CEO Hastings says he is 'hopeful' that company can reach distribution deals with Comcast, other pay TV operators
Netflix, pleased with how original series like “Orange Is the New Black” and “House of Cards” are boosting its business, expects to double its investment in original content in 2014 — and it’s putting movies into the pipeline.
Meanwhile, Netflix CEO Reed Hastings said he’s “hopeful” that the company will land deals with Comcast and other pay TV providers to widen the distribution of the service, which now has 31.1 million U.S. customers.
The company is looking at expanding into movies, and is currently actively looking at several documentaries that would premiere on Netflix, chief content officer Ted Sarandos said on the company’s third quarter earnings call.
“On the movie side, I’d keep my mind wide open to what those films would be and what they would look like,” Sarandos said.
Overall, Netflix’s spending on original content next year will still represent less than 10% of overall global content spending. About 40% of HBO’s spending is on originals, Sarandos said, “so there’s a big gap from where we are to where we could be.”
Netflix is “more comfortable” with owning content outright than in the past, but the primary goal remains controlling the window, whether that’s through owning a property or licensing it from a studio, Sarandos said.
The company said “Orange is the New Black” will end the year as its most-watched original series ever. As with its other originals, such as “House of Cards,” the company said the total audience is on par with “successful shows on cable and broadcast TV” although Netflix does not disclose specific viewing metrics.
“What we’ve seen is some of the original content has got a particular a halo effect on the brand that creates a stickiness that we’re liking the signs of for sure, and that’s why we’re continuing to invest in that space,” Sarandos said.
While “Orange Is the New Black” contributed to Netflix’s subscriber growth in the third quarter, it’s hard to determine exactly how much, Hastings said. “It definitely helped. We’re thrilled about it, but there’s no clean analysis,” he said. “We don’t need to know, is it 2% or 5% or 10% of our sub growth.”
Shows expected to bow on Netflix in 2014 include “Sense 8” from “Matrix” creators the Wachowskis, new shows produced by DreamWorks Animation and a new thriller from the creators of “Damages” in a deal with Sony Pictures Television.
Meanwhile, Netflix in reporting Q3 earnings disclosed a change in how it accounts for spending on original series, to accelerate the amortization of that content to line up with higher viewing patterns within the first few months of a show’s premiere, rather than using a straight-line accounting method over the lifetime of a license period. For the third quarter, that had the effect of pulling forward about $27 million in expense from future quarters.
Still, while its originals get more attention, Netflix noted that a bigger percentage of overall viewing is generated by exclusive complete season-after series. In the third quarter, Netflix launched past seasons of “The New Girl,” “The Walking Dead,” “Breaking Bad,” “Scandal,” “Revolution” and “Pretty Little Liars.”
The NFL has reportedly been in talks with Google and Netflix about a football package. Sarandos said, “We’re still not interested in sports. What we bring to the table is a lot of improvement because of all the attributes of on-demand, and I don’t think that brings much to sports viewing.”
About Netflix’s discussions with cable operators, Hastings said, “I’m sure we could be on a Comcast box. The real question is, we have to figure out deals terms that make sense for both sides,” he said in discussing the company’s third quarter earnings.
Netflix has had ongoing discussions with many pay TV providers, in addition to Comcast, he said. “I’m really hopeful we can do that with both Comcast and other people in the industry,” Hastings said. Netflix’s rights deals with studios would not preclude the service from coming to a pay TV set-top box, he added.
Comcast has declined to comment on discussions with Netflix.
Hastings noted that the growth of Netflix — which now has more than 40 million streaming subs worldwide — has not resulted in a drop in cable and satellite TV subscribers. The. Netflix has cut deals with two cable operators: Virgin Media in the U.K., and Com Hem in Sweden.
In the U.S., Netflix added 1.29 million net new streaming subscribers in the third quarter of 2013, to stand at 31.1 million domestically. Worldwide, the company has 40.28 million total streaming customers. In the fourth quarter, Netflix expects to add 1.6 million to 2.4 million subscribers in the U.S., with 910,000 to 1.7 million internationally.
In Q3, Netflix delivered about 5 billion hours of video, Hastings said. That’s up from 4 billion in the first quarter of 2013.
Netflix hosted the live video discussion with execs for the second quarter in a row, moderated two sell-side analysts, JP Morgan’s Doug Anmuth and BTIG Research’s Rich Greenfield.
Hastings was asked about Netflix’s partnership with Google for the launch of the $35 Chromecast TV adapter for streaming video in July. A limited number of Chromecast users were eligible to receive three free months of Netflix — an offer that was depleted within a day. But Hastings said most of those buyers were already Netflix members.