Netflix is betting its future on streaming original content. Having rebounded from last year’s PR hiccup over a poorly handled price restructuring, the company is now focusing on content. Number one in its queue: Lilyhammer, which debuts today, February 6, followed by David Fincher’s political thriller House of Cards, starring Kevin Spacey, and the continuation (finally!) of the beloved comedy Arrested Development, both expected later this year. Lilyhammer will be available exclusively to Netflix subscribers, and the company is releasing all the episodes in season one all at once.
Netflix isn’t alone in launching exclusive originals this year; YouTube, Yahoo, Hulu and others are also introducing series soon. But as the 15-year-old company gradually phases out its original means of distribution (Lilyhammer and House of Cards will not be available on DVD) it’s going to flex a muscle the other services don’t even have: With years of rentals and ratings, Netflix knows its audience’s taste inside and out and has built credibility at recommending new shows and movies. Netflix hopes that if content is king, then owning exclusive content and controlling its means of distribution will make it the ruler of the ever-growing streaming kingdom. Here, we speak to Netflix chief content officer, Ted Sarandos, on the company’s content strategy and why a mob-flavored show set in Norway was the first move.
CO.CREATE: As you get more into original programming, how do you distinguish Netflix from, say Hulu, YouTube, and everyone else who’s doing originals?
TED SARANDOS: I think that we’ve got a huge head start on things that are not easy to do: progressive streaming, to be able to stream in very high quality, even in an environment of highly variable bit rate, and to work on a big variety of devices seamlessly. So, one thing is that the site just works. Another is the content relationship. And one of the big ones: the algorithms that drive the site presentation, there are billions and billions of movie ratings and TV ratings from the DVD service and from our streaming service that give us such a high efficacy rate when we recommend. That will be very hard to catch up with. And when you have millions of choices, and we live in a world of unlimited choice, you really do need some tools to find things. And we help make sense of all that availability.
I’m intrigued that your first original series, Lilyhammer, stars Steven Van Zandt as a character rather similar to the one he played on The Sopranos.
Yeah, he’s a very familiar character in a very unfamiliar place. He’s in witness relocation in Lillehammer, Norway. So it’s this kind of great fish-out-of-water comedy of manners from two different cultures. The other thing that makes it really interesting is that it freely moves in and out of two different languages. So the show is partially subtitled in English but the Norwegian characters speak English and Norwegian. The thing to keep in mind when you watch Lilyhammer is the interesting potential, I think, of being able to overcome language barriers. Netflix has always had this interesting ability to get non-mainstream content to be watched by the mainstream.
Why was this the show to launch your originals?
By design, House of Cards was going to be our first. The initial buzz [for that show] got us on the radar to a lot of folks in the original content space. Then Stevie came to me with the show, which was already in production and they were seeking partners to make it bigger. So, our money enabled us to do a stronger soundtrack and put more production value into the show that was originally intended to be a very regional Norwegian TV show. It wasn’t like we went from a raw idea and developed a script and went out and shot it over several years. We were able to see the footage and read the scripts and actually see a lot of the footage from the show that was ready to roll.
For a show debuting so soon, Lilyhammer seems kind of under-the-radar. [Co.Create spoke to Sarandos prior to Lilyhammer's New York premiere party, at which star Steven Van Zandt reunited with his old boss, Bruce Springsteen.]
You’ll see more of the external marketing break next week. What’s unique about this initiative is we’re not really wrapped up in having a big opening and a big debut in terms of ratings. It’s not differentially important to me that anyone watches this show at any certain time. People will be discovering this show for the first time over the next several years, the same way they’re discovering Mad Men for the first time on Netflix today. But I want to try to stay out of the business of trying to influence America to do the same thing at the same time, which is a really expensive proposition.
Still, there has to be pressure from, say, David Fincher to put billboards along Sunset Boulevard. The industry norm is day-of debut hype.
There will be some of it to punch the show into the culture a little bit. You’ll see some outdoor, some magazines. It helps for booking talk shows and all that kind of stuff, but [it’ll be] nothing compared to a typical show. And believe me, it took some talking to David Fincher and [series star] Kevin Spacey and others for them to understand that we’re not really shooting for the thing that all that advertising was trying to achieve. These shows will have a big audience because the algorithms on Netflix will put it in front of the right people. They will love it versus that they have seen a billboard on Sunset and got curious about it.
Will House of Cards have the same kind of release, in which all the episodes of the season come out at once?
We’re going to do different flavors of multi-episode release on all of our shows. So by the middle of ’13 we’ll have five pretty high-profile shows on Netflix original programs, and we will try some different flavors of releasing—in batches versus the whole season. But the one thing we’re not going to do is an episode a week.
So, those five original series are…Lilyhammer, House of Cards, Arrested Development, Orange is the New Black from Weeds creator Jenji Kohan and Hemlock Grove from horror producer Eli Roth, right?
There’s nothing to talk about on [those last two] yet. It’s really early, so they’re still deals that are percolating. Arrested Development is in the writing right now, so the writers are gathering and drafting the story lines today for the show. And House of Cards will go into production in about six weeks in Baltimore.
One of the things that’s most intriguing to me about making original television series outside the established TV industry is the opportunity to break free of some of the ingrained rules and rituals, like pilot season and [the twice-annual press tour called] TCA.
We want to be mindful of not [getting] into habits that everyone wishes they didn’t have to do anymore—TCA, the fall season, all those things are examples of that. We don’t have a grid or a fall season that I’ve got to program for. So basically we’ll really be able to optimize for the best shows, and in that way we’ll be able to attract the best talent, because they won’t be under the grind of having to hit a delivery date that for us would be completely arbitrary to start a show. I mean of course we want to land on a launch date and build the marketing around it, but our first and primary focus is to build great shows for as many people as possible, using the data that we have on our customers’ taste preferences. So, from there we can come up with what’s the absolute size of an audience for a show like this, and then how can we find them in a really effective and efficient way, and let the talent, in this case David Fincher, create the best possible show without a lot of involvement from us, which typically you’d have to deal with a network.
But any network, even the best, like HBO and FX, gets very involved in the creation of their series. What’s the thinking behind being so hands-off?
Well, it’s a strategy of betting on the talent, right? And it plays out a bunch of different ways for us. A: We’re not doing a traditional pilot or development. The networks today will green-light projects for development first and then send them to pilot and then from pilot to series, and in that process there are millions and millions of dollars spent for a product that never sees the light of day. I feel like if we can use the combination of basically data-driven hunches and bet on really first-class talent to deliver the shows, that I think we could do as well as the networks do, who basically have a 75 to 80 percent failure rate for new shows anyway—even after all that development and pilot work. There are bad shows, but most shows fail because they didn’t work in their time slot and the pressures of the performance in the time slot are so high.
The reason why television is becoming so popular—for us it’s become more than half of what people are watching on Netflix—[is because of] this long-form serialized storytelling. In some ways it’s like the new literature, you know, where you have the ability for a story to develop and for characters to develop, and more importantly for the audience to develop relationships with the characters.
How much is it costing you to make a show compared to what networks are spending?
The efficiencies aren’t in production for us, but the efficiencies will be in marketing. You know, where we won’t need to spend as much as we spent on production to find the audience for the show. We think we can very efficiently and effectively find the audience for these shows.
In other words, what you’re spending to produce shows is comparable to what networks spend?
Yes, correct. And if we’re doing it really well we’ll be able to take the marketing dollars and put it into spending more than the network is spending and produce better product.
I feel like one of the things you must grapple with all the time is something many other companies are experiencing nowadays: the double-edged sword of the direct response of consumers. In the case of Netflix, you have a relatively new business that is more complicated than the general consumer might understand. I was on the Netflix blog the other day and I saw people complaining that the latest episode of 30 Rock isn’t available for streaming on Netflix, which is perhaps more a matter of not understanding the business model than anything else.
I think it actually comes over time for people. The longer they are a Netflix subscriber, the more they understand and appreciate what we are instead of, you know, are frustrated by what we’re not. And for us there’s no limitation to having that kind of content, except for the price point. So, [the aim is] to have as much product and as much content as you can in the appropriate windows that’s consistent with an eight dollar, all-you-can-eat proposition.
Well, sometimes that’s not about price point but that, say, NBC has a pre-existing distribution deal of some kind, right?
You can buy those out. You can buy those windows out, but it would be inconsistent with a low price point if you do that. We can have movies before the HBO window by buying out the pay-per-view windows, but it would be inconsistent with the eight-dollar price point to have that content.
The other thing about it that’s frustrating for people is that we set a very high bar with the DVD business by basically having everything ever published on DVD. [But] as we’ve become a global streaming company we won’t have some of the same properties that the DVD through the mail business had, and that’s a really key one. So, different windows and different levels of completeness, in exchange for all-you-can eat distributed across all of your devices and in different windows. But remember, in this world we’re navigating television-licensing deals that were cut 10 years ago in some cases where windows are sold and pre-sold for a decade at a time on certain movies, so the notion of completeness is not impossible, it’s just impossible at eight dollars a month. So, as people get better in tune with product, they figure out that we’re closer and closer to a kind of a superior flavor of premium pay television. We’re closer to HBO than we are to the entire grid of cable on demand.