Speaking at the UBS Global Media and Communications
Conference a day after Netflix inked a major deal with Disney that will give it
exclusive pay-TV rights to stream the studio's new feature films starting with
2016 theatrical releases, Netflix chief content officer Ted Sarandos noted that
the deal was "a game changer" and stressed the importance of getting more
exclusive program rights and developing additional original content.
With the Disney deal, Netflix beat out Starz, which
currently has the pay-TV rights, for new titles from Disney, Walt Disney
Animation Studios, Pixar, Marvel Studios and Disneynature as well as some major
library product. Harvey Weinstein, cofounder of The Weinstein Company, who
moderated the Sarandos session, called the Disney deal "a game changer because
it affects Starz and the whole market place."
Sarandos noted Netflix was looking for more exclusive rights
and continues to ramp up its original programming, with four original series
set to launch this year.
But he also stressed the ongoing importance of their library
product and highlighted a number of differences between Netflix and other pay-TV
providers like Starz and HBO that would also be bidding for international
With its original program, House of Cards, Sarandos noted that they would be making all 13
episodes available at one time, which is a very different programming and
promotional strategy than traditional premium channels, and that they would not
be focusing on ratings.
"Ratings are an irrelevant number," Sarandos noted. "The
relevant number is subscribers and growth in subscribers."
Because of that, they would continue to focus on shows that
could perform well over their multiyear rights deals.
Sarandos also noted that their push into original
programming would both change the way stories are told and promoted. With the
new series, their website would continue to play a major role in making
subscribers aware of the program based on their past usage. This would generally
be more effective and less expensive than traditional promotional campaigns,
though Netflix is planning on extensive promotional campaigns around the new
"Trying to get America to do the same thing at the same time
is hugely expensive," he noted.
Having all the episodes available, also changes viewing
patters so creators don't have to spend as much time recapping past story lines
for viewers who might have missed earlier episodes. Creators traditionally
spent about "one-third on catch-up," he noted. "If you don't do that, then you
have all this extra time for additional storytelling."
Their original series are currently being produced by
outside producers, but Sarandos noted that they would ultimately get more
involved and look to own more of the content to help build up a library.
Sarandos also noted that they had decided not to renew the
Starz and Epix deals because their performance wasn't worth the cost and
compared them to traditional TV decisions to cancel a show. "Starz didn't perform
relative to the license fee and didn't renew," which he said freed up money to
do the "CW deal that drives a ton of viewing," he noted.
While exclusive deals are more costly, a subject not
addressed by Sarandos, he noted that the company's growing sub base provided
the financial clout to fund them. "Netflix has an exciting growth story with 4
million additional streaming subscribers in the U.S. and another 3 million
internationally in just one year," he said.
"This allows the scale to compete with pay-TV windows," he
added. "It all happens with scale."
While the Disney deal highlights increased competition for
pay-TV rights, Sarandos did however downplay notions that the rise of streaming
over-the-top services like Netflix was hurting the overall TV industry.
With Netflix streaming about 1 billion hours of content each month, "you would think that would be eroding TV like crazy...but [Nielsen just
released figures] that linear TV has barely moves and it is growing [when you
add in] on demand," he said.
Those numbers indicate that new technologies are expanding
the overall pie, he noted.
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