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Sarandos Says Netflix Pulled Resources From Disc Rental Business

28 Oct, 2013 By: Erik Gruenwedel

Ted Sarandos

In a frank keynote, CCO Ted Sarandos uses bully pulpit to question Hollywood business norms, including theatrical windows

Likening Netflix to a zombie that survived the 2011 media and stock implosion over an unpopular 60% price hike and ill-fated attempt to spin off its disc rental business, CCO Ted Sarandos said things that summer “looked pretty bleak” for the Los Gatos, Calif.-based rental giant.

Now it appears the ensuing PR Armageddon, which saw Netflix shares plunge 75% in value, with some questioning CEO Reed Hastings’ leadership, from inside the streaming service, was just another few weeks in its company’s timeline, according to Sarandos.

Speaking Oct. 26 in a keynote at 2013 Film Independent Forum, Sarandos dismissed the hysteria at the time as largely due to outside forces, while from within Netflix, management and staff “kept doing the things that we do.”

Some of that included allocating resources from its pioneering by-mail disc rental business to streaming — despite the fact disc rental continues to drive the bulk (47%) of Netflix’s operating income.

Sarandos said that had Netflix been more protectionist of its disc rental business, instead of focusing on streaming, it likely would be irrelevant today.

“We pulled back some of the resources from the DVD-by-mail business like we thought we should,” he said. “We bet a long time ago [that streaming was] where the consumer was heading. We are a company that is built on giving the consumer what they want.”

Streaming Theatrical

In a shout out to Netflix’s pioneering recommendation software, which Sarandos said help draw wider audiences to little known indie films available on disc, such as documentaries and foreign language fare, the CCO said the ultimate strategy was to bring the content to a nascent streaming market.

In fact, Sarandos admitted that in the mid 2000’s, management considered Netflix to be in the movie business since just 15% of subscribers watched repurposed TV shows (compared to 70% today). Yet, gaining access to TV shows and movies remained a constant challenge.

“What we found there was [that] like the movie business, the TV windows sucked, too,” Sarandos said. As the lead times for TV shows appearing on Netflix has shrunk to 12 months, the CCO said so too must theatrical windows reflect a changing consumer and distribution channel.

“What we’re doing for television should extend pretty nicely to movies,” he said. “Why not premiere movies on Netflix the same day they’re opening in theaters? And why not big movies?”

Sarandos said theater operators’ dogmatic approach toward release windows, including stifling all attempts to create a premium VOD market, is driving Netflix to consider producing major movies.

“The reason we may enter the space and release some big movies [via streaming], is that I’m concerned that as theater owners try and strangle innovation and distribution, not only are they going to kill theaters, they might kill movies,” Sarandos said. “Let’s give the consumers what they want [day-and-date movie streaming], and see if they turn out.”




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