Netflix’s appetite for original shows and films, and the ballooning budget they require, has drawn criticism from skeptics, but CEO Reed Hastings doesn’t believe the industry is in a bubble.
In an interview with New Yorker editor David Remnick at the TechFest conference, Hastings explained that twice as many TV shows are made today than five years ago, and Hastings pinned the cause for all this increased spending on the rise of new ways to distribute shows (like, ahem, Netflix).
“Cable networks like FX and broadcast networks like ABC continue to invest in shows, and now Amazon and Netflix are adding into that, so the total number of shows over the last five years has nearly doubled to a little over 400. So some people say that’s unsustainable — the writers say ‘fantastic!’ There’s never been more people working, the prices are up, the ecosystem’s incredibly healthy, but it’s tougher competition for all of the existing players.
“I don’t think it’s a bubble. I think what’s happening is distribution is getting better and then we now can afford better content. So, if you think about the highest-end movies, the budget will be about $150 million for production, so about $100 million per hour of content. But if you think about the very biggest TV — Game of Thrones, The Crown — that’s about $10 million per hour in production budget … but what’s the difference? Well, a movie is able to monetize through incredible distribution, and they still make a profit … TV, we can’t do that .. What we’re all interested in is how do we expand — I’m not calling it a bubble, but expand — and invest more, and figure out what $20 million-an-hour television looks like.”
Netflix’s plan is risky. If all this spending doesn’t eventually lead to profits, budgets could evaporate — or, at least shrink. But Hastings has built this uncertainty into his strategy.
“The thing that most people don’t understand about strategy is that strategy is pain,” said Hastings. “And if your strategy is not profoundly painful to you and uncomfortable, you’re not very strategic. … Really, strategy is a list of all the things you’re not doing.”
Later Remnick asked, “Are you worried about the movie industry?”
“It’s a real tragedy,” said Hastings. “The movie theaters are strangling the movie business, so there’s no innovation in distribution in movie theaters in the last 50 years. But if you look at the television side, there’s been the rise of cable networks … and now this explosion of internet networks, so there’s a lot of money pouring in.
“On the movie side, you can’t distribute a movie directly to consumers or they strike against your movie. And so they have a lock hold on the movie studios, so that’s driven, basically, flatlined revenue, lack of innovation, and the small movies — which would be better distributed both in theaters and at home — are prevented. … Each studio would like to break the oligopoly of movie theaters, but they don’t know how.”