on with kara swisher

Barry Diller Thinks Netflix Started All This

The media mogul speaks with Kara Swisher about how to escape the Hollywood shutdown.

Photo-Illustration: Intelligencer. Photo: Jamel Toppin
Photo-Illustration: Intelligencer. Photo: Jamel Toppin

Recent developments — or lack thereof — in Hollywood’s near-total shutdown have not been encouraging. The writers’ strike reached the 100-day mark over Labor Day weekend, and neither side looks willing to concede on core positions. Talent represented by the Writers Guild of America wants protections against AI encroachment and an increase in residuals after streaming services gutted that source of income. Meanwhile, there’s been seemingly little movement in the Screen Actors Guild, which began in July. Actors want better pay and benefits updated for the unpredictable age of streaming. Management, represented by the Alliance of Motion Picture and Television Producers, is looking for as big of a slice of the pie as it can get.

With a deadlock already costing billions, Barry Diller has a few ideas about how to move forward. Diller, a former studio executive and the founder of the Fox and USA channels, thinks that major actors and executives could take a major salary cut; that, combined with some technical maneuvers from the studios, could draw both sides out of the foxholes. Diller, now the chairman of the digital-media enterprise IAC and the travel company Expedia Group, joined the latest episode of On With Kara Swisher, recorded in late August, to talk about the strike and whether or not Netflix — whose business model helped set the strike in motion — is an “evil genius.”

On With Kara Swisher

Journalist Kara Swisher brings the news and newsmakers to you twice a week, on Mondays and Thursdays.

Kara Swisher: You’ve been very outspoken on the current plight of the industry, which is unsurprising since you were chairman of Paramount Pictures, and founded the Fox Broadcasting Corporation. You said if the SAG strike doesn’t get resolved by September 1, it could potentially “produce an absolute collapse of the entire industry.” We’re recording this on August 25. Is that hyperbolic, or do you think the industry will actually collapse?

Barry Diller: Once you go past September and every month you go past that, it picks up geometric speed towards the end of the year. The result of that is inescapable to me, which means that production having been paused for that amount of time comes spring, summer of 2024 when there is not a lot of fresh stuff to see — which will have an effect on subscription revenue via subscription cancellations.

Netflix will survive. But the old majors will have to gear up to make new programming to “get back subscribers” — and they won’t have the revenue base to be able to produce. So that is kind of catastrophic. Now, there’s an evil genius of Netflix that is almost incomprehensible to understand, which is that Netflix obviously started all this. Netflix spent so much. Netflix induced — I would say to some degree seduced — all these companies to go into streaming to lose huge amounts of money to try and build a competitive streaming service.

Swisher: Which consumers like.

Diller: At the same time, instead of being arms dealers to everyone, they only fed their own streaming services. So they basically got out of all their businesses. They degraded their investment in cable because of the effect of Netflix on cable. They degraded their investment in their broadcasting arms. Three majors own three broadcast networks, and by that process, you’d think, “My God, what a genius scenario from the very beginning that the result of all of this is a giant weakening of the historic forces of those that had the majority of production worldwide.” It’s an unbelievable scenario.

Then to cap it all off, they’re the architects of a strike and they’re in the same room with the people they have killed who were trying to get out of this in some way. The strike does one thing and one thing only, in the end because the strike will get settled. What does it do? It strengthens.

Swisher: I keep telling them that.

Diller: It strengthens Netflix and weakens the others. Now, what kind of genius do you have to be to pull that off in a fairly straight line over the last ten years? That’s quite remarkable.

Swisher: Let me just say, you’ve been a fan of Netflix for a long time.

Diller: I have said for five years, seven years, Netflix won. Get over it.
Doesn’t mean you shouldn’t compete, but don’t try and compete with the same kind of production investments that they have. You’ll just bleed yourself dry. So I’ve been very consistent. They won. Figure out other alternatives to compete.

Swisher: Are there?

Diller: I absolutely believe that the major studios having joined streaming in extreme, not just like, “Oh, let’s start a streaming service …” Interestingly, two of those studios had perfectly good streaming services to come, meaning the streaming service called HBO and Showtime. That existed. There was no destruction by Netflix in either, right? So you could have said, “Leave them the fuck alone.”

Swisher: Why did they not leave them the fuck alone?

Diller: I’m not running one of those studios. But to reverse strategy is too strong. They ought to reorient themselves and say, “We each own a great television network, fully distributed in every household in the United States. Let’s not treat it as some yesterday’s sliver. Let’s go compete. Let’s take some of our shows.” Look, it is the end of the business of hits. Let’s take some of our shows and our creativity and build our networks back up. It’s there for the take. Let’s go take everything else we do and invigorate it again with capital allocation that fits the suit.

Swisher: Build linear cable back up. I like this.

Diller: Let’s sell our stuff to Warner. Warner Brothers was the biggest arms producer in the entire entertainment world — meaning it sold. Produced by itself with its capital, it produced television shows for every media, for every network. They had shows on all three networks and their own network. They sold in various strands of syndication, et cetera, all over the world. It used to be you own it forever and you never distribute it in other media. The entertainment business, the residual revenues from Friends, from any one of your endless hit shows, that went through all forms of syndication. Go back to that. It’s a good sound business, and you’ll get back your sovereignty.

Swisher: But this geometric speed, you can say you think if they don’t do something quick, they’re fucked, essentially, because of programming, scheduling, and pipeline, etc.

Diller: Well, I think one fundamental thing is they should certainly get out of the room with their deepest fiercest and almost conclusive enemy, Netflix, and probably with Apple and Amazon. Because Netflix is in one business and they are the rulers of the business they’re in. The other two, Apple and Amazon Prime, are in completely different businesses. And Amazon Prime is in completely different businesses that have no business model relative to production of movies and television. It’s just something they do to support their Prime or something.

Swisher: Sell toilet paper.

Diller: I just don’t think they belong in the same room as producers. I think producers ought to go and say, “We’re on our own. We’re going to negotiate with you directly. We are your savior. Historically, we’ve been in business together for literally a hundred years. We are your natural allies, not your enemies.”

Swisher: You’ve also suggested that your friends, these top-paid Hollywood executives, that they and top-paid actors take a 25 percent pay cut.

Diller: The point I was making is that the top 20 actors make more, by a lot, than the top 20 CEOs. I’m never one to say people are paid too much for anything, but when you’re in the kind of existential problem of this strike, maybe it’s a good thing for both big-time senior, huge-payout people — both actors and executives — to show a little stuff to the majority of their fellow people. I just thought, It’s a nice little olive branch. It took off in ways that I didn’t really contemplate. Not that my words have any meaning whatsoever.

Swisher: Well, you look like a communist, Barry Diller. But you’re saying redistribute preemptively.

Diller: Yes, yes, yes, yes.

Swisher: A couple more things. One big win is the WGA strike has gotten studios to give writers confidential quarterly reports that include total subscription video on demand view hours per title. That was a bit of “holy cow” proprietary information they’d never share, especially Netflix, by the way. Will that be enough to build back residuals?

Diller: Here’s the genius again — the genius of Netflix. Netflix from the first hour of the first day says, “We’re not telling anyone anything. There is no transparency. One person could be watching our stuff, a billion people. We’re never telling you.”

Why did they do that? Again, this is a historical business in the vernacular of putting asses in seats. When someone came in the movie business to see your movie, that individual admission price was notched up. You knew that this movie absolutely sold that many seats. You knew the same thing with the absolute transparency — whether you believed it or not — of Nielsen ratings, et cetera. They’re all transparent. Netflix comes along and says, “No transparency of any kind.” Why did they say that? Because they thought to themselves, “First of all, we’re a subscription service.” We don’t want anyone to know whether this is a more successful thing than that because then we’ll have to pay for it. It was a form of genius.

Now, subsequent to that, of course, they have let little windows in. But the second part of that first statement was, “By the way, we’re buying out all the rights. You don’t have a participation.” No participation and no transparency subverts the very base of what the entertainment business is about. You make something, you put it out there, and to the degree that people show up to your individual little thing — not your subscription, but your individual little project — that’s how you get paid. They took that away.

Swisher: Can it come back?

Diller: Of course it can.

Swisher: I’m going to ask you, are you buying Netflix stock right now? Are you thinking they’re evil geniuses?

Diller: Listen, let me be really clear. They are not evil geniuses. It’s an inappropriate term for really smart people going about their business with a single-handed conviction, courage, consistency, smarts on every level.

This interview has been edited for length and clarity.

On With Kara Swisher is produced by Nayeema Raza, Blakeney Schick, Cristian Castro Rossel, and Megan Burney, with mixing by Fernando Arruda, engineering by Christopher Shurtleff, and theme music by Trackademics. New episodes will drop every Monday and Thursday. Follow the show on Apple PodcastsSpotify, or wherever you get your podcasts.

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Barry Diller Thinks Netflix Started All This