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Netflix's Ted Sarandos Reveals His 'Phase 2' for Hollywood

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2013 Issue 19: Netflix
Miller Mobley

Algorithms, deep pockets and a disdain for the existing TV model as the chief content officer reveals why the agent who talked about their budgets was "remarkably ill-informed," and countering "the managed dissatisfaction … of the entire entertainment business."

This story first appeared in the May 31 issue of The Hollywood Reporter magazine.

Ted Sarandos doesn’t need to be liked by Hollywood. Netflix’s chief content officer is aware that his disinterest in playing by the industry’s rules — instead throwing his shows online all at once, bypassing the traditional development process and refusing to release ratings information — has irked some, but he has no plans to apologize, much less curb his agenda.

“I have a deep respect for the fundamentals of television, the traditions of it even, but I don’t have any reverence for it,” says Sarandos during a late April interview in his no-frills Beverly Hills office. Sarandos, 48, has earned his swagger because, like him or not, he’s become one of the most powerful executives in Hollywood. In two years, the company at which he has worked for more than a decade went from being a repository for old TV shows and movies to one of the most attractive buyers of original programming in town.

PHOTOS: From 'Arrested Development' to 'House of Cards,' Exclusive Portraits of Netflix's Stars

House of Cards, which Sarandos snapped up in a jaw-dropping $100 million, two-season deal, bowed Feb. 1 to near-unanimous praise, with many heralding the streaming service as a legitimate rival to premium cable outlets HBO and Showtime. (The coming Emmy season will test that theory.) In the quarter that House of Cards premiered, Netflix’s subscriber base jumped more than 2 million to 29.2 million domestic streamers (36 million members worldwide), bigger than HBO's reported 28.7 million subs. The growth trajectory, especially in the aftermath of Netflix CEO Reed Hastings’ abandoned plan to split Netflix into a streaming entity and a DVD service called Qwikster, has led its stock price to jump 345 percent in nine months to $239.55 on May 20 on revenue of $1.02 billion for the first three months of the year.

in the process, Netflix has become Hollywood’s biggest fascination, in part because of its splashy initial shows but mostly because of what it represents: the first deep-pocketed platform for original content to emerge since the cable TV renaissance of the late 1990s. And at least so far, its strategy seems to be working.

The Netflix horror series Hemlock Grove launched April 19 to critical jeers but a bigger initial tune-in than Cards, and on May 26, Sarandos will debut perhaps his most high-profile project: the reboot of the cult Fox comedy Arrested Development. (He managed to steal some of the broadcast networks’ thunder by planting the show’s signature banana stands around Manhattan during upfront week.) Sarandos says that despite some grumbling that Netflix’s content costs keep escalating (“unsustainable,” says analyst Michael Pachter), he has no plans of slowing down as he looks to out-HBO HBO — and fend off new, lower-paying streaming players such as Amazon and Hulu in the process. In addition to Orange Is the New Black from Weeds creator Jenji Kohan (out July 11), Derek from Ricky Gervais (Sept. 12) and a sci-fi series from the Wachowski siblings titled Sense8 (out next year), he says he’d like to double his originals load in 2014. That would mean eight new series, and some of them might even be owned by Netflix rather than simply licensed, as the first batch of originals have been.

On his wish list for potential collaborators: Warren Beatty, who he argues has been constrained by the limits of theatrical run times, Sofia Coppola and Jodie Foster, who directed an episode of Orange. As he prepares to launch “Phase 2” of Netflix’s original content experiment, Sarandos and his vp original programming, Cindy Holland, 43, sat down with The Hollywood Reporter on two occasions to discuss their strategy, the surprise data they have collected about the Netflix audience and what shows they might buy next.

The Hollywood Reporter: If you had the House of Cards deal to do all over again, would it be so pricey?

Sarandos: Yes. If we were to get into original programming and it didn’t work out, I didn’t want it to be because we didn’t try hard enough or we weren’t ambitious enough. I felt like what [a network like] Starz was doing earlier on [during the Party Down era] was just kind of putting their toe in the water and doing a lot of “see what sticks” and not spending too much money. For us, I wanted to know that if it didn’t work, it was because it was a bad idea. The two things that got everyone’s attention about the House of Cards deal was the two-season commitment and David Fincher. After David Fincher directs a series for Netflix, no one else can say, “Well, I’m not going to direct a series for the Internet.”

THR: Beyond a willingness to spend, what is the Netflix pitch?

Holland: We’re buying their vision, not ours. Part of the conversation early on is thinking about it as a 13-hour movie. We don’t need recaps. We don’t need cliff-hangers at the end. You can write differently knowing that in all likelihood the next episode is going to be viewed right away.

PHOTOS: 'Arrested Development' Returns: 7 Posters for the New Netflix Episodes

THR: You’ve been reticent to share ratings data, but tell us what you have learned about the House of Cards audience.

Sarandos: The major international appeal for House of Cards was kind of a surprise because it’s a very American show. What we learned is that American politics is very American, but greed and corruption and all of that is very global. Corrupt politics is not new in Latin America, as it turns out. (Laughs.) Within the U.S., you could have argued that most people who watch Mad Men would watch House of Cards. But the viewing is much more on par with the large-scale mainstream things like The Walking Dead. It was much younger than we thought. One of the things that surprised me was that women love the show because they love Robin Wright. And younger people love Kate Mara. Everyone is able to gravitate to this show for very different reasons.

THR: How do you know that’s why women or young people are tuning in?

Sarandos: You see it in what else they watch — the algorithmic similarities to what else they’re watching and why they’re watching. And then we can very directly focus-group with them and survey them about what their attractions are. So we found that there’s overlap with Gossip Girl and House of Cards.