Netflix’s Sarandos touts focus on local content with global appeal

Netflix next year has its sights on reaccelerating revenue growth, with chief content officer Ted Sarandos pointing to revenue, engagement, profits as key metrics of success for the streaming company.

And as the streaming giant faces increased competition in a sea of content options, the company is putting investment and emphasis on local markets, hoping to win with content that has global appeal.

“The dynamic that Netflix has proven out that nobody else has ever proven out is that it’s…not just possible, but almost equally as likely that if you make a great show anywhere in the world it could break out all over the world,” Sarandos said Tuesday at the UBS TMT conference.

The content chief noted that despite a bumpy 2022 for the streamer, Netflix this year debuted five of its most-watched shows and three most-watched movies in its history.

A new show gaining traction is “Wednesday,” which premiered just last week and Sarandos said is chasing South Korean smash hit “Squid Game” to be one of the most watched shows in the world – already ranking as a top 3 show markets of India, Japan and South Korea.

“So we’re strengthening both our ability to create global content, but even better doing it from just about anywhere. And I think having that emphasis on the local market helps us tremendously, and then being able to pick those projects that are global.”  He was sure to point out global not meaning American content that’s exported to be big everywhere else but “storytelling from anywhere to everywhere, which gives us a lot more variety for storytelling.”  

Netflix has laid out around $17 billion for its content spending budget, a figure he said is in the right ballpark.

The key, Sarandos said, is not to spend more and more money, “but can you get more impact per million dollar spend than anybody else.”

That’s done by creating content viewers love, good relationships with creators and ensuring the content connects with audiences, alongside a steady cadence of hits rather than one-and-done, according to the co-CEO and content chief. And he anticipates release dates to become smoother next year with a steadier stream of hits.

Asked by UBS analysts if in looking to growth outside of the U.S. if Netflix shifts budgets from U.S.-produced to more locally-produced content, Sarandos said it’s something that is happening organically.

“The beauty is, if you can get the art form right, that locally produced content can play big all over the world, so it’s not just America supplying the world content,” he noted, with U.S. audiences also gaining an appetite for internationally produced or focused programming.

“This cadence of international watching, for us it keeps doubling in the U.S. because people really have discovered storytelling from around the world” in a way that shifting a dollar from English-language to a non-English production “that it can have a lot of impact.”

For example, he pointed to the number one movie currently on Netflix - a Norwegian film called “Troll,” which also is seeing success in India, Japan and Korea.  

In markets like Asia-Pacific (APAC) and Europe, Middle East, and Africa (EMEA) where Netflix has lower penetration, part of the aim is to ensure content hits the mark with that specific audience as it looks to build up bases, but also brings benefits in potential to expand beyond the target market for audience engagement.

“First and foremost, we want those local productions to be hugely impactful in the local territory, and if they’re really great, they travel, so that’s the nice windfall of doing it right,” he said.

Netflix is highly penetrated in the U.S. market and most of its 2.4 million Q3 net additions came from APAC, followed by EMEA and Latin America. Still the company is deemphasizing a focus on subscriber counts, instead prioritizing engagement, profitability and revenue – which alongside content to bring eyeballs is being supported by a jump into the subscription AVOD world and efforts to monetize account sharing.

On the content front Sarandos thinks a lot of local taste is driven by what people have had access to based on distribution in the market, rather than predisposition for liking certain content over others.

“The reason why no one used to watch non-English speaking content in U.S. is we’ve had an embarrassment of riches of English-speaking content,” with U.S.-based viewers now much more likely to check out content from other regions.

Zeroing in on international and localized content also comes back to Netflix’s strategy of looking to offer a wide breadth of the types of programming.

“There’s a lot more content being made than there used to be, but it’s not all for you,” he said of a crowded competitive market.  

To that end, Sarandos said Netflix has been successfully and profitability been delivering a broad and diverse slate of content – citing a range from Japanese anime, Mexican novellas, to animated TV shows alongside with big budget series and movies.

Looking ahead, in the next 10 years, he said Netflix aims to get better at development meaning world and franchise building. Near-term it’s releasing “Blood Origin,” a prequel story to “Witcher” and a third season of “Emily in Paris” – a relative new piece of IP.

In the film space, he said “Glass Onion,” the sequel to “Knives Out,” which had a successful limited week-long run in theaters before it hits the streaming service later this month, “is a real step function” for its film efforts.

“Really what we’re after is exactly what you’re going to see on December 23, a movie like ‘Glass Onion’ that is universally loved by critics and wildly commercial,” he said. “We’re trying to make content that fans love first and foremost and if critics love it too that’s great, and if it wins awards too that’s even better.”

‘We’re not anti-sports, we’re pro-profits’

One avenue Netflix doesn’t seem particularly keen to follow is licensing highly popular, but increasingly steeply priced, live sports rights.

It’s something competitors like Amazon, Apple and others have shown more interest and investment in as of late, such as Amazon Prime Video streaming the NFL’s Thursday Night Football under a deal that runs through 2033 and reportedly averages $1.2 billion per season.  

“We’ve not seen a profit path to renting big sports today,” Sarandos said, though acknowledged at some point there could be.

While he didn’t totally rule out sports rights, Sarandos said today the economics are built around the legacy pay TV world which are different for streaming and indicated there is potential if they could find the right model.

Still, it doesn’t appear Netflix at this point feels it’s a must-have.

“We’re not anti-sports, we’re just pro-profit, and we have yet to figure out how to do it” Sarandos said. “And I feel very confident that we can get twice as big without sports. And beyond that big we’ll have to figure out, maybe by that time the economics will change.”

He pointed to the SVOD service already building out an enormous audience, such as 165 million households watching Squid Game, for example, without needing to premiere after a major sporting event like the Super Bowl.

“If we can keep doing that, maybe that is our structural advantage,” he said.  

While “renting” sports doesn’t seem that attractive to Netflix, he also didn’t rule out owning (earlier media reports have said Netflix, wary of steep bidding sports rights prices, has considered buying lesser-known leagues such as World Surf League) – and was pegged as a potential bidder for Formula 1 rights that ultimately went to Disney’s ESPN.

Netflix itself helped ramp up popularity of the Formula 1 sport in the U.S., with its original docuseries “Drive to Survive.”

“But in this case if you create the value it just transfers into higher prices for licensing down the road,” he noted.