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Miami – Time Warner’s CEO Jeffrey Bewkes famously compared Netflix to the Albanian army, saying it wasn’t going to take over the world. Now that army is planning a frontal attack on the crown jewels of the Warner empire — its first run movie output.
At NATPE on Tuesday morning, Netflix chief content officer Ted Sarandos said that in advance of 2014 when HBO’S pay TV output deal with Warner Bros. expires, his company will make an offer for those rights that if nothing else will make HBO pay more to keep them.
“We will be an aggressive bidder for that content,” stated Sarandos. “That will be good for Warner Bros., not so good for HBO.”
Sarandos brushed aside Bewkes’s “Albanian army” comments in December to the New York Times as simply his “aggravation” about being questioned about the impact of Netflix rapid growth, expansion and high stock price. “That’s why colorful comments end up in the press,” said Sarandos.
In fact, in the future he said Netflix hopes to be able to make a deal with HBO for rerun rights to some of their original programming for the Netflix streaming service.
“Their strategy is exclusivity and Bewkes is a brilliant executive,” said Sarandos. “But they (HBO) have assets and we will eventually figure out someplace where we can do business on their content that makes sense for both of us.”
Sarandos insists Netflix is not a direct threat to pay TV, even after making deals with Relativity Media and others to replace the pay TV window of distribution on their first run movies as they leave theaters. He admitted Netflix “offers a viable alternative to pay TV as it is today,” but then insisted that the major pay services will do fine because “they differentiate on original programming. “
Sarandos noted, as have executives at Showtime and HBO, that most consumers don’t know what studio made a movie or which pay service showed that movie. “So we’re not going head-to-head with HBO,” said Sarandos, “because we’re not in original programming.
The Beverly Hills-based executive also insisted that few people will give up cable TV service and replace it with Netflix streaming and DVD by mail services. He said that is because they do not — and will not — offer live programming like American Idol or NFL football, which drives much of the viewing over cable today (often by carrying broadcast channels). “Ninety percent of cable subscription rate increases is the rising cost of sports programming,” said Sarandos. “We’re not in that at all.”
He said Netflix is actually a “compliment to pay TV” because it can offer reruns of shows like AMC’s Madmen or Showtime’s Dexter long after they have played on cable, helping build the value of those brands. He said most of the chatter about people cutting the cable cord is just hype and that the real problem is that some people no longer can afford to have cable service.
“The measureable effects of people disconnecting cable is primarily an effect of the economy,” said Sarandos.
In the near future, Netflix will continue to shift from DVD’s by mail to a streaming service. It will also greatly expand its streaming service outside the U.S. following the model in Canada — where it launched last year with English and French language services.
If there is a big question for Netflix and everyone else, it is how the marketplace and viewing will change with the continued expansion of online and mobile offerings. “The explosion of online video has just begun,” said Sarandos. “It is only beginning to become clear how it is impacting television viewing.”
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