Ted Sarandos, the Netflix chief content officer who threatened to pull the company’s business out of Georgia if their new abortion law takes effect, is an Obama bundler whose generous fundraising for the 44th president bought his wife an ambassadorship. If the troubled company were to follow through on the threat, it stands to lose tens of millions in tax incentives offered by the state, which the company can ill-afford to leave on the table.
“Given the legislation has not yet been implemented, we’ll continue to film there, while also supporting partners and artists who choose not to,” Sarandos said in a statement. “Should it ever come into effect, we’d rethink our entire investment in Georgia.”
Sarandos’ wife was appointed ambassador to the Bahamas in 2009 and resigned in November 2011. An inspector general’s report said her tenure was marked by “an extended period of dysfunctional leadership and mismanagement, which has caused problems throughout the embassy.” She was absent from her post an average of 12 days per month, according to the IG report.
The close relationship of the Sarandos family and the Obamas was likely decisive in the former president’s production company deciding to work with Netflix to release a series of documentaries, as reported by the Associated Press last month. (RELATED: Netflix’s New ‘The Society’ Is A Fascinating Look At Anarchy)
Netflix has a cash flow problem, due to the low price of subscriptions and the high cost of producing the original content that has put the company on the map as a producer, not just a distributor, of video content. In an attempt to head off the problem, they announced in January that they were raising the price of a basic subscription by two dollars, in response to several months of slow revenue growth. To say the least, the company is not in a position to be turning down lucrative tax incentives.
Sarandos, as head of content at the company, has also been pushing original material. According to CNBC the company intends to spend $10 billion on original content in 2019. To finance expensive production, Netflix went to the debt markets for the second time in six months this April, planning to issue $2 billion in bonds. The company’s debt-to-equity ratio has risen considerably in the last two years, making some investors nervous. It’s hard to see how doubling down on wokeness is going to improve that situation.
Pulling out of Georgia in a bid for pro-choice respectability could do real damage to Netflix’s business model, which is already being squeezed in a few different directions. Disney plans to launch its own streaming service in November, which will compete directly with Netflix, and has pulled its content from the platform. AT&T/Time Warner is expected to launch a streaming service soon as well, which would mean their content could be pulled from the service as well. These looming threats mean Netflix has to continue adding members, and producing original content, or risk losing market share to its more established rivals.
Some of Netflix’s original content has already been produced in Georgia, such as the hit “Stranger Things.” Atlanta has rapidly become the Hollywood of the South since the introduction of substantial public incentives for production that were introduced in 2002. Chief among these is a tax credit worth 20 percent of the production cost, that can be upped to 30 percent with the approval of Georgia Entertainment Promotion.
Stranger Things’ first season, coming in at eight episodes that cost $6 million a piece, according to Variety, the tax credit, at the lower level, would be worth $9.6 million, assuming the whole production cost was eligible for the tax credit. Season two, which cost $8 million an episode for nine episodes, would have been eligible for $14.4 million in tax credits.
Between public subsidies and relatively low labor costs, Georgia is an economical place to produce a film compared to California. Blockbuster shows like “The Walking Dead” have been produced there. And for a disruptive company whose business model is quite different from the major studios, it seems as if the company needs Georgia more than Georgia needs Netflix. (RELATED: Netflix Gets 9.6 Million New Subscribers, 2019 First Quarter Revenue Hits $4.5 Billion)
The rise of Georgia’s film industry is not unlike that of Los Angeles in the early 20th century. Back then, aspiring producers chose Southern California, an open shop town, over unionized San Francisco. Low labor costs in Georgia offer a similar advantage, and there is also a significant amount of filmmaking infrastructure already in place.
“Taking a planned feature out of Georgia might mean adding many millions to the budget” writes Kyle Smith at NRO. “A few million in budget is sometimes the difference between a movie getting made, or not.”
If the Georgia abortion law is blocked by the courts from going into effect, the company may earn credit with Hollywood and the left for taking a stand, without even having to do anything. But if the law is allowed to go into effect, the company will have a tough decision to make: forego Georgia’s favorable economic climate for shooting films, or break its promise to abortion advocates.