Hwang Dong-hyuk did not share in the astounding profits that came with the series’ record-setting popularity due to the rigid type of deal Netflix makes with its original show creators.

“I’m not that rich. But I do have enough. I have enough to put food on the table. And it’s not like Netflix is paying me a bonus,” Dong-hyuk explained. “Netflix paid me according to the original contract.”
Netflix follows the cost-plus model when it makes deals with its original show creators. The company offers to pay production costs plus a 30-percent premium. In contrast, traditional TV networks usually offer to pay creators 60-70 percent of production costs in their licensing deals. Since Netflix relies mainly on subscribers instead of advertisers for revenue, Netflix also allows shows more creative freedom with little interference, making the company’s deal difficult to turn down.

However, unlike traditional network licensing deals where creators maintain most of their rights to their show, Netflix’s contract is an ownership deal. Netflix will only pay creators according to the original contract, regardless of the show’s future popularity or revenue, leading the creators of hit shows to miss out on a lot of profit. Show creators also sign away their rights on most future revenue opportunities, including merchandise sales and advertisements on Netflix done through product placement. (Product placement, otherwise known as embedded marketing, is an advertising technique where a sponsor pays for its product to be featured on-screen.) Creators also give up the opportunity for their shows to go into syndication process in which series are leased to multiple TV stations.

In addition, Netflix also charges creators an imputed license. Netflix summarizes this cost as its price for distributing the show to its subscribers. This fee often offsets the 30-percent bonus offered by Netflix, causing creators to break even in the best cases or lose money in the first season of the series. Netflix also requires creators to pay actors and crew residuals each time a new episode airs.
However, Netflix maintains that creators lose less money than they would if they were to sign with a traditional TV network since most TV shows lose money in their first season.

Netflix does provide an additional bonus if the series reaches its second season, but this bonus is usually far less than what a traditional TV network would offer. Yet, for many series creators, the prospect of covering most of the production costs while having greater creative freedom is more appealing than taking a gamble on their show’s future popularity and risk losing far more money with a TV network.
Netflix has not formally announced that there will be a second season of Squid Game, but Dong-hyuk is confident that the production will happen due to the series’ worldwide acclaim.

“It’s possible,” Dong-hyuk joked, “that I have to do season two to become as rich as Squid Game’s winner.”