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How content became the crowning digital disruptor achievement for Netflix

Stuart Lauchlan Profile picture for user slauchlan December 7, 2017
Netflix has disrupted the broadcast TV industry and now has its sights on the movie business. Chief Content Officer Ted Sarandos talks through the challenges ahead.

The Crown Series 2

Series 2 of The Crown drops on Netflix today, which will come as welcome respite to the firm, which has had to ride the back of collateral damage from the Kevin Spacey accusations that has sent House of Cards back to the drawing board with a large eraser to remove Francis Underwood from its final series.

It’s also a good reason to pick up on some insights from the media industry digital distruptors Chief Content Office Ted Sarandos, who was one of the contributors to the recent UBS 45th Annual Global Media and Communications event.

A familiar mantra for media providers down the ages is the simple maxim - content costs. The Crown is a perfect example of this in the digital age as Sarandos noted:

Last year when we announced we were doing The Crown, I mean almost all the press about that show was about how much it cost. The BBC was out saying that we're spending more on The Crown than their entire programming budget for BBC2. And the truth of it is, it's one of our most efficient shows relative to people watching and its ability to attract subscribers and retain subscribers. It's one of our most efficient uses of the money that we spend on The Crown.

The point to make is that there are new metrics in a digital media age to measure ROI on investments. Sarandos explained this is a subject that gets a lot of attention internally at Netflix:

One other way that we kind of weigh it is, what's the best use of the next dollar? I mean dollar for dollar, will I get more hours of viewing? Will I get someone to join Netflix because of the show? Will I get them not to turn off of Netflix because they love the show so much or they're so excited for the second season coming? So that’s an internal debate that we always are doing and trying to say how is – how could we most effectively put the next dollar in.

Netflix actually only started original content production in 2013, even though now it’s one of the most prolific providers on the planet, with up to $8 billion likely to be spent in 2018 alone and an intention to have a 50/50 split between original and licensed content by the end of 2019.

It’s a revolution that’s disrupted its sector with remarkable speed. It may even have taken Netflix management somewhat by surprise, with Sarandos noting that Netflix’s reach is now inter-generational, which in turn powers the need for fresh content:

You couldn't imagine your parents ever using social media, and now you're embarrassed by them on social media every day. I think that same thing, that phenomenon is still coming on Netflix, which is people are migrating from more traditional broadcast television to, ‘Where is my new favorite show?’ [so] more and more needs to be on Netflix.

Keep it fresh

It’s also necessary to keep the content flow fresh in order to maintain the ‘stickiness’ that keeps people subscribing. Unlike, for example, the BBC, where UK citizens by law have to pay an annual licence fee, Netflix is potentially never far from losing a subscriber. Sarandos observed starkly:

We’re one click cancel.

One implication of that is that Netflix can’t rely too heavily on third party content providers. This year, as we’ve previously noted, Disney pulled the rug from under by taking back the rights to properties such as Marvel characters/shows and Star Wars. It’s now a waiting game to see what Disney intends in terms of its direct-to-consumer ambitions, but there’s much scuttlebutt in the media industry about its potential as a Netflix killer.

For his part Sarandos is keeping a cool head around what the Mouseketeers might have in mind:

It will be a couple interesting couple of years right now while everyone figures out the landscape. We are definitely in that taking-shape mode. So what Disney going direct-to-consumer means, I don't really know totally - and I'm not positive that they do either.

I do think that there is some mix of direct- to-consumer and third-party selling and Disney has always been very good at figuring out the magic formula for that. I don't know that this one is basically saying, ‘Hey let's keep of all of our content and then we'll create the product that people will buy from us only,’ or this is a thing that says, ‘Hey, we have these with the key things on this service, and people who love Disney will just add them on’. So I don't know the answer to that, and I guess I think they're trying to figure that out too.

Netflix has been the cause of a lot of people trying to figure stuff out in recent years. Fans of The Crown won’t have to watch over ten weeks as all ten new episodes are there from today onwards. That’s led to more traditional broadcasters rethinking how TV should be scheduled, observed Sarandos:

When we released House of Cards, the big thing wasn't just that it was original; it was that it was all at once. We had all 13 hours of the show available on the first day. And everybody thought that was the most insane thing they’ve ever heard of. I had television executives calling me saying, ‘Do you understand how television works, Ted? The idea is to get them coming back every week, you know what I mean?’. I said, ‘Look, what I see is people watching an hour of television and then having 7 days of anxious waiting for the next episode. You might think of that is anticipation is great, but I see it as managed dissatisfaction.’

One common factor of digital disruption of any sector is arguments around traditional descriptors and definitions. So, Uber isn’t a transportation firm, it’s a technology company. It’s the same with Ocado, which can be pitched as both tech firm and grocery store. Or then there are the tedious denials from the likes of Facebook that they are not publishing firms, a claim that conveniently liberates them from some legal obligations around content.

Netflix’s push into developing its own original movies is providing the latest example of this in practice. Sarandos said:

It's a funny internal debate in the industry around whether a movie for Netflix is really a movie, which I think is a very generational thing to say. I think my 21-year old, my 23-year old would say, of course it is…the other arguments, mostly guys my age who are saying things like, ‘Well, if doesn't take place in a movie screen…’.

So the question is can you shake it up the market enough to come to expect big event movies to be only on Netflix, not on DVD, not on VoD, not in select theaters because we do want the consumer choice and that is a different experience?

And to put the lid on the argument, Sarandos wrily observed that Netflix is currently working on a movie starring Joe Pesci, Robert De Niro, Al Pacino and Harvey Keitel, directed by Martin Scorsese:

Who's going to have the nerve to say that's not a movie?

My take

I’ve noted before that the biggest indicator of how successful Netflix has been as a digital disruptor can be seen in the answer to the question, ‘What are you doing tonight?’, to which the response is oftentime the one word answer, ‘Netflix’. Nobody says, ‘BBC’ or ‘NBC’ or ‘HBO’. They might say, ‘Watching TV’ or ‘Watching Curb Your Enthusiasm’, but it’s Netflix whose name has become an activity. That’s a major cultural indent to make in a relatively short space of time. Now, excuse me, I’ve got ten episodes of The Crown to watch.

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