Thursday 23 May 2019

'Small screen good, big screen bad' - How Netflix plans to take over the world

Netflix head of content Ted Sarandos has become the world's most important film and television commissioning executive. He talks to Adrian Weckler about near-empty cinemas and where growth lies

Netflix executive Ted Sarandos hit out at the Cannes festival’s stanc
Netflix executive Ted Sarandos hit out at the Cannes festival’s stanc
Adrian Weckler

Adrian Weckler

One of the big differences between Netflix and most big networks is sport. You've said that's not going to happen on Netflix. Why?

TS: No. There is a complete disconnect between live sports and on-demand. So with everything on Netflix, the core consumer promise is on-demand.

The show is ready when you are, you just push play. If you have one or two things that you have to watch at a certain time or they're completely valueless to you, it's really disconnected with our product, so that's why I'm not anxious about not having sports.

The other reason is that these sports league deals are several billion dollars a year. So that would have to be the best use of the next two to four billion dollars.

So far, that has not been the case for us, where the best use of that money is sport rather than a film or a TV show or a comedy. So that's why we haven't done it. And if some point if we do, it will be on that criteria. In the meantime, I hope Apple and Amazon and everyone else spend all their money on sports.

So it's a price thing?

TS: It's an issue related to what the best use of the money relative to our subscriber engagement is.

Does that mean never? I remember asking you similar questions about offline downloads some years back when you were equally assertive about why that didn't suit your model.

TS: Sure. And look at original programming, too. A year before we started original programming, Reed [Hastings, Netflix CEO] said on an earnings call, 'We'll never do it and if we do you'll need a new CEO'. So you never say never to anything, obviously.

The amount of 'original' productions that Netflix is producing has jumped hugely.

TS: Yes. In the last quarter, we had 156 originals. That's films, TV series, documentaries, one-offs. That's more than one a day.

How do you find an audience for all of the content?

TS: Most watch several things. Tastes are remarkably diverse, too. You can aggregate niches from all over the world into one big business.

But also, we're trying to make series and films that people can't live without. To do that, it has to be across a broad swathe of ideas and stories because everyone's tastes are so different.

For example, I know that 'Game Of Thrones' is a big hit, but I've never seen a full episode to be honest with you. I'm not denying it's a big show or a good one, it's just not to my taste.

What I think is that most of these networks are one- or two-show networks and I don't think that scales very broadly to the world if you're trying to appeal broadly to different and diverse tastes.

You released some 30 Netflix 'Original' films in cinemas in the US last year on a 'day and date' basis, meaning that they were available at the same time in the cinema as they were on the normal Netflix subscription service at home. Would you consider a more traditional, staggered release between cinema and subscription service?

TS: We put our movies in theatres because we want consumers to have choice. Staggering the times to have these windows is only pro-theatre and we believe it's anti-consumer and anti-filmmaker.

This is the heart of the controversy with Cannes [Film Festival].

So you won't be at the Cannes Film Festival at all?

TS: No. France, in general, is the extreme. Nowhere else in the world do you have this mandatory three-year window between theatres and subscription services -and Cannes chose this year to adopt that as their qualification rule.

We had two films that were invited but they changed the rule and said 'You can't come in competition but you can come out of competition'. So we said no.

I don't believe that Cannes continues to be a celebration of the art form if they are going to impose distribution rules on the film. There's no other film festival in the world that has a requirement like that.

Think about it, the film festival itself is to promote a good film to find distribution. So if it requires distribution to get into the festival, it's a crazy criteria. And it's quite against the spirit of filmmakers and against the art of what they're doing.

Is there a long-term shift in film-viewing going from the big screen to the small one?

TS: There is a migration in the business for sure. Increasingly, people are enjoying seeing their films at home.

Look at the nine movies that were nominated for best picture at the Academy Awards in 2017.

In the US, if you take every seat for every show that those movies were in the theatres, collectively those movies played to 635 million empty chairs.

So that tells me two things. First, that's not where the audience is, at least not for the whole run. It also suggests that the windows are too long. Remember at the beginning of their run, some of those shows are sold out. But then they end up with 635 million empty seats.

The worst-performing film, and I'm not going to tell you which one it was, had 7pc capacity. So 93pc of the seats were empty for its entire run in the cinemas. So this whole notion that if a movie is in a theatre it's a movie but if it's on TV it isn't, is ridiculous.

But isn't that just capacity management by the cinema groups rather than anything else?

TS: Yes, but it also says that there's more capacity than demand. It's almost as if they're saying that to be a movie you have to be super inefficient.

What other business could operate on 7pc capacity? And if you think about it, even the emotional argument of a movie needing to be seen in the dark with strangers? Well, the strangers aren't even there any more. The movie theatres are often empty.

So, I just think in general that's not a business model we really should be involved in. I'm not anti-theatre, or anti film festival, I just want to be where the audience is.

How many original films will Netflix have last year?

TS: Around 60. We'll make 80 this year. That's both acquisition and production.

Are the economics of doing a movie different to a bingeable series?

TS: Not really. The economics are that you get fewer hours of engagement because there's less content. But in general, a movie could have all the other attributes of a digital series.

From our point of view, it's the same questions. Will people join to watch? Will people retain the excitement of the upcoming movie? Do they look at it as a value proposition? One of the reasons I have Netflix is to watch great movies that I can only see on Netflix. So a movie like 'Bright' can have all the attributes of a series like 'Stranger Things'. Just not as many hours of watching.

Do you have any plans to do talk shows?

TS: Talk shows are highly experimental for us, but we're very bullish about it. This year we have the Letterman show ['My Next Guest Needs No Introduction'] which is very popular and pretty global. We have Hasan Minhaj, who we've had great success with as a standup comic, doing a standup show later this year.

We're trying to get the formula right. We had 52 standup comedy originals last year. And this year we'll have 28 local language comedians.

Will Letterman's show be renewed?

TS: We're talking about it right now. Originally it was for six shows and he didn't know whether he wanted to do more.

But we're very happy and he's very happy. He's got two more to go in this run, one with Tina Fey and one with Howard Stern.

You don't release metrics such as hours watched per show. But you recently said that 'Stranger Things' was more tweeted about than 'Game Of Thrones' or the iPhone X. Is that a fair representation of viewing figures or just a metric associated with people on Twitter?

TS: Both. There's definitely a directional correlation between social engagement and watching.

Some shows are more social than their audience, but hardly any shows are not watched and tweeted about.

The number of hours viewed spent on our originals has doubled year on year which is consistent with our investment. It far exceeds 20pc - 90pc of our subscribers watch our original programming.

Can a positive social media reaction influence whether a show is renewed?

TS: Those decisions are timed around contracts not later. So no, there wasn't that kind of influence. Some shows are louder than their audience because their audience is disproportionately social.

In your most recent earnings report this month, you disclosed that you have 125 million subscribers now. How far do you think you can go?

TS: Well that's the debate. Are we talking about the addressable market for paid television or anyone who pays a subscription and has a screen?

Basically the cell phone penetration of the world is the addressable market if you think about it. Those are people with a subscription and a screen.

I think India is an interesting one, it's a very dynamic market with a growing interest in content programming, a great entertainment culture with a growing economy and large penetration of local devices and underdeveloped internet ecosystem.

It's such a massive population. And we're not in China at all.

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