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Netflix chief content officer Ted Sarandos shook up the Hollywood status quo twice this week with a couple of announcements signaling that the streaming video service is out to upend the existing movie business just as it’s challenged the television industry.
On Sept. 29, he announced a deal with The Weinstein Co. to finance the sequel Crouching Tiger, Hidden Dragon: The Green Legend, which will premiere on Netflix and in Imax theaters on Aug. 28. 2015. The backlash from theater owners arrived swiftly, with exhibition giants Regal, AMC Theatres and Cinemark saying they wouldn’t show the film on their own Imax screens. Then, the following day, Sarandos announced an even more ambitious pact: a deal to make four movies starring and produced by Adam Sandler (who also retains a nonexclusive, first-look deal at Sony). All four movies will debut exclusively on Netflix.
Having dropped those two bombshells, Sarandos explains how Netflix’s growing global imprint has influenced the decision to begin producing original movies, why Sandler was willing to forgo theatrical releases for the films and how exhibitors, resisting change, have all reacted “in lockstep.”
So why did you approach Adam Sandler?
The more global we become, the more access we have to global behavior data so we can see what people are watching all around the world. In our earliest streaming days, we used to have the Sony output deal through Starz. We had almost all of Adam’s movies in the first pay window in the U.S. Today, we continue to have those movies in the first pay window in Canada. And then, through various windows that follow the pay window all the way to the deep catalog, we’ve licensed Adam’s movies in all of our territories. Very uniquely, he stands out for his global appeal to Netflix subscribers. Even movies that were soft in the U.S. [theatrically] outperformed dramatically on Netflix in the U.S. and around the world.
Why is that? The conventional wisdom is that comedy is often too culturally specific to perform abroad.
I think chalk one up for data trumping conventional wisdom again. People told me a lot of things about France and Germany that aren’t true anymore now that we’ve been operating there for a couple of weeks.
But since it’s only been a couple of weeks, how quickly can you get usable data in?
Almost immediately, because we’ve been at this long enough that we can build these regression models that tell you a lot about the first day, the first week, the first hour, the first month. And there are more scholarly ways to look at Adam’s international appeal. That he’s physical. That he’s a highly relatable person on screen. His movies are very, very repeatable. And Adam has always been a success, straight through his last film, Blended. That movie cost about $40 million to make and made about $140 million around the world. Most people would kill for those results. It skewed about 60 percent international, which, by the way, is how most movies are skewing now. So it could be that Adam’s just ahead of the curve. He’s made $3 billion in box office. He’s kind of grown up with us, and people see themselves with him from when he was the silly guy back in high school all the way to when he’s the silly dad today. It’s remarkable to me that his movies carry as well as they do in Germany, throughout Latin America, in the U.K. His box office is surprisingly international for U.S. comedy.
So how does this compare to a studio deal? Will he go through a development process with your executives. Who will ultimately decide which projects get made?
We’ll collectively do it. He and [his production company] Happy Madison will develop the projects in conjunction with our team, and we’ll agree on what projects are best suited for each other.
Will they all be broad Adam Sandler comedies, or could he decide to do a more serious movie as he has done on occasion?
We anticipate they will be Adam Sandler comedies. We’d absolutely be very open and thrilled if he wants to take a more serious role in some of the projects and could extend beyond the four films to accommodate some of those films as well.
Will you have executives specifically assigned to film development?
We have a team already in place that’s been at it for quite a while. Pauline Fischer, who was previously in film acquisitions at Paramount, has been part of our team here for six years.
Sandler’s been making movies with budgets in the $40 million to $80 million range. Will you be looking at the same kind of budgets?
You should think about them as having the same size and scope as his theatrical films.
In a studio deal, someone like Sandler would also typically get some kind of back-end or profit participation. Since you’re not selling tickets, what kind of bonuses or incentives are you able to offer?
I can’t comment on the terms of the deal at all. We’re both super-enthusiastic. The deal came together beautifully and quickly, and both Netflix and Adam are thrilled with it.
Over what time period do you expect Sandler to make the four movies?
He typically does a movie a year. We have to navigate around some commitments around sequels that are already in existence. So it’s hard to say exactly how long. But outside of his sequels and other commitments, it’s four consecutive projects.
At the end of the day, who ends up owning the movies?
For all practical purposes, we have them forever. I don’t want to get into the technical nuances of the deal. These are movies that are developed and financed here, by us, and we own worldwide rights in all media.
Are there rights you will sell off down the road?
It’s too early to say. But it’s important to understand what’s different about this deal. We are offering consumers a lot of choice here. Netflix is distributed in 50 countries around the world. It’s an incredibly affordable, well-distributed product that gives anyone with access to the Internet and a screen, access to content in a very affordable way. So even without doing other sales, we are still expanding consumer choice, because we are delivering simultaneously to the world. We value the exclusivity, maybe more so than we value the other potential revenue.
You talk about exclusivity. Is there any possibility you’ll offer these movies to theaters day-and-date?
You shouldn’t expect that they will be released theatrically at all. Collectively, between Adam and us, we agreed that we were going to go right to Netflix. When we first started having the conversations, I thought doing theatrical might be the cost-of-entry to doing the deal. But Adam understands his audience. He was remarkably open to the idea that while people did see his movies in theaters to the tune of $3 billion, his real connection has come from home entertainment. His star has been raised by repeat viewing and his connection to that audience. So he was very open to the idea of going without theaters. For me, I would say my appetite to duke it out with theaters to get screens is low, because I really think the important point is we offer a lot of great access already. In the case of Crouching Tiger, I thought it was very important, coming out of the gate, to expand consumer choice for a movie that’s shot in a huge scope and can be seen on a huge screen. This [the Sandler deal] is a little different.
Were you surprised at all by the intensity of the exhibitor backlash to your Crouching Tiger 2 announcement?
No, not at all. I would keep in mind that theater owners always react in lockstep with one another, which is fine. The real result will be what happens on August 28 [when Crouching Tiger 2 is released]. Unlike some of the reports, this is not a direct-to-video movie. This is a movie with size and scope. One thing that was misreported about the Crouching Tiger deal: It isn’t the Weinsteins releasing a movie in a unique way through Netflix; it’s Netflix releasing a movie in the way consumers want it. The Weinsteins aren’t releasing the movie, Netflix is. We paid for it. It’s our deal with Imax. The Weinsteins are the producers.
What do these two deal, back-to-back, say about where you are going now?
Being able to compete for consumers’ attention and dollars over the preciousness of access is a thing of the past. Everyone is using the Internet to globally market a product. To withhold access to that product for a year-plus is a thing of the past. I think it’s bad business. All we’re doing is saying, as soon as you can see this movie, you can see it all over the place at the same time. It’s a massive consumer frustration around the world about how long they have to wait after the U.S. to see television shows and movies. In the U.S., there’s the frustration of having to wait a year to watch a movie in the format that you choose.
Going into original films, the motivation was this: We have three major output deals: We have Disney, which starts with next year’s films. We have DreamWorks Animation, which has shows on Netflix today. Both of those are family programming decisions. They are hugely trusted brands for parents and loved by kids. Lots of repeat viewing. With the Weinsteins, and we’ve said it explicitly, we intend to be highly experimental with the windows and the versions of the movies that we put out when that deal kicks in in 2016.
There’s a general consensus that movies on Netflix and other pay services are old, because they are. So for us to meaningfully move the window up to where consumers want to see a movie, we have to step into producing content of our own — similarly as how we did with House of Cards when we wanted to release all episodes at the same time. We couldn’t have done that with an off-net show. By doing this, we are putting our money where our mouth is on behalf of the consumer. [In the case of Crouching Tiger], we’ll give you the movie the same day as it’s in theaters, and we’ll put it on as many screens as we can. We’re limited to Imax, because we think Imax is a really exceptional experience for theatergoing, and this movie is big. People should have the opportunity to see it on a big screen if they want to. But if they want to watch it at home, they can stream it in 4K.
So are there more movie deals that you’re about to announce?
We have a few others in the pipeline now in various states. The typical output deal from a studio is 10 to 14 movies a year. Instead of going down the path of another traditional output deal, we wanted to do things in terms of that volume, but that would get to the screen much quicker for consumers.
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