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Has Netflix’s Ted Sarandos Rescued (or Ruined) Hollywood?

For a soft-spoken man, Ted Sarandos makes a lot of thunderous news. Just consider the headlines he’s generated over the last week alone with a succession of game-changing deals. The chief content officer for Netflix stole Shonda Rhimes from ABC, lured retiree David Letterman back into talk-show mode, prodded the reclusive Coen brothers into TV production and snapped up Millarworld, a comic-book empire with buzzy titles like “Jupiter’s Legacy” and “Huck.”

Netflix could conceivably rival Disney and Marvel by assembling its own superhero universe. On Aug. 8, a day after the announcement of the Millarworld purchase, Disney dropped a bombshell when it unveiled plans to launch a streaming service and yank its branded family and Pixar films from Netflix beginning in 2019.

Art Streiber for Variety

Over the weekend, Netflix fired back by announcing it had poached TV’s most powerful showrunner from her longtime home at Disney’s ABC. “Shonda and I have gotten to know each other over the years and I have always had a tremendous amount of respect,” says Sarandos, who lives blocks away from Rhimes in Hancock Park. “I have sought her feedback and even delivered DVDs to her house myself of our upcoming projects.”

The dramatic events of the last few days suggest that Netflix is in an escalating arms race with Disney. It also ratchets up the blood sport between Netflix and all the major studios and TV networks as Hollywood grapples with how to adapt to the seismic shifts in technology and consumer habits.

“I would say that the relationship between studios and networks has always been that of a frenemy,” says Sarandos. The Netflix boss downplays Disney’s move to establish itself as a streaming rival. “Everyone is doing some version of it already,” he says. “They just have to make a decision for their companies, their brands and their shareholders on how to best optimize the content.” Netflix, suggests Sarandos, has long been preparing for that inevitability. “We started making original content five years ago, betting this would happen,” he says.

These days, where there’s smoke or fire in the media business, there’s usually one revolutionary holding the match. At the center of most industry angst — or, often, bewilderment and excitement — is Sarandos, who engineered the company’s stunning transformation from a mail-order DVD-rental company in the early aughts to a full-fledged studio that is competing dollar for dollar with a crowded field of rivals for Hollywood’s top stars, directors, showrunners and writers.

In a wide-ranging interview at a downtown Manhattan hotel, Sarandos, 53, who is Variety’s 2017 Showman of the Year, revealed that he anticipates spending a whopping $7 billion on content next year — up from more than $6 billion over the past year and $5 billion in 2016. “The vast majority is still licensed content,” he says. “We’re still a couple years from seeing it go 50-50.”

No media company today is expanding faster and is more talked about, admired, feared and debated than Netflix — which has upended the traditional models for television and inspired binge culture. “They totally made television global, and that was an unheard-of concept,” says Harvey Weinstein. “Whoever thought of buying universal rights to anything?” Depending on where you stand, Netflix is either saving Hollywood or wreaking havoc on an already unstable industry.

Netflix now boasts 104 million subscribers in 190 countries, ranging from Ireland to Japan to Afghanistan. Once heavily dependent on other studios for movie and TV titles, Netflix is churning out its own branded content in all genres, such as the multiple Emmy winner “Orange Is the New Black” and other highbrow TV series (from “The Crown” to “Master of None”), mass-consumer sitcoms (“Fuller House”), talk shows (“Chelsea”) and reality TV (“Ultimate Beastmaster”).

Netflix wants 2017 to be a banner year for streaming movies, as it rolls out original features with massive budgets such as the upcoming $90 million tentpole “Bright,” with Will Smith. It’s had a rockier start in the film sphere, with disappointing movies such as this year’s “Sandy Wexler,” starring Adam Sandler, and “War Machine” with Brad Pitt.

Art Streiber for Variety

And it’s not clear that all of Netflix’s growth is sustainable. Some analysts and industry insiders are skeptical of the company’s spending habits, arguing its stock is overinflated (it’s soared to more than $170 a share, up from around $50 in early 2014, adjusted for a 2015 stock split). “We’re not spending money we don’t have,” Sarandos counters. “We’re spending revenue.” The company reports its debt load is $4.8 billion, with an additional $15.7 billion in long-term content commitments with studios. “We have one of the low debt levels in the industry,” insists Sarandos.

Behind all the spending is the vision of Sarandos as an impassioned and driven man on a treadmill, trying to outrun his competitors. As a young executive working at several video-store rental companies, he saw firsthand what happened when Blockbuster didn’t innovate fast enough. “Blockbuster waited four years after Netflix to carry DVDs,” he says. “They became not a movie company but a tape company. That’s why we have to be mindful of technology.”

In conversation, Sarandos hints at his darkest fear: “The more successful we get, the more anxious I get about the willingness of the networks to license their stuff to us,” he says. That’s why original content is critical, so subscribers feel like they can’t live without Netflix.

One area that Netflix still hasn’t conquered is China. “No time soon,” Sarandos says when asked if Netflix hopes to open shop there. For the time being, he’s set his sights elsewhere. “Latin America has been a rocket ship for us,” he says. “Western Europe is growing nicely. We’re just entering Asia. We have so much growth ahead of us. We’re focused on ‘How do we get people in Korea to love us as much as they do in Kansas?’” The answer to that question is the key to Netflix’s future.

On the TV side, Netflix has turned into Pac Man, gobbling every last morsel within reach. Five years ago, when Sarandos was pitching producers on bringing their projects to Netflix, he couldn’t guarantee that streaming TV shows would qualify for Emmys. “If you do the best work of your life, you might win a Webby!” he’d say as part of his self-effacing charm offensive.

“Stranger Things,” starring Winona Ryder, is one of Netflix’s Emmy-nominated TV series
Courtesy of Netflix

“And when we dug into it, we figured out we were technically eligible,” he says. “But to go from that to this is awesome,” he remarks, referring to the 92 Emmy nominations (significantly up from last year’s 54) that the streaming giant landed this summer for series that included “House of Cards,” “Unbreakable Kimmy Schmidt” and “Stranger Things.”

Netflix has splintered off its TV operation into several tributaries, with vice president of content Cindy Holland juggling multiple fiefdoms. “Every year, we are increasing the range of the kinds of series we’re undertaking,” she says.

When its scripted TV series division launched in 2012, Netflix partnered with other studios while retaining first-window streaming rights. Now, more and more of its shows, like “Stranger Things,” are fully financed and owned by Netflix. To keep foreign subscribers happy, it has 17 local series this year, such as “3%” (Brazil) and “Dark” (Germany). “That’ll grow to 70 to 100 series in the next couple of years,” Sarandos says.

While its freshman reality show “Ultimate Beastmaster,” a competition series produced by Sylvester Stallone, isn’t a home run in the zeitgeist, it’s been renewed for a second season. And that’s just the beginning. Netflix is rapidly ramping up production in that genre by launching an entire department for unscripted and reality TV series — which will include Letterman and Jerry Seinfeld’s “Comedians in Cars Getting Coffee.” Some 50 new programs, now in development, will start hitting the service early next year. “People love these shows and want to watch them,” Sarandos says. “We need to be more dependable.”

It’s still not clear what reality TV will look like on Netflix. “If the benefit is really live, we don’t add a lot of value to it,” Sarandos says when asked about “American Idol.” “Where we add a ton of value is where you can watch on your own schedule.” Still, he leaves the door open a crack. “I’m not saying we’ll never do anything like that,” he finally says.

When Netflix buys a series, it does it in the room, without asking anyone to film a scene. “The elimination of the pilot system is profound,” says Shawn Levy, a producer on “Stranger Things.” “Netflix is really the first buyer that was willing to put their money where their belief is.”

Until now, Netflix has been so voracious, it’s been reluctant to wield the cancellation ax. But more programming means making choices, like dumping first-year series “The Get Down,” “Girlboss” and “Gypsy.” “It wasn’t like we were setting out to cancel more shows,” Sarandos says. “It was the idea of saying, ‘Are you being risky enough?’ The bad thing about renewing a show that isn’t being watched, it creates opportunity cost. And a lot of opportunity lost for fans to find something they are going to love.”

He reveals that Netflix’s preference is to allow showrunners to tie up loose ends. When it dropped the Wachowskis’ sci-fi series “Sense8,” it offered a two-hour finale, which was initially rebuffed. Lana Wachowski reconsidered after a wave of outcry on social media about the show stopping. “The fan influence on her was very helpful,” Sarandos says. “Her desire to have an ending increased a lot.”

Despite its giant creative leaps on the TV side, Netflix has yet to make its mark in the movie space — which is one of Sarandos’ top priorities and his biggest challenge. He believes it’s possible to revolutionize the business and that he just needs more time. “I think we’re in the first inning,” he says of Netflix’s movie strategy. “We’re building the narrative.”

The company estimates that subscribers spend about 70% of their time on Netflix watching TV versus films. However, research shows that after binge-watching a full season of a TV series, most switch over to a movie. “The reason why we’re doing this is I really think no matter how great TV gets, people do distinguish the art forms differently,” Sarandos says.

He insists that “Bright,” a sci-fi action movie directed by David Ayer, will set a new agenda. “I don’t want to set expectations too crazy,” he says. “But I think it’s going to be more of a defining moment for the film initiative. It’s undeniably a Saturday-night blockbuster.”

Joel Edgerton and Will Smith in David Ayer’s new movie.
Courtesy of Netflix

Sarandos also has high hopes for writer Mark Millar, founder of Millarworld, to create compelling characters and stories that can compete with market leader Marvel. “We think he has the ability to develop content that can become that for sure,” says Sarandos.

In recent months, there’s been more of a keen focus on in-house production at Netflix, which is even starting to look like a mega studio. Then again, its new 14-story office building in Hollywood, housing some 1,000 employees, resembles the open-floor air of a high-tech Silicon Valley enterprise (food stations on every floor) rather than the staid headquarters of a Warner Bros. or a Universal.

To bolster the executive ranks in its film division, Netflix recently hired producer Scott Stuber, the former vice chair of worldwide production at Universal Pictures, to run the movie team. Stuber lists off an eclectic group of filmmakers from Susanne Bier to Dan Gilroy as part of Netflix’s canon. The company is launching a substantial Oscar campaign for Dee Rees’ “Mudbound,” which was bought out of Sundance for $12.5 million. “Listen, I’m an Academy member,” Stuber says. “At the end of the day, I look at these things: What’s a great story? What moves me? I hope we can be that.”

Beyond Oscars, the looming question for Sarandos is whether Netflix can achieve in the movie universe what it has in TV. By many accounts, it’s had a less auspicious start.

The company’s inaugural original feature, Cary Fukunaga’s “Beasts of No Nation,” arrived in the fall of 2015. Sarandos needed to premiere the drama about child soldiers in West Africa on Netflix, but Fukunaga envisioned it on a big screen. They compromised by releasing it in 30 theaters on the same day that it bowed on Netflix. “Cary and I debated this a long time,” Sarandos says. “I do think ‘Beasts’ is one of the most mischaracterized releases. The mistake was putting it on 30 screens. And I say mistake because every time you read anything about ‘Beasts of No Nation,’ it starts with the fact that it failed at the box office. If it had been on two screens, the behavior of a couple hundred people in six major cities would have made it a success.”

Unlike the traditional studios, Netflix doesn’t apply box office analytics when measuring success. Sarandos points to internal data that shows “Beasts” was a popular movie with Netflix users at home. And on a personal level, he was profoundly moved by the film. After teenage star Abraham Attah completed his press tour, Sarandos covered his moving expenses from Ghana and tuition for him to attend an elite Connecticut boarding school so he could continue to study acting. “Ted is paying for it out of his own pocket,” Fukunaga says. “He’s one of the nicest guys I know.”

Sarandos outlines his vision for what he wants Netflix’s movie division to be. The company will continue to be a force at film festivals, where it often snatches up hot indie titles and documentaries. He scoffs at criticism from other distributors that Netflix overspends. “They should pay more,” he says with a smirk. “I don’t know how to understand that. It’s a competitive marketplace.”

Carey Mulligan stars in “Mudbound.”
Courtesy of Netflix

He also doesn’t get the comparison, often made in the press, that Netflix and Amazon Studios are rival digital players. “I don’t think we compete with Amazon in the movie space at all,” he says, pointing to how Amazon releases all of its movies in theaters first. “I frankly don’t understand their strategy. I don’t understand why perpetuating a model that feels more and more disconnected with the population is good.” Netflix debuts its movies on its streaming service, with some titles released on a few theater screens the same day. (Amazon declined to comment.)

Even as he decries the theatrical movie business as outdated, Sarandos still revels in certain parts of red carpet heritage. At Cannes in May, he teared up at the standing ovation for Netflix’s movie “Okja,” a tale of a young girl’s tender relationship with a massive pig that’s set in the mountains of South Korea and was directed by Bong Joon-ho.

It had been a long week of news headlines for Netflix, which many criticized for crashing the most prestigious film festival in the world. “At the end of the day, it was the controversy of Cannes, which became good for the films,” Sarandos says. He doesn’t think the festival will stick to a new rule requiring a movie to have theatrical distribution in France before it can screen in competition. “It would be like saying you have to play in a theater at Park City to get into Sundance,” he says.

In addition to the indie offerings, Sarandos wants to release up to four movies a year straight into the home that are defined as “must-see events,” which are talked about in the same breath as, for example, “Wonder Woman.” And he sounds open to sequels, at least when he speaks about “Bright.” “It certainly has franchise potential,” he says.

Although he’s battled with theater owners over release windows, Sarandos swears he loves to watch movies on a big screen — such as Christopher Nolan’s “Dunkirk,” which he saw on opening weekend. The director bashed Netflix in a recent interview, but Sarandos has no hard feelings. “I think he’s a great filmmaker,” he says. “He should make and release his movies however he sees fit. I hope he’ll want to do it with us someday.”

Sarandos doesn’t believe his own interests should dictate Netflix’s programming. “I don’t want it to reflect my taste,” he says. “I want it to reflect your taste. Netflix has to be great for you.” He’s so laid-back, he’s like the Tom Hanks of studio executives. He consumes most of the content that airs on Netflix when it’s delivered to the studio, and he considers himself a fan, which is rare for a Hollywood suit. He’ll give notes if someone asks for them, but they aren’t mandatory. Netflix’s policy is that the creatives get the final say on what cut of a movie or TV show they release into the world.

“Okja,” received a standing ovation at Cannes.
Courtesy of Netflix

Sarandos’ job has grown so much that it’s impossible for him to sit in on all pitch meetings. “Every one of our creative executives has buying power,” he says. “They can greenlight a big-budget show in the room without me.” He’s delighted as he talks about a series, “Atypical,” that recently got passed over by Netflix’s comedy team before getting scooped up by the young adult division of the company. “I couldn’t stop smiling,” he says. “If there was some mechanism inside Netflix where you had multiple paths in, it wouldn’t just die because one person said no.”

And Sarandos has tried not to dwell on the shows that got away because Netflix turned them down. “There have been many of them,” he says, including “Transparent,” which went to Amazon Studios. “A lot of times, it’s not the reflection of the show — it’s just timing. We looked at ‘Handmaid’s Tale’ three years ago, four years ago. It wasn’t in the creative form that it is today. ‘Mr. Robot’ is a show we missed on. In a weird way, it might have been a better Netflix show.”

Growing up in Phoenix, Ariz., Sarandos was enamored by Hollywood. As a light sleeper who only needed five hours a night, he’d stay up and watch reruns of old series like “The Dick Van Dyke Show” and “The Andy Griffith Show,” as well as other classic sitcoms. He was such a groupie of “Happy Days” that a poster of Ron Howard and Henry Winkler hung on his bedroom wall — working with both of them on the series “Arrested Development” felt like a dream. “It was the most surreal thing,” he says, beaming.

In school, he flirted with becoming a journalist, after editing his high school and college newspapers. “I figured out I was a horrible writer,” he says. “It was a real epiphany moment for me. I was reading an article that I had written. And I just thought, ‘Wow, if I didn’t write this, I would stop reading this by now.’”

He left college to manage a chain of local video stores, which he likens to film school because he watched movies during the day. Several promotions and jobs later, Netflix CEO Reed Hastings lured him to Netflix in 2000. “Why I admired Reed so much, he really had a vision for Netflix,” Sarandos says. “It was exactly what Netflix is like now.”

The method of releasing TV episodes all at once may have come, subconsciously, from Sarandos’ own childhood. He loved the soap opera “Mary Hartman, Mary Hartman,” which re-aired on Sunday nights in a two-and-a-half-hour block. “It was my first binge,” he said. And so, years later, when Netflix waded into original programming, he came up with the groundbreaking idea to drop an entire season of episodes at once. “It was practical,” he says. “How else would you do it?”

On the phone last week, Sarandos was giddy when he talked about landing Letterman and the Coen brothers back-to-back. “I’m way too excited,” he says. “Dave was my first meeting in our new building. We’re doing six episodes for now.” And then he adds: “We hope to expand.”

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