Shonda Rhimes, other creators unhappy with Netflix’s new mid-video ads

Shonda Rhimes attends the 2018 Vanity Fair Oscar Party on March 4, 2018 in Beverly Hills, CA.

Ann Presley | Patrick McMullan | Getty Images

Shonda Rhimes, the powerhouse producer behind “Bridgerton” and “Inventing Anna,” is among a number of showrunners, creators and writers who have expressed displeasure with Netflixdecision to include mid-video ads in their content, according to people familiar with the matter.

Trevor Macy and Mike Flanagan of Rhimes and Intrepid Pictures are among a group of creators who have told Netflix executives they believe the ads are interrupting their storytelling, said the people, who asked not to be named because the discussions are private. Netflix has told creators it won’t share any revenue from advertising with them, the people said.

Netflix isn’t the first streamer to have an ad-supported tier. But he has used his previous opposition to ads as a marketing tool to help land deals with creators. Rhimes signed a multi-year deal with Netflix in 2021 to make content exclusively for the streaming service. When it signed the deal, Netflix had a firm policy not to include advertising in its programming, a long-standing principle of co-founder and co-CEO Reed Hastings. Rhimes and Netflix declined to comment.

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Netflix released a lower-priced ad-supported service in the US and other countries this week. Netflix decided to offer an ad-supported tier as revenue and subscriber growth coincided with the end of the global coronavirus pandemic. Netflix has approximately 223 million subscribers worldwide.

Netflix executives have told creators they thoughtfully placed midroll ads at times that make sense with each episode’s storyline, according to people familiar with the matter. They’ve also told creators they don’t expect many people to sign up for the basic ad tier compared to subscribers who will pay for no ads, the people said.

“We basically use our internal content tagging teams to find those natural breakpoints so we can deliver the ad at the least intrusive point,” Netflix chief executive Greg Peters said in October.

Still, several creators have not been pleased with the explanations. Intrepid Pictures makes horror movies and series for Netflix. These are particularly bad fits for ad inserts because they kill building tension. One 50-minute episode of Intrepid’s “The Haunting of Hill House” consists of five long takes, one shot.

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That episode, the series’ sixth (“Two Storms”), is now interrupted by three minute-long commercial breaks, each containing three commercials, in the $6.99 tier. One of the main reasons Intrepid signed an exclusive overall deal with Netflix in 2019 was the streamer’s complete avoidance of advertising, according to people familiar with the company’s thinking. An Intrepid spokesman declined to comment.

No revenue share

Not all creators are upset with Netflix. Ryan Murphy, who signed $300 million with Netflix in 2018, creates the episodes of his series in three acts, resulting in easy placement of advertisements, according to a person familiar with his work. Scott Frank, co-creator of “The Queen’s Gambit,” also hasn’t complained, according to a person familiar with his thinking.

The Directors Guild of America and the Writers Guild of America declined to comment for this story.

Splitting revenue from advertising, especially ads that interrupt the flow of storytelling, could be a way to crack down on irate creators who feel like Netflix changed the rules mid-game. But Netflix won’t do that, according to people familiar with the matter. Netflix owns its original programming and can insert ads where and when it wants, giving creators little leverage other than voicing complaints.

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Still, other media and entertainment companies have avoided publishing intrusive ads or agreed to revenue sharing in some cases. Discover Warner BrosHBO Max decided not to include mid-roll ads in HBO programs in order to address the issue of interruptions to popular programs. When HBO has sold shows to linear cable networks in syndication, such as when “The Sopranos” aired on A&E, creators have been able to participate in revenue sharing, according to a person familiar with the matter. An HBO spokeswoman declined to comment.

Some creators who have made content exclusively for Disney+ also have rights to participate in ad revenue sharing, depending on contractual language, according to a person familiar with Disney‘ policies. But unlike Netflix, Disney owns linear cable networks that could eventually air Disney+ programming with commercials. A Disney spokesman declined to comment.

– CNBC’s Sarah Whitten contributed to this article.

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