Day four of the Cannes Lions International Festival of Creativity featured Ted Sarandos, co-CEO and chief content officer, Netflix, in conversation with Kara Swisher, editor-at-large of New York Magazine and co-host of the Pivot Podcast.
In April 2022, after Netflix reported that it lost subscribers in the first quarter of the year, its stock prices fell by 35.1%.
But Sarandos stated that the streaming company wasn’t particularly worried about this.
“We have gone through these experiences where the market disconnects from the core business, and you have to prove to the market that the thesis still works,” he said.
Responding to Swisher’s question about this thesis, Sarandos added, “We are in the early days in this evolution of watching content. Today, we (the streaming industry) are about 10% of what people watch on TV. There are still a lot of people watching regular TV, and I think there’s a lot of room for us to grow.”
The OTT market has seen an influx of players in the last few years, but Sarandos and Netflix weren’t bothered by it.
“When we started making originals, the bet we placed was that all major studios producing shows and films will go direct-to-consumer too. That was the bet made 10 years ago, and I’m surprised that it took them time to come in. Covid accelerated their entry points. We were always competing with their content, albeit in different models,” he added.
He also stated that he doesn’t believe that subscribers would have only one OTT subscription, so Netflix aims to get them to subscribe to their platform irrespective of the other ones they consume.
“People have different tastes, moods and needs and we have to cater to that. People have content needs so we have to create content to meet it. It’s not about volume, but it’s about variety. We had 139 shows that hit the top 10 (most-watched on shows) last year, while our competitors had only 40,” he shared.
The future of the content business
Sarandos believed that to perform well, all content businesses need to have scale.
“The market is global, and you have to create content that people resonate with, in different markets. We’ve been competing with the studios and networks in creating original content. Our content drives the most revenue and profit. So, we can keep scaling the business as long as we can create the content people love,” he said.
Responding to a question from Swisher about whether Netflix could be bought out, he stated that he believed that wouldn’t happen because it wasn’t necessary as the company has the scale and the cash flow required to expand. He also denied talks of Netflix purchasing Roku, a hardware digital media player.
Advertising driven model
Swisher then questioned the group for saying that it would never look to move to the advertising model.
That changed earlier this year, with a cheaper, advertising-driven option announced. Swisher asked Sarandos about this U-turn.
“We are adding a tier for people who want a low entry point. The details of the launch will be out soon. What we do when we launch, won’t be representative of what the product will ultimately be. We want it to be better than TV ultimately and will use creative ways of putting commercials on the internet with great audience matching,” he explained.
He added that the lower price ad tolerant market is here for the taking.
“We must not forget that Gen Z isn’t averse to ads. They watch a 30-second ad sometimes to watch two-seconds worth of content,” said Sarandos.
He also reaffirmed Netflix's commitment to not be present in the news sector.
“We are global and ideally wouldn’t want to get into trouble with local governments. We are an entertainment business, while some are entertained by the news, most aren’t."
Controversies around content
In November 2020, ‘#BoycottNetflix’ trended in India since its show ‘A Suitable Boy’ hurt the religious sentiments of certain sectors of society.
Sarandos explained that the content company understands that it’s impossible to provide content for everyone.
“Not everyone will like all the content, and we won’t make everyone happy. We won’t take down any content. We fight all the way to the Supreme Court to defend our content. We need to protect the diversity of content. Having said that, what I wish is that it was done in a cleaner way for employees who were hurting. I should have been more empathetic and dealt with their concerns directly,” he added.