An appetite for Netflix
With Netflix dominating this year's Golden Globes shortlist with 42 nominations, Ray Snoddy looks at the rise of the streaming service
The appearance of Netflix’s Ted Sarandos before a large audience at the Edinburgh International Television Festival was nearly a decade ago but memorable still.
The interrogation of the SVOD group’s CEO, now also co-chief executive, was described by The Drum as “robust.”
It certainly was. After all, the company seemed to be in a desperate race for subscribers to stay ahead of a cycle of debt, and the share price would gyrate wildly if quarterly numbers did not match expectations.
Netflix had launched its first international operations in the UK 11 months earlier, in September 2011, but Sarandos refused to reveal what the numbers were, or how many involved free trials.
The centrepiece of his presentation was the news that Netflix was committing untold millions of dollars to a 26-part adaption of the 1990s BBC series House of Cards.
Surely this was a huge gamble on a political drama?
Sarandos would have none of it. Netflix had great faith in its “taste-based algorithms’ – a concept that got a sniffy reception from the traditional broadcasters present.
Besides, the streaming model did not mean that a series had to be an immediate ratings success. It didn’t work like that. Netflix viewers simply had to subscribe and find enough of interest to keep subscribing.
As journalists tend to do, the toughest question was reserved for the last one of the on-stage session.
Sarandos was asked whether Netflix would still be around in five years. A frisson went round the room but of course Sarandos scarcely missed a beat in assuring everyone that not only would Netflix still be around but would move on to greater things.
It was rumoured that the SVOD’s PR people were sufficiently unhappy with the “robust” questioning that they complained to the organiser afterwards.
At the time it was perfectly reasonably to ask such a question. Netflix could have stumbled and been brought down by a mountain of debt that at one time reached around $30 billion, including contract obligations.
Another uncertainty was the attitude of the Hollywood rights owners. They had given Netflix an initial easy ride by licensing library content, essentially for peanuts, without having a care for the international competitor they were thoughtlessly creating.
Surely they would wake up and realise they should be streaming their own content direct to consumers rather than going through the Netflix middleman?
From Disney and HBO to Discovery they did wake up, though rather late to catch Netflix as it broke free of any remaining chains from the established rights owners with a series of original, creative initiatives.
Who would have thought then – only nine years ago- that Netflix would end-up spending more than $100 million on The Crown, and in the process almost redefining the British concept of monarchy, whether accurately or not?
Who would have also thought that it would be Netflix that would make The Dig, the splendid movie about the discovery, as the Second World War loomed, of a sixth century Anglo Saxon ship burial at Sutton Hoo in Suffolk?
Or how about The Queen’s Gambit about the experiences of a tortured young female chess genius? Try Lupin or Bridgerton if you haven’t already.
Through its original and brave commissioning, Netflix has already established its creative credentials as one of the most important media organisations in the world.
The important difference now is that Netflix, with the help of locked-in Covid audiences around the world, has established its financial credentials in a way that has not happened until now.
Netflix has said for the first time that it no longer has to raise external financing for its day-to-day operations – as opposed to paying down the company’s long term debt.
The world’s leading SVOD platform believes that its cash-flow will break-even later this year, a position improved by no less than $1 billion from the situation a mere three months ago.
Most important of all, if rather symbolic, Netflix has broken through the 200 million-subscriber mark and all the cash that generates.
There are still challenges of course. The Covid-19 pandemic is a double- edged sword. Larger audiences are available but many in those households are starved not just of diversion but also money.
The raft of new SVOD platforms will offer beguiling entertainment choices but few will want to pay for them all, and many will have to choose which ones they want.
Despite the attention they attract, Netflix originals still represent a small proportion of the total available and the company will almost certainly squeeze subscriptions upwards to help with the long-term debt.
Right now, Netflix enjoys first mover advantage and can look down on the rest from that remarkable pile of 200 million subscriptions.
Modern technology has been busy creating unassailable monopolies such as Google, Amazon and Facebook, which will be self-sustaining short of intervention by governments and regulators.
With crafted entertainment there is much more competition but being number one, especially a 200 million strong number one, bestows enormous benefits.
The implications for the rest of the communications industries are enormous.
Cinema groups have already been brought to their knees by the pandemic and it is difficult to know how soon people will be willing to go and sit in cinemas, even when it becomes legal to do so.
It will not help if top movies are instantly available all around the world on Netflix.
The problems for Europe’s public service broadcasters are also serious. There are a number of obvious difficulties. If you are binging on a long Netflix drama series you are by definition not available at that time to watch BBC schedules.
The international reach of Netflix, and the sums generated by subscription revenue, will in most cases enable the California group to outbid individual European public service broadcasters for hot drama properties.
At the very least Netflix will drive up costs.
The real threat to the PSBs come from the facile and totally wrong argument to be heard from ill-informed right-wing politicians that somehow Netflix makes Europe’s PSBs unnecessary.
The opposite is true, unless Netflix plans to move into news, current affairs, sport, radio, music and education – which of course it doesn’t.
But what we can now say in a way that you couldn’t quite confirm definitively in Edinburgh on 23 August, 2012 is that Netflix is absolutely here to stay and likely to remain the most powerful of the SVODs.