CEO Reed Hastings is not an iron-fisted dictator at Netflix (NASDAQ:NFLX). In particular, I'd imagine that Hastings would have an increasingly hard time doing his job without longtime lieutenant Ted Sarandos.
Sarandos is Netflix's longtime chief content officer. He's been in charge of the movie catalog since the year 2000, when Netflix was just a tiny upstart stuffing DVD discs into red mailers. Back then, it was mostly a matter of finding cheap and plentiful sources of any DVD release the company's early customers might want. The so-called first-sale doctrine makes it legal and not terribly difficult to buy and then rent out hard-copy movies.
As Netflix moved deeper and deeper into the digital era, Sarandos' job changed dramatically. That handy doctrine doesn't apply to digital media, so now it's all about licensing the streaming rights to all the right content.
Now Sarandos is asked to curate the vast seas of available content. Sarandos' job is not about bulk distribution anymore. He's being asked to collect the attractive gems and reject movies and TV shows when they're not worth the investment. And he's even creating new content, in the sense that he's greenlighting a hand-picked selection of big-budget production deals.
Sarandos in the spotlight
This expanded role is putting Sarandos in the spotlight more than the old DVD-slinging job ever did. And for good reason, too. When Netflix invests millions of dollars (the exact amounts are rarely disclosed) in a long-term content deal with Walt Disney, Sarandos led the team that negotiated the agreement. If that expensive contract doesn't help Netflix attract and retain the right amount of subscribers, then Sarandos didn't do his homework.
On the other hand, he catches some of the credit when things work out. The big-budget political thriller House of Cards would be one example. Netflix's first foray into high-concept show production is paying off with glowing reviews and Emmy consideration. What about direct sign-up effects? Nobody outside Netflix really knows, but the subscriber trends are certainly pointing in the right direction. If the first season pulled in 1 million subscribers for about seven months of Netflix viewing (well, eight if you account for the 30-day free trial deal), then the show paid for itself.
The importance of Sarandos' work is being noticed. Time magazine put him (but not Reed Hastings) on its 2013 list of the 100 most influential people in the world. To introduce Sarandos for Time's readers, actor Jeffrey Tambor explained how the CCO inspired the cast of Arrested Development: "You always want to have a fan in your corner. For Arrested Development, we were the little engine that could, and we needed a hero. Our hero came along."
Building an audience, one niche at a time
Sarandos gets another turn in the limelight this week as Netflix introduces Orange Is the New Black. The fish-out-of-water dramedy about a suburban socialite being thrust into the harsh reality of a women's prison draws another round of pre-launch critical applause.
Crucially, this show might appeal to a whole different audience than politico thriller House of Cards, quirky comedy Arrested Development, or horror romp Hemlock Grove. It's Sarandos' job to fan out in every direction to find quality eyeball magnets in a wide variety of genres. Use exclusive content to get a variety of different tastes in the door, and then see if the wider catalog gives them a reason to stick around.
That's how Netflix plans to become the next HBO before Time Warner's (NYSE:TWX.DL) premium cable service becomes the next Netflix. Yep, it was Sarandos and not Reed Hastings who dropped that aspirational nugget. That's only fitting, since Sarandos sits closest to the actual effort of beating HBO at its own game.
It's also a strikingly different approach from what Amazon.com (NASDAQ:AMZN) is doing. When Amazon wanted to dip its toe into the media-production waters, it put together pilot episodes of a baker's dozen candidates and then asked viewers to vote on which shows to move into full production. Amazon is doing production deals by committee, whereas Netflix trusts the creative instincts of Ted Sarandos -- leaning on the oodles of viewership data that also powers the recommendation systems.
The Foolish takeaway
This man is crucial to Netflix's future. He's responsible for the content choices that keep Netflix running -- like the blood coursing through your veins. Every exclusive production deal goes through Ted Sarandos. So does every resurrected TV show, every back-catalog agreement with a big studio, and yes, every decision to part ways with a content provider.
That's why Time tagged this content guru as more important than his own boss. And it's why Netflix investors need to know Ted Sarandos.
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