Thursday, January 7, 2016, 12:33 PM ET|Posted by Will Richmond
In watching the press conference with Netflix’s CEO Reed Hastings and Chief Content Officer Ted Sarandos that followed the company’s CES announcement yesterday that it was expanding to 130 additional countries, the most significant thing that struck me is that Netflix is pursuing the biggest-ever experiment in content globalization. Depending on the results, there will be profound implications for all players in the video value chain.
First, it’s important to clearly understand Netflix’s content globalization initiative. In the press conference, Hastings and Sarandos emphasized that the company’s focus is on investing in original content and retaining global distribution rights (this is a big departure from the “House of Cards” strategy where co-investors got the global rights in order for Netflix to mitigate its financial exposure).
With global rights, Netflix can launch a film or an entire TV series in ALL geographies simultaneously, as it did recently with “Beasts of No Nation” and “Sense8,” for example. This release approach differs sharply with, for example, “The Force Awakens” opening over a course of weeks around the world, or the finale season of “Downton Abbey” being fully aired in the U.K. before the first episode shows in the U.S. With Netflix, ALL geographies will get equal access, so a GLOBAL water cooler conversation can begin at once (and you don’t need to be paranoid about spoilers!).
Netflix’s content plans are also totally different than the traditional Hollywood approach, which has produced American-style films and TV shows, first for U.S. release and then for methodical, broader international syndication, which Sarandos cynically called “managed dissatisfaction” by studios.
Rather, Netflix is continuing its approach of working with numerous local production partners and talent, shooting on location and using primarily native languages. The most prominent example of this is “Narcos,” which was shot in Colombia, features Brazilian actor Wagner Moura, and is mostly in Spanish, with English subtitles (Moura was on stage during the Netflix keynote and is actually a pretty funny guy).
Hastings and Sarandos highlighted how well “Narcos” has done in international markets and also cited other successes such as the French series “The Returned.” (Another upcoming French series “Marseille” with Gerard Depardieu, is likely to be hit too). Going the other way, Netflix has previously cited how well American series like “House of Cards” and “Orange is the New Black” have performed internationally.
Hastings described this strategy as “produce locally, distribute globally” and discussed how outmoded the traditional paradigm of limiting a local production to that geography has become in the Internet age (it’s worth noting how frequently both Hastings and Saranos returned to the theme of the “power of the Internet” in both the keynote and press conference).
Based on its early experience, Netflix clearly believes the winning formula is to produce locally to appeal to targeted audiences (e.g. “Narcos” for Latin America), but with the confidence that there’s broader international appeal (subject to in-market regulatory oversight, particularly in conservative countries).
Of course, the glue that underpins all of this is Netflix’s invaluable subscriber data which famously informs all of the company’s decision-making. In my post last year, “Data is the New King, As Netflix Keeps Proving,” I quoted Sarandos speaking to how international viewer behavior data was the linchpin to Netflix’s decision to pursue a 4-movie deal with Adam Sandler.
No doubt Netflix will be monitoring viewer data for all of its originals, seeing how well particular content performs locally and internationally as it refines its multi-billion dollar content investment strategy. Combined with its extensive international footprint, Netflix in fact has the first-ever opportunity to pursue content globalization at scale and with managed risk.
That’s a very powerful position to be in, and will be particularly valuable to creators in helping shape their visions, tempered by market realities. With its insights, Netflix could also upend the workings of film festivals that have traditionally played the role of brokering international independent films to broader audiences (but which often end up with limited U.S. distribution anyway). Netflix will soon be able to offer storytellers instant access to an on-demand, global audience of over 100 million subscribers.
To the extent the content globalization initiative pays off, Netflix also creates huge optionality beyond just movies and TV. While both Hastings and Sarandos repeatedly emphasized that Netflix is purely focused on on-demand, it’s natural that at some point down the road, with its vast international audience, Netflix could become a serious player in sports. The Olympics on Netflix in 15-20 years? It’s certainly within the realm of possibility. Then there’s business model optionality; despite Hastings’ insistence “Netflix loves simple business models,” at some point when subscriber growth slows, an ad-supported alternative will likely surface.
Netflix’s grand experiment with content globalization will be fascinating to watch unfold. We will see locally-produced content cross-pollinated throughout the world, produced, packaged and recommended by Netflix. Just like Apple, Coke and Nike have all become iconic international brands, Netflix could become one too - not by exporting American-centric culture/products, but instead by using its platform and insights to source and distribute compelling, locally-produced content to the world.
Yesterday’s news that Netflix is expanding to 190 countries is noteworthy in and of itself, but what’s far more compelling long-term is the company’s unique content globalization strategy. If it all plays out as Netflix hopes, the company could become a very significant cultural force.