Home  /  Strategy  /  Interview  / "We are using data really smartly" | MAR 10 , 2017

Dawid Bilski

Interview

"We are using data really smartly"
Reed Hastings on how Netflix puts together great content – Part 2 

Kripa Mahalingam & V Keshavdev

How do you make global content that’s accepted across markets?

It’s gut instinct, looking at a lot of content and then the chemistry between all the different people working on it. And then analysing it after it is produced; we can do great analysis of where it is played, how it did, when people dropped out…

How critical is the role of that data post production?

It’s a huge advantage over linear cable or networks to have all that data. But if I think of Amazon and YouTube, they have data too, so from a competitive standpoint we are an internet company like them, and that comes with certain advantages, because we are using data really smartly along with great content.

You are planning to spend $6 billion on content. Is it prudent to rely on gut to spend that budget?

If it was one $6-billion bet on a single show it would be scary, but we are making 1,000 different bets.

How much do you pay for original content?

We don’t disclose it.

Foreign broadcasters, too, have tried to create local content in India and have been bleeding?

They are not internet companies. We make content for the world; we are not trying to make content only for India, which is essentially their strategy. So they are like bordering into everything different and we are bordering into “everything is different but there’s stuff that everybody loves and let’s focus on that”.

If our content is only going to be watched in India it would not make much sense for us. If you think about Hollywood movies, they are not everything in India but a part of the viewing. You don’t have to be everything but you have to be a part of the viewing.

Will focusing on original content continue to be your strategy?

Absolutely! People love our original content but then they also love watching old episodes of Scandal, The Office and Friends and so we give them some great old stuff as well.

If old stuff is popular, does that push up costs for you as the new seasons keep coming in?

What pushes up costs is the other bidders coming in since it’s an open market. The creative class is so excited because we bid up prices for content tremendously and so there are more people working to produce TV shows all around the world than it has ever been. But our competitors are mad at us as we are pushing the price up, but the creatives are happy and, of course, so are the consumers.

So, is original content critical for Netflix to keep its subscriber flock not just intact but also growing?

People stay because they enjoy the content, it does not matter if it’s original or not. The question is that when you come home, are you dying to turn it on. If you’re really excited about the next episode of Narcos, that’s great; if you’re excited about the next episode of Mad Men, the off-air series, that’s great too. We let people choose what they want. We want them to feel excited about what we have to offer.

The library for India is limited as of now…

Have you watched all of it? To answer your question, absolutely, we have more content to serve. The service in India today may not have that much as the developed countries do but over time it will. It’s already more than anybody can watch, it’s already a great service today and it will get better tomorrow.

There are geographical restrictions on some of Netflix’s content. If the internet is seamless, why have geographical restrictions?

All our regionals are available globally, but for example, we do not own the licence for Disney movies in some countries, we would like to get it everywhere. So, it’s all because of rights that we get from a territory network.

On the streaming side, YouTube continues to dominate market share in India and its content is largely free with dedicated channels. Does that pose a challenge?

We compete with Facebook, Snapchat and we compete with all of those things you do, which are not related to work, but it’s entertainment and fun. Even in the US, about half of our households are subscribers of all sports channels, so the competition is super broad, much broader than one network or one show. We are closing in on 100 million members; Facebook and YouTube are billion-plus active members. We are so small compared to that, partly because they are popular in India and developed, while we are not yet.

When you enter new markets, what time frame are you looking at to make money? How many markets would be profitable outside of the US?

We are big on investing forward and our investors are very comfortable with that. We’ve been running for the last five years at breakeven, basically zero profit. But as long as we have great traction, great content and keep growing our franchisees, they [investors] are very happy. With time we will be able to have more revenue growth. So, there is no short time frame in any of the markets. As long as we continue the way we have for the past five years, we are doing good.

Will your costs be stretched as you expand and grow?

Ten years ago, we started streaming (standard definition) in the US for $7.99, and till today we have been able to offer the option. We have added other options, such as high definition at $9.99, ultra-high definition for $12 a month.

Will prices in India remain the same, 10 years hence?

Not necessarily. My point is that you don’t have to increase the prices, you were saying you got to increase prices, that’s not true. It can increase revenue, that’s true.

What could potentially disrupt streaming?

It’s very hard to tell in advance… the next disruption would be retinal projection…you will have glasses. But streaming is going to grow, as India goes online with 4G and broadband, it’s going to be an extraordinary change over the next 20 years.

This is the second of a three-part series. You can read part one here and part three here.

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