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Feature
It helped to develop all the new ways we watch TV — on-demand, bingeing, mobile. But the Silicon Valley company still has to keep reinventing itself.
Credit...Illustration by Erik Carter
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By Joe Nocera
One night in early January, a little after 9 o’clock, a dozen Netflix employees gathered in the cavernous Palazzo ballroom of the Venetian in Las Vegas. They had come to rehearse an announcement the company would be making the next morning at the Consumer Electronics Show, the tech industry’s gigantic annual conference. For the previous year, Netflix had been plotting secretly to expand the availability of its streaming entertainment service, then accessible in about 60 countries, to most of the rest of the world. Up to this point, Netflix had been entering one or two countries at a time, to lots of fanfare. Now it was going to move into 130 new countries all at once, including major markets like Russia, India and South Korea. (The only significant holdout, for now, was China, where the company says it is still “exploring potential partnerships.”) Netflix executives saw this as a significant step toward the future they have long imagined for the company, a supremacy in home entertainment akin to what Facebook enjoys in social media, Uber in urban transportation or Amazon in online retailing.
Ted Sarandos, who runs Netflix’s Hollywood operation and makes the company’s deals with networks and studios, was up first to rehearse his lines. “Pilots, the fall season, summer repeats, live ratings” — all hallmarks of traditional television — were falling away because of Netflix, he boasted. Unlike a network, which needs shows that are ratings “home runs” to maximize viewers and hence ad dollars, he continued, Netflix also values “singles” and “doubles” that appeal to narrower segments of subscribers. Its ability to analyze vast amounts of data about its customers’ viewing preferences helped it decide what content to buy and how much to pay for it.
Sarandos can be an outspoken, even gleeful, critic of network practices in his zeal to promote what Netflix views as its superior model — on-demand and commercial-free streaming, on any device. That glee was on full display in these remarks. For years, he said, “consumers have been at the mercy of others when it comes to television. The shows and movies they want to watch are subject to business models they do not understand and do not care about. All they know is frustration.” That, he added, “is the insight Netflix is built on.”
When Sarandos was done, Reed Hastings, Netflix’s chairman and chief executive, took the stage. A pencil-thin man, he seemed swallowed up by the empty ballroom. He squinted uncomfortably under the lights. He and a number of other Netflix executives had spent the morning at a meeting in Laguna, Calif., where a rare torrential rainstorm grounded air traffic, forcing them to make the five-hour drive to Las Vegas. They arrived only a few hours earlier. To make matters worse, Hastings was feeling ill.
Haggard and tired, he stumbled irritably through his presentation. But as he neared the finale, Hastings broke out into a small, satisfied smile. “While you have been listening to me talk,” he said, reading from a monitor, “the Netflix service has gone live in nearly every country in the world but China, where we also hope to be in the future.” Even though this was only a practice run — and even though it would be a long time before anyone knew whether global expansion would pay off — the Netflix executives sitting in the ballroom let out a loud, sustained cheer.
They had good reason to celebrate. Netflix, since its streaming service debuted in 2007, has had its annual revenue grow sixfold, to $6.8 billion from $1.2 billion. More than 81 million subscribers pay Netflix $8 to $12 a month, and slowly but unmistakably these consumers are giving up cable for internet television: Over the last five years, cable has lost 6.7 million subscribers; more than a quarter of millennials (70 percent of whom use streaming services) report having never subscribed to cable in their lives. Those still paying for cable television were watching less of it. In 2015, for instance, television viewing time was down 3 percent; and 50 percent of that drop was directly attributable to Netflix, according to a study by MoffettNathanson, an investment firm that tracks the media business.
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