Netflix (NASDAQ:NFLX) has become a major player in the world of original content.
The streaming service created quite the buzz with its original series Orange Is the New Black and House of Cards, scored 31 nominations and seven wins at the 2013 Emmy Awards, and has delivered its first large-scale, big-budget spectacle with the historical drama Marco Polo. The company has also made a deal to host four Adam Sandler movies and will launch its first talk show, starring Chelsea Handler, in 2015.
And it doesn't end there. Netflix Chief Content Officer Ted Sarandos recently spoke at the 42nd Annual UBS (NYSE:UBS) Global Media and Communications Conference, where he shared strategic insight on how the company views the future of its content and plans to spend billions of dollars on both original and licensed content in the coming years.
Sizing up the competition
When Netflix had just entered the original content game, its challenge was for Netflix to become HBO before HBO became Netflix, according to Sarandos. He kicked off his speech by talking about the company's effort to overcome competition from the Time Warner (NYSE:TWX) property and "to more crystallize the competitive landscape. We weren't trying to displace the whole cable universe with Netflix," he explained.
Sarandos added that he views Netflix as a channel, much like HBO, but, at least for the moment, one with a different delivery model: Netflix goes direct to consumers, while HBO still requires cable and satellite companies to act as a middleman. Basically, Sarandos saw HBO as a model -- the top player in the premium content game -- and he set out to equal and surpass it.
"We've made pretty competitive inroads in a pretty short time," he said. "We've quickly distinguished ourselves for our unique, original exclusive programming as much as we have for our technology."
More original content on the way
Netflix has nine original series in some state of production, but Sarandos said the company sees that number growing to 20 or so in the next five years. Sarandos said he likes the idea of releasing a new show or season of an existing program roughly every two and a half weeks, but does not believe every show needs to be for all segments of the audience or targeted for its U.S. market.
Sarandos also sees original movies as a key part of the plan. "What's happening today is that movies are being nearly completely displaced in the culture by television," he said. "And I think it has less do to with the quality of television to the lack of quality movies and a really lousy distribution model for movies."
Netflix plans to take money it might have otherwise spent licensing widely-available movies and use it to produce originals. Sarandos clarifies by saying the originals are not "TV movies, but the kind of movies that would have come through those deals with real movie stars and real directors and produced for the cinema."
Netflix values talent management
Netflix spent about $6.5 billion acquiring content in 2014, but Sarandos isn't interested in getting into bidding wars for shows. One key way Netflix has acquired shows is by maintaining its reputation as a good place for talent to work.
"We do afford writers and show writers a level of creative freedom that many networks don't. We do ask in return that the product comes to us a lot better developed than it would otherwise," according to Sarandos.
Foreign first-run rights are a new tactic
In addition to making deals to air shows after they have already premiered on traditional networks, Netflix recently made two deals to be the first-run outlets for two hot U.S.-produced shows, FOX's (NASDAQ:FOX) Gotham and AMC Network's (NASDAQ:AMCX) upcoming Better Call Saul, outside of North America. These arrangements upset the long-standing method in which shows are purchased by separate networks across the world.
"We worked to the secure those deals in all our territories early in the cycle," he said. "What you see is this emergence of probably the first global buyer of programming which upsets the system a bit," Sarandos added. "We're operating in 50 countries. That means there are 50 TV buyers around the world [that] would have liked to been in [the] mix to buy the show, and we went in pre-emptively and worked on those deals."
This type of purchase won't necessarily become the standard for the company, but Netflix will use its size and clout when special opportunities -- as it sees in Gotham and Saul -- arise. The company will also remain open to making non-first run foreign deals, or ones that only apply to some of its territories.
Pick your spots
As competition for original programming increases, Sarandos believes it is important that Netflix remains true to its programming roots. That means not every show has to have broad appeal -- it just needs to appeal a segment of the subscriber base.
"So if you size the show, if you size the investment right size to the potential audience, you could be really successful without having to take big swings for the fences every single time," he said.
Daniel Kline owns shares of Apple. The Motley Fool recommends AMC Networks, Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of AMC Networks, Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.