Edinburgh TV Fest: Netflix's Ted Sarandos Defends International Expansion, Content Spending

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.

UPDATED: The company's content guru says digital release dates still vary too much around the globe, but "if you believe in the international growth model, you invest in Netflix."

EDINBURGH - Netflix has confidence in its international strategy and will continue launches in new countries to become a global player over time, chief content officer Ted Sarandos said here Thursday.?? He also defended big bets on original content, saying that taste-based algorithms give the company trust that it won't have major flops that cost it big amounts of money.

"If you believe in the international growth model, you invest in Netflix," he also said during a Q&A after his Futureview Address at the Edinburgh International Television Festival when asked about the company's weak stock price. "If you don't, you don't." The company has previously said it would return to profitability in 2013 following near-term losses due to its international expansion.

Netflix's stock has been under pressure this year amid new competition and international losses. On Wednesday, the stock had closed at $65.49, giving the company a market value of $3.63 billion. ?In late August 2011, it had set a 52-week high of $241.88, but early this month, it set a 52-week low of $52.81.??

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Sarandos vowed that the online streaming giant would continue its expansion outside the U.S. after launches in Canada, the U.K. and Latin America. A Nordic service is coming in the fourth quarter.

Netflix is currently in multiple markets, and it wants to be global, he emphasized. "The rest of the world will follow. It's just a question of time," he said when asked what territories will be next. He didn't comment when asked if France or Germany could be next. Netflix picks markets where it sees ability to reach scale rapidly, he said.

He also made light of continuing reports about how Netflix is stealing viewers from Viacom's Nickelodeon and other traditional TV networks. "It makes very good press," he said, but in reality, Netflix is a "friend and ally" for consumers and TV companies, Sarandos said. The company helps to globalize content and has struck financial deals with content producers that "increasingly make it possible for high-quality TV shows to be produced," he said.

But he called on changes to digital licensing deals and release schedules around the world. Hunger Games is offered by Netflix "in all our markets," but the launch dates are months apart, because the company had to strike deals with different companies in different territories. Latin America saw an Aug. 18 debut of the film on Netflix, Canada will get it in another four months, the U.K. in another six months, and the U.S. only a few months after that. That will "cause piracy to flourish" and people to be frustrated, said Sarandos, vowing to try to create "more global relationships" given the Internet's global reach.

STORY: Netflix Touts 1 Million Subscriber Milestone in U.K., Ireland

Sarandos cited examples for how Netflix helps content producers and networks. For example,  50,000 people in the U.S. watched the fourth season of Breaking Bad in the 24 hours before the premiere of the new season, he said. Also, Mad Men gained viewers during its latest season, a rare feat for a show that has been around for several years, Sarandos said.

Asked about how he evaluates licensed and original content, Sarandos said Netflix's licensing groups are measured in terms of viewing. "It's the engagement that matters," he said.

Taste-based algorithms, track records and hunches count when it comes to originals. Kevin Spacey's and David Fincher's fan base, data about the interest in the old BBC mini series House of Cards and a production firm with a track record all make House of Cards a good bet, Sarandos said. In the worst case, he said he will end up with a somewhat mediocre show, lackluster views and a possible loss, he said.

Netflix's original content strategy, built around such upcoming series as the $100 million David Fincher project House of Cards and the return of Arrested Development, was another key topic that he discussed in front of the TV industry crowd.?? And so was whether content and pay TV giants should worry about Netflix, to which he reiterated that Netflix is an ally.

With eight episodes shot for House of Cards, "we are very thrilled," Sarandos said, showing a brief trailer.

Talking about Arrested Development some more, he showed some production stills. He quipped that the cast seems so excited to be back working on the show that they "keep tweeting pictures." The shoot for Hemlock Grove is a couple of episodes into production, he added, showing a couple of stills as well.

While he didn't put a dollar figure on Netflix's original programming strategy despite several questions, he said it was a small percentage of the company's total content costs.

??Sarandos opened his speech by emphasizing Netflix's increased role for TV companies by highlighting that it was his first time at the gathering. "As a TV nerd myself, this is heaven," he quipped.

Earlier this week, Netflix said that it has crossed the 1 million-subscriber milestone in the U.K. and Ireland within seven months of launch - "faster than in any other territory it has launched."?? Sarandos also addressed the topic of European competition from the likes of Amazon.com's LoveFilm. Sarandos said he didn't know how many of them were short-term promotional users, but said the figure was likely in line with other territories.

Asked about competition with U.K. pay TV giant BSkyB, he said that Netflix will negotiate for various upcoming pay TV content packages and see how things go. Sarandos also mentioned a recent U.K. Competition Commission decision, which confirmed that pay TV giant BSkyB, in which Rupert Murdoch's News Corp. owns 39 percent, has no material advantage in pay TV movies. It said that it would not suggest any regulatory action, citing the rise of streaming video providers Netflix and LoveFilm.

Asked if BSkyB's Now TV online-only content service was a threat for Netflix, Sarandos said: "I don't know that it's a direct threat." He said he would be more worried about TV Everywhere services, such as Comcast's Streampix. "We just have to compete with them and beat them," he said in expressing confidence. In terms of service offered, he said he was really confident about Netflix's competitive position. And in terms of content licenses, he said he was also fairly confident based on past experience, emphasizing that Netflix is now a key part of entertainment companies' financial returns.

So should European pay TV giants like BSkyB or Canal Plus be worried? No, because Netflix is giving consumers the choice and content that allows them "to fall in love with TV again," Sarandos argued.

Asked about competition with Amazon.com's LoveFilm, Sarandos said Netflix is competing using its "superior" product. 

Questioned if the costs of its U.K. push was too high to digest, Sarandos said "we are investing in this market, because we believe it has the potential to be a big market." He added: "If you think the [content] fees are too high, then they are too high for the BBC and Sky, too."

Sarandos on Thursday didn't comment on Netflix's plans for its current digital content distribution deal with U.S. premium TV venture Epix. The exclusivity period of the deal ends in the coming days, and Netflix can choose to extend it or continue the arrangement on a non-exclusive basis. That would allow Epix to also do digital distribution deals with the likes of Amazon.com and others.??

He also didn't mention and wasn't asked about Time Warner's HBO, which Netflix CEO Reed Hastings has called a key competitor for the company, but one the firm would like to work with. In his latest quarterly earnings letter to shareholders, Hastings had said there might be ways for the two parties to work together - only for HBO to come out and say it wasn't in any talks with Netflix and wasn't planning any collaboration. 

Email: Georg.Szalai@thr.com?

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