Post Subscriber Hiccup, Netflix Piles Praise … on HBO

After disappointing Q2 subscriber growth numbers, Netflix senior management on the fiscal webcast took the high road deflecting the subscription streaming service’s first domestic quarterly decline (since 2011) while adding only half of projected international subs.

CEO Reed Hastings said it might be easy to “over-interpret” the lack of sub growth but that under similar circumstances three years ago  management also could not be confident of any specific reason for the slowdown.

“Then, we were $2 billion in quarterly revenue,” Hasting said. “Now, we’re $5 billion. We’re just executing forward and trying to do the best forecast we can.”

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When Netflix launched streaming video 12 years ago, there were three competitors (Hulu, Amazon and YouTube). Now, media giants NBC Universal, Disney, Apple and WarnerMedia are launching high-profile competitors – and taking their Netflix-licensed content with them.

Regardless, Hastings said Netflix remains in excellent position as the No.1 SVOD service in the world with more than 151 million subs.

“If investors believe in Internet television … then our position in that market is very strong,” he said.

Chief content officer Ted Sarandos said the service continues to focus on creating original content developed in local markets with global appeal.

He said recent releases “How to Sell Drugs Online” (Germany), “The Rain” season 2 from Denmark and “Quicksand” from Sweden, have generated upwards of 15 million combined viewers globally.

Netflix is expecting a similar reception to the second season of India’s “Sacred Games,” which launches this quarter.

“What’s been amazing is [that the shows have] been deeply relevant in the home country, traveled the region very well and found global audiences,” Sarandos said.

With WarnerMedia set to launch SVOD competitor “HBO Max” in early 2020, it was interesting to hear Netflix brass sing praise for the venerable premium pay-TV channel. Indeed, Hastings said most Netflix employees subscribe to HBO.

“We love the content they do and that spurs us on to want to be even better,” he said. “So, it’s a great competition that helps grow the industry.”

Sarandos congratulated HBO for re-taking the Primetime Emmy Award nominations title, which Netflix claimed from the network for the first time in 2018 after 17 years.

“They continue to be the gold standard that we chase, and we’re really thrilled for them,” Sarandos said.

Netflix Names New Chief Marketing Officer

Netflix July 12 announced that Jackie Lee-Joe has been named chief marketing officer, replacing Kelly Bennett, who retired earlier this year.

Lee-Joe has served as CMO of BBC Studios, part of the British Broadcasting Corp., since 2015.

“Jackie is a truly original thinker with a wealth of global experience – making her the perfect fit as our next Chief Marketing Officer,” Ted Sarandos, chief content officer, said in a statement.

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A graduate of the University of Sydney and the University of New South Wales, Jackie joined the BBC in 2015 from Skype, where she was global director for audience, entertainment marketing & broadcast media.

She has over 20 years of marketing experience with leading media, technology and telecoms companies including Virgin Mobile, Carphone Warehouse and Orange. Lee-Joe starts in September and will be based in Los Angeles.

Netflix reports second-quarter financials on July 17.

Netflix Leasing Production Space at Pinewood Studios in the U.K.

Netflix reportedly has signed a 10-year lease for production space at the legendary Pinewood Studios in the United Kingdom.

Specifically, the deal includes access to 14-stage studio space, in addition to office and workshops at Pinewood’s Shepperton Studios, according to Deadline.com.

“Shepperton has been synonymous with world class film for nearly a century and it’s an important production hub for the U.K. creative community today,” CCO Ted Sarandos said in a statement. “We’re incredibly proud to be part of that heritage. This investment will ensure that British creators and producers have first rate production facilities and a world stage for their work.”

Earlier this year, Netflix inked deals for facilities in Toronto, on top of previous content production hubs in Madrid, Paris and Amsterdam. The SVOD behemoth is also opening a New York city office.

Marketwatch reports Netflix is also working on projects across Mexico, Spain, Italy, Germany, Brazil, France, Turkey and the entire Middle East.

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International productions satisfy local quotas in addition to supporting rapidly expanding OTT markets in Germany, Spain, France and India compared with the maturing U.S. market.

Netflix reports second-quarter (ended June 30) financial results July 17.

Netflix Reportedly Eyeing Content Budget Restraint

With Netflix’s fiscal second-quarter ended June 30, the SVOD pioneer reportedly is re-evaluating its prolific content spending.

The service, which ended Q1 with $18.9 billion in third-party content obligations, spent more than $12 billion on original content in 2018 — a fiscal largess senior management is now scrutinizing.

CCO Ted Sarandos in June reportedly held a meeting with mid-level managers with a revised mandate that spending on original content should be commensurate with viewership — especially among new subscribers and long-time inactive members, according to The Information, which cited people at the meeting.

Netflix heretofore has eschewed spending restraint in favor of content’s social media buzz and establishing industry legitimacy.

“They are the leading game in town and were probably overspending relative to what they need,” analyst Michael Nathanson with MoffettNathanson told the website. “Now that they are in a strong position, they probably want to allocate more of that spending overseas.”

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The service in recent years has blown up industry norms outspending/bidding over-the-top competitors and traditional pay-TV players for content and exclusive license agreements.

With domestic sub growth maturing and a bevy of pending OTT video services launching from deep-pocket competitors such as Apple, Disney, WarnerMedia and NBC Universal, among others, Netflix now wants original programming to pay for itself — a challenge for a business model that shuns advertising, the theatrical window and transactional VOD.

Sarandos, according to The Information, was at odds with the reported $115 million spent on Triple Frontier, the original action movie with Ben Affleck and Charlie Hunnam (“Sons of Anarchy”) that apparently didn’t resonate with subscribers — or the service’s bottom line.

In fiscal 2018, Netflix generated negative cash flow of $3 billion on revenue of $16 billion — a figure projected to increase to $3.5 billion in fiscal 2019 — much of it due to content spending.

“There’s been no change to our content budgets, nor any big shifts in the sorts of projects we’re investing in, or the way we greenlight them,” said a Netflix spokesperson.

Meanwhile, pending original movie The Irishman, from director Martin Scorsese has a reported budget of $150 million. With Netflix eyeing the mob thriller for next year’s industry awards, the service will have to compromise on its concurrent theatrical/streaming release mandate, says Michael Pachter with Wedbush Securities in Los Angeles.

“We expect Netflix and exhibitors to reach an accommodation where there will be a shortened window in exchange for lower film rent,” Pachter wrote in a July 1 note.

A typical film earns 83% of its box office within four weeks, and 96% within 60 days, which Pachter believes could soften exhibitors’ revenue loss to around 3% as the result of a shortened theatrical window to appease Netflix’s business model.

“We think that if studios or platforms like Netflix are willing to trade film rent for an earlier window, the negative impact on exhibition would be limited particularly for films well-suited for the big screen,” Pachter wrote. “The Irishman may fit the bill.”

Netflix reports Q2 fiscal results July 17.

Disney to Join Growing Hollywood Bandwagon Ceasing Operations in Georgia Should Anti-Abortion Ban Take Effect

The Walt Disney Co. could join Netflix and other Hollywood actors and production companies who say they would stop working in Georgia should a recently signed anti-abortion law take effect on Jan. 1, 2020.

Speaking to Reuters, Disney CEO Bob Iger was asked if Disney would continue to make movies (Black Panther) and TV shows in the state should statewide legislation outlawing a woman to abort her pregnancy after six weeks become law. Georgia currently bans abortions after 20 weeks.

Georgia Gov. Brian Kemp signed the legislation on May 8.

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“I think many people who work for us will not want to work [in Georgia] and we have to heed their wishes in that regard,” Iger said. “Right now we’re watching it very carefully. I don’t see how it’s practical for us to continue to shoot there.”

Disney’s possible departure from Georgia could be a major blow to the state’s lucrative film business, which employs thousands and generates billions in annual revenue by offering studios generous tax incentives.

In addition to Panther, Marvel Studios Avengers: Endgame, Captain America: Civil War and Guardians of the Galaxy 2, among others, filmed in the Peach state.

Disney’s possible pullout of Georgia is reminiscent of a similar ploy when Georgia lawmakers attempted to ban same-sex marriage within the state.

Disney came out against the proposed legislation, claiming it was an affront to personal civil liberty.

“Disney and Marvel are inclusive companies, and although we have had great experiences filming in Georgia, we will plan to take our business elsewhere should any legislation allowing discriminatory practices be signed into state law,” a spokesperson said at the time.

Then Georgia Gov. Nathan Deal quietly vetoed the legislation.

Netflix Seeks New $2 Billion Bond Debt as Executive Compensation Balloons

With Netflix continuing to exponentially outspend ($12 billion in 2018) its over-the-top video rivals on original content and other corporate needs, the SVOD pioneer April 23 disclosed it is seeking an additional $2 billion in long-term debt financing.

The new bonds — Netflix’s first in six months — would be carried out in a two-part deal with an undisclosed interest rate and maturity date.

Netflix ended first quarter (ended March 31) with more than $10.3 billion in long-term debt – up 58.5% from long-term debt of $6.5 billion in the previous-year period.

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The SVOD behemoth could theoretically ask co-founder and CEO Reed Hastings for the funds. The 58-year-old Hastings ended the fiscal period with more than 10 million outstanding Netflix shares, worth more than $3.7 billion.

Separately, Hastings saw his total 2018 compensation increase 48% to $36.1 million from $24.4 million in 2017, according to a regulatory filing.

Chief content officer Ted Sarandos saw his compensation increase 32% to $29.6 million from $22.4 million in 2017. The executive ended the period with more than 490,000 Netflix shares worth $184.2 million.

Chief product officer Greg Peters received $12.5 million in compensation – up from $8.6 million in 2017; excluding $89 million in stock holdings.

Former CFO David Wells earned $5.4 million from $4.5 million, excluding $73.5 million in stock.

Finally, chief marketing officer Kelly Bennett, who is leaving the company, earned more than $7.3 million in 2018. He will exit the company with nearly $20 million in Netflix stock.

Ted Sarandos: Most-Watched Netflix Shows are Originals

Much attention has been given to major media companies such as Disney, NBC Universal and WarnerMedia pulling back content licensing to Netflix for their own branded over-the-top video platforms — and what impact that would have on the SVOD juggernaut.

Not much, according to CCO Ted Sarandos, who says the streaming service has anticipated such changing market dynamics for the past seven years.

Speaking on the April 16 fiscal webcast, Sarandos said CEO Reed Hastings and others long ago concluded Netflix’s future required streaming original scripted series, unscripted series, feature films, documentaries, standup comedy and children’s programming.

“And that’s what we set out to do,” he said.

Reed Hastings and Ted Sarandos

Longtime Netflix bear Michael Pachter, media analyst with Wedbush Securities in Los Angeles, contends about 80% Netflix’s content license deals with WarnerMedia (“Friends”) and NBC Universal (“The Office”) expire in 2020.

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Disney’s exclusive feature film agreement ends this year. Netflix’s recently cancelled Marvel Defenders Universe series, which included “Daredevil,” “Jessica Jones,” “The Punisher,” “Luke Cage” and “Iron Fist.”

“Netflix can thrive in the face of new [OTT video] competition only if it has the content to compete,” Pachter wrote in an April 17 note, aptly named, “Netflix: 57 channels (and Nothin’ On).”

Hastings characterizes any comeback strategy aimed at filling in exiting studio content with similar programming as “very minimalist.”

“You look at [global nature series] “Our Planet,” that’s not filling in for anything else, that’s setting a bold new vision of what programming can be,” he said.

Sarandos said Netflix original interactive series “You vs. Wild” has been streamed by about 25 million households in its first 28 days of release. Pending releases include Klaus, Netflix’s first animated feature film from veteran animator Sergio Pablos, and “Green Eggs and Ham,” an Ellen DeGeneres-produced 13-episode animated series.

“It’s pushing storytelling forward, which I think we’re trying,” he said.

The longtime content executive contends most TV programming is largely interchangeable. Netflix’s focus, according to Sarandos, is original programming (such as India’s “Sacred Games,” and “Love Per Square Foot,”) targeting local audiences that can appeal globally as well.

“If you look at our Top 10 most-watched shows on Netflix, they’re all Netflix original brands,” he said, adding that only four TV series among the service’s Top 25 have at least one season available elsewhere.

“It’s hard to imagine a couple of years ago when Fox said, ‘sunset all of their second-window content on Netflix off of the service to focus on their own efforts,’ and we’ve seen how we’ve been doing since 2017, so we’re pretty happy about it,” Sarandos said.

So is Wall Street, which lifted Netflix shares nearly 3% in April 17 pre-market trading.

On Eve of Financials, Netflix Naysayers Out in Force

NEWS ANALYSIS — With Netflix reporting first-quarter fiscal results after the market close today, some pundits suggest the subscription streaming video behemoth has suddenly become vulnerable to a host of challenges — both real and imagined.

Disney is set to launch a branded SVOD service in November with content previously earmarked for Netflix, and WarnerMedia and NBC Universal are pulling back licensed programming (“The Office,” “Friends” and “Grey’s Anatomy”) as well for proprietary services.

As a result, scuttlebutt suggests Netflix is scrambling to fill the void.

“Just throwing tens of billions at developing more original TV series and movies may not be enough on its own to keep the company growing domestically at the rate needed to reach its goal of 90 million US subscribers,” Helen Back with research firm “Kill the Cable Bill” wrote in a post.

Separately, online pundit “The Entertainment Oracle” contends Netflix has a “Game of Thrones” problem that has nothing to do with the fact the ratings hit resides on rival streaming service HBO Now.

The argument being that the high profile fantasy series — currently airing/streaming its last season — continues to fuel old-school water cooler buzz through weekly episodic programming rather than subscribing to Netflix’s “batch” distribution model.

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‘They are losing that weekly buzz that has helped ‘Thrones’ rise to new [viewership] levels,” wrote The Oracle.

The pundit suggests that adhering to weekly programming has helped Amazon Prime Video and Hulu secure industry awards, while apparently ignoring Netflix’s binge/Emmy/Golden Globes success with “House of Cards,” “Orange Is the New Black,” “The Square,” “Unbreakable Kimmy Schmidt,” “Grace and Frankie” and “Bloodline,” among others.

“Netflix does have its big hits and its instant-conversation starters, but by remaining so steadfast in its “all-at-once model”, it’s hurting the long-term possibilities for shareholders and that’s expanding out into the marketplace,” wrote The Oracle.

What’s ignored is that HBO Now (with more than 5 million subs) remains tethered to Amazon Channels to drive sub growth while Netflix has grown domestic subs organically to the tune of 5.4 million net additions annually over the past five years.

Netflix is projected to top 90 million domestic subs by 2024.

From ‘Kill the Cable’ research

More importantly, driving that sub growth is original programming, according to Netflix management.

“I’d say the vast majority of the content that’s watched on Netflix are our original content brands,” CCO Ted Sarandos said on the Q4 fiscal webcast.

Sarandos added that ranking episodic programs by individual seasons on Netflix is “dominated primarily by our original content brands.”

In addition, unscripted programing now accounts for more than 50% of viewer hours in the genre on Netflix, according to CEO Reed Hastings.

Impressively, Netflix says domestic subscribers stream about 100 million hours of content each day, or 10% of the 1 billion hours of daily TV consumption nationwide.

Hastings said Netflix has withstood competitive threats in the past and would do as well going forward. The executive also said he would subscribe to Disney+ when it launches.

“What we have to do is not get distracted,” Hastings said on the Q4 call. “We’ve got a path ahead, everyone else in streaming is trying to find one.”

Netflix Original Content Outpacing Licensed Fare

As expected, Netflix is spending more on original content than licensing third-party programming. While Netflix senior management has long championed original vs. licensed fare as evidenced by its indifference toward Disney’s decision to withdraw first-run movies from the streaming service – now there’s data to prove it.

London-based Ampere Analysis found that 51% of domestic programming was original (proprietary and exclusive from studio partners) through the end of 2018 – up from 25% at the end of 2016. The research firm contends 30% of Netflix original content is studio based.

“Netflix’s strategy is clearly moving towards a self-sufficiency model,” analyst Lottie Towler said in a statement. “Its focus on growing the proportion of original content in its catalog shows no sign of slowing down – in fact Ampere’s analysis shows the streaming giant is reaching a point where it produces almost all the new and fresh content, while only the older content is licensed.”

In December 2017, more than 3,000 titles available on Netflix U.K. were available in more than 15 Netflix markets worldwide. In December 2018 the tally had increased by 1,600 titles.

“I’d say the vast majority of the content that is watched on Netflix [is] our original content brands,” CCO Ted Sarandos said on the fourth-quarter fiscal webcast.

Ampere contends Netflix’s focus on proprietary programming will help the streamer when episodic content producers such as Disney/ABC Television, Warner Bros. Television and NBC Universal pull back popular shows such as “Grey’s Anatomy,” “Friends,” and “The Office,” among others.

“This will position Netflix well in the market should other major studios follow in the steps of Fox and Disney and pull their content from SVOD services in advance of launching their own [direct-to-consumer] offers,” Towler said.

 

Netflix’s Ted Sarandos Says Apple, Disney ‘Very Late’ to SVOD Ballgame

Having invented the subscription video-on-demand business (with Roku) more than 10 years ago – with service in more than 190 countries, Netflix doesn’t appear to be worried about pending streaming competition from Apple and Disney.

Speaking March 18 at a media event at Netflix’s Los Angeles headquarters on Sunset Boulevard, CCO Ted Sarandos said he would “reserve comment and judgment” on the March 25 Apple announcement and separate Disney+ streaming media platform rollout later this year “until we see it.”

Netflix’s Los Angeles headquarters on Sunset Boulevard

Indeed, Netflix has long welcomed streaming competitors, including the rollouts of HBO Now, Showtime OTT, Amazon Prime Video and Hulu — characterizing the services as validation of the OTT video market in a pay-TV ecosystem.

Yet, Disney and Apple are not niche brands. Disney in recent years has dominated the box office through its Marvel and Lucasfilm (i.e. “Star Wars”) subsidiaries.

Disney last year ended its landmark movie distribution deal (and more than $300 million in annual license fees) with Netflix in part to solidify movie content offerings for its subscription streaming service.

Apple, which literally created markets for consumer electronics through  iTunes, the iPhone, iPad and Apple Watch, among others, has been slow to enter SVOD in large part because the late Steve Jobs considered streaming video a hobby.

“We’ve been competing with 500 channels of cable and penetrated nearly every household in the world for a long time,” Sarandos said, as reported by Deadline. “So, it’s the same stable of competitors; just very late to the game.”

Cindy Holland, VP of originals, who has been around Netflix about as long as Sarandos, said Netflix’s strategy to think locally and act globally when it comes to mining and distributing original content such as “Casa De Papel” and “Delhi Crime” underscores the streamer’s evolving subscriber.

“We are trying to reflect our audiences around the world,” said the pragmatic Holland. “We have a long way to go. You can’t rest on your laurels too long.”