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Netflix Content Chief Says 85% of New Spending Is on Originals

Netflix is sharply steering its new content spending toward original projects, with around 85% of new spending going to original TV shows, films and other productions, according to chief content officer Ted Sarandos.

The subscription-streaming leader has pegged its content spending for 2018 to be up to $8 billion. Sarandos, speaking Monday at MoffettNathanson’s Media & Communications Summit 2018 in New York, declined to break out what portion of that is licensed vs. original spending but said the bulk of new spending is on originals.

Netflix will have around 1,000 originals total on the service by the end of 2018, with 470 of those set to premiere between now and end of the year, according to Sarandos. More than 90% of Netflix’s customers regularly watch original programming, he added.

On Monday alone, Netflix announced the renewal of “Lost in Space” for season 2, and a deal with Oscar-winning filmmaker Guillermo del Toro for an anthology horror series.

“The creators we’re talking to, they watch Netflix and they want to be on our network,” Sarandos said. He acknowledged the competitive dynamics in the market: “It’s a great time to be a producer, that’s for sure.” According to Sarandos, “the way we can secure those shows is having a great reputation with talent, having a brand people want to be associated with, and a good track record of delivering.”

As he’s said in the past, Sarandos reiterated that Netflix’s heavier focus on original and exclusive content is driven by more favorable economics — as opposed to licensing TV shows and films owned by Hollywood studios — and the expectation that big media companies would eventually put more weight into their own streaming-subscription services.

Asked if he was surprised that companies like Disney were pushing into the subscription VOD space, Sarandos responded that the move has “been slower than I thought, actually.” With respect to Disney specifically, Sarandos said, “I don’t know what took them so long.” Disney is ending its movie-output deal with Netflix starting with 2019 theatrical releases, and will instead release those through a Disney-branded streaming service slated to debut next year.

Netflix has further rattled the TV industry by signing big overall deals with prolific television showrunners like Ryan Murphy (“American Crime Story,” “American Horror Story,” “Nip/Tick”) and Shonda Rhimes (“Grey’s Anatomy,” “Scandal”). One of the most appealing things about Netflix for such creative execs is that they have freedom to explore a wide range of different projects, regardless of ratings. “They don’t care about the ratings,” Sarandos said.

Sarandos said Netflix, in working to woo Murphy, showed him a lot of its internal data about how his shows have performed on the service around the world. “You wouldn’t guess that people who like ‘Bob’s Burgers’ also like ‘American Horror Story,'” he said.

Asked what other showrunner types Netflix is circling, Sarandos declined to name names but said, “It’s a pretty elite class,” saying the company is looking for creators “who really care about high-qualtiy content that is culturally relevant.”

Netflix’s originals slate for 2018 includes 80 films, ranging from “sub-indie” low-budget pictures to “$100 million blockbusters,” Sarandos said.

Not everything on Netflix needs to be a massive megahit that becomes part of the mainstream cultural conversation. According to Sarandos, two smaller Netflix films — “Roxanne Roxanne,” hip-hop biopic about Roxanne Shanté, and comedy “Dude” — each have been viewed by 8 million to 10 million people on Netflix.

“Our competitors say, those films get lost on Netflix,” Sarandos said. Besides a big-budget film like Netflix’s “Bright” starring Will Smith, “there are also very big audiences for these smaller projects.”

About one-third of Netflix’s total viewing is movies, but the audience for licensed movies in the usual subscription-streaming window is not very “passionate,” according to Sarandos. For a big event movie, “10 months after a movie is in the theater – there’s a good chance you’ve already seen it,” he said. “We said, maybe we can put the billion dollars we’d put in an output deal into original films.”

Asked about Netflix’s pulling out of the Cannes Film Festival this year — over its rule prohibiting the entry of films that don’t have theatrical distribution in France — Sarandos said the issue has to do with the French law that embargoes the distribution of movies on streaming services until three years after theatrical premiere. “So we don’t put our movies in theaters in France,” he said. “We are 100% committed to collapsing windows outside of France, because that’s what consumers want.”

Meanwhile, Netflix also sees an opportunity to bulk up unscripted content. As much as 40% of viewing on U.S. television is unscripted programming, versus around 7% on Netflix. Sarandos cited the popularity of shows like the reboot of “Queer Eye,” but he also said unscripted shows don’t attract or retain customers as well as other formats.

At the conference, Sarandos was asked again when Netflix might pull the trigger to dive into live sports or news — and again he said the company has no current plans to go into live TV programming. “When it’s the next best use of $10 billion, that’s when we’ll do a big sports deal,” he said, adding that there “are a lot of good alternatives” to news programming.

Sarandos also was asked how Netflix uses data for content development. The exec claimed the company doesn’t use data “for any creative input”; rather, Netflix uses data to right-size budgets for projects given their projected audience. “The best use of data is to more confidently size the budget” for a production, he said.

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