Netflix's Ted Sarandos Heckled at Cannes: "You Will Destroy the Film Ecosystem in Europe"

DEAL OF THE WEEK: Ted Sarandos

Netflix chief content officer Ted Sarandos, speaking at MIPCOM, said the company's shift to originals is in part a reaction to customer demand because TV shows account for 50 to 60 percent of viewing on the service.

In a heated exchange during Sarandos' Cannes keynote, Harvey Weinstein stands up to defend Netflix as a "visonary company."

Netflix chief content officer Ted Sarandos came under fire from European film protectionists during his keynote at the Cannes Film Festival on Friday.

When the floor was opened to questions, one French reporter asked Sarandos "if he was aware" that within "5, 10, 15 years," the Netflix model would "destroy the film ecosystem in Europe." At issue was Netflix's policy of not contributing to European film subsidies as most broadcasters in Europe are compelled to do. 

Sarandos rebuffed the heckler, saying Netflix would "grow the European film ecosystem" by providing a global platform for European filmmakers. Before he could continue, Harvey Weinstein came to his defense. The Weinstein Co. boss, who was sitting in the front row of the NEXT conference in Cannes, grabbed the microphone to defend Netflix as a "visionary company" and to trash Europe's film subsidy system.

"I'd rather politicians spend money on hospitals and schools" than on film subsidies, Weinstein said. He added Netflix's entry into the European market was "a wake up call" to the "monopolist" European broadcasters such as France's TF1.

Weinstein argued that Netflix has created a new market for European cinema in the United States, citing the figure that 1 million Netflix subscribers in the U.S. watch French films. "The last foreign language movie that was sold to American network was Costa-GavrasZ back in 1970. "That's the American networks who take European product and basically say 'we don't want it,' " Weinstein said. 

Earlier, Sarandos engaged in a wide-ranging discussion outlining Netflix' strategy vis-a-via films. 

Some of the key points: 

On Netflix versus movie theaters, Sarandos said: "We're not anti-theaters, we're pro-movies." He explained: "Nothing on Netflix can compete with wanting to go out to the movies with your girlfriend. If you don't want to put on your shoes, nothing in the theaters can compete with Netflix." He noted that Netflix was willing to work with theaters to release Netflix films simultaneously day-and-date. "The onus is on us to make movies that are so good the theaters will book them even if they are going out on Netflix." 

Sarandos also discussed windowing issues, saying: "Everything about the way we consume entertainment has been changed by the Internet except the first window for theatrical," noting that waiting 36 months between a theatrical release and an SVOD bow — as is required by law in France — was "too long" and would mean Netflix won't release its movies in France in theaters until the law changes. 

Discussing Netflix's business approach to acquiring movies from independent producers, as the company has done with Cary Fukunaga's Beasts of No Nation, Sarandos said: "All the films we do at Netflix will be profitable to the producer, there will be a premium to the budget. That is unique to the culture." Discussing Netflix's thinking about backend payments, Sarandos said: "We try to compensate via what we think the backend would have been ... It is discounted but it is guaranteed." He added: "There is no backend because there is no incremental revenue we are earning off that."

He said while Netflix would also make films budgeted "above $50 million" the company was mainly looking to make medium budget films of the kind, the Netflix executive said, that are usually money-losers in the traditional market because of the huge cost of P&A. "Those movies have to do so much box-office revenue to make a profit. Most are a losing propositions," Sarandos said.

Sarandos said financing movies directly — either through acquisition pick-ups or developing original film content — was a more efficient use of Netflix's programming budget."It costs roughly a billion dollars for a U.S. output deal with a studio," he said. "For that same billion dollars, we could invest in a slate of original films that could be competitive in terms of A-list actors and directors that we would have around the world. And where we would not have to wait 10-12 months and I have to hold my breath and hope that the studios market it well."

Asked about how the company picks which films to invest in, Sarandos called the process "data driven hunches," using both the company's algorithms and the instincts of its staff. He used the example of Adam Sandler, with whom Netflix has a four-picture deal, as one in which the company's data contradicted conventional wisdom. 

"He is more global (in appeal) than anyone would have anticipated. Most people think American comedy doesn't travel well. but we found American comedy travels very well and Adam Sandler travels very well," Sarandos said. "In the last 20 years, he has made 20 films and every one of those 20 films has worked in every place of the world and in every window."

Pleasing the crowd of European producers, Sarandos said Netflix would "definitely" finance original local language films.

Sarandos was also asked about TV ratings. "The focus on ratings has led the television industry to be increasingly risk adverse, to yank things off the schedule because they didn’t work in the first two to three weeks. I think TV shows have something like a 75-80 percent failure rate." He added that the focus on ratings has led the industry to make "increasingly popular but not increasingly better programming. We don’t want to start this arm’s race."

Addressing Netflix's plans to have a worldwide presence and related content rights issues, he reiterated: "We are planning to be fully global by 2016, when most of our new original programming will be delivering, so we are not selling off any markets for that."

Sarandos was introduced by film festival head Thierry Fremaux. The conversation was moderated by Le Film Francais editor Laurent Cotillon.