By Kim Owens, Liz Graves
Right now is a time of contemplation for the “we’ve always done it this way” business models. In every industry, the old ways are crumbling as new ideas mesh with technology, filling demand gaps in industries and redistributing market share. Aside from the commonly referenced transportation and hospitality markets, it is the making of entertainment content that will see a tidal wave of change in the coming years.
The company causing this butterfly effect: Netflix.
“Entertainment and technology are continuing to transform each other as they have been doing for over 100 years,” said Reed Hastings this past January during his CES keynote.
It was only three years ago when the weekly 22-minute and 44-minute linear television episode model gave way to a new era of TV consumption. Netflix’s now infamous #bingeon abilities made history, enabling members to take in an entire season of the first Netflix Original series, House of Cards, in one sitting. Today the company has become an entertainment powerhouse with plans to release over 600 hours of original content this year that includes the two summer blockbusters, “Stranger Things” and “The Get Down.”
Most have heard by now, but by the time that Hastings wrapped the CES keynote, Netflix had gone live in 190 countries (with the exception of China, but Hastings hasn’t waved the white flag as of yet). A truly massive undertaking.
Ted Sarandos, the company’s chief content officer, stated during the keynote, this was the “Birth of a global TV network,” one supported by 21 languages and growing.
Since that big launch eight months ago, the company has made moves month after month showing evidence that Netflix is indeed on a path to reinventing the 21st-century film and television studio. And there will be no going back.
Netflix Breaking the Film and Television Studio Mold
With a budget of $5 billion slated for Originals programming and a future-thinking, risk-is-necessary attitude that stems from their Silicon Valley roots, Netflix is putting a lot of money, mind, and might into expanding both their content offerings and subscriber base throughout each of those 190 countries.
Their content creation approach is in contrast to the traditional movie studio mindset of being risk-averse, ‘Let’s do another bang-em-up-exploding-stuff’ sequel targeted at young white males.
Their revenue model is much more simple, being based solely on subscriber fees. They’re free from the constraints and pressures of box office numbers for a film or ratings for a TV show. It enables Netflix to offset risk much easier than the other studios or networks.
“That means we can spend less on marketing and still generate higher viewership, even from smaller, quirkier, less traditionally commercial material, that would traditionally have a tough time finding a meaningful audience,” explained Sarandos. “That means we can take more risk. To make a baseball analogy, linear TV only scores with home runs. We score with home runs too, but we also score with singles and doubles and triples.”
Just one example: the instant cult following, homerun series, “Stranger Things,” was rejected 15 to 20 times by various studios before arriving at Netflix.
The company knows that to resonate with all 190 international markets and meet their subscriber growth milestones, they need to invest more than marketing dollars. So they’re taking some of that $5bn content budget and investing it in their newly adopted countries.
“We are just beginning to break down the barriers so the world’s best storytellers can reach audiences all over the world,” said Sarandos. They are currently, “Shooting a sports comedy in Mexico, a crime drama in Italy, [and] a dystopian film in Korea about bioengineering.”
Premiering this November (rumored to cost $100m) is another international production,The Crown, a 10-episode series filmed in the U.K., where Netflix has seen subscriber growth climb from 13 percent market penetration in 2015 to 23 percent in the second quarter of 2016. Based on Queen Elizabeth II’s epic reign, the series begins with her majesty assuming the throne at 25 years old and takes the audience all the way to the present day.
The major draw of most film festivals is the international array of movies that take festivalgoers on a 90 to 120-minute journey, exploring other cultures, experiencing life in another country, and gaining new perspectives on humanity.
The only downside has been that many of these films don’t make it beyond the film festival circuit. That too is changing, as both Netflix and Amazon snapped up a number of films at this year’s Sundance, beating out the competition. But Netflix again went a different way than the others, buying only the SVOD rights for Tallulah and The Fundamentals of Caring, keeping theater distribution rights out of the picture.
Focus. Focus. Focus.
Diversity in the Director’s/Writer’s/Producer’s/Actor’s Chair
In February of 2015, the second annual Hollywood Diversity Report was released by UCLA’s Ralph J. Bunche Center for African American Studies. The study showed that television and film “audiences want more ethnic representation.” Huh. Who knew?! And, because of the historical culture “that routinely devalues the talent of minorities and women,” Hollywood execs continue to make moves by people like themselves, for people like themselves.
Darnell Hart, lead author of the report and the center’s director and sociology professor was frank, “Hollywood is not progressing at the same rate as America is diversifying.”
The severe lack of gender diversity in the entertainment industry was again brought to the forefront in September of 2015 with the release of the Women’s Media Center’s 10-year study. The report focused on the Emmy’s statistics over the last decade, and sought to “take a detailed look at the gender ratios of jobs that have the most influence on what is depicted on the small screen.”
The results were released a few days prior to the airing of the 67th annual Emmy awards, showing “Women have received only 22 percent of the Primetime Emmy nominations for writing, directing, producing, and editing.”
November followed with the inaugural Women in Entertainment Summit held at the fully packed ArcLight in Hollywood, which devoted an inspiring day to discussing diversity and experiences, and sharing tactics and strategies for bringing more women into the entertainment ecosystem. (Can’t wait for this year’s Summit that will take place November 10 at the Cinerama Dome in Hollywood.)
Then there was the New York Times piece, “The Women of Hollywood Speak Out,” by Maureen Down, who interviewed female writers, directors, producers, and actors, beginning her piece with, “Female executives and filmmakers are ready to run studios and direct blockbuster pictures. What will it take to dismantle the pervasive sexism that keeps them from doing it?”
One such move was seen just this week. Yesterday Netflix announced a new joint series with CBC, Anne, based on Lucy Maud Montgomery’s classic novel, “Anne of Green Gables.” It will be led by an all-star team, with the producer’s role going to Emmy award-winning Miranda de Pencier (Beginners, Thanks for Sharing) under her Northwood Entertainment banner, and Emmy and Golden Globe winner (Breaking Bad, Flesh & Bone) Moira Walley-Beckett, as showrunner and writer.
Signed on to direct the two-hour pilot is award-winning director, Niki Caro (Whale Rider, McFarland USA, Zookeeper’s Wife), with production starting in September in Ontario, Canada. Allison Owen (Saving Mr. Banks) and Debra Hayward (Bridget Jones Diary, Les Miserables) are also attached to executive produce and Susan Murdoch will produce.
Today’s announcement is another step toward the pursuit of greater diversity for Netflix, which Cindy Holland, vice president of Original Content for Netflix, stated was a priority during her 2015 interview with Variety’s Chief TV Critic, Maureen Ryan.
When asked about Netflix’s views on the situation with regard to directors and diversity, Holland stated, “It’s certainly something that we focus on, for every project and every season that we undertake. One of the first things we do in planning out the production calendar is sit with the producers and lists of directors and hopefully assemble a really diverse group.” She also added that the pressures Silicon Valley is facing in employing a more diverse workforce plays a part in their internal operation, so it only makes sense to extend it to their other areas of business.
Holland also mentioned a conversation between her and Sarandos about connecting with filmmakers even before they’ve made a name for themselves, “About how we can be more proactive about going and talking to schools and media programs and film programs, not just in our convenient geographic zones, but making sure that we’re talking to the great media leaders of tomorrow who may not look like us and who may not be from here.”
Last year after the release of the 2014 UCLA report, HBO launched its own mentorship program for writers and filmmakers, HBOAccess, with a focus on diversity.
As a result of their worldwide expansion, Netflix has even more pressure to meet audience’s desire for more diversity in the films and TV shows, considering their members are in Vietnam, India, Nigeria, Azerbaijan, Singapore, Russia, and beyond. So getting to those up and coming filmmakers outside English-speaking countries is going to be even more critical.
“The possibilities of building connections between cultures and people are endless and important,” stated Sarandos.
We Have the Technology. Better. Stronger. Faster. Commercial Free.
NBC Sports has gotten a lot of grief from their users regarding the technical difficulties experienced with their streaming platform, especially during the Olympics when some used their NBCSN app for the first time. Audio out of sync with the video. Screen freezing. The inability to sign on. All issues that have been going on for years now. NBC is not alone, as users on other platforms have similar complaints. Plus, many SVOD apps are not always supported on devices consumer’s use for SVOD.
Netflix, having launched SVOD in 2007, has a huge head start on their technical proficiency to deliver a more seamless, enjoyable experience via their web and app platforms. A third of Netflix staff is engineers, dedicated to continually fine-tuning the data compression and speed, audio quality, adaptive UI, algorithms, running A/B tests, even delving into the areas of AI to learn more and more what content would appeal to their subscribers.
“The internet allows us to constantly experiment and improve, to learn and get better. At Netflix, we’re always testing what works for consumers, to remove what frustrates them, and to provide them with an improving experience,” explained Hastings.
That’s again the Silicon Valley geek in their DNA.
One of the biggest advantages for both Netflix and their users is, “You don’t have to sit through commercials,” said Hastings. “You just click and watch. A simple but revolutionary shift from corporate to consumer control.”
That is indeed the key. In a revenue model where television networks are deeply dependent on advertising, running those commercials will always take precedence over a viewer’s desire to see them. The problem is the 18- to 49-year demographic that gets the premium rates for advertisements is continuing to tune out.
The commitments networks make with advertisers will always hang over their heads. When the ratings fall below expectations, like they did with NBC Sports during the Olympics, the networks are forced to provide “make goods,” another term for free advertising.
In a streaming TV, not a linear TV world, that old revenue model is clashing with consumers’ ability to take control.
The state of online advertising was a big topic at Recode’s Code Conference earlier this year when Mary Meeker of Kleiner Perkins Caufield & Byers released her annual internet trends report. Suffice it to say, it wasn’t good for advertisers and those serving up the ads. With 93 percent of consumers using ad-blocking software and 81 percent muting video ads, “If ever there was a call to arms to create better ads, this is it,” said Meeker.
Or, create a revenue model that doesn’t depend on annoying, disruptive ads.
The Netflix UI model enhances personalization without the commercial disruption and enables a one-on-one relationship with their 83 million members worldwide. With the ability to see specific viewing patterns by country, state, or even by household, users give Netflix their own ratings on shows and films, not Nielsen.
Traditional TV and film studios that have been doing what they’ve been doing for a very long time, and who knows when they’re going to shift their focus from sponsors, advertisers, and themselves, to the individual audience member. In the meantime, it will be interesting (and even a little entertaining) to watch it all play out.
In the meantime, Netflix is looking at the entire globe of 3.2 billion people using the internet today. Of that, 2 billion live in developing countries. That is Netflix’s massive target audience.
As Sarandos said at CES, their company is in a very unique position to bring the world’s stories to the world’s people,
“Over the last 70 years consumers have been at the mercy of others when it comes to television. The shows and movies they want to watch are subject to business models they do not understand and they do not care about. All they know is frustration. That’s the insight Netflix is built on.”