The bat­tle for your TV

How Net­flix aims to se­cure its crown. By Mick Brown

The Daily Telegraph - Telegraph Magazine - - Contents -

Walk­ing into the Los An­ge­les head­quar­ters of Net­flix a few weeks ago, I passed a young woman stand­ing on the street out­side hold­ing up a sign. ‘Net­flix Save The OA. Hunger Strike Day 1.’ Her name was Em­pe­rial, and she was protest­ing against the de­ci­sion by Net­flix to drop a pro­gramme called The OA, a sci-fi/fan­tasy se­ries, par­tic­u­larly pop­u­lar among mil­len­ni­als, af­ter two se­ries. In the weeks that I’d been roam­ing around the Net­flix web­site prior to my visit I’d not come across it, but that’s hardly sur­pris­ing. There are thou­sands of ti­tles on Net­flix: fea­ture films, se­ries, doc­u­men­taries, stand-up com­edy, re­al­ity shows. It is one of the char­ac­ter­is­tics of the site that while there is so much to watch there is also so much to miss. You could gorge on Net­flix for a life­time and never be sa­ti­ated.

It’s im­pos­si­ble to tell how many peo­ple have watched The OA be­cause Net­flix is re­luc­tant to re­lease view­ing fig­ures for any of its shows, but it has be­come enough of a cult to in­spire a hunger strike. That’s the other thing about Net­flix. Among its ‘mem­bers’ (Net­flix is a sub­scriber ser­vice and does not talk about ‘view­ers’) it in­spires a pas­sion­ate, al­most ob­ses­sive, in­volve­ment. To not be watch­ing Net­flix is to some­how miss out on what ev­ery­body else is talk­ing about.

The Net­flix of­fices, a 14-storey build­ing, stand in the heart of old Hol­ly­wood, on the site of the old Warner Bros stu­dios, where the first talk­ing pic­ture, The Jazz Singer, was filmed in 1927. The his­toric Para­mount stu­dios are a short walk away. There could be no more po­tent a sym­bol of how tech money is trans­form­ing the tra­di­tional film and tele­vi­sion in­dus­tries – what we watch, and how and when we watch it. In the years since its mod­est be­gin­nings in 1997 as an in­ter­net ser­vice rent­ing out DVDS by post, Net­flix has risen to be­come one of the most po­tent forces in broad­cast­ing, the world’s largest film and en­ter­tain­ment stream­ing ser­vice, with 151 mil­lion sub­scribers in 190 coun­tries – al­most every­where ex­cept Syria, North Korea and China. Val­ued at $120 bil­lion (£98 bil­lion), it’s num­ber two in the list of the top 100 dig­i­tal com­pa­nies, sec­ond only to Ama­zon.

For years Net­flix had the world of in­ter­net stream­ing all to it­self, but that is chang­ing. Ama­zon’s ri­val di­rect-to-con­sumer ser­vice will shortly be joined in Bri­tain by Ap­ple TV+, Dis­ney+ and Brit­box, a col­lab­o­ra­tion be­tween the BBC and ITV stream­ing ‘best of Bri­tish’ pro­gram­ming, and in Amer­ica by Warn­erme­dia’s HBO Max and Nbcuniver­sal’s Pea­cock. All will not only chal­lenge Net­flix for new sub­scribers, but, cru­cially, po­ten­tially cut off the sup­ply of much of the li­censed con­tent that has been the main­stay of Net­flix’s out­put un­til now, driv­ing the com­pany to­wards the most ex­pen­sive com­mis­sion­ing project in tele­vi­sion his­tory. The bat­tle is on – and for some it will be a bat­tle to the death.

The lobby of the Net­flix build­ing has been de­scribed as ‘the town hall of Hol­ly­wood’ – a mag­net for pro­duc­ers, di­rec­tors and tal­ent pitch­ing their wares. On one wall, an 80ft by 12ft screen is pro­ject­ing clips from a re­cent Net­flix of­fer­ing, Home­com­ing – Bey­oncé’s be­hind-the-scenes doc­u­men­tary about her per­for­mance at the 2018 Coachella mu­sic fes­ti­val. All around are glass dis­play cases con­tain­ing her cos­tumes from the show. An­other wall is cov­ered with 3,500 plants. A cof­fee bar of­fers free drinks and snacks.

The com­pany em­ploys some 6,500 peo­ple around the world, them­selves sub­scribers to a ‘Net­flix cul­ture’, en­shrined in an ex­ten­sive mis­sion state­ment – ‘We want to en­ter­tain ev­ery­one, and make the world smile’ – that at times re­sem­bles a cult hand­book. Em­ploy­ees are urged to ‘care in­tensely about our mem­bers and Net­flix’s suc­cess’, and told, ‘Suc­ceed­ing on a dream team is about be­ing ef­fec­tive, not about work­ing hard. Sus­tained “B” per­for­mance, de­spite an “A” for ef­fort, gets a re­spect­ful sev­er­ance pack­age.’

The co-founder, chair­man and CEO of Net­flix is Reed Hast­ings. A qui­etly spo­ken man in his late 50s, dressed in a sports jacket and an open-necked shirt that give no hint of his es­ti­mated $3 bil­lion net worth, Hast­ings has been de­scribed as ‘the most pow­er­ful per­son in world tele­vi­sion’.

He of­fers a faint smile and a shake of the head. ‘No.’ That would be Bob Iger, he says, the chair­man and CEO of the Walt Dis­ney Com­pany. ‘Dis­ney has $80 bil­lion in rev­enue. We have $20 bil­lion.’ Net­flix has come a long way. ‘But we have a long way to go.’

There is an apoc­ryphal story that Hast­ings was in­spired to start the com­pany in 1995 af­ter be­ing charged $40 by his lo­cal Block­buster store for the late re­turn of

Apollo 13. It wasn’t quite like that, he says. Hast­ings, a tech en­tre­pre­neur, and Net­flix’s co-founder Marc Ran­dolph, a mar­ket­ing ex­ec­u­tive, were kick­ing around ideas in 1997 and hit on the con­cept of a business that would avoid the tire­some trip to the video store by rent­ing out DVDS over the in­ter­net. Un­able to get hold of an ac­tual DVD – then avail­able only in a hand­ful of test mar­kets – they bought a CD, stripped it of its pack­ag­ing and despatched it in a greet­ings-card en­ve­lope to Hast­ings’ home to see if it would ar­rive un­dam­aged. It did.

It was the be­gin­ning of a long bat­tle with Block­buster that cul­mi­nated in the ar­rival of tech­nol­ogy that al­lowed con­tent to be streamed di­rectly to com­put­ers and, even­tu­ally, tele­vi­sions. In 2007 Net­flix launched its ser­vice stream­ing con­tent li­censed from film and TV com­pa­nies.

In 2010 Block­buster filed for bank­ruptcy. Hast­ings ad­mits that when the store closed in his home town he felt a mo­ment of ela­tion. ‘But it meant that a lot of peo­ple lost their jobs, so there was no joy in that.’

A key to Net­flix’s early suc­cess was en­cour­ag­ing ‘binge-watch­ing’ by mak­ing whole se­ries avail­able online at once. ‘We get the credit for that,’ Hast­ings says. ‘But the real credit should go to DVD box sets. My wife and I would sit in bed and watch En­tourage, episode af­ter episode…’

‘That was the big idea that made Net­flix,’ says Andy Har­ries, whose pro­duc­tion com­pany Left Bank Pic­tures makes The Crown for the stream­ing ser­vice. ‘When they told peo­ple what they were go­ing to do, most of the studio heads and TV peo­ple told them they were mad. All the gi­ants were sleep­ing,

‘We’re do­ing this in a big way. We’re def­i­nitely shak­ing things up’

to be truth­ful. They were way too slow to re­alise the dan­ger Net­flix was pre­sent­ing.’

In 2013 it took its first steps into pro­duc­ing its own orig­i­nal con­tent, pay­ing $100 mil­lion for two 13-episode se­ries of the po­lit­i­cal drama House of Cards, star­ring Kevin Spacey and ini­tially di­rected by multi-award-win­ner David Fincher. ‘We’d re­alised that the more suc­cess­ful we were in on-de­mand de­liv­ery of con­tent, the ex­ist­ing net­works would start to want to keep that con­tent for them­selves, or there would be more com­pe­ti­tion that would be driv­ing up the prices for those pro­grammes,’ says Cindy Hol­land, Net­flix’s vi­cepres­i­dent for orig­i­nal con­tent.

The women’s-prison drama Or­ange Is the

New Black would prove an­other early suc­cess. But it was The Crown that was to re­ally project Net­flix to a global au­di­ence. The pro­duc­ers of the se­ries, Andy Har­ries and Stephen Daldry, had orig­i­nally en­vis­aged the project be­ing com­mis­sioned as a joint pro­duc­tion be­tween the BBC and an Amer­i­can net­work, and flew to LA to spend a week in meet­ings with net­work chiefs. Their last meet­ing was with Net­flix, who, based on Peter Mor­gan’s scripts for the first two episodes, im­me­di­ately com­mit­ted to 20 episodes at a re­ported cost of £100 mil­lion.

‘Frankly, it was not a hard de­ci­sion,’ Hol­land says. ‘When it’s Peter Mor­gan and Stephen Daldry want­ing to do some­thing re­lated to the Royal fam­ily, you say yes. We knew it would re­ally build on our ini­tial suc­cess in orig­i­nal pro­gram­ming, par­tic­u­larly in the UK, but would also res­onate glob­ally.’ The crit­i­cal suc­cess of House of Cards and

The Crown not only es­tab­lished an artis­tic yard­stick; it also demon­strated to the rest of Hol­ly­wood that big-name di­rec­tors and ac­tors were pre­pared to work for a stream­ing ser­vice. ‘Un­til House of Cards launched,’ Hol­land says, ‘peo­ple were writ­ing, “Why is David Fincher mak­ing we­bisodes?” They couldn’t un­der­stand it.’

Eighty per cent of Net­flix con­tent con­tin­ues to be li­censed from other com­pa­nies, but it is pour­ing huge amounts into de­vel­op­ing orig­i­nal pro­gram­ming. It has been re­ported that of the $12 bil­lion spent on con­tent in 2018, $3 bil­lion was on Net­flix Orig­i­nals – up from $1.6 bil­lion in 2017. Over­all, Net­flix is ex­pected to spend around $15 bil­lion on con­tent this year. By com­par­i­son, the BBC spends around £3.7 bil­lion, in­clud­ing its ra­dio out­put (‘But we make it go fur­ther than Net­flix,’ a BBC source told me).

Net­flix’s huge bud­gets have proved a mag­net for di­rec­tors and ac­tors whom one would not nor­mally ex­pect to find on a stream­ing ser­vice. The film Roma cost $15 mil­lion to make, but Net­flix then spent a re­ported $25 mil­lion on what has been called the most ex­pen­sive Os­car cam­paign in his­tory, which led to the pic­ture win­ning three awards, in­clud­ing best di­rec­tor for Al­fonso Cuarón. Martin Scors­ese took his new film, The

Ir­ish­man, with Robert De Niro in the lead role, to Net­flix af­ter Para­mount, which had pro­duced his re­cent films, re­port­edly baulked at the bud­get of $159 mil­lion – and its pro­posed run­ning time of three and a half hours. ‘It’s not just a ques­tion of the pur­chas­ing power,’ Hol­land says. ‘It’s more that we have the am­bi­tion to serve the needs of the artist and we’re not afraid to com­mit to bud­get lev­els that they need to tell their story prop­erly.’

‘It works if it’s a great film and ev­ery­one watches it,’ Hast­ings adds. ‘The dan­ger is putting that much money in and it turns into

Heaven’s Gate [the most ex­pen­sive flop in Hol­ly­wood his­tory]. But Scors­ese is a clas­sic film guy, and it’s turned into an amaz­ing epic, in­cred­i­ble.’ He pauses. ‘It’s back to the

Crown story. We saw it, OK, we’re in… What makes our com­peti­tors crazy is that we have that money to spend and we’re do­ing this in a big way.’ He laughs. ‘We’re def­i­nitely shak­ing things up.’

Net­flix does not re­lease fig­ures on how many films, se­ries, doc­u­men­taries and re­al­ity shows can be ac­cessed at any given time but it’s es­ti­mated the com­pany re­leased close to 1,500 hours of new pro­gram­ming last year. In­deed, scroll through the in­ter­face and you ex­pe­ri­ence a grow­ing feel­ing of paral­y­sis about what to watch – which Hast­ings calls ‘the para­dox of choice’.

Log­ging into Net­flix, no two view­ers see the same home page be­cause con­tent is ex­clu­sively tai­lored to each in­di­vid­ual, us­ing an al­go­rithm that has at­tained an al­most mys­ti­cal sig­nif­i­cance in broad­cast­ing. It is based not only on what you might have watched in the past but on where you fit into some 2,000 ‘taste clus­ters’ iden­ti­fied by Net­flix data. ‘If they want to make you watch some­thing they can re­ally push it at you,’ says Har­ries.

The sheer vol­ume and range of pro­grammes Net­flix pro­duces has both rev­o­lu­tionised and uni­ver­salised our view­ing habits. A re­ported 34 mil­lion peo­ple watched

Money Heist, a Span­ish-made drama based around an Ocean’s Eleven-style bank rob­bery. The Bri­tish-made teenage drama Sex Ed­u­ca­tion reached an au­di­ence of 40 mil­lion in its first four weeks, in­clud­ing in Thai­land, France and Spain. These are fig­ures that would be im­pos­si­ble for any reg­u­lar TV show to achieve.

Boosted by the power of so­cial media, Net­flix has be­come the new source of global wa­ter-cooler mo­ments. This is nowhere more true than in doc­u­men­taries – a field in which Net­flix ex­cels, ap­ply­ing the prin­ci­ple of mul­ti­part se­ries to a form cus­tom­ar­ily re­stricted to a fea­ture-length for­mat. One of Net­flix’s big­gest suc­cesses has been Mak­ing a Mur­derer – the story of Steven Avery, who served 18 years in prison fol­low­ing a wrong­ful con­vic­tion for sex­ual as­sault and at­tempted mur­der – which was first re­leased in 2015 and ran for 20 episodes. An­other is this year’s Fyre, about a dis­as­trous mu­sic fes­ti­val in the Ba­hamas.

‘So­cial media has com­pletely erad­i­cated ge­o­graph­i­cal bor­ders and time zones,’ says Lisa Nishimura, vice-pres­i­dent of in­de­pen­dent film and doc­u­men­tary fea­tures. ‘You saw peo­ple con­nect­ing with each other in the four cor­ners of the world say­ing, “Did you watch Fyre?” It’s very dif­fi­cult to gen­er­ate a mass of a com­mu­nity that is watch­ing some­thing to­gether, and that I think has been trans­for­ma­tive of Net­flix – peo­ple can in­stan­ta­neously be part of that con­ver­sa­tion.’

Net­flix has grown on the sim­ple premise of pour­ing in huge in­vest­ment to pro­vide more pro­grammes to lure new sub­scribers. That means ac­cru­ing huge debt – $12.5 bil­lion in Net­flix’s case – although Hast­ings main­tains that’s ‘a tiny amount’ set against the com­pany’s worth of $120 bil­lion. In July, Net­flix an­nounced that for the first time since 2011 sub­scrip­tions in the US were fall­ing, with 126,000 sub­scribers can­celling their mem­ber­ship. The com­pany had fore­cast adding five mil­lion sub­scribers glob­ally in the sec­ond quar­ter of 2019, but ended up bring­ing in only 2.8 mil­lion. The Net­flix share price im­me­di­ately dropped by nearly 20 per cent.

Hast­ings shrugs off the fig­ures as a mi­nor blip. ‘There’s a lot of con­fi­dence in the business be­cause the in­ter­net is grow­ing. That doesn’t mean the com­pe­ti­tion is not go­ing to be a big threat and we’re not go­ing to have chal­lenges, be­cause we will.

‘What we rep­re­sent to cus­tomers is great va­ri­ety, so we’ll con­tinue to fo­cus on that, and then other ser­vices will do other things.’

But not ev­ery­one agrees with Hast­ings’ sug­ges­tion that there’s room for ev­ery­body. ‘Given the choice of five or six ser­vices few peo­ple will sub­scribe to all of them,’ says Tom Harrington of media an­a­lysts En­ders. ‘If at the end of the month you look at your bank state­ment and re­alise you haven’t used Ama­zon or what­ever, you’re go­ing to even­tu­ally un­sub­scribe.

‘Net­flix have 151 mil­lion sub­scribers world­wide. They make more new pro­gram­ming than any­one else. Ev­ery­one else is com­ing from a stand­ing start. They are by far the dom­i­nant player; but the ques­tion is how do they main­tain that?’

Hast­ings be­lieves the an­swer is to of­fer sub­scribers more pro­grammes made in their own coun­tries, with a view to be­com­ing what Hol­land de­scribes as ‘a new-age global ver­sion of the tra­di­tional Hol­ly­wood studio.’

Net­flix has de­vel­op­ment of­fices in 19 coun­tries, in­clud­ing Mex­ico, France and Ger­many. But by far the largest pres­ence out­side Amer­ica is in the UK, where over the com­ing year the plan is to in­vest $500 mil­lion in de­vel­op­ing home-grown pro­grammes – in­clud­ing tak­ing a long lease on Shep­per­ton Stu­dios for film pro­duc­tion.

The new head of con­tent in Bri­tain is Anne Men­sah, the former head of drama at Sky, who talks of em­pow­er­ing young Bri­tish tal­ent like Lau­rie Nunn, whose teen com­edy-drama Sex Ed­u­ca­tion failed to find a home any­where else, but has proved a huge suc­cess for Net­flix.

Crit­ics worry that the huge spend­ing power avail­able to Net­flix, and other stream­ing ser­vices, has the ef­fect of suck­ing tal­ent away from tra­di­tional broad­cast­ers such as the BBC. One ex­am­ple of this is the exclusive deal, re­port­edly worth $20 mil­lion a year, that Phoebe Waller-bridge has re­cently signed to make pro­grammes for Ama­zon (which co-pro­duced

Fleabag with the BBC). ‘We’ve been re­ally mind­ful of not want­ing to up­set the ecosys­tem here,’ says Men­sah. ‘It’s about of­fer­ing cre­atives more op­por­tu­nity, not us ver­sus any­body else. And surely that’s only good for the UK econ­omy.’

None­the­less, the in­ex­orable rise of Net­flix, and the im­mi­nent ar­rival of other stream­ing ser­vices, makes some peo­ple ner­vous. In April of this year Helen Mir­ren ex­pressed fears that mak­ing movies that go di­rect to stream­ing, is de­priv­ing au­di­ences of the sin­gu­lar ex­pe­ri­ence of see­ing films in a cin­ema, say­ing, ‘I love Net­flix, but f— Net­flix.’

But Cindy Hol­land in­sists it’s not the end of Hol­ly­wood, or tele­vi­sion, as we know it. ‘The en­ter­tain­ment business is large, and there are many op­tions that con­sumers have and we’re just one small part of that land­scape. Peo­ple thought the stage ex­pe­ri­ence would die when ra­dio came in; then peo­ple thought ra­dio would die when tele­vi­sion came in. But all these forms still ex­ist and are quite healthy. The au­di­ences are the ones who will win.’

‘I’m sure ter­res­trial TV is good for an­other five, 10, 15 years, but ul­ti­mately it’s a de­clin­ing business,’ adds Andy Har­ries.

‘Vir­tu­ally no one un­der 30 even thinks of watch­ing sched­uled news on TV. It’s all through so­cial media. In five years’ time there may be only two or three play­ers dom­i­nat­ing global tele­vi­sion. It will be Net­flix, pos­si­bly Dis­ney+; it may well be Ap­ple or Ama­zon. But it cer­tainly won’t be all of them.’

The ques­tion is, how big can Net­flix get? De­spite the re­cent dip, Hast­ings be­lieves that sub­scriber num­bers in the US alone can grow from the present 60 mil­lion to 90 mil­lion, while an­a­lysts have pre­dicted that the com­pany could reach 200 mil­lion sub­scribers around the world by the end of next year.

‘In­dia, Brazil, Africa…’ Hast­ings waves a hand. ‘We’ve been at it for 20 years, and we’re in it for the long term. Look at it this way: Youtube has two bil­lion ac­tive users.’ He pauses to let this sink in. ‘The in­ter­net is big.’

PS: And what of Em­pe­rial? Reader, she sur­vived. Af­ter 13 days with­out eat­ing, and four weeks stand­ing on the cor­ner out­side the Net­flix of­fice, she aban­doned her protest.

She posted a mes­sage on Twit­ter. ‘No one’s done that for a show be­fore. That sends the mes­sage, this show is im­por­tant. Peo­ple will re­mem­ber this can­cel­la­tion for years to come. It will be news when it re­turns.’ It prob­a­bly won’t.

‘We’re not afraid to com­mit to bud­get lev­els that artists need’

The re­cep­tion area of Net­flix’s head­quar­ters

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