'The Office': Why NBCUniversal Is Paying $500M to Pull the Hit From Netflix

NBCUniversal — the parent company of producers Universal TV — won an auction for the library after outbidding Netflix in a $100 million-per-year pact.
NBC/Photofest
'The Office' will leave Netflix at the end of 2020.

Michael, Jim, Pam and the rest of the Dunder-Mifflin gang are on the move and they aren't the only popular television characters expected to decamp from Netflix for new streaming services over the next few years. 

NBCUniversal's June 25 announcement that it is pulling The Office from Netflix when that deal ends at the start of 2021 is the latest shot across the bow in the streaming wars, a signal that one-time TV hits are the new battlefield as the media giants fight to lure viewers to their direct-to-consumer offerings. 

Disney was the first to pull the trigger, revealing in 2017 that it would remove its movie library from Netflix as it began to put the pieces in place for Disney+. Others are expected to follow, including WarnerMedia, which after re-upping its deal with Netflix to keep Friends on the service for all of 2019, is likely to want the sitcom exclusively for its own soon-to-launch service. 

"NBCU's strategy was well-telegraphed so this should come as a surprise to no one," notes BTIG media analyst Richard Greenfield, alluding to the company's upfront presentation in May when sales chief Linda Yaccarino told a packed Radio City Music Hall that iconic characters like Jim and Pam would be "coming home." 

But the choice was not as simple as whether NBCU would continue to license the popular show, which aired on its broadcast network from 2005 to 2013, to Netflix or take it back for its still unnamed forthcoming service. Top brass at the company also had to weigh whether they were willing to forgo the millions of dollars that the show, winner of five Emmys, would fetch from third-party distributors. Per sources, NBC's streaming service, Netflix, Hulu, Amazon and likely Apple all at least took meetings to acquire the Steve Carell starrer. Producers Universal Television held an auction — which insiders say kept the studio at a distance from all buyers as it sought to get a fair price for profit participants (including creator Greg Daniels). Ultimately, NBCU's offer of $100 million per year — for five years — was deemed the winner, edging Netflix.

Still, major media organizations, as they work to assemble libraries that will woo potential subscribers, will need to weigh whether they want to hold back valuable library offerings or sell them to a third party. WarnerMedia, Disney and NBCU all own studios with vast libraries that will prove immensely valuable when they launch their direct-to-consumer offerings over the next year. Meanwhile, Apple will likely need to build a library from scratch if it wants to charge a fee for access to its slate of high-end original programming.

WarnerMedia already considered the options when its deal with Netflix for Friends expired at the end of last year. Ultimately, the two companies agreed on a one-year licensing deal worth between $80 million and $100 million. The new agreement gives WarnerMedia the option to continue to license the show to Netflix while also making it available on its stand-alone service, though chief content officer Kevin Reilly signaled in February that his company could eventually pull the show from Netflix entirely, noting "it's not a good model to share." 

Disney, meanwhile, has made clear that it doesn't plan to stay in business with Netflix given its own streaming ambitions. Now that the company has majority control of Hulu, that platform is likely to benefit from the pullback of Disney-owned ABC's programming from Netflix. 

Greenfield suggests that Universal TV should consider continuing to license to Netflix, especially given how long it might take before its parent company's streaming services build up a following. "Why not remain an arms dealer to Netflix and a growing array of streaming services versus entering the fray themselves," Greenfield asks. "The risk is reducing the visibility of The Office while having to pay the talent as if it were on a service like Netflix."  

In addition to determining the streaming future for Friends, Warners has to do the same for the 279-episode library of TV's longest-running multicamera comedy: Emmy-winning mega-hit The Big Bang Theory, which has never been available on a streaming platform like Netflix. Chuck Lorre's nerdy comedy starring Jim Parsons remains a monster hit in syndication (on Warners-owned TBS) after fetching an eye-popping record $1.5 million per-episode deal. That pact included a clause that it not be sold to a streamer.

The frenzy for library content is the latest way Netflix has disrupted the television industry. After launching as a DVD-by-mail company offering movie and TV library titles, Netflix drove up the competition — and cost — for programming. The streamer's multibillion-dollar spending sprees over the past few years have escalated the cost of everything ranging from scripted originals, actors, showrunner deals, stand-up specials, children's programming and feature films. Now, though, Netflix is beginning to lose the programming that launched it as the media giants who supplied that content (and profited from it) now look to compete with their own services.  

Still, Netflix has seen this day coming and has continued to spend billions on lucrative overall deals with some of the traditional studio system's biggest names, including Shonda Rhimes (Grey's Anatomy) and Ryan Murphy (American Crime Story, Glee). Netflix continues to battle Apple, Disney, Comcast and Warners for top talent, with the latter going to great lengths to re-sign prolific writer, producer and director J.J. Abrams in a deal that is estimated to be worth as much as $500 million.  

The demand for content has also reached a frenzy for well-known and proven titles as the upcoming wave of streaming services look for familiar properties to draw subscribers. Such is the reason why Amazon paid a whopping $250 million for global rights alone to produce what could be TV's most expensive series, ever: The Lord of the Rings. It's why Disney bought Marvel and Lucasfilm — and, more recently, Fox assets including its film and TV studio. As part of that deal, Disney announced that Disney+ would be the exclusive streaming home for more than 300 episodes of The Simpsons. That will join library content from iconic brands including Marvel, Star Wars and Pixar.

While Netflix may be saying farewell to The Office, its creator and star, Daniels and Carell, aren't going anywhere. Carell will return to TV series regular work — his first since The Office — in workplace comedy Space Force, which he created with Daniels. Sources say that deal, which sees Carell likely topping the $1 million per episode paydays that the stars of Big Bang previously scored, is a record for talent as he's also compensated for exec producing and creating the series. And Amazon, which also bid for The Office, has its own comedy from Daniels — Upload, starring Robbie Amell — in the works. Both of those comedies also help explain why NBC's long-rumored The Office reboot likely with a new cast — has not yet come to fruition.