Feeling the Churn: Why Netflix Cancels Shows After A Couple Of Seasons & Why They Can’t Move To New Homes

For decades, the success of a TV series had been measured by its longevity. The standard series regular contracts are for six years, which has been considered a threshold for a show to be deemed reasonably successful. Netflix may be rewriting the rulebook with a business model that involves shows often running for two to three seasons.

The Internet network also is assuring its series will remain Netflix exclusives even after their cancellation, with a moratorium allegedly built into deals that prevents axed shows from moving to a new home. That is despite the streamer readily taking in series canceled elsewhere, like Lucifer and Designated Survivor.

Netflix on Thursday announced it would not proceed with a fourth season of its lauded comedy series One Day at a Time. Producing studio Sony Pictures TV quickly started shopping it, and I hear there was an inquiry from CBS Corp’s CBS All Access platform, but the show’s Netflix deal would not allow for the comedy to move to another streaming platform.

Netflix also recently canceled all of its Marvel series after two or three seasons. They all had developed solid followings and drawn sizable viewership, so there was speculation when they were canceled they could migrate to Disney’s upcoming streaming platform Disney+, which will feature a lot of Marvel-branded original content. Disney and Marvel TV executives likely would’ve liked to do that, but again their Netflix contract did not allow them to.

I hear there is a standard clause in the deals for Netflix series from outside studios that prevents the shows from airing elsewhere for a significant period of time, said to be 2-3 years, making a continuation on another network/platform virtually impossible. That is probably why we haven’t seen CBS TV Studios’ comedy American Vandal — a breakout hit for Netflix when it launched but canceled in October after two seasons — move to CBS All Access.

I hear the moratorium on OTAAT is a bit less restrictive than others — a couple of years for SVOD but just a few months for network — which would allow the Latinx family comedy to pursue a fourth season on a broadcast network, for example. (For more on that, read our story.)

In addition to One Day at a Time, also canceled after three seasons at Netflix were Love, Bloodline and Hemlock Grove, with a slew of shows canceled after two. Besides Netflix’s legacy series House of Cards and Orange Is the New Black, the first two originals that put the streamer on the map and generated awards buzz throughout their six-season runs, there is only one live-action series that has lasted that long: comedy Grace and Frankie. In addition to also being an awards-attention magnet for its stars Jane Fonda and Lily Tomlin, the series comes from Friends co-creator Marta Kauffman, whose presence at Netflix is believed to have helped the streaming platform secure and maintain the sought-after SVOD rights to Friends, one of the most prized off-network assets available.

The Crown was bought by Netflix as a six-season series chronicling the life of Queen Elizabeth II. Outside of that, out of dozens of original live-action scripted series launched, only three have gone beyond three seasons. One is the reliable awards contender Unbreakable Kimmy Schmidt, which ran for four seasons, earning a slew of major nominations. The two others are multi-camera comedies done under a different business model — Fuller House, which will end after five seasons, and The Ranch, which has been renewed for a fourth season. (Hit drama Narcos was wrapped after three seasons and succeeded by a new series, Marcos: Mexico.)

I hear at least some of the cancellations on the list were prompted in part because the shows were deemed to have gotten too expensive. That is because of how many of Netflix’s series deals are structured. It is widely known that Netflix employs a “cost-plus” model, offering to pay upfront a show’s production costs plus a premium of 30%+ of the costs. Even after Netflix subtracts a distribution fee, outside studios are at break-even or in a positive territory from Day 1, versus having to deficit finance series for the first few seasons on most traditional networks. But in exchange for the upfront payments, outside studios give up the potential upside that normally comes up with owning a long-running successful series, including off-network and international sales.

Instead, Netflix’s deals include bump/bonuses after each season that are getting progressively bigger. White the payments are relatively modest after Season 1 and a little bigger after Season 2, I hear they escalate after Season 3, especially for series owned by Netflix — sometimes from hundreds of thousands to millions of dollars — as the studio starts to pay off the shows’ back-end. For series from outside studios, which I hear cost about 20% more than their Netflix-produced counterparts, I hear the built-in payment increases do not skyrocket as much but still are bigger after Season 3, Season 4 and beyond.

Netflix has been relatively patient, picking up a significant portion of its freshman series for a second season, giving them time to find their legs. But as the shows’ prices start going up, the network tightens its renewal criteria.

“It’s a combination of things, when we’re investing, we decide how much to invest based on the audience that will show up,” Netflix’s head of original content Cindy Holland said of the streamer’s cancellation decisions at the INTV conference in Israel last week. “If the audience doesn’t show up, we think about the reason to continue to invest in something that doesn’t do as well as we had hope. Obviously critical acclaim is important too, but we’re really about trying to stretch our investment dollars as far as we can and make good on our investors’ money – it’s theirs, not ours.”

For the most popular shows, like blockbuster hit Stranger Things, renewals are a no-brainer as each new season is an event, driving viewership and subscriptions. (Being owned by Netflix, Stranger Things also is a money maker for the company with auxiliary revenue streams such as theme park attractions and merchandising, including Halloween costumes.)

But for everyone else, there is intense scrutiny. Netflix is unabashedly data driven, with many of its decisions based on algorithms. That’s how the network reportedly switched from the initial (and traditional) 13-episode seasons to seasons of 10 episodes or less. Word is that those shorter seasons are considered optimal for consumption, and any additional episodes beyond 10 a season do not add value, so they are an unnecessary expense for the network.

The same goes for the number of seasons. If a show has not broken out in a big way during its first couple of seasons, there has been chatter Netflix does not see significant growth potential beyond Season 3 (and sometimes beyond Season 2).

As for acclaim, I hear anecdotally that strong critics reviews, which One Day at a Time has in spades, could get a show a second-season renewal at Netflix (but rarely a third). Beyond that, only major awards recognition counts as awards — along with strong worth of mouth/curiosity — are thought to help drive subscriptions. Despite its acclaim, One Day at a Time, maybe hindered by its multi-camera format, has not been able to land big nominations.

I hear One Day at a Time came close to cancellation last year when the show’s producers and talent rallied fans in a spirited renew-the-show campaign. Netflix ultimately gave it a reprieve, but it came with a warning. Despite the fact that One Day At a Time’s viewership had reportedly grown between Season 1 and 2 and Seasons 2 and 3, word is Netflix brass claimed its numbers still were not where the network wanted them to be.

I hear that, according to Netflix’s data, beyond Season 2-3, middle-of-the road series — even those with loyal fan base like One Day at a Time — would not generate significant new signups.

But new shiny things will. Netflix’s strategy to grow subscription base is focused on introducing new series all the time, sometimes multiple ones each weekend. According to industry observers, fans of some of the canceled series would be disappointed by their demise but not upset enough to drop Netflix as there is new product coming out all the time that catches their attention.

“At the core of their business is churn,” one industry insider said, noting that there are always subscribers who drop Netflix after a free trial period or a month or two later, and the goal is to get more people to sign up, which comes mostly thanks to hot new series everyone is talking about.

As an asset, having 30 episodes of a series (three seasons) is considered enough to satisfy viewers discovering the show. Tacking on more episodes does not add significant value, I hear. “A show doesn’t serve a purpose (anymore),” an observer said. “There is no reason for the network to continue to invest in it.”

That is why so many Netflix series are being outright canceled versus the streamer employing the oldest trick in every network’s bag: trying to renegotiate the terms of its deals. I have heard of instances when Netflix has sought reduction of previously agreed upon fees and bonuses based on a series’ performance. For example, there was some back-and-forth between Netflix and Marvel TV, including the network requesting a season-order trim from 13 to 10 episodes, before the streaming giant pulled the plug on all Marvel series that it had picked up years ago at a very high price. (There were creative issues on some shows as well.) The first Marvel series were a big draw as they were among the handful of original series on the service. Two, three seasons in, the shows didn’t get the same attention because of the huge volume of new product. Netflix has built an adequate Marvel library, which will live on the service, while the Internet company cut a major expense by canceling the superhero series to invest in new fare.

Additionally, like traditional networks in the era of vertical integration, Netflix has been ramping up in-house production, redirecting funds from outside productions to in-house series — including shows from its roster of A-list talent under rich overall deals such as Shonda Rhimes, Ryan Murphy, Kenya Barris and Shawn Levy — and thus avoiding the cost-plus surcharge it has to pay to shows from other studios.

The shorter runs are something spreading to other platforms, where shows also are ending relatively quickly. Amazon recently announced the upcoming fourth season of its flagship drama Man In the High Castle will be its last. Only one original series on Amazon or Hulu, Amazon’s Transparent, which put that service on the map, has gone beyond four seasons, with the majority of shows canceled after two or three seasons. Industry observers see the trend also carrying over to premium networks, which now have a dual play as linear and SVOD outlets.

“Fifty is the new 100,” an industry insider said, referring to the traditional milestone of 100 episodes that used to kick off a financial windfall for studios and profit participants from syndication and other off-network sales. It is now considered unattainable, especially on digital platforms, with 50 episodes pretty much the most you can get there.

Added another source, “they are proving that they are not in the back-end business.”

The Crown was bought by Netflix as a six-season series chronicling the life of Queen Elizabeth II. Outside of that, out of dozens of original live-action scripted series launched, only three have gone beyond three seasons. One is the reliable awards contender Unbreakable Kimmy Schmidt, which ran for four seasons, earning a slew of major nominations. The two others are multi-camera comedies done under a different business model — Fuller House, which will end after five seasons, and The Ranch, which has been renewed for a fourth season. (Hit drama Narcos was wrapped after three seasons and succeeded by a new series, Marcos: Mexico.)

I hear there is a standard clause in the deals for Netflix series from outside studios that prevents the shows from airing elsewhere for a significant period of time, said to be 2-3 years, making a continuation on another network/platform virtually impossible.