Good morning everybody, I’m going to speak hopefully briefly and then leave lots of time for questions but I’m really thrilled about being back at this conference. I did this many years ago now and as Maria mentioned I had a really long relationship with Film Independent both for this conference, with a project involved, for the film festival and I’m so proud of the association because the work that they do so helps add diversity of voice to the things we get to see on the screen which I think is really a noble thing.
But this year, zombies seem to be a real hot property, “World War Z” was a monster hit everywhere around the world, the biggest show on television right now is “The Walking Dead,” and so it is fitting these days just before Halloween that your keynote speakers is also back from the dead.
Just a couple of years ago Netflix announced that we were going to split the company in two and kind of over night went from being a media darling to being a media punching bag. Our stock dropped, some of our subscribers quit and it looked pretty bleak for this company that has been such the champion for independent cinema.
But that was the view from the outside. The view from the inside was that we just kept doing the things that we do. We focused our resources on the streaming business, pulled back some of the resources on the DVD by mail business like we felt we should. Both because we made our bed a long time ago that that’s where the consumer was heading and we are a company built on giving the consumer what they want. Innovating in the consumers’ behavior. But, here we are, two years later; the subs came back, the investors came back, the press came back, and things feel pretty good.
In fact, this quarter we surpassed 40 million subscribers in 41 countries and streamed 5 billion hours of movies and television shows around the world, so it’s a pretty good time. Today, in fact we are watched for more hours than any cable television network. That’s a pretty cool development.
Ahead of the Disney channel and Nick and ESPN and all those massive brands, right behind the TV networks you’ll find Netflix The other thing that we did was we entered, it feels like a long time ago now but just last February we entered into the original programming world and started launching our own original series and it was on February first of this year that we launched our first show which was “House of Cards.”
Also we got to make a little TV history this year because “House of Cards” was the first show to win a Prime Time Emmy having never aired on a network or cable channel. Really blazing the path we think for all forms of new television.
But, I stand before you today at a conference that is primarily focused on film and going to talk a bit about TV because I think TV is where the audience is. It’s where the innovation is happening and it may be where the future of independent production is happening.
When we started streaming eight years ago it was a pretty exotic proposition for right’s holders. It wasn’t a physical media business, it wasn’t a theatrical business, and it wasn’t television broadcast so no one really quite knew how or what to sell to us. So we bounced around between the home video groups and the television groups and these really ill-conceived odd digital groups that were forming inside the networks studios that were trying to figure out how to sell to us.
The funny thing was these digital groups that do business with Netflix, they didn’t have any control over any of the content so they would have to go back to the home video group and the TV group and say, can you give us some stuff to sell to Netflix, and of course the home video group did not want to do anything that they thought might hurt DVD sales so they held on to everything and the television group did not want anything to hurt syndication so they held on to everything and it was really tough to navigate a business. And I think if we would have treated our DVD business with that kind of protectionist reverence we probably would have gone the same way as many of those digital sales groups have gone and just got integrated into something else.
We were so hungry for relevant content we did what the video stores did in the 80s when they were looking for stuff, they went to the indies and they were the first movies on video store shelves before the studios would put their good stuff on tape, were great indie films blazing the way. Because of our DVD business and our personalization and all of the ways we help make little known things known, Netflix had already became a indie sweetheart. Being able to be the champion of movies that would open quickly and disappear from single screens in New York and LA and make mainstream hits.
We kind of did it all; we struck deals with indie distributers to bring films to Netflix Streaming even before we were sure anybody would watch them. Because HBO did not want foreign language movies and documentaries, we were able to bring great movies like Susanne Bier’s first movie “Open Hearts,” Guillermo del Toro’s “Pan’s Labyrinth” and the Oscar nominated “La vie en rose” to Netflix’s streaming in windows about ten years before any of the other studio movies were hitting the site.
So, that was Bob Berney that was a great innovator for us early on. The same is true about Jeff Sackman at Think Film who brought us stuff like “Murderball” in a really early window and in 2005 “Born into Brothels” was the only place you can see it after it won the Academy Award was on Netflix so these were some of the early innovators of Netflix streaming were some of the great innovators of Independent film.
We also formed our own label back then called Red Envelope Entertainment. We acquired and produced documentaries and stand up comedies specials. We worked with Kirby Dick, Zach Galifinakis, Clint Eastwood, Joe Berlinger, really fantastic projects and the idea was we wanted to bring movies to streaming as quickly as they were coming to DVD. And really not being able to do that as an outsider, we decided to wedge ourselves in as an insider. We winded up doing some great projects like “Super High Me” a documentary with Doug Benson that is remarkably popular.
I think as kids discover pot they want to see “Super High Me” because it continues to live on and on and on.
We did Zach Galifinakis’s first comedy special “Live at The Purple Onion.” Jeff Garland directed Jeff Waters in a great performance film, “This Filthy World.” And even got a couple of Oscar nominations- wishful thinking – Emmy nominations for “The Music Never Ends” a doc about Tony Bennett and “Outrage” a doc we did with Kirby Dick.
Red Envelope Entertainment itself may have been an investment ahead of it’s time but it did serve the purpose of forcing innovation in distribution of film entertainment and for that we are quite proud and for the projects that are still around today and still show up in Showtime and DVD end even on HBO around when I least expect it. I see that Red Envelope Entertainment pop up again.
Besides indie film the other area of great content promise for us was television. This was an odd one for us because eight years ago we would had self-identified ourselves as a movie company. Netflix used to have our executive retreat at Sundance. Film Independent actually hosted our executives for a week of film school. This is how embedded we were as a film company so moving into television wasn’t something that we did naturally.
In fact, television watching on DVD for Netflix’s was never more than about 15 percent of watching. Pretty small. So we found there was like the movie business, television window sucked to. The TV show would come out and be exclusive to a network for four years and go into syndication and be blocked from digital at almost every turn. So digital was barely a thought.
We saw it as kind of a alternative to kind of the old catalog movies and kind of extremely obscure stuff we were able to license. We were able to with a handful of networks to do some really innovate things like pull the syndication window all the way up to the first year so right after a TV series aired on the network it could come to Netflix’s and people could then discover it and catch up on it and we went all in.
We went really broad. Old shows, new shows, kid shows, everything we could get on the TV space. Consumers adopted and they loved it and they loved the choice of it and they loved the ways they could watched it and they loved not waiting and they loved the idea if they missed something that came and went in the culture they had the chance to catch up.
Today, television viewing is 70 percent of those five billion hours I told you about. So 70 percent is now TV and the reason for that is simple. This is the golden age of television. Some of the greatest writers, directors, and actors from the big screen are happily doing their best work of their lives now on the small screen. Long form TV gives writers the chance to flesh out super rich characters, very complex narratives, create worlds that the audience can lose themselves in for hours at a time or sometimes days at a time.
At the same time, movies are becoming these kind of cold spectacles that have to be sold around the world in order to recoup these huge marketing and production budgets. So the release cycle of movies is another problem as to why TV is becoming so much more prevalent in our culture. There has been some movement in the indie space around day and date with DVD and day and date with theatrical but in very small doses.
The big movies the studios spend billions of dollars to sell to us are still released almost in the same way as they were years ago. To the theaters first for months, and months and months and then to DVD for months and months and months and then to pay television where they and Netflix can bring them in.
In fact I think these antiquated windows for movies are probably driving global piracy more so than any Bit Torrent or Pirate Bay, these pirate sites people are always screaming about. Give the consumers what they want. In an enormous crowd in 1957 when Harry Cohen who used to run Columbia Pictures died, an enormous crowd turned out for his funeral. Overflowing. People were like we’re shocked because he was not a very popular guy. The comedian Red Skelton famously said at this packed funeral “Just like Harry always said, give the audience what they want they will turn up.”
So this is something we are still trying to learn today all these years after that funeral is give the audience what they want and they will show up. Well, movies have been as scarce as can be in early windows with things like much touted premium VOD models that were always coming around the corner it just hasn’t really taken off.
At that same time television has never been more accessible, more plentiful, and higher quality. That is why you are seeing these kinds of shifts. So if you miss a show that you’ve been hearing all about and are dying to see and you happen to want to go out to dinner instead you can rest assured that you can catch up with it on Netflix later or you can buy it on iTunes. There are lots of choices of how not to miss your favorite things.
There is a problem, I mentioned piracy on movies around the world but television is also driving a ton of that piracy now. Not because people are becoming increasingly dishonest, I don’t believe that, I think it’s because the Internet is this enormous global un-fragmented platform. In every other form of distribution besides the Internet there is a physical need for distribution to be fragmented. The satellite signal only covers half the earth at the same time, wires have to be run, prints have to be delivered but on the internet there is no reason why you can’t push play anywhere in the world and watch the same thing and watch whatever you want whenever you want. And everyone is kind of using this as a kind of marketing platform and you are in Norway and you have the fastest internet in the world and you are waiting two years to find out how “Breaking Bad” ended, you’re probably going to steal it.
So what were trying to do is jam these windows not just in the US and not just in movies but try and get as close as we can to the US broadcast of these big TV series which are every bit the event that a big movie is anymore. Again, we don’t want a whole generation of people being trained to watch in these illegal ways. They have the ability, the desire, and the technology to watch content and pay for it legally. What’s happening now and all that migration is the television divisions of the studios is doing great. They’re having phenomenal growth and very little competition from independent producers. This is mostly because there is a perceived huge risk in producing a television show because if you put all the money in producing a TV show and you get a pilot on the air and it gets canceled right away, there is no economic model for that.
In fact, about 800 million dollars gets spent a year on pilots that never get seen and development of shows that never get produced. It’s not without risk but ironically it’s about the same money that’s spent on independent film that never get’s distributed. It’s a pretty easy tradeoff in terms of economics and there’s a lot of change happening that’s making TV much more like cinema.
Instead of producing a million dollar independent film, which feels like “Well, if it doesn’t work in the theater we can sell it on VOD, we can sell it on DVD” maybe think about how you could do that for a pilot. How do you find a great project and develop a great script and create a bible and attach talent to it and bring it out to the networks because what’s really happening right now is that there is far more buyers who want to buy outside of the box then there are sellers who want to sell outside of the box which creates an enormous opportunity for independent producers.
Our approach of how to get away from this canceled series and pilot risk is to order shows directly to season. So every show on Netflix we ever bought we acquired gave them a full season on air commitment. This show’s going to get made and it’s going to get released and it’s going to be watched. In that way we have taken kind of the unprecedented step of ordering 26 episodes right from the pitch of “House of Cards” which had never been done before and now the result of that is both for competitive reasons and for economic reasons NBC and Fox have both announced this year that they are ordering new shows direct to season instead of doing these pilot and development deals that tend to never make their way to television.
So what we do and what we ask for is for the producers to take on the development themselves in exchange of this trade off. Get us a good spec script, get a couple of them, and tell me how this show is going to play out over the next three to five years. Ideally, attach some talent to it. So, when “House of Cards” came to Netflix’s we had three scripts from an Oscar nominated writer. Not just Oscar nominated in his life but nominated at the time he was giving us the pitch. We had David Fincher; the greatest director of my generation attached to executive produce the show and directs the pilot. We had Kevin Spacey and Robin Wright, bona fide movie stars committed to star in the show. It was not like a shot in the dark that we bought the show. Not everything can be that beautifully packaged, by the way it was also based on a show that I loved, the original BBC “House of Cards.” So they not only had a great idea, you could conceptualize where this show could go over many years which was very exciting.
Character driven dramas are increasingly hard to sell to theatrical audiences and they are ironically in hottest demand on television. Audiences are in love with TV. So, I have to tell you I don’t live far from here, I went to pick up some dinner to go at a restaurant and I had “Orange is the New Black” production hat on and I was just going to run in get the dinner and run out and a woman taps me on the shoulder and says “Excuse me, do you have something to do with that show?” I go, “Yeah, something.” She goes, “I want to tell you it’s really amazing and I really love it and all my friends love it and it’s so authentic.” And she said authentic like four times so I finally jokingly said to her “How do you know it’s authentic?” And she goes, “I was in prison for 20 months.” And she goes into graphic detail what happened in prison for 20 months, this total stranger. So I realized though, she’s not the first one. Other times that has happened to me. I went home and told my wife “We have to move to a better neighborhood.”
The lesson I believe in all of this is give the audience what they want. Unable to change the model much from the inside from the independent world, which lead us to invest in Red Envelop Entertainment, we’re doing the same thing on the TV series side. We would never be able to launch all thirteen episodes in the same night or launch it in 41 countries of a series that we bought from some one else so we had to build it ourselves and it’s all in the effort to give the audience what they want.
This year as I mentioned Netflix was awarded four Emmy awards, three for “House of Cards” and one technical Emmy for the excellence in advancement in television. That was a monumental thing that night because everyone always thinks about Netflix as part of this digital revolution or new Internet delivered television. It’s all this complexity and exotic descriptions about what we’re doing. What we’re doing is television. I thought it eight years ago when we started streaming and I couldn’t hire a television executive because they all told me the things we couldn’t do in the world of television so we just built it internally and said, lets just get some of the smartest hardest working people who don’t know at all what we can’t do and lets keep trying to do this because I was convinced that what we were doing was flashing pictures on a screen; that’s television. And eventually other people would catch up to it. So winning the Emmy award which is an award that’s design to award excellence in television couldn’t be a clearer signal that all we’re doing is television.
It’s a new kind of television. It’s an evolved television. It’s less ad supported. It’s got more choice. It works more like you want it to work but its still television. Perhaps soon we will do the same for movies. What we’re trying to do for TV, the model should extend pretty nicely for movies meaning that why not premier movies on Netflix the same day they open in Theaters and not little movies. There are a lot of people and a lot of ways to do that but why not big movies? Why not follow the desire of consumers to watch things when they want to? Especially spending tens of millions of dollars to advertise to people who may not even live near a theater and then make then wait four or five months for them ever to see it. They will probably forget. If you think they are not going to forget think about this past summer: more movies with a production budget of over 75 million dollars released than ever in the history of movies. 50 percent more big box office movies in the same three months of 2013 than the average and the result of that a six percent lift in attendance. So, the studios have never done less with more than this past summer.
Now we expect consumers to remember all that stuff in their heads when they come out later when they can finally see them. I don’t blame the studios for what they are doing. I don’t fault them because the studios are always trying to innovate. The premium VOD model that has been tried and tried and theater owners stifle this kind of innovation at every turn. So the reason why I’m concerned and the reason why we may enter this space and try and release some big movies ourselves this way because I’m concerned as theater owners try and strangle innovation and distribution, not only are they going to kill theaters they might kill movies.
So what I would like to do is to say like we did for TV, lets give the consumer what they want and see if they turn out and lets not wait til my funeral for Red Skelton to make that joke again. With that I would like to just mention the cast and crews, the writers and the directors of “House of Cards”, “Orange is the New Black,” “Arrested Development,” “Derek,” “Lilyhammer” and “Hemlock Grove”; these are the folks I’m talking about when I say the biggest talents on the big screen happily doing the best work of their lives on the small screen and I want to acknowledge the work they do. Thank them for the work they do and thank them that they do it for our 40 million subscribers because they are the reason why the shine is back on Netflix’s and probably why you woke up early to come here me talk so thank you very much.