Netflix’s Ted Sarandos: Theatrical Releases Are “Inefficient” Way to Distribute Some Movies

Streaming giant Netflix is betting on original content with local authenticity and a focus on audiences rather than critics or media executives, co-CEO Ted Sarandos told a TV industry gathering in London on Tuesday.

Speaking during a keynote address at the Royal Television Society’s (RTS) London Convention 2024, for which Netflix served as the principal sponsor, he also shared his thoughts on the streamer’s British hits, including Baby Reindeer, for which star Richard Gadd won Emmys for best actor and best writer on a limited or anthology series or movie this weekend, and the importance of the U.K. for the streamer and the country’s creative edge.

For example, Sarandos told the event that when Netflix publishes its latest audience engagement report on Thursday, the top four shows will all be U.K.-produced, namely Fool Me Once, Baby Reindeer, Bridgerton, and The Gentlemen, with a combined reach of 360 million households. The U.K. is the streaming giant’s largest production hub outside the U.S.

“Choice and control” are key in the streaming age, the exec argued in discussing business and creative strategy, calling ongoing “change” important for the company and industry. “We had two big competitors,” piracy and Netflix’s own DVD business, he recalled of the earlier days of Netflix, calling it “a painful split” when the firm gave up on its DVD business. He cited Steve Jobs as saying cannibalizing one’s own business is key to continued progress.

“Today, our members can watch a world of entertainment for a fraction of the price of a box set of The Sopranos in 2007. And they don’t have to wait two months for all the episodes of a show to come out or for a film to finish its theatrical run,” Sarandos said.

“Audiences don’t care about windows at all,” he also said about the industry’s need for constant change. “They never talk about it over dinner.” The streamer also doesn’t feel the business need to recoup film investment in cinemas, the exec explained. “It’s unique to Netflix that we have enough scale,” Sarandos said. “We can uniquely spend $200 million on a film and have enough scale of viewership to put it directly on Netflix without trying to recover some of the economics in the theater, which I think is a fairly inefficient way to distribute some movies.”

Sarandos also highlighted in discussing the moves by some entertainment giants: “If you ever find yourself protecting the business, you’re pretty much dead.” Instead, he believes in the idea “that we’ve got to constantly challenge ourselves, to break [the business] and move our business forward on behalf of our consumers.”

Does Netflix need so many shows and films? Sarandos shared that he often gets this question, and his answer is “yes.” After all, you can’t program just “for one sensibility” given eclectic tastes, he explained. “You have to love it all.” People who love The Crown also love Dolly Parton’s Heartstrings, he shared. His takeaway: “Put the audience first.” Think about the job from the perspective of a fan, not critics or media execs, Sarandos urged his industry colleagues.

And he argued that targeting a global audience with shows or films is the wrong approach. There really is no global audience for content per se, he said, instead urging an authentic local focus that can then travel beyond borders. Supacell and Baby Reindeer became global hits thanks to being “authentically British,” he argued. And they were commissioned by a local British team, he added.

Also important to remember is that success is more art than science. Algorithms can’t “reverse-engineer success,” Sarandos said. Otherwise, Netflix would never have flops, “and we do,” he admitted.

Sarandos also shared that Netflix owns less than 25 percent of the IP in its U.K. catalog. “There is so much potential in TV today,” he concluded. “This generation loves stories as much as we ever have, maybe more. We just have to find the right way to connect with them.”

Asked about the $170 million lawsuit by the real-life inspiration behind the Martha character on Baby Reindeer for the show’s use of the label “true story,” Sarandos argued this was a uniquely British debate that is “not happening anywhere else in the world.” He added that the show “is not a documentary” as “there are elements that are dramatized.”

Sarandos on Tuesday also remembered showing off the first trailer for The Crown at the RTS event seven years ago, touting that the show was a “stand conventional wisdom on its head.”

Saying he has long thought of the U.K. as “the birthplace of prestige television,” he said the firm has invested $6 billion here since 2000, with over 30,000 cast and crew, over 100 productions in the U.K., including Bridgerton, Thursday Murder Club, and the new Knives Out movie. He lauded the creativity and skills of the country, its production incentives, and education for industry folks. “Britain has become one of the best countries for TV and film,” he concluded.

Sarandos also shared on Tuesday that he and his wife enjoy different content, so he likes watching stuff they both enjoy together. She “loves” Emily in Paris which the two finished binging, he said.

Netflix, which launched in the U.K. 12 years ago, is the first streamer to sponsor the annual RTS event, Anna Mallett, vp, production, EMEA/U.K. at Netflix said in her opening comments. She also touted that the U.K. entertainment industry is expected to surpass 100 billion pounds ($132 billion) this year.

During another conference in London this summer, Sarandos’ co-CEO Greg Peters had outlined that streaming, linear, advertising, and gaming present a $600 billion-plus total revenue opportunity, meaning that much growth room remains for Netflix. A chart he showed on a screen listed $300 billion in spending on linear and streaming subscriptions, $180 billion in advertising, and $140 billion in gaming consumer spending.

Netflix beat Wall Street expectations with strong second-quarter financial and subscriber growth (8 million subscriber additions for 277 million total worldwide users) reported on July 18. But management forecast slower growth ahead — setting expectations for lower paid net additions in the current third quarter compared to the year prior — partly because the firm has already reaped gains from its successful password-sharing crackdown, launched about a year ago. Many Wall Street analysts came away feeling that the results didn’t move the needle too much in terms of their financial forecasts and views on the stock, but some increased their stock price targets.