International Keynote – Reed Hastings | RTS Cambridge

Good morning. The story goes that Netflix began with a secondhand Patsy Cline CD in a $0.32 stamp, as Reed Hastings and his co-founder Mark Randolph tested the durability of CDs in the rough and tumble of the US mail system. Now Reed is in the rough and tumble of the S-Baud revolution and Netflix is worth $125 billion, roughly, give or say, and has 150 million users and counting. The question is, is it counting fast enough? It was the remake of the British classic House of Cars that made Netflix's name and now for the first time at RTS Cambridge, I certainly hope not for the last, I'm joined by the man some say is the most powerful person in world TV. But before we talk to Reed Hastings, let's see what Netflix has been up to in the UK over the past year. Welcome Reed Hastings. I'd like to have you move the lights up a bit more for this session because I'm going to start the conversation with Reed, but I very much hope that all of you will have questions to ask Reed as well. I mean that was a pretty incredible take there. So what's the plan for the UK market in the coming year? Yeah, we've had a good start. We look forward to doing a lot more with all of you. The possibilities the internet brings for growing entertainment is phenomenal. And over the next several years with all of the expansion, I think we're going to see a very large increase in how much content is produced here in the UK. And that presents a lot of opportunities and a lot of challenges in terms of capacity and training and development, but far better to deal with the challenges of more content than the challenges of empty stages. So do you have a kind of budget in mind what you might spend here next year? Well, let's see, this year we spent a little over 400 million pounds in the UK and that's continuing to grow following our subscriber base. And as you know, the UK has had such a long and strong storytelling expertise, really probably driven by the early BBC investments and all the competition for the BBC, that now there's such a powerful and strong infrastructure that it's the biggest place that Netflix develops content outside of the US. So 400 million last year, double this year? No, 400 million this year. Double next year? Probably not double, but a big increase. So what we have now is Deep Pockets. You've got the studio capacity at Shepparton. We did a long-term lease. You've taken up talent. You've got Peter Morgan. Supporting talent. Like all these kind of verbs being corrected, it's great. So not taking talent, supporting talent. Your only big acquisition so far is my friend Mark Miller's Miller World. That was a big thing. In 20 years, we've done one acquisition, which is Miller World. The word is you're after a facilities house in the UK, but that might be wrong. Is it wrong? Yeah, we're not in the acquisition business. Are you more interested in looking at individual talent, or might you be in the market, like so many others are, for production companies? No, we've never bid on a production company. We want to use many production companies, and there's a lot of expertise in all the markets around the world. So that's not a particular part of our plan. When you're looking at working with production companies, I know you've got a pretty good hub in London now, but is there going to be a spread out over the UK? Of course, the big drive for Channel 4 and BBC is to look much more holistically at the whole of the UK, and I know you're filming everywhere from Edinburgh to Norwich, but are you actually going to put scouts out in those areas? Are you going to have a hub in those areas? We would tend to do shows like Sex Education that we did in Wales, Outlaw King in Scotland, on location. We're really about trying to find great stories, not so much about locations and buildings. You need some of those to be able to do great stories, but we're not trying to create factories. We're trying to find boutiques, specialty things from all through the UK. So you're actually looking individually at different independent production companies that you might be interested in working with? And we have, and continue to do that. So you must be worried in a way about the Esquad explosion, because just this week you've got Peacock, you've got Apple coming on in November, you've got Disney Plus, and the competition in a way for Netflix is too big. There you were ahead of the game, and you were licensing shows like Big Anchor, shows like Friends. So therefore they're not only being taken away, but you've actually got other people after content. Now they've got wads of actual cash to spend. Are they in a better position to do a bit of business than you are? Not really. It is fair to say that while we've been competing with many people over the last decade, it's a whole new world starting in November for next year between Apple launching and Disney launching, and of course Amazon is ramping up, Peacock. So there's tremendous new competition. A lot of them have very deep pockets. But sometimes you do your best work when you're challenged. We love Disney as a company. We've always admired them. We've always admired HBO. Our greatest dream in the beginning was to be used in the same sentence with HBO, and when that first happened with House of Cards, it was such an honor. And now to be like Disney and make contributions in multiple areas, it's a great thing. So it'll be tough competition, no question. Consumers will have a lot of choice. All of you producing, again, this is going to be unbelievable in the next couple of years, because you'll get to bid your titles across multiple players seeking to break in to compete with Netflix. Then we'll raise the bid to try to hold on to great content. So it's going to be fantastic. You're going to have to pay more for your talent. You're going to have to pay more for your content. Yep. Someday the crown will look like a bargain. Was a bargain, wasn't it? Not yet. How many subscribers? I mean, you're talking about 150 million. You need about 250 million, don't you? And you've built in the North American market. Your growth has to be elsewhere. And we were just hearing yesterday on Discovery, they're going local, local, local, local. You need to make shows. I mean, we're really talking primarily about Britain, but you really need to make shows around the world for around the world, and you need to be big in Asia. La Casa de Papel was our Spanish show that was a big success, Protector out of Istanbul, Dark out of Germany, of course, all the US shows. So yeah, we're producing all over the world. But what we're trying to do in the UK is really have a set of shows that are provocative, diverse, interesting, novel, creative, things that we all talk about. And it's interesting because, you know, the old model, if you can call it the old model of Netflix, was that, you know, rights were not up for grabs. But I hear now that you're being much more open about these things. And it's, you know, you trade rights and do all sorts of stuff now, and you probably have to. We're trying to grow up a little, yeah. So, you know, we're definitely guilty of having been a little simplistic when we started, of like, oh, this is how we work. We're trying to learn. We're doing things like now sharing data with producers about how the shows do. That's new this year. Do you think you were too secretive in the beginning? Yeah. But, you know, the thing about, you know, when, when we launched, when we went public, which was 2002, we were 50 million in revenue and Blockbuster was 5 billion. And we had this long, you know, fight that we barely, we barely came out of. And so you learn all these defensive, fearful things about hiding information. And, you know, the things that made us successful then are things that can trip us up over time as we get large. So we have to just grow up into it and be more open. And that's also being driven by, as you say, the new competition. I mean, you've got at least eight escorts and counting coming on. And the price point for Apple will be below yours. You know, there's a saying in America, which is, if you're not eating, you are on the menu. So are you going to be one of the ones that's going to be eating or one of the ones that's going to be on the menu? Because, you know, somebody is going to be on the menu. It's easy to think of SVOD as a market, but when you talk to consumers about some night, they're not watching Netflix and you ask them, what are you doing if you're not watching Netflix? Of course, linear TV is a big part, but so is video gaming, Fortnite. So is YouTube. That's YouTube is seven times more viewing than we have around the world. Does that upset you? So it does. And so you think of the competitive lens of like all things people do to relax and there's, you know, in the home, or you can think of it as TV screen time. And in our most developed market in the US, we're about 10% of the time that television is on, it's playing Netflix. And the rest of the time, again, video gaming, linear TV. In the UK, we think it's about 5%. And so this whole idea of eat or be eaten, I think what's happening is there's many options and there's many success stories. Yes, but many consumers don't have deep pockets. And what they're going to do is they're going to make a decision. And I would imagine, I would imagine I might be wrong, but the consumers are probably going to go for two subscriptions, max three. That means that a number of you are not going to survive. What do you think the either the aggregation or indeed, you know, or the what will actually happen? You're not all going to be there, there's going to have to move it in the market. You know, it's gonna be interesting how that works out. When employees ask me, what am I scared of? The main thing I'm scared of is that employees will focus on competitors. Yeah, there's nothing we can do about them. And the competition, again, it's video gaming, it's YouTube, it's the SVODs, it's linear. And so what we have to focus on is how do we please our members. This is why we're so firm about when we make movies, releasing them on our service first. We're programming for our members, our members are paying for the content. And then it's up to us to take their money and convert it into shows that people want to watch. You do want to make a splash because in fact, what you're doing is you're closing the London Film Festival, Irishman, which I gather is going to be on a big screen release for four weeks before it comes to your audience. You do want to make a splash. I mean, one of the most striking things to me was Roma, which was amazing. It cost $15 million to make, but you spent $25 million preparing it for blasting out for the Oscars. So you do want to make a splash. We do want to gain attention and support our talent. Baron took a bet with us, and we want to give them the best platform. Marty Scorsese on Irishman. We got an incredible movie, Two Popes coming out this fall too, a marriage story. So we're super, you know, we started strong in series. Now we're trying to expand in the film. What about the whole question of dealing with the culture and so forth in the company and how you want to do it? I mean, I think it's interesting because, you know, you're saying yourself that you were seen as much more secretive, you know, not quite the dark arts, but all these figures, the data. But actually, the openness is actually much more part of what the UK is about in terms of the industry. And so are you actually actively changing the culture in Netflix? Now you've got great people in the UK that perhaps have a different modus operandi. Yeah, we're trying to figure out how to be open about how the shows are doing, how we operate. When you're cancelling them quickly. We should be open about that too. And we're trying to spend our members money well. So when we cancel the show, unfortunately, it's because we think it's better to give somebody else a chance with that money to do a new show. So the key thing is constantly thinking about are we spending the members money in the best way possible. So let's just look at the financial model because you do have a huge burden of debt. These are your FT figures. 10.4 billion long-term, 19 billion obligations, 2.5 billion unknown spending. That probably equates to about 32 billion dollars. But for the first time in July, you did lose subscribers. Clearly, we're paying too much for content. That's not the right answer. The answer is you've got to grow your subscription massively, is the answer. Because if you don't move forward, then the views come off. Absolutely, yeah. And the internet's an amazing phenomena. It's, you know, once in a very long time. And we are definitely leaning forward into doing more content for our members in the future. And the growth has been very steady for the last 10-15 years, as more and more people discover the benefits of online. So that is the bet. Yeah, that is the bet. But you have to show this because the market cap can change, as we all know, like practically overnight. You've got to be rusting forward. So presumably, you have to move in the markets where you think you've got most to offer. What content translates best? Because I'm just thinking a lot of British content does translate very well globally. You know, Top Boy is number one on Netflix today. Back to the openness, we've started testing top 10 here in the UK. And, you know, it's a very tough issue with all of the knife violence that's in society today. But we think it's important to, you know, provide this platform, and it's a very diverse cast. You're going to share more data about figures, but the trouble is you have to look at figures over, you can't just do like reads and look at the overnight sometimes, but you're going to be looking at much. Are you going to share data on how things are doing right through what we would old-fashionedly call a season? You don't have seasons anymore, do you? Sure. I mean, I think that the best solution is to have Barb or Comscore extend their technology to be able to report in a consistent way, because nobody wants to rely on us for reporting on our figures. But to the degree that Barb can just do an open measurement of their panel, that would be the right thing. So that's what you're heading for? Well, it's not us. Barb has to do it. They just have to recognize the show. That would be great for us, yeah, and great for everyone. Now, this new spirit of openness, I mean, you know Tony Hall, you know, you had a drink with Tony Hall last night, you were wandering Cambridge this morning with Alex and Ian, and you've got good friends in PSBs, but are you long-term friend or foe? Well, a little bit of both. We compete for viewing and push people to do, you know, all four and iPlayer and, you know, move people to the internet. So that's a challenge to the model. And then we do co-productions. We've got Watership Down and Dracula with BBC, Bodyguard that ITV made for both of us, and in that way we increase the budget. And it's not just us, it's our also the SVOD competitors. So over time, when PSBs, you know, want to develop a show. That's so interesting, because I wonder if you think the PSBs are going to get addicted, or maybe already addicted to your money as well. Well, I hope so, you know. They want to addict to your money and not Apple's money, and Peacock's money. No, no, those other companies will be bidding and active, and Amazon has been too, and Fleabag is a, you know, great show, and it's an Amazon original. We got outbid for that one, so look on. A real regret. No, that's a great show. If it's a show that you wished you had, is that the one? That's the one. Great. So, you know, the good thing about it is there's multiple bidders, and that helps everybody feel comfortable with it. Just checking, are you after Phoebe Waller-Bridge for a talent deal? I don't know. Are you after other talent deals at the moment? You could say that, but I couldn't possibly comment. That's a line from a show. Anyway, you've been incredibly open so far. We have at least 11 minutes left, and so I'm really keen to get lots of questions up there at the back, down here. Gosh, this is an auction. Down here. Let's take the guy at the back. Hi, Ben Fenton from Edelman. We did some research, which was shown to everybody in the room yesterday, which showed that Netflix is as trusted by British consumers as any of the PSBs, the BBC or ITV or Channel 4. Is that a sort of coincidental to your strategy as a company, or do you think that trust is something you've got to work hard to maintain, or is your attitude just the more you entertain people, the more they'll buy your product? Yeah, a fundamental brand would be around being loved more than being trusted. I think a news brand needs to be trusted, and we're definitely not news, not sports, not video gaming. PSBs have a particularly high role to play in news. Again, for us, trust is a little bit ... It's always good to be trusted, but it's a little bit ancillary as opposed to loved, and so that's not the core attribute. Question over here, please. I'm Simon Walker from Marquee TV. I'm the founder of a niche escort service that focuses on performing arts, dance, opera, theatre. When we launched last year, BFT called us Netflix for the arts. I guess my question is, do you see a future for super niche fashion escort services? If the answer is no, can we all agree that we're not going to tell my investors? What's your price point? $8.99, or $89.99 a year, but it's super premium. It's the Royal Opera House, Royal Shakespeare Company, National Theatre. It's high end. Yeah, the more things are super premium or live, the less sense they make for us. Our brand really is around binge viewing, around watching a movie in the middle of the night, a show all day. That's why we're not sports, not live. That's a crossover case, but certainly no current plans to go into anything like that. Question here. Hi, good morning. Jeff Norton. You asked about culture briefly. I'm really curious. I think we've all probably read the culture deck. It's a famous piece of literature. What I'm interested in is, as you've expanded around the world, different continents, new employees, rapid expansion, how do you ensure consistency of culture? At the same time, how do you evolve the culture? Yeah, it definitely is. We've been expanding around the world. I would say within Europe, there's not too many tensions around the culture of directness and honesty and all of that. I would say in Asia, we've had to make some adjustments. The respect for hierarchy and age is very much to be... To give direct criticism is hard. To give direct criticism in front of colleagues is kind of like, I don't know, coming to work naked or something for us. That would happen on Netflix on Friday. There, we've made some adjustments. I think many people thirst for the freedom and responsibility, the idea that you get to make your own choices. Our local commissioners here in the UK get to make decisions and they're accountable for total budget, but they don't have to get approval from anyone. Big checks and make deals and they get complete autonomy. Then there's a responsibility to spend the customer's money well, but that's judged over multiple things and multiple times. We're definitely away from the micromanagement. I often say the job is to inspire people, not to manage them. Or I say to employees, don't try to please your boss. Try to serve the customer and fill your boss in on what you're doing. Your North Star has to be to produce great content or have a great service and then explain to your manager why you've made those choices. Those are the differences. Question in the middle. Thank you. Hi, Reed. Chris Curtis, editor of Broadcast Magazine. To what extent is Netflix going to be prepared to experiment with release models for content? You're doing something different with Rhythm and Flow. You're moving into non-scripted more generally. Some of your forthcoming competitors, Disney, have talked about doing weekly drops rather than box setting and binge viewing. What will Netflix's approach to be towards potentially experimenting around release models? Experimenting is the right word. Rhythm and Flow is a competition show, so we'll play around with that. We're doing experimental stuff like Bandersnatch, that's a branch narrative. But on the core model, the binge viewing is the essence of what consumers love about Netflix. We think it's a better model. We'll definitely be sticking with that. I know people say that, or like with the movies, we want to release them as soon as possible on Netflix. They may have a qualifying run for theatrical, but it's fairly small. Again, we're always trying to please our members because that's how we grow. Question at the front. Hello, Tom McWilliams from Enabling Abilities. Are you scared of Sharon's up-and-coming regulations on AD and subtitles for Xbox services? Number two is, how are you going to make your service more accessible to people who need help to get around your service? We've been at the forefront of accessibility, and the internet allows that because instead of choosing what language or subtitles or audio description, you can let users choose and have multiple different tracks. We've got audio description. We've been working in the US with the various deaf and limited site organizations to improve the access. Again, it's the power of the internet to be able to do that, and we're by far the leader in all those capabilities. If there's regulations for it, of course, we'll comply with those. But I think in every market, we're substantially ahead of the regulation. Okay. Gentleman here. Kenton Allen from Victor Productions. I'm just curious to ask you about the strategy going forward. As you begin to lose shows, do you have volume like The Office and Friends? What the strategy is going to be about getting to volume? You don't have 200 episodes of lots of your shows, so how do you balance the desire to keep feeding a show that viewers desperately want with a need to constantly refresh and bring us something new every day? When we first did House of Cards, people said, why don't you just license content? We would say, because eventually, all those content companies are going to be direct to consumers. We've been preparing for this moment since 2012 by building up the capacity, movies, television shows. We feel good now about shifting our consumers' money. Instead of licensing those shows, we're creating new shows. You might be actually offering a commission, though, for something like a run of 40? That's a big bet up front. You want to see how the show's coming together. Even Friends and Office started with a season and then goes on that basis. We've now got seven seasons of Orange is the New Black. That's just this incredible favorite around the world, and yet lots of people still haven't seen it. We've got a great franchise there. We've got Grace and Frankie that went seven seasons. We've done a Seinfeld deal that won't start until 2021, so that's some. Think of it as the core strategy is what we've been preparing for for a long time. We've known this is coming. In fact, we're a little bit surprised it took this long. Have you got lots of secrets up your sleeve of programs that are ready to rock? There are a lot of great shows that haven't been announced yet, but there's a lot of great ones like Crown Season 3's November 17th that are in the beginning of the franchise-building stage and are very promising, so we're super excited about those. Thank you. I was going to ask what advice would you give to young creatives trying to create the content for Netflix from the age of 19 to 24? YouTube's a great staging ground. Film festivals, if you're doing film instead of series, those are places that we scout a lot of looking for talent to provide that opening. Sex Education's a good example of a 24-year-old that was the writer on that show and pulled that together, so there's a lot of great examples. I do know that even on the Top Boy set, you had young people that you were then going to put into employment once they'd trained, so you're doing a different thing. That's right. We're investing. That's particularly diversity-focused, but the whole industry, there's a shortage of every role. I was saying yesterday, there's a real problem with it now. It's pretty much stuff being made. The problem is wages are going up. If you're production, I guess that's a problem, but it's great for the people, and because of that, it's attracting more people in. Great. Okay, question here, and then one at the back's the final. Thank you. Tara Conlan, worked for the RTS and The Guardian. Could I ask Alex from Channel 4 said earlier this June conference, there's a growing concentration of power in the hands of just a few tech demos who increasingly want to decide what we read, watch, and listen to. What do you say to the public service broadcasters here to allay their fears in that regard? David Zaslav said yesterday that Netflix has 150 million people who pay but do nothing else. Are you going to follow that, their model, a discovery, and try and get some more revenue streams from your members? On the second one, no, we're focused on growing our subscription base, pleasing our members, sort of that one business, very simple and highly scalable. In terms of too much power, that can be a risk in a society, definitely, and we need to be aware of that. Again, today, we only win about 5% of television viewing hours, so it's nowhere near a concentration risk. We're definitely trying to be supportive of iPlayer becoming very popular. All four public broadcasters around the world are moving to the internet because that's where the young people are, that's where their societies are going. If they move their viewers, then they maintain political support for license fees and government funding and can be a very successful outcome. If you remember, of course, the BBC started as a radio station and then expanded to TV, and there's no reason it won't successfully expand with iPlayer, which is one of the leading technologies in the world. It just reminds me, the chair of the London Film Festival was saying, particularly in terms of female writers and directors, that far too many of the big movies are still being made by men. I wonder if you see in any way that you can make a cultural shift, or you don't necessarily think that's your job, or actually, do you think it's your job to make a cultural shift in terms of diversity, including employing farmer women as senior movie directors? No, it's a huge responsibility, and we've got more female directors, female writers, all the way through the system, and also below the line in all the camera operating positions, and so we're very committed there. Again, not just on gender, sexual orientation, race, nationality. Right. One final question, then we're out, so up the back. Hi Reid, how are you doing? I'm from the University of York, and I just had a couple of things I wanted to say. Firstly, was thank you for your great service. I think I speak for everyone when I say it's absolutely fantastic, thank you. And secondly, I want to say as an American, you're an American, so I've got to ask, why don't we have the West Wing on UK Netflix? Thank you. I think that West Wing is an NBC show, if I remember, and so they're keeping it for you for Peacock. It's natural for every developer to do that, and what we hope on Netflix is to always have enough great content, some of which you'll hate, and some of which you'll love. You're not going to love everything, but quite an amazing variety so that you always know it's interesting. I think with that, we should say thank you very, very much to ReTasting. Thank you very much, you did well done.