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, California.

Presley Ann | Patrick McMullan | Getty Images

Shonda Rhimes, a powerhouse producer behind “Bridgerton” and “Inventing Anna,” is among a number of showrunners, creators and writers who have expressed displeasure with NetflixIt decided to include ads in between its 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 told Netflix executives they felt the ads were interfering with their storytelling, said the people, who spoke on condition of anonymity because the discussions are private. Netflix told the creators it would not share advertising revenue with them, the people said.

Netflix isn’t the first streamer to have an ad-supported tier. But he used his earlier aversion to ads as a marketing tool to help close deals with creators. Rhimes signed a multi-year deal with Netflix in 2021 to exclusively produce content for the streaming service. When it struck the deal, Netflix had a firm policy of not including advertising in its programming, a longstanding principle of co-founder and co-CEO Reed Hastings. Both Rhimes and Netflix declined to comment.

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Netflix this week rolled out a lower-cost, ad-supported service in the US and other countries. Netflix decided to offer the ad-supported tier as revenue and subscriber growth stalled, coinciding with the end of the global coronavirus pandemic. Netflix has approximately 223 million subscribers worldwide.

Netflix executives have told creators to thoughtfully place in-stream advertising at intervals that make sense for each episode’s story, according to people familiar with the matter. Creators have also been told they don’t expect many people to sign up for the basic advertising tier compared to subscribers who won’t pay for commercials, the people said.

“We primarily use our internal content tagging teams to find these natural breakpoints so we can show the ad at the least disruptive point,” Netflix chief operating officer Greg Peters said in October.

Nevertheless, many creators were not satisfied with the explanations. Intrepid Pictures makes horror movies and series for Netflix. These are especially bad for ad insertion because they kill the tension. One 50-minute episode of Intrepid’s “The Haunting of Hill House” consists of five long takes of one take.

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This episode, the sixth in the series (“Two Storms”), is now punctuated by three one-minute commercial breaks consisting of three ads each, in the $6.99 bracket. One of the main reasons Intrepid signed an exclusive blanket deal with Netflix in 2019 was because the streamer avoided advertising altogether, according to people familiar with the company’s thinking. A spokesman for Intrepid declined to comment.

No revenue sharing

Not all creators are mad about Netflix. Ryan Murphy, who signed a $300 million deal with Netflix in 2018, crafts episodes of his series in three acts, which makes for easy ad placement, according to a person familiar with his work. Scott Frank, co-creator of “Queen’s Gambit,” also wasn’t complaining, according to a person familiar with his thinking.

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

Sharing revenue from advertising, especially commercials that interrupt the flow of storytelling, could be a way to appease irritated creators who feel 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 either sidestepped the issue of interruptive ads or agreed to share revenue in some cases. Warner Bros DiscoveryHBO Max has decided not to include in-stream advertising in HBO programming to avoid the issue of premium programming being interrupted. When HBO sold shows to linear cable networks in syndication, such as when “The Sopranos” aired on A&E, the creators were able to share in the revenue, according to a person familiar with the matter. A spokesperson for HBO declined to comment.

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

– CNBC Sarah Whitten contributed to this article.

WATCH: Netflix launches ad-based subscription plan

Netflix launches ad-based subscription plan

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