Friday, December 11, 2015

Netflix (NFLX) comments [CCO Ted Sarandos] from 43rd UBS Conference (12/07/2015)

43rd Annual Global Media and Communications Conference
Netflix (NFLX)
Speaker: Chief Content Office – Ted Sarandos
Tuesday: 12/07/2015

  • Goals and targets moving forward? Aspiring to take Netflix global, keep chewing away at this effort. Available and relevant in every part of the world.
  • International growth – launching territory by territory, started out as country by country then region by region. In 2015 launched Italy, Spain, Portugal, Japan, Australia. Pretty ambitious year, all has gone well. (New country launch) Pretty minimal disruption. Used to be disruptive for the company, now not so much.
  • Now we are a global buyer of shows and rights from TV instead of regional. Some resistance but only really from regional content sellers. It’s a structural change. The studio partners are wrestling with it. We are kind of alone in this space of buying global rights.
  • How to measure since we can’t do overnight ratings? We look at the net subscriber growth, which means people are attracted because of the great content. People stick with it because easy interface, easy to use, like the programming, like the product. Our high quality, original content is growing. Internally we look at the hours of programming per user, externally would look at net subscriber growth which measures the health of the business.
  • Challenges and opportunities for the budget? About 16 original series growing to 31 next year. Have 10 feature films in process or production, over 12 documentary series in 2015, some kid shoes. Last year had 10 Golden Globe nominations, etc. its high quality.
  • $5b programming and amortization and $6b of cash spend for 2016? Yes, still those plans.
  • ROI of spending knowledge? Most of the territories have different economics, you learn with each launch.
  • 2015 launches? Jessica Jones, Daredevil, etc. In DVD days, had over 100,000 DVDs in library. We have to have a breadth of programming to appeal to everyone. Jessica Jones or Daredevil? In viewing fight, they are neck and neck.
  • Nielsen – picked a week, probably cherry picked, likely in Spring, the #1 show was “Game of Thrones”. #2 show of all TV – broadcast cable, etc., was a Netflix show…” We were probably #1, the data doesn’t measure all of the devices. If the 4 networks and all on TV, sure. If Netflix is watched on 700 SKUs across the world, the mix between laptop, iPad, TV is different, thus the viewership is probably not captured. We have some of the most watched shows on TV.
  • Netflix is streaming in 4k, better than TV. It is higher technical and artistic quality.
  • Investors are very interested in next new original shows, you say 31 shows next year. What’s exciting?….The Crown (Queen Elizabeth story in UK). The Get Down (birth of hip-hop in NYC in 1970s). The Ranch ( Warner Bros in LA), and the revival of Full House. Stranger Things.
  • Kids performing? Some data shows Netflix on top. Having real success with legacy kids brands. About half of households globally are engaging in kids content regularly. Possible shift from Nickelodeon to probably Netflix.
  • Netflix definitely not getting into nightly news. Vice is getting into nightly show with HBO, but we aren’t. Not getting into news gathering space, news gathering is probably fairly commoditized, not in line with on demand strategy. People watch news and sports because it is live. People go to Netflix for the control of the On Demand part.
  • Long term interest in sports? People think of Netflix as a substitution for cable, they get frustrated at their cable bill each month, but they keep cable for sports. For me, never saying we wouldn’t do sports, but the Netflix On Demand strategy doesn’t enhance sports viewing experience. People want to know who wins the game at the same time as everyone else. Problem I have is the leagues have all the pricing power for forever. If model where we could create our own sports league like ESPN with the X-Games then that’s what would get me interested.
  • Cable networks maybe sold too much to Netflix? What you’re seeing is a fundamental change in consumer behavior. People are watching On Demand. It is SVOD. Studios and Networks used to make a lot of money where people used to watch it. Now it is Netflix is where the viewer is. If you want to make money, need to sell it to Netflix, it is just a change in who the buyer is. Vertically integrated companies are not built to optimize. If you create content you should sell it to the highest bidder, even if it is not your parent company. That’s the rub for vertically integrated media companies.  FOX has the top show on ABC – Modern Family. They sold it to someone else. This is not something unusual – selling it to a competitor. The billions of dollars from NFLX being the buyer helped media companies, otherwise there wouldn’t be a buyer.
  • Hard to know what is the next big thing in terms of shows. Success ratio of any given network is not that great. We would rather pay for the hits and avoid the misses, which is the second window we can buy it. AMC – have a great relationship. Walking Dead was great. Breaking Bad from Sony. Mad Men.
  • Investors have been concerned that Netflix has too good of a job  because maybe NFLX bought rights in second window at too good of a price, media companies didn’t know how big NFLX would be, and the viewership is high. If marked-to market all deals versus if have to today, would it be different. Netflix built a great business from a lot of content, not just some of it. People pay for discovery. Premium is associated with a brand, but you also have to deliver the viewing as well. Discovery will make it harder to replace content, more distinguishable.
  • Hulu, are they driving price up for everyone? Ownership structure is confounding. The amount of money spent on stuff outside their ownership of the three – Comcast/Fox/Disney, it is surprising. Probably driving up pricing on themselves and Amazon. We are disciplined to let some stuff go. If you track third party data, today came out that Amazon and Hulu are still about flat, and Netflix is up 60 bps to 37% of all North American traffic. Hulu is 22.6% and Amazon 3.1%, basically flat to slightly up.
  • International –how has global launch impacted strategy on programming? Ramping up non-English local programming. More than 1mm US subs that watch French content. Want to do more local language.
  • Programming as % of revenue leveling off? Trying to figure out margin, how much market share NFLX can win and how much you can invest in programming. Internally, trying to figure out programming and where the curve ends. Looking for hours per users (median and average) helps us check programming spend, which is good indicator on retention, They spend time on platform and stay on longer. Market like Japan, first big Asian market for us. Mostly Japanese stuff – 95% TV is Japanese and 90% is Japanese film. At least 30% offering is non-Japanese.
  • Germany and France? 2mm subs in that region, Reed just announced. Programming strategy – they are really attracted to original programming from us. 8 out of top 10 are original. Adding local flavor helps and we will accelerate the pace.
  • Southern Europe – how much already acquired vs. how much left to go? (NFLX purchases some in advance to entry of country). Try to keep a lot of dry powder to add stuff once we enter the market if we need some additional genre once we enter the market. Original shows act as a brand ambassador around the world for NFLX. Focus has been on enthusiasm on original programming.
  • Movies? In golden age of TV, still 1/3 of watching on Netflix are movies. Our movies are old. For first release, some of our movies are 10 months old, some are 9 years old. Very resilient 30%. Want to improve movie mix but adding originals. Improving output means adding more 10 month old movies. Instead of spending another $1 billion on 10 month old movies, we should create our own content. We are still entering an output deal with Disney, which is a whole new deal. They are solely differentiated among the brands. Avengers, Disney animated features, or Star Wars. People don’t care about Paramount studios brand. Releasing another Adam Sandler move in next few weeks. He is pretty bankable. Even Pixels - $80m movie than has done > $250m at box office. He is a global superstar. 

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