Cannes: Ted Sarandos on Why He Won’t Share Netflix Ratings and the Future of the Industry
Shipra Harbola Gupta
Most of the reports so far on Ted Sarandos’ 2015 Cannes conversation have focused primarily on two moments that occur towards the end of the session: When a French reporter accuses Netflix of destroying the film ecosystem in Europe, and when Harvey Weinstein takes to the microphone and issues a rousing defense of Sarandos and Netflix.
Given that the conversation took place at a European festival, it’s no surprise that the concerns of the host country, and continent for that matter, took centerstage.
Nevertheless, earlier in the hour, Sarandos provided some fascinating insight into what makes Netflix tick, as well as what the future of the industry might look like. Here are the four topics that received the most attention:
Revenue Models
Sarandos spoke in broad terms for most of the talk. When comparing traditional theatrical distribution versus distribution on Netflix, however, Sarandos made it clear that the latter is much less of a financial gamble for all parties involved. He illustrated this point through an approximate scenario in which he compared the cost of distributing a medium budget film (made for $10-$12 million or below) the traditional route versus through Netflix. When released theatrically, a medium budget film, Sarandos said, has a hard time seeing a profit because theater, distribution and advertising fees all count against the box office. The philosophy at Netflix, on the other hand, is that “all the film that we do on Netflix are going to be profitable for the producer,” which is why, Sarandos said, the company buys the films “at a premium to the budget so there is no chance that an investor [on] a film who does a deal with Netflix is going to lose money.”
Although there is no backend with digital distribution, Sarandos said that Netflix does its best to compensate by estimating what the backend revenue might have been, based on older distribution models. “It’s a discounted amount for sure,” admitted Sarandos, “but it’s guaranteed.”
Sarandos went on to use the upcoming documentary, “What Happened, Miss Simone?” as an example of how the Netflix model of production and distribution has proven successful on the documentary front.
Directed by Liz Garbus, “What Happened, Miss Simone?” is an intimate portrait of the iconic singer, songwriter and civil rights activist Nina Simone. The film premiered earlier this year at the 2015 Sundance Film Festival to rave reviews and will be available to stream June 26 on Netflix. According to Sarandos, if the film “had to go out and play theaters, sell DVDs, you could never recover what that film cost to make because the music rights are too expensive,” which is why, he concluded, exclusive digital distribution is becoming such an attractive option for filmmakers. Releasing on a platform such as Netflix provides a film not only access to a massive audience, but also translates into cultural relevance.
The Decision Not to Share Ratings
When asked about the company’s reluctance to share ratings information, Sarandos explained that unlike network television, where each time slot has a monetary value attached to it through advertising, on Netflix, “there is no urgency or pressure has to work” right away. “For me,” said Sarandos, “it’s infinitely valuable to be watched eventually.”
He described the practice of sharing ratings information as an “arms race.” After one of the moderators brought up the fact that it’s not just the networks, but cable companies like HBO as well, that are sharing ratings information with the public, Sarandos replied that even though he understood why HBO had shared the figures, he thought that they should never have done it. “I think they only did it because they had a success and they wanted to share it,” said Sarandos. “I’m incredibly proud of the viewing numbers on Netflix and I’m very tempted to tell you right now, what they are. What I don’t want to do is start that arms race against ourselves — to say what’s going to be successful and what’s not going to be successful because I would argue that many of the shows with low ratings on HBO, have been very important to HBO, and yet people can perceive them as failures.”
The Light Touch
On the issue of creative latitude, Sarandos said that Netflix provides creative talent with as much room as they need in order to get the job done. “We allow incredible artistic freedom and expression,” he told the room. “We try to guide with a light touch. Sometimes we can be helpful and my goal with my team, both on the series side and on the film side, is that the collaboration should always be invited. In other words, we’re not looking to impose our view on the filmmaker; we hire a storyteller because we love the story and we love their ability to tell it.”
And while a creative executive’s job will overlap with that of creative talent, the existence of the overlap does not privilege the executive’s opinion on creative over the talent — when making a film or television show in Hollywood, it’s usually the opposite. “While my team is very gifted,” said Sarandos, “that isn’t the gift that I hired them for. We hired them to find great projects and if we pick the right projects, the rest plays out very well and that has served us very well so far.”
Executives at Netflix provide guidance to talent with, in Sarandos’ own words, a “light touch” and, “at the end of the day, they’ll [the talent] break the tie if we have two conflicting points-of-view on creative.”
The Importance of Choice
Throughout the hour-long conversation, Sarandos was very careful to characterize Netflix as one of many consumer choices, rather than the reputation that currently precedes the popular streaming outlet, which is that of a theatrical replacement.
“Don’t misunderstand. Nothing I’m saying and nothing we’re doing is meant to be anti-theater or anti-cinema,” he told the room. “I love, personally, the experience of going to the theater, going to the cinema. I think it competes beautifully on its own. I have great confidence that if things were day-and-date people would still go to the movies, but I do think that people need choice and people want choice and if you try to prevent them from choice, it’s going to ultimately harm [the theatrical experience].”
The importance that Sarandos assigns to consumer choice stems from the fact that he, and, by extension, Netflix, seemingly acknowledge movie and television watching as a lifestyle choice similar to a hobby — you pick it up whenever and however you want it. Said Sarandos: “On Friday night, if you want to go out on a date with your wife or your girlfriend, nothing on Netflix competes with that, right? Because you’re getting out, that’s what you’re doing. If you don’t want to put your shoes on, nothing in the cinema competes with the worst thing on Netflix.”
With choice, he insisted, “more films will get made, more films will get watched [and] more films will be loved.” Sarandos was careful, nonetheless, to acknowledge (albeit briefly) that distributors and theater owners might have to take a pay cut if the industry were to embrace the philosophy of consumer choice on a widespread scale.
