Throngs of people were turned away from the “In Conversation with Ted Sarandos” talk this morning in the Cannes Palais. One person who did have a front-row seat to hear the Netflix COO expound on the changing marketplace was Harvey Weinstein, with whom Netflix is in business across several different projects including high-end series Marco Polo and the upcoming Crouching Tiger, Hidden Dragon: The Green Legend. That film has caused something of an uproar with domestic theater chains having said they wouldn’t show it on their IMAX screens when it bows in August and goes day-and-date on Netflix.
Weinstein chimed in from the audience at one point during the post-talk Q&A, but it was on the topic of European subsidies, not as he had expected “the movie theater thing.” An attendee, referring to the fact that Netflix does not pay taxes towards local production in its European territories, asked Sarandos, “Are you aware that in five, 10, 15 years, you will destroy the current ecosystem of film production in Europe?” His theory: European broadcasters and VOD services are starting to clamor that they shouldn’t have to pony up percentages of their revenues to help foster production if the foreign entrants do not.
That got Weinstein on his feet. “For the gentleman talking about the government needing money,” he said, “I hope that the government spends its money on hospitals and children and that the marketplace is so good that his films can be sold to the marketplace and don’t need government subsidies.” Hoots and hollers from the audience greeted that sentiment.
Weinstein continued, “I came here to defend Ted today because I thought somebody was going to talk about the whole movie theater thing. In case he goes off on that tangent, I better come as a bodyguard,” he said he’d thought. “But I’m even more thrilled where this conversation went and how visionary this company is.”
Weinstein praised Netflix’s commitment to documentaries and foreign-language programming. “This is a guy who buys documentaries and cares. This is a guy who buys foreign-language movies and cares. And every one of these monopolies, let’s start with TF1 … they’ve gotten a wake-up call by what Netflix has done. And you know what? They’ve all gotten better and their quality is going to improve and they’re going to be big customers for your product. So, having the rebel in the room made us all better and stronger.”
Before the session took this turn, Cannes fest chief Thierry Frémaux introduced Sarandos, saying, “We want to reflect on new ways of production that can also benefit cinema in theaters.”
During the wide-ranging talk that followed, Sarandos said of Netflix’s movie ambitions, “Other than original productions and licensing older library films, there’s pay-TV output deals. That’s where we mostly compete with HBO in the U.S. and Canal Plus here. The problem with those deals is they’re rather expensive and the movies are old and you’re doing them country by country by country for product that has great global appeal. It costs roughly $1 billion for a U.S. TV output deal with a studio which is three-to five years. So for that same billion dollars, I think that we could invest in a slate of original films that would be competitive in terms of A-list directors, A-list stars and big production value, that we would have for the entire world and not have to wait the 10-12 months and hold my breath and hope the studios market it well.”
On how Netflix is changing the distribution model, he pointed to medium-budget films that “have a very difficult time ever seeing a profit. By the time they’re released in cinemas the theater owners take cuts, the distribution fees, advertising. Those movies have got to do so much box office revenue to ever see a profit that for the most part they’re looking at a losing proposition. And, God help you if you’re an Oscar contender because the awards budget is recouped against the budget.”
So, instead of taking this “lottery ticket approach, all the films that we do at Netflix are going to be profitable for the producer. We buy the films at a premium to the budget so there’s no chance that an investor who does a film with Netflix is going to lose money.”
What’s more, he said, “We can give them a global audience of 63 million so people will see their film, they’ll make money on their film and more importantly it will be a film that will be important in the culture.”
More than 10% of Netflix’s investment is currently in original productions and Sarandos said, “We’re trying to put our programming dollars to content that people find relevant… In success, that number could be 50%-60% over time.”
Sarandos noted that along with the four-picture deal Netflix has with Adam Sandler, they are also working in “global indies” and documentaries, along the lines of the successful Virunga. “Nothing we’re doing is meant to be anti-cinema. We think of Netflix as pro-movies. Consumers have more choice.”