When she stood up to address the Royal Television Society in London last October, BBC director of content Charlotte Moore had the subscription video-on-demand giants in her crosshairs. She warned against technology driving change at the expense of creativity and the "insatiable greed for data gathering" before proclaiming no amount of data could inform what to commission next.
In her speech, Moore used 2017’s Blue Planet II as an example of risk-taking in commissioning that could not or would not be emulated by the "latest FAANG [Facebook, Amazon, Apple, Netflix and Google] acronym".
She said that when the hard-hitting series was delivered after four years of work – laying bare the true state of the oceans – she knew it might be "hard for people to take on a Sunday night". But she decided it was an important story to tell. The risk paid off – it was the most watched show of 2017, reaching more than 37 million people, was sold to 240 countries and forced the UK government into action.
Not six months after Moore’s talk, Netflix released its latest natural history documentary. Narrated by Sir David Attenborough and produced by Silverback Films, a production company run by a former head of the BBC’s Natural History Unit, Our Planet pulverised any notion that the BBC had a monopoly on big-budget nature documentaries. The series has an even more political and urgent tone than Blue Planet II. And it delivered – in April Netflix forecast 25 million households would see the show in its first month of streaming.
Our Planet is just one part of Netflix’s expanding Originals offering. Netflix spent $12bn (£9.4bn) on content in 2018, up more than a third year on year and six times the $2bn it spent in 2013 (its second year of commissioning). Analysts expect its content budget to climb to $15bn this year. It is gaining on the giants – Ampere Analysis estimates the newly combined Disney-Fox and Comcast-Sky spent $22bn and $21bn on content respectively in 2018. In contrast, in the UK the BBC budgeted to spend £2.8bn in 2018/19, while ITV spent £1bn in 2018.
This cash is fuelling Netflix’s rapid growth. The 21-year-old company has come of age in the past five years. Ten years ago Netflix generated $1.4bn revenue and had 9.2 million paid subscribers. In 2013 it generated $4.4bn in revenue from 31.7 million paid subscribers. By the end of 2018 it had annual revenue of $15.8bn and 139.3 million paid subscribers.
Netflix is changing the TV market fundamentally. It is attracting viewers, undermining established pay-TV price points, signing up great producing and acting talent and gathering awards. Carat predicted TV advertising would grow only by 0.5% (to $213bn) this year – against an overall market up 3.8% – "in the face of competition" from SVOD services such as Netflix. Yet, even as it predicted TV advertising would have its lowest share on record, Zenith described it as the "principal display medium" for many years to come in its own forecasts. So what does Netflix’s growth really mean for TV?
In its first phase of content production, Netflix mainly partnered broadcasters, giving them the rights in the originating territory and taking the rest of the world. For example, The End of the F**king World was released with Channel 4 in 2017 and Bodyguard with the BBC last year. Co-productions remain part of Netflix’s strategy – chief content officer Ted Sarandos reiterated its commitment to them in a recent interview and it has about 180 in the works this year – but it is also increasingly commissioning shows of its own.
Three years ago, in the days leading up to the Screen Actors Guild Awards, Idris Elba wasn’t spending his time with stylists or in the gym. Instead, he kept popping into a writers’ room that had been set up by South African-born producer Gary Reich to formulate Elba’s first foray into comedy. The actor was looking to break away from playing the brooding characters that had made his name and he wanted to own the process. After liking the finished script he’d read on the Thursday, Elba suggested Reich fly out to Los Angeles that weekend. Reich quickly called a few friends and set up meetings with Netflix, Amazon Prime and Showtime for the Monday.
On the Sunday morning, after becoming the first actor to win two Screen Actors Guild Awards in one night (for Netflix’s Beasts of No Nation and the BBC’s Luther), Elba met Reich by his hotel pool to rehearse over breakfast. Reich, who had hastily flown over to LA on the Saturday, was staying nearby at the house of his friend and collaborator, writer Gary Janetti. The next day Netflix, Amazon Prime and Showtime all bought the idea on the spot. The duo went with Netflix and within hours they were both on their way back to the UK on its private jet.
Private jets aside, Netflix purports to offer producers a different experience from that of traditional broadcasters. Its offer of complete editorial freedom and enough money to realise their wildest ambitions turned out to be "completely true", Reich says, speaking to Campaign in May, a couple of months after the resulting show, Turn Up Charlie, went live on the platform globally.
In the case of Turn Up Charlie, Reich was able to employ two female writers under 30 – Georgia Lester and Laura Neal – to write most of the first series and work on-set in producing roles with formal US-style credits. Reich says this differs from the "apprenticeship culture" in UK production, where you have to "know your place and slowly work your way up until you get approval". Similarly, Netflix allowed Elba and Reich to cast Frankie Hervey, then an 11-year-old with no acting experience, as the precocious child Gabby.
Kelly Luegenbiehl, Netflix’s vice-president of international Originals for Europe, Turkey and Africa, spoke of this approach at a conference in Berlin in February. She described the young writing team of the Italian show Baby as an opportunity rather than a risk. "We have a real passion around diverse voices," Variety reported her as saying. "Things that maybe you have to work a little bit harder to find. We feel like by empowering those voices, that’s where we are getting the stories that feel really unique and differentiated."
The money Netflix is ploughing into local commissions is affecting the market for production talent. In a submission to the House of Lords Communications Committee last month, Channel 4 said its average cost of drama production had doubled in recent years, from £725,000 an hour in 2013 to £1.5m in 2017. Channel 4 said this was "particularly driven by an increase in costs of production crew, as a result of increased demand and high tariffs from other content producers".
In practical terms for Elba and Reich, Netflix’s super-sized budget meant an episode of Turn Up Charlie was shot in Ibiza at the height of the season – as per Elba’s request – and another was filmed at the Latitude festival. Such scenes are usually created in a hired location, such as a farmer’s spare field, through the liberal arranging of extras.
"There are not that many production companies that know how to and can afford to orchestrate what we did," Reich explains. "Which is putting a very recognizable six-foot-four super-hunk hero in a sea of thousands of people who probably heard him DJ two nights before.
"Organisationally it was an epic project. With Netflix’s money we could split teams. We just had enough people on the ground, which you don’t normally have, to mount something that ambitious."
Reich insists he hasn’t "drunk the Kool-Aid" but contrasts how often Netflix said "we trust you, you’re the creator" with the number of times (he could count them on one hand) he had heard that in his previous 27 years of experience in production. He accepts, however, that this gives creators nothing to hide behind. Elba has to say: "This is exactly the show he wanted to make." Some critics weren’t convinced but there were positive reviews in The New Yorker and Forbes and Netflix has commissioned a second series.
In contrast, traditional broadcast commissioners have a substantial input into the programmes they bring to TV. Producers like Reich and Elba might appreciate the freedom they get from SVOD platforms but one former broadcaster, speaking off the record, points to some original Netflix content – such as season four of House of Cards (pictured, top) or the second series of Stranger Things – as examples of where the hand of a commissioner might have improved the end product.
Channel 4 chief executive Alex Mahon, who ran indie giant Shine Group as chief executive before its merger with Endemol, won’t be drawn on whether Netflix’s strategy of creative freedom causes problems: "They’ve got loads of great shows. And they’ve got shows that haven’t worked. Haven’t we all?
"What I would say, generally, is that the best things normally come out when the buyer and the supplier – without it sounding too twee – are holding hands together, both jumping a little bit into the unknown and taking a creative risk and backing each other up. There’s something in the interplay between the idea coming from outside and the work of the broadcaster with it. That’s how we do it."
After Netflix signed Turn Up Charlie it changed its model. Instead of commissioning Reich’s production company Brown Eyed Boy in the traditional way, it wanted to be the originating studio itself. This meant Reich and Elba had to pitch again to create the idea they’d just got commissioned as "producers for hire". Two years after the pitch, out in a rainstorm in order to get a mobile signal in the English countryside, Reich finally got the "yes" he was waiting for as he sheltered under a tree. The exact arrangement is confidential but, essentially, the producers get a fixed fee, paid in instalments, for 15 years of "universal" (not global) rights.
This set-up is tricky for production companies that make the majority of their profits from reselling their programmes around the world. In the UK the terms of trade under the 2003 Communications Act give the commissioning broadcaster rights to a show in the 30 days after it airs on TV but then the rights return to the producer. Mahon praises the rules for stimulating what is now a £3bn industry – it was worth £850m in 2003 – in the UK and she sees growing the sector as an important part of the publicly owned Channel 4’s remit. In contrast, as a global company, Netflix is under no compulsion to stimulate any local market’s IP-based companies.
Netflix’s global reach also means that it commissions differently. While national broadcasters such as Channel 4 have to choose projects that will achieve critical mass in a single territory, Netflix can "make an audience by getting 1% of people in every country to add up", Mahon explains.
It also pushes for stories, actors and the look and feel of a show to have as broad an appeal geographically as possible, promoting diverse casting and a range of languages. But that is not to say it is commissioning generic global shows. Speaking after Netflix’s results in April, Sarandos talked about how convincing local content travels better, citing the global success of the Korean drama Kingdom and the "perfectly Swedish" series Rain.
"We don’t try to water it down or make it travel any better inorganically and have found the best way to make global stories is to make them incredibly, authentically local," he said.
One major area where SVODs have made an impact on broadcasters is viewing behaviour. Live continues to account for most viewing – globally just 8.3% of TV viewing was catch-up in 2018, according to French research company Eurodata TV Worldwide – but streaming is growing. In Switzerland catch-up accounted for 18% of TV viewing, according to Eurodata, while on-demand viewership in Singapore grew from 18% in October 2017 to 22% in July 2018, according to Starhub figures quoted in the Asia Video Industry Report.
In the UK, 58% of the average five hours and one minute that people spent watching video every day was live content on a TV set, according to Ofcom’s 2018 Media Nations report. Enders Analysis predicts 52.7% of all viewing will be non-live by 2028.
As with all these figures, the average masks the gulf between the generations. In the UK people between the ages of 16 and 34 watched two hours and 37 minutes of non-broadcast content a day (54.5% of viewing) versus two hours and 11 minutes of broadcast content. Meanwhile, Eurodata found 23% of viewing by young adults in Portugal was on demand.
"There is an expectation that content needs to be available at all times," Tom Harrington, senior research analyst at Enders Analysis, says. "That’s easy for Netflix because it buys all the rights. It just has to decide what content to make or acquire. It [unlike public service broadcasters] doesn’t have to think about different services or making religious programming."
Traditional broadcasters cannot rush to put everything up online in one go to compete. After all, they have business models to protect. Instead they are testing the water. In the UK Channel 4 uploaded the newest series of No Offence as an early-stage box set as part of a partnership with Sky, which has also made some of its original content available in one go.
Pay-TV providers such as Sky are also being disrupted by the SVOD players – Ofcom figures show SVOD subscriptions overtook pay-TV customers in the UK for the first time in 2018 (although there is overlap).
The BBC delayed the broadcast of Killing Eve in the UK until the entire series had aired on BBC America so it could provide it as a box set from the off. That said, many viewers are prepared to wait for content they value – Game of Thrones was broadcast weekly on Sunday nights on HBO in the US.
"The phenomenal growth of SVOD players has accelerated the change in viewer behaviour," Mahon agrees. "So viewers now want to watch what they want, when they want it, wherever they want it. The switch for us is in ensuring our business is appropriately reactive to how consumers want to consume content and then, if we’ve got the right content, all should be well if we do that in a way that delivers for advertisers. Advertisers still want reach and their materials alongside quality and trusted brands."
On the other side, some SVOD services actually offer live or near-live viewing. For example, BritBox, the ITV and BBC joint venture that launched in North America in 2017, broadcasts shows such as Good Morning Britain or feeds of royal events, such as the wedding of Prince Harry and Meghan Markle or Trooping the Colour, simultaneously or within a few hours of the UK broadcast. Soumya Sriraman, president, North America at BritBox, says what matters is the type of programme: "Different shows satisfy a different needs state."
After making Turn Up Charlie (pictured, below), Reich left Endemol Shine, which bought Brown Eyed Boy in 2010, to set up a new outfit, Neon Unicorn, with fellow producer Martin Joyce, targeting Netflix, Apple and Amazon. It focuses on talent-led ideas and is already working on passion projects for Sir Ian McKellen and Angela Griffin, the former Coronation Street actress who stars in Turn Up Charlie. Since then the market has expanded: Disney, NBC Universal and AT&T have all confirmed their own streaming plans.
When he was asked about newer entrants to the market during the earnings call in April, Reed Hastings, chairman and chief executive of Netflix, was relaxed. "Great competition makes you better," he explained. "Just to be in the same league as [Apple and Disney] is very exciting for us. There’s already so much competition. Disney and Apple add a little bit more.
"But, frankly, I doubt it will be material because again there’s already so many competitors for entertainment time, which is great for consumers and it’s exciting for us."
BritBox is one niche service to have shown promise, building 500,000 subscribers in its first two years. Sriraman says its subscribers fall into two camps: "We’ve built an audience that understands we are a destination for certain kinds of programming and is happy to have us alongside something else. And then part of our audience uses us exclusively. We don’t think we are the primary and only service for a large group of people, which is as it should be, because we satisfy one need, we don’t satisfy every need."
But Harrington is unsure whether there is a public appetite for a wide range of subscription services. "At the moment the average amount of SVOD services is 1.4 [per SVOD household]," Harrington says. "People might have Netflix and maybe Amazon but do they want a third service? I don’t see that the influx of new services is going to reach the heights of Netflix and Amazon. People might have a general subscription and a sports or niche service but they’re not going to have lots and lots."
The US giants aren’t the only ones looking at subscription products – ITV and the BBC are developing a paid-for BritBox player for the UK. But they form only part of the TV industry’s response to the changes in the market. There are expansions into content production (ITV made the Netflix and BBC hit Bodyguard, pictured, above), developments in addressable advertising and the ongoing quest to commission great content. The UK’s public-service broadcasters, the BBC, ITV and Channels 4 and 5, are also petitioning the regulators to ensure that they continue to have a protected presence on new platforms. The answer will be multifaceted.
What is not up for debate is that this will mean more opportunities for producers like Reich. He, for one, is excited about this new world: "By the end of the year, there will be six buyers. And all of them have more money than terrestrial broadcasters."
How the SVOD players compare
Amazon Prime had 100 million members in April last year, according to chief executive Jeff Bezos. By the end of 2018, Consumer Intelligence Research Partners estimated it had 100 million in the US alone, where a subscription costs $12.99 a month. In addition to its streamed original content, Amazon Prime offers channels through broadcaster partnerships. The streaming service is a feature of Prime membership, which offers retail customers free delivery.
Apple did not hold back on the stars when it unveiled its plans for a streaming service in March. Oprah Winfrey, Steven Spielberg, JJ Abrams, Jennifer Aniston and Reese Witherspoon are all involved in original content for the platform, which will also carry channels from networks such as HBO and Showtime. The service is scheduled to launch in 100 countries this autumn and will be available on Apple devices as well as through an app on smart TVs.
Disney’s streaming service, Disney+ or Disney Plus, is set to go live in the autumn. It will offer 7,500 TV programmes and about 500 movies at launch, about 16% of Netflix’s offering, according to Ampere Analysis, but will come at a lower price ($6.99 a month in the US). The aim is for Disney’s entire back catalogue, including Marvel, Star Wars and Pixar films, to appear on the platform but it is not clear whether this will be available in every territory
The NBCUniversal player will differ from many streaming services by being offered free to subscribers to NBCUniversal, parent company Comcast and recent addition to the group Sky. It will be funded instead by advertising. NBCUniversal chief executive Steve Burke said it had decided to adopt this funding strategy because Netflix had such a head start. Trying to develop a subscription service would lead to "years of banging our heads against the wall", he explained.
Netflix now has almost 150 million paid subscribers and offers tens of thousands of shows, including original content. Despite increasing its prices in the US, Brazil, Mexico and parts of Europe (the US standard plan rose from $10.99 to $12.99 a month), Netflix said it had seen only modest short-term churn. Local content is performing well: Italian show Baby and Turkish original The Protector both reached more than 10 million households in their first four weeks.
After the US Department of Justice failed to block AT&T’s purchase of Time Warner, the merged entity pushed on with plans for its own direct-to-consumer product. The service will be based on HBO content, including Game of Thrones, backed by Warner Bros’ "deep and prolific library". The price of the service has not been revealed but chief executive Randall Stephenson said in an earnings call that it would be disclosed in September or October.
Local stories with global appeal
By Rachel Eggebeen, director, international Originals Germany, Netflix
How does Netflix’s global reach influence the stories, casting and presentation of its programmes?
It depends on the show. Sometimes we might be looking to make a show specifically for, say, the German market; other times we are looking to make a German-language show that will work around the world. In all cases, we look for locally impactful and authentic stories because we believe that the more unique and specific something is, the more global it can become – especially when stories and characters touch on universal themes.
How important is diversity to Netflix?
It is very important to Netflix. We want our shows to represent what the world looks like, and we want people from everywhere to see themselves reflected on the screen. We also like the idea of giving opportunities to traditionally underrepresented voices – this helps us diversify our content and distinguish ourselves from local offerings.
What do you look for in pitches for potential Originals programming?
Stories that haven’t been told before or unique twists on more common genres combined with a storyteller we believe can execute the idea.
How does the way you work with producers at Netflix differ from how you worked with them earlier in your career?
At Netflix, we see ourselves as partners to the creators and producing teams. We want everyone we’re working with to have the best experience of their career and to create the best work of their lives.
How do Netflix Originals drive audiences in local markets?
We’re committed to airing as many voices and telling as many stories as possible from around the world. When you see the amazing reception for really high-quality, local-language originals – such as Quicksand in Sweden, The Protector in Turkey or Dark in Germany – you realise not only can great stories come from anywhere but, on a global platform like ours, they can travel anywhere too.