Netflix discuss their future at the Cannes Film Festival 2015

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Netflix Chief Content Officer, Ted Sarandos, at Cannes Film Festival 2015

A recent review of the hours-by-watching of Netflix subscribers shows that only a third of the time is spent viewing movies and two thirds of the time is spent viewing television programs. Films compress a story into a couple of hours whereas a television series may extend the story over 13 or 14 hours and the content of television programmes now more closely resembles that of movies.

Netflix have considered the cost of producing their own original work compared with the licence costs of buying in content and have found that they are able to provide more quality viewing hours for their money by producing original work themselves. This year they have produced three original movies and the number is building. They are extending their work to Spanish and French speaking series and already have 1 million French language subscribers in the USA.

They have designed a finance model which is intended to be profitable for all producers compared with the existing model which for budgets of $10-12 million, rarely makes a profit, because to do so would require enormous box office receipts. The Netflix arrangement pays for a mark-up on the budget costs, although marketing is not recouped and there can be no “back end” profit for producers. Netflix say that the modelling should provide a profit for all its producers but not all of them are happy to have their potential profit effectively capped.

Ted Sarandos says that Netflix are now able to access cultural documentaries and higher quality content as a result of their model, rather than being purely led by popular ratings as are most television companies. He goes on to say that ratings are largely irrelevant for Netflix because access to content is not restricted to a particular time slot to suit advertising but available on demand. As a result, Ted maintains that show quality is higher because it is not based on popularity.

Another driver for the Netflix model is the restriction in most countries of the premier screening. In France for example, Netflix is unable to stream films for 36 months and as a result, is not likely to release original films in a theatre so they can stream immediately.

Netflix currently has 20 million subscribers but not worldwide coverage. It plans to be global by 2016 so will not be licensing to others. Where it operates in jurisdictions, it uses local talent and infrastructure but does not claim government subsidies or incentives. As a result, Netflix claims that local film industry is not harmed.

If the Netflix vision is correct, it will change the way that we produce and view movie and television content.