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Netflix CEO Reed Hastings on China, HBO and the Surprise Success of 'Making a Murderer' (Q&A)

Data doesn't tell you everything: Netflix didn't know what it had with its hit documentary.

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Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

This morning, Netflix took advantage of the fact that CES draws journalists from all over the world to announce that Netflix is now available (almost) all over the world.

Afterward, I spoke to CEO Reed Hastings about the reasoning behind his international push, an update on his China plans and his strained relationship with some of the big media conglomerates.

We also talked about Netflix’s “Making a Murderer” series, which has become a huge hit (at least critically) — and why that surprised a company that prides itself on its predictive analytics.

Peter Kafka: What is the point of opening up all of these countries at once?

Reed Hastings: We realized we learned best by getting in the market and then learning, even if we’re less than perfect. Brazil is the best example. We started [there] four years ago. At first it was very slow growth, but because we were in the market talking to our members who had issues with the service, we could get those things fixed, and we learned faster.

So by opening up really aggressively like this, now we’ll start spending time with our members in Poland, with our members in India, with our members in Singapore, trying to figure out what we need to do better. And that will get us to be a mainstream product more quickly, like we have in Brazil.

Is there a marketing component to this, because you can say you’re now a worldwide service?

No. No single consumer really responds to that message, worldwide. It’s not a great marketing tool.

Does this affect what you’ve been telling Wall Street about what you’re going to spend on international expansion?

No. This was all planned and built in, so there’s no change in our guidance.

How much more work is involved in doing this in one go? Or is it easier that way?

In our other launches, we did launch parties in all of the major capitals. It’s easier to do a single launch at CES. But in terms of the licensing, it’s quite challenging to do the global rights. We were signing deals 36 hours ago, trying to get windows on “Breaking Bad” around the world.

The big holdout for you is China. What do you need to get there?

In China, you need government approval to operate. In the rest of the world, we can just open up.

So are you engaged with government in that discussion?

Yeah. We’re talking to SARFT, which is the main regulator of Internet media. To be a long-term player in China, you want to just take your time and be patient and develop the relationships, and that’s what we’re doing.

What have you learned by watching the struggles that other, big sophisticated tech companies have had trying to work in China?

If you look at Apple, Microsoft and Google, you see three very different outcomes — in somewhat different businesses, but related. You could be like Apple, where it’s one of their biggest, most profitable, fastest-growing markets in the world, or like Google, where they’re banned for some number of years.

Seems like you’re more likely to be on the Google end of the spectrum, given that you’re dealing with IP issues and potential censorship — it seems more fraught for you than for Apple.

Let’s hope you’re wrong. That’s not how we see it. We see it more like Disney or Starbucks, where we’re a consumer brand around entertainment. And Disney and Starbucks have very successful businesses in China. But until we accomplish anything, it’s anybody’s guess.

The key is we’re doing a very modest investment for that, and we’re mostly focused on the rest of the world. The Philippines will be huge for us. India will be huge for us. Saudi Arabia will be quite substantial for us. We want China, but it’s not the center of what we’re doing.

Since your last earnings call, some of your big video partners, particularly Time Warner and Fox, have gotten even more explicit about their intent to cut back what they sell to subscription video services. They clearly seem to be talking about you. What’s your response?

We’re going to continue to invest in original content, because that’s something we can influence and control, and consumers love it. So think of that as our big, long-term future. And to the degree that we can continue to license content from them, it’s great for us and great for them. But it’s clearly a decision they have to make.

When did you anticipate you’d see them taking this stance?

I would say very early on, when we were very successful with “Breaking Bad.” Because we knew that while we were adding a lot of value to “Breaking Bad,” AMC had created it. And that in principle, if AMC had a way to monetize the catalog of prior seasons, that would be great for AMC. And they didn’t, so this was the best alternative.

In the long term, the producer/developer was going to be the distributor. We’ve understood that for a long time.

There’s chatter about whether Time Warner should spin out HBO and somehow get a Netflix-like valuation for HBO. Do you have any advice for them as they think about that?

I think HBO gains a lot from being closely connected with Warner TV and Warner Brothers generally. I’m a little cynical about sort of “unlocking value shareholder split,” financial complication, financial maneuvering. What drives HBO’s incredible success is great content. If they focus on doing great content, they’ll be an enormous success.

You launched your first three original movies in the last couple months. Maybe it’s where I live or who I talk to or what I read, but it doesn’t seem like there’s a lot of buzz about them. How have they performed?

“The Ridiculous Six,” our Adam Sandler movie, in its first 30 days, has been the biggest thing we’ve ever seen in the first 30 days for any movie on Netflix, ever. It’s tremendous for what we want it to be, which is just enjoyable. It really appeals to its audience. At the other extreme is “Beasts of No Nation.” Very challenging. Maybe it will get shortlisted for nomination. It’s also been very successful.

As we’re building toward more of these movies, we increase in intensity and in size. You know, if you look at “Making a Murderer,” which is generating a lot of conversation, that was not our first doc. It took a little while to develop the pipeline.

Can you quantify the success of that show? That one does seem to be generating lots of buzz.

It’s so hard to quantify. Because you get all of the reputational benefits, you get the people talking about the shows. Fundamentally, we try to steer by what people are watching.

But it’s very easy to quantify. It’s just what you want to share with me. You told me how well the Adam Sandler movie was doing. Can you provide some context about “Making a Murderer?”

I would say it’s such a new phenomenon for us; it’s just been explosive over the holiday season, even more than we expected.

Did you know what you had, either when you were making it or in advance of the release?

We started working with the filmmakers two and a half years ago. This whole meme that we jumped on it because of [HBO’s] “The Jinx,” that’s not accurate at all. The filmmakers have been working on this for 10 years. I met with them probably about two years ago. I called it wrong. I thought, “This is going to be eight or 10 hours about a murderer? I hope it wins some awards, because it’s not going to be popular.”

And it’s turned into this cult, amazing phenomenon. So I was definitely surprised.

Do you always meet the creators of your shows? You’re making a lot of them now.

I mis-predicted that one, as I told you. When I meet with them it’s about sharing the joy and the passion for what they do, as opposed to trying to be the one who helps choose. I’m not trying to be editorial.

Speaking about editorial: This series is advocacy journalism. The filmmakers are advocating on behalf of [convicted murderer] Steven Avery. Is that an uncomfortable place for you to be?

Every filmmaker has a viewpoint, particularly in documentary filmmaking. That’s not the Netflix viewpoint. We try to just provide a platform for lots of people. But we’re very comfortable with documentary filmmakers having a viewpoint.

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