ByRicky Derisz, writer at Creators.co
Staff Writer at MP. "Holy cow, Rick! I didn't know hanging out with you was making me smarter!"
Ricky Derisz

Over recent years, Netflix has started to take over the world. Five years ago, the streaming service had just over 20 million subscribers. As of October 2016, there are around 86 million people Netflix and chillin' on a regular basis, helping make the company one of the biggest players in the entertainment industry.

The bubble of easy-access entertainment is a fun place to be, and Netflix have been rewarded nicely for their canny ability to tap into the evolving market, identifying the changing way film and TV is digested with pinpoint precision. With exponential growth and a big enough impact to influence worldwide lexicon, it looks like the website will only continue to increase in size.

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Or will it? While the bubble isn't quite set to burst, a significant lawsuit is underway which could have a serious impact on the company's cash flow. Following ongoing disagreements and court room squabbles, movie studio Relativity Media are suing Netflix for an eye-watering $1.5 billion for breach of contract and libel.

Relativity Media: The Reason Behind Netflix's Success?

Shows like 'House of Cards' help put Netflix on the map [Credit: Netflix]
Shows like 'House of Cards' help put Netflix on the map [Credit: Netflix]

The move won't be a complete surprise for Netflix's legal team. The two companies have been working together since 2010, when a deal was reached for Relativity Media to provide content to for Netflix to stream. According to the legal filing reported by The Wrap, Relativity — owned by Hollywood charmer Ryan Kavanaugh — believe they were responsible for the sites sharp rise in popularity.

The documents, lodged at Santa Clara Superior Court, claim that when the deal was issued, Relativity were the "third largest mini-major studio" while Netflix were a "non-entity" who were a "fledgling DVD mail order company." Relativity claim that Netflix ruthlessly used them to gain kudos in the glitz and glamor of Hollywood, before turning on them years later.

As part of the deal, Netflix were understood to pay the studio between $100 million and $300 million each year, as well as guaranteeing them a minimum of $3.7 million per film, with top-end profits as high as $20 million. Relativity's claim that they helped shaped the company isn't completely unfounded; from 2010 to 2013, 85% of Netflix's new films were from the studio.

Netflix Stopped By The Courts

However, as Netflix continued to grow into the juggernaut it is today, Relativity became reliant on their income to function. Three years into the deal, Netflix tried to renegotiate terms, and following Relativity's recent bankruptcy, attempted to get out of the contract all together.

The cause of angst and foundation for the case derives from the company's means to escape the contract. While claiming Relativity couldn't fulfil their end of the deal due to financial constraints, Netflix also attempted to debut two of their big releases this yearMasterminds and The Disappointments Room — before theatrical release. Ultimately, courts prevented them from doing so, as well as rejecting an appeal on the basis that it would financially undermine Relativity's strategy.

Furthermore, Relativity are claiming this strategy was a deliberate ploy to damage the company, while Netflix also resorted to an "aggressive public smear campaign," criticizing the studios business strategy and making false representations of their agreement in the media. In response, a spokesperson for Netflix highlighted the corporations nonchalance toward the claims by telling The Wrap that they "find this lawsuit baseless and ironic."

No Flix And Less Chill

The big question is, should Relativity be successful in the $1.5 billion lawsuit, will this be the end of Netflix and chill as we know it? The service's high number of subscribers make it a hugely lucrative company, with revenue from 2015 coming in at $6.77 billion. But you have to spend money to make money, and in 2016 alone, Netflix pumped an astronomical $5 billion into original content.

'Sense8' could cost up to $100 million per season [Credit: Netflix]
'Sense8' could cost up to $100 million per season [Credit: Netflix]

Even so, an unexpected financial earthquake of $1.5 billion would have a significant impact, equating to around 30% of their yearly investment in programming. Netflix pride themselves on high quality content, and have the budget to back it up; series such as House of Cards cost around $4.5 million per episode. Narcos $25 million per season. Daredevil $40 million per season. Sense8 is rumored to be at the blockbuster level of over $100 million per season.

Although the budgets are large, for $1.5 billion you could essentially combine all of Netflix's critically acclaimed TV series and feature films. There's no doubt a financial black hole of such size would have an impact on the amount the company invest, but whether or not that results in series cancellations or a lack of new shows remains to be seen.

Looking To The Future

In terms of the future, if you look close enough, the courtroom battle has thrown up some interesting challenges. One of Netflix's big future strategies includes streaming certain films at the same time as their theatrical release. The courts actively rebuked their attempts to do this for Relativity releases — albeit due in part to the manner in which it was attempted.

However, the court case highlighted the singular importance this format has, appearing to benefit Netflix themselves, but damaging the cinema experience. For example, Beasts of No Nation (2015) had a domestic gross over under $100,000 from a $6 million budget. Attempting to implement this format widely could be much more difficult than the transition from physical media to streaming.

All in all, Netflix users probably won't witness a significant impact in the near future. But the case does illustrate that, as it continues to makes steps towards global dominance, there will be plenty of speed-bumps along the way.

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(Source: The Wrap, The Hollywood Reporter, The Richest)