UPDATED with video clip. Netflix content chief Ted Sarandos, in a lengthy sit-down with Liberty Global CEO Mike Fries, covered a host of topics, including talent agencies producing content, Disney’s streaming outlook and Netflix’s M&A future.
The pair spoke onstage Friday night at SeriesFest in Denver, an emerging TV-focused festival. The hour-and-10-minute discussion (see video clip below), which included an unusually comprehensive audience Q&A, found both executives opening up a bit more than at typical conference sessions. The event was not streamed or covered by the usual cross-section of Hollywood press and Wall Street observers who closely track every media business utterance.
After hitting on a range of topics, from Sarandos’ own origin story (which included living in Denver for five years in the 1990s) to data-mining, advertising and live sports, Fries ended the session with a “lightning round.” Calling it an “exercise” that he dubbed “buy, hold or sell,” he explained, “’Buy’ means you believe in it; it’s a winner, ‘hold’ means it’s too soon to tell, ‘I’m waiting to see;’ ‘sell’ means it’s not a winner.” The first “buy/hold/sell” question fired at Sarandos: Disney+. (Sensing intrigue, the audience of about 150 let out a murmur and a few chortles.)
“I’d say it’s a hold,” Sarandos replied. “But I’ll say they’re remarkable storytellers. [Disney CEO Bob Iger] has put together an amazing business. They’re in new space, but they’ve been in new spaces a lot of times.” Fries, who leads Europe’s No. 1 cable operator, volunteered his own eyebrow-raising take on Disney’s streaming efforts. “You do realize, if they hit their wildest expectations with their forecasts, it’s 11% of their revenue,” he said. “It’s a hedge.”
Next lighting-round topic: major talent agencies, which are locked in a battle with the Writers Guild and others in Hollywood over their mounting production activity. “The further they get away from their core, the more difficult it is, I think,” Sarandos said, without designating a “buy/hold/sell” rating. “Their core is, talent really does need help. They need, how do you find projects, how do you – who’s looking out for you all the time? But if they’re going to be another producer of content, I don’t know that they’re going to be a great one.”
As to Netflix’s future in a dynamic M&A environment of late, Fries asked if Sarandos thinks the streaming giant will still be an independent company in five years. “I would bet on that,” the exec replied.
Fries asked Sarandos about the impending competition from not only Disney+ but also new services from Apple, NBCUniversal and WarnerMedia launching during the next year.
“The thing that’s interesting about all these upcoming services as well as the services that are in the market today is that mostly they have none of the same programming,” Sarandos said. “Nothing that’s on Disney+ is going to be on Netflix and nothing that’s on Netflix is going to be on the [Comcast and WarnerMedia services]. They’re going to be very unique.” For that reason, despite research indicating resistance by consumers to the idea of paying for more than three services, Sarandos added, “I think it’s very likely that they’ll add things” in order access content they want.
Fries sardonically asked Sarandos about “your friends in Silicon Valley,” Google and Facebook. He wondered if he saw the companies being forced by regulators to break up, as some politicians and activists have been demanding. “I could not begin to predict any of that,” Sarandos replied. “I know that I feel good that we’re not in any of those businesses that draw that kind of fire. Another great reason not to sell advertising. We don’t collect your data. I don’t know how old you are when you join Netflix. I don’t know if you’re black or white. We know your credit card, but that’s just for payment and all that stuff is anonymized.”
Also on the data theme, Sarandos reaffirmed the company has no plans to incorporate advertising (a subject of mounting speculation) or bid on live sports. Both are “not core to the proposition” of Netflix, which is ad-free and on-demand, he added. While the price most Netflix subscribers pay has risen steadily, from $8.99 a month five years ago to $12.99 today, Sarandos waved away any concerns of price sensitivity. “I honestly think about it not in terms of price but in terms of value,” he said. “So if people are getting the value for the dollar, they should track each other really closely.” Given the increase in quality programming in recent years, Netflix is “still pretty cheap,” he maintained.
Given the festival audience, which was full of independent producers and content creators, the pair of executives spent considerable time talking about Netflix’s method of selecting shows to produce. Fries suggested that because the company doesn’t report ratings or divulge much in the way of viewership information, the green-light process is trapped in a “black box,” which even industry heavyweights can’t access. “Picking content and working with the creative community is a very human function,” Sarandos said. “The data doesn’t help you on anything in that process. It does help you size the investment. … Sometimes we’re wrong on both ends of that, even with this great data. I really think it’s 70, 80% art and 20, 30% science.”
Sarandos recalled his own path through the video store business and then coming aboard Netflix in 2000, three years after its founding, as the company’s sole entertainment employee. Early on, he said, he made a pivotal decision to stay in LA rather than moving up to Los Gatos and incubate a content effort from there. The buildout of the entertainment side in Southern California complemented the growth of the main headquarters scaled with thousands of engineers focused on the user experience.
Staying in LA “turned out to be a good strategic bet,” Sarandos said. “You can respect the tech culture in the entertainment community and the entertainment community can respect the tech culture. But they hardly ever get together, mostly because it’s just a tribal thing. Most of Hollywood was convinced that the tech guys would come down and clumsily write big checks and would be all gone pretty soon. [They were saying], ‘We’ll be here like we have been been the last 100 years doing this. We’ve seen this come and go, come and go.’ And then the tech guys were convinced that all the studio guys were stupid and they were doing everything wrong. It wasn’t a great culture to work together. But because I was [in LA] and started building out the team there … [it got traction because] it’s a relationship business.”
Addressing the oft-pondered notion of whether the company should be considered as a tech or media concern, Sarandos reasoned, “Netflix is an entertainment company that is intertwined and supported by unbelievable tech.”
Here’s a clip from the conversation: