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Ted Sarandos: Netflix Appetite for Originals Growing Stronger

Streamer's chief content officer says interest in non-exclusive content, output deals is waning

Netflix is increasingly shifting content spending toward original programming — and demanding global rights for it — while its interest in output deals and non-exclusive content is waning, chief content officer Ted Sarandos said Wednesday at an investor conference.

“Right now, our original programming spend has been more efficient dollar for dollar” than licensed content, he said at the MoffettNathanson Media & Communications Summit in New York. “On the original content programming side, our appetite has only grown… we’re moving (spending) from efficient to super-efficient.”

Netflix calculates the value of content based on dollar spent per hour viewed by members. Sarandos declined to specify what percentage of Netflix’s content spending goes toward originals; in the past, the company has pegged originals as representing around 10% of content spend. In 2014, Netflix spent a net $3.2 billion on streaming content globally (accounting for $593 million reduction in streaming-content liabilities), up from a comparable $2.4 billion the year prior.

“Three years ago, we had zero originals. We were drafting off other people’s programming,” Sarandos said. “The ability to be relevant in that short amount of time is surprising. It surpassed our expectations.”

In 2015, Netflix has released or plans to debut at least 48 originals, including series such as “Marvel’s Daredevil” and “Orange Is the New Black” season 3; comedy specials; and movies including the sequel to “Crouching Tiger, Hidden Dragon” in August.

Sarandos said Netflix recently reorganized its content-acquisition group to be fully global, rather than having teams focused on individual territories. “We don’t have regional buying teams anymore,” he said. In negotiations with studios, Netflix is asking for global rights “or we’re not interested at all.” Netflix has said it intends to expand to about 200 countries by the end of 2016, to make the service available virtually everywhere in the world.

For its first big original series, “House of Cards” and “OITNB,” Netflix does not have worldwide rights. But, Sarandos said, the one good outcome is that “HOC,” for one, has become a brand ambassador for the company. He noted that “House of Cards” is one of the most popular TV shows in China (with the first two seasons available through Sohu.com legally, although piracy of the show is rampant), a market Netflix hopes to eventually enter. “Without that, people in China would never have heard the word ‘Netflix,’” he said.

Netflix will premiere several original films this year, simultaneously (perhaps) with theatrical debut. For smaller films, which have budgets in the range of $10 million to $20 million, Netflix offers clear economic advantages vs. traditional theatrical-first windowing, according to Sarandos. The company recently acquired rights to Cary Fukunaga’s African war drama “Beasts of No Nation” starring Idris Elba for a reported $12 million. Sarandos noted that the film’s producers recouped double their investment before it even has premiered.

“What we bring is 60-plus million viewers on the same date,” he said. “You can really make an event with a film.”

For Netflix’s TV licensing deals, Sarandos said he is not as interested in those that are non-exclusive — including those in which networks retain in-season “stacking rights” for distribution on pay-TV operators’ VOD or TV Everywhere services. He cited Hulu’s exclusive deal for “Empire” as an example, asserting the stacking rights retained by Fox lower the value of the content.

Hulu also last month inked an output deal with AMC Networks, which includes exclusive rights to “The Walking Dead” spinoff “Fear the Walking Dead.” Sarandos said he’s not inclined to cut such output deals: “‘Walking Dead’ has done great on Netflix, but to pay for the full output deal just to get ‘Walking Dead’ didn’t make sense.”

Similarly, Netflix is “a little less attracted” to pay-TV-window rights to movies, Sarandos said, explaining that the problem is that films under those deals typically become available 10 months after theatrical release. “I’d rather do originals,” he said.

But Netflix’s deal with Disney is one of the exceptions, he added: Given its unique and powerful brand, the studio is “a partner we want to have around the world.” Under the multiyear pact, the streamer gets rights to the Mouse House’s films starting in 2016, following the expiration of Disney’s longstanding output deal with premium cable channel Starz. By way of illustrating Disney’s clout, Sarandos called out “Star Wars VII,” slated for December 2015 release, saying it “could be the biggest movie ever.” However, that movie will first hit Starz in the pay-TV window.

As for whether Netflix will pursue sports rights, Sarandos reiterated that the company isn’t currently interested in entering the business. “I will never say never, but where we sit today, I don’t think the ‘on-demandness’ of sports is enough of a value proposition” for Netflix to go after those deals, he said.

Sports will still reside in the traditional linear television world, which is “going to become more linear,” Sarandos added, as networks focus on events like live sports and awards shows.

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