Wednesday 23 May 2018

A real Netflix original: TV's most important player now has Ireland in his plans

The streaming giant's chief, Reed Hastings, is now the TV world's most important player. Ireland is in his plans, he tells Adrian Weckler

Reed Hastings. Photo: Getty Images
Reed Hastings. Photo: Getty Images
Adrian Weckler

Adrian Weckler

Who is the most important executive in television and movies? Disney chief executive Bob Iger? Fox mogul Rupert Murdoch? Some powerful actor like Tom Cruise? Not according to Wall Street. To financial power brokers, the current master of the TV universe is Reed Hastings, co-founder and chief executive of Netflix.

And not without reason.

Last week, the streaming giant closed in on becoming the world's most valuable media company, worth some €120bn. That's almost equal to Disney and NBC Universal, and twice as big as both Fox and Time Warner, the studio that owns Game Of Thrones maker HBO. And it has happened in five short years - a very short time in the movie business. Netflix's scale means that it is now looking at much bigger companies - Google, Apple and Amazon - as its real competition.

But as Hastings talks about his company's bid for global domination in his first sit-down interview with the Sunday Independent, it's clear that the 57-year-old Bostonian wears the global executive tag lightly.

"It's ironic," he says. "I'm just an engineer."

Yes - an engineer with a €4bn fortune who calls the shots on some of the biggest, most talked-about television shows in the world and whose company is adding subscription customers faster than anyone else.

So come on Reed, aren't you a pivotal figure now? "I don't think it's really true," he says. "I don't subscribe to this idea that any one person is that influential. Really, I think it's that the internet is hugely influential and is changing how we consumer TV shows."

This may be so, but Netflix is the first movie-focused companies to really understand why the internet is the inevitable new home for movies and television and to place its bets as such.

Ten days ago, the financial numbers appeared to bear out what the company has wagered on. Netflix was way ahead of market expectations, swelling its subscriber figures to 125 million worldwide, with non-US growth now outpacing that of America. Wall Street thinks this is just the start of a Netflix juggernaut, pricing its shares at a rate that assumes the streaming company will soon outgrow almost all conventional television and movie studio rivals.

Even in Ireland, the company's growth has exploded, with a recent ComReg (Ipsos MRBI) survey estimating its use in 500,000 Irish households, which would put it well ahead of Virgin and second only to Sky.

While Netflix clearly gets the technology - its shows can now be watched on more than 1,700 different kinds of digital devices, such as smartphones, computers, TVs and set-top boxes - its core subscriber growth is being driven by its investment in hit shows.

Its expansion here is huge: Netflix's own 'originals' (such as Stranger Things or the Wild, Wild Country documentary) amounted to some 80 movies and 700 programmes last year. That cost the company around €5bn. In 2018, this will increase to €7bn with even more on the way, according to Netflix.

With its monthly subscriptions costs (from €8 to €14) still priced far below conventional TV bills, the question of how to pay the growing production bills has been raised by several financial analysts.

Are we in line for a price rise soon?

"No, because we can continue to grow the membership," says Hastings. "Think of it this way. You can double the membership or double the rates. You'll get the same effect. So we don't have any plans to do more price increases right now."

This means the company must keep adding subscribers at its current pace. Already present in over half of American households, Netflix has turned its attention to global markets. Its scale is massive, from Brazil to Japan and the Middle East, while European production has hit mass-market level.

In all, Netflix has 55 European productions under way, including hit series such as Spain's Money Heist and Italy's Suburra. Big new European launches this year include The Rain (Denmark) and The Innocents (Scotland and Norway), while season five of the dystopian British show Black Mirror is being filmed.

Hastings says that some non-English speaking series, such as Money Heist, have proven to be huge global hits, driving subscriptions.

In Ireland, the company is involved in a Limerick co-production (Nightflyers), adapted from a novella by Game Of Thrones curator (George RR Martin). "That's the first of many Irish productions to come," says Hastings.

It's not Netflix's first foray into Irish film-making, having made The Siege Of Jadotville which recounted the story of 150 Irish UN soldiers under attack in 1961 by 3,000 men in the Congo.

"That was pretty classic, a heroic story" says Hastings. "It was a very important story to tell."

If there is a hard firewall to Netflix's ambitions, it is sport. The company has repeatedly said that it won't bid for prestige sporting rights such as English Premier League football or NFL American football.

Does that mean never?

"Never's too strong a word, but we definitely have no plans in the next few years," says Hastings.

The last round of Premier League football rights cost Sky €4bn over three years, roughly equal to about a fifth of Netflix's budget. Is is just too expensive for Netflix?

"It's not clear that we would add any value to it," he says. "How would the experience be different or better with us? I don't think it would be, particularly. Sport is a very different market and very fragmented by country."

Like every other decision that Hastings makes, staying out of sport is its own big bet. Last week, Amazon announced a five-year exclusive deal to broadcast the US Open tennis tournament on its Prime Video service in Ireland and the UK. It has reportedly considered bidding on European football rights, too, a move that would be guaranteed to boost its subscriber base in Europe.

If Amazon does jump into live sport in a major way, it could spark an even more intense arms race with Netflix for dominance of monthly TV subscriptions.

Hastings says this kind of threat is nothing new.

"If you look at where the market is now, we have all of Gafa (Google, Amazon, Facebook, Apple) coming in at us from one side and then we have Disney and Fox on the other side. We hope that we're better at tech than Disney and that we're better at content than Amazon. We don't know what to do about them except to do the best shows that we can. But we use it internally as motivation. 'Oh my God, they're going to kill us', you know? And we try to get people to do the best work of their lives internally."

But if the situation requires it and the opportunity arises, what about trying to buy rival studios?

"I don't think so," he says. "In 20 years we've only done one small acquisition, so I don't think it's likely that we'll do much." Wouldn't an acquisition provide a short-cut to even greater scale in the face of formidable, growing competition?

"Maybe, but we're more likely just to acquire a show than a company."

One of the reasons that Hastings appears to be ambivalent about the prospects of some competitors is his belief that linear television is in an inexorable decline. The companies relying on this today, according to this view, are fundamentally backing the wrong horse.

While the television industry in Ireland and abroad becomes fiercely defensive when this subject is brought up, most figures appear to back up the idea that overall viewership is moving online and that traditional linear programming is stagnant or declining.

Does Hastings see the death of linear TV in future?

"Yeah, but in 40 years," he says. "Think of fixed line phones. It's a long, slow decline. Maybe your parents or grandparents still have a fixed line for security but they probably don't use it, they now use their mobile phone mostly. I think linear TV will be around for a while, but most of the usage and viewing will go to internet TV."

Is sport a saviour for linear TV?

"That will eventually go to internet TV too," he says, "If you look at the likes of Sky Now, the existing companies are already becoming more internet-based companies."

Hastings doesn't see similar obsolescence for cinemas.

"I don't. If you look in the US, where over 50pc of households have Netflix, cinema is actually steady. I think of a cinema like a restaurant. Just because you can cook, does that mean you don't go to a restaurant? No. There's a shared experience in going to a cinema that's fun and festive. And there's no indication that Netflix growing hurts cinema."

This may not be a view held by the Cannes Film Festival, which this year demoted Netflix-made films to non-competition status because of French cultural sensitivities over films appearing in cinemas. In retaliation, Netflix pulled out of the festival. Are there any hard feelings about that?

"I don't think so," says Hastings." We continue to have a good conversation with Thierry [Fremaux, Cannes festival director]." It's a diplomatic answer to an issue - the position of film as an art form, preferably to be seen originally seen in cinemas - which causes French hackles to rise.

But despite 30 Netflix films getting cinema releases last year, Hastings isn't especially interested in whether his company's films appear on big screens or not. Will we see more Netflix movies getting cinema releases?

"Maybe," he says. "We're not opposed to it but it's not important to us, either."

Despite its place in Wall Street's 'Faang' acronym (Facebook, Amazon, Apple, Netflix, Google) denoting the world's five most important internet companies, Hastings has recently been keen to talk up his firm as a media company. This goes directly opposite to the instinct of peers such as Facebook's March Zuckerberg, who argues the exact opposite.

"Within tech, we're more like Apple in that we don't do advertising," he says. "So we don't have the tensions of giving away information or privacy. We're super private. We know your viewing history and your billing history and that's all. We don't integrate all those other data sources. So we haven't had the set of issues that YouTube, Google and Facebook have had in trying to be general platforms. So it's a much simpler business."

This should mean that Netflix avoids most of the bone-crushing privacy probes expected to come from European regulators over the next 12 months as the EU-wide GDPR privacy law enters into force next month. It's also something of an interesting position for Hastings personally, as he sits on Facebook's board.

Netflix has been good to Hastings' bank balance. The 57-year-old's net worth has most recently been estimated at over €4bn, mostly thanks to the company's share price.

That's nowhere near the likes of Jeff Bezos (€80bn) or Mark Zuckerberg (€50bn), but it's enough to make him one of the 500 richest people on earth.

What does a man do with €4bn? Hastings has recently started to give away chunks of it, pledging $100m to an educational cause through his Hastings Fund. Because most of his wealth is locked up in Netflix value, he'll probably have to wait to dispose of more of it. But that's what he says he wants to do.

In the meantime, it's on to the next wave of multibillion commissioning budgets and scouring everywhere from Limerick to Los Angeles for the next big hit series. "We have no plans to reduce investment levels," he says.

"As we continue to grow we'll continue to invest more in content. That's why people subscribe to us. It's the essence of what we do."

Curriculum Vitae

Name

Reed Hastings

Age

57

Position

Netflix chief executive (and co-founder)

Lives

Santa Cruz, California

Education

High school in Cambridge, Massachusetts; arts degree from Bowdoin College (Maine); computer science degree, Stanford University, California

Previous experience

Founder of Pure Software (sold in 1997 for $750m); previous board of Microsoft, current board of Facebook

Family

Wife Patricia, two children

Pastimes

Baseball, animals (keeps chickens and goats)

Favourite recent Netflix show

The End Of The F***ing World (UK Netflix 'original' comedy series)

Irish connection

Honeymooned in Ireland due to wife's Irish-American heritage

Biggest disappointment in recent years

"Too slow in launching globally"

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