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Netflix boss Reed Hastings on ‘Byron Baes’, regulators, and the looming streaming ‘shakeout’ - February 28, 2022

Netflix co-founder Reed Hastings says the world is a couple of years away from peak streaming. CREDIT: WOLTER PEETERS

By Zoe Samios

Netflix co-founder and chief executive Reed Hastings has a message for the world’s internet companies, informed by the streaming video giant’s experiences in Australia. Get ahead of regulation, before it gets to you.

“We’re doing, on a voluntary basis, a lot of local investment, both in local shows - trying to be super Australian like Byron Baes or the local productions - where US shows are being produced here,” he tells The Sydney Morning Herald and The Age in an exclusive interview. “It’s important to stay on the right side of public and governmental expectations”.

During a rare visit to Australia, Hastings also predicts a looming “shakeout” in the crowded subscription video market, endorses the federal government’s plans to impose an incentive scheme on streaming services, and rules out any move by the streaming giant to acquire live sports rights.

Netflix, the global streaming video pioneer, is also the market leader in Australia’s subscription television market with an estimated 6 million subscribers (according to 2021 from Telsyte). But its success has spawned an array of competitors, leading to some predictions that the market is over-saturated.

Shares in the company have fallen by more than 40 per cent on Wall Street this year, due to concerns about slowing growth in the face of fierce competition, fears consumers will cut subscriptions as societies re-open, and a broader retreat from internet stocks due to expectations of higher interest rates.

But Hastings dismisses those concerns.

“Paramount’s share price is off. Our share price is off,” he says from Netflix’s local offices. “People are saying ‘okay, there’s going to be a lot of competition,’ which is great for the consumers and tougher on the shareholders.”

“Eventually there’ll be a shakeout. But are we at peak streaming? I don’t think so because no one’s dropped out yet. Eventually...number four buys number seven, number three buys number six...those kinds of things have yet to happen.”

This is the first trip to Australia for Mr Hastings since he came to Australia for the local launch of Netflix in 2015. During the three-day visit, he has caught up with former Stan boss and now Nine Entertainment chief executive Mike Sneesby, Optus’ vice president of product development, TV and content, Clive Dickens, Seesaw’s Emile Sherman and Screenworks chief executive Ken Crouch. He did not meet with the government.

Under plans released by Communications Minister Paul Fletcher earlier this month, platforms such as Netflix, Amazon and Disney would be required to invest in Australian content and report annually on expenditure. If these services fail to invest 5 per cent of gross Australian revenue in local content, the scheme would mandate it.

“That’s a pretty enlightened approach because it keeps you out of the narrow traps on quotas and defining those rules,” Mr Hastings said. “But it’s a marker to the community...you’ve got to step up and do some work here.” For its part, Netflix is already above that mark.

Hastings sat on the board of controversial social media giant Facebook (now Meta) for eight years until 2019. In the past three years, Facebook has faced some of the worst scrutiny in its 18-year history, with widespread public anger over its role in the spread of misinformation and harmful content.

He says the biggest thing he learnt from sitting on the Facebook board was to avoid getting on the bad side of regulators.

“They were four or five times larger than us, so they saw a lot of regulatory issues and other things long before we did,” he says. “It’s really solidified our intent - let’s stay on the right side of what the public expects”.

When Netflix entered Australia in 2015, there was already one local subscription streaming service. Nine Entertainment Co, the owner of this masthead, and Fairfax Media launched Stan, which now has more than 2.6 million active subscribers, in January 2015.

“It’s quite impressive how Nine and Fairfax went in on Stan early,” he says. “In most countries, nobody was willing to gamble and put in all that capital.”

Stan and Netflix now compete against a wide range of players including Amazon Prime Video, Disney+, Paramount+ and local player Binge (owned by Rupert Murdoch’s Foxtel). Mr Hastings says they can all exist at once provided there is a point of difference.

Locally that difference is the content. Binge holds a contract with HBO, which gives it the rights to broadcast programs such as Euphoria, White Lotus and Succession. Stan has a deal in place with NBC Universal, which gives it programs such as Gangs of London and I Hate Suzie (that contract is set to expire mid this year). But Mr Hastings says he anticipates the global streamers will go direct-to-consumer into this market too.

What that means for Foxtel (and its service Binge), as it weighs up whether to progress with a public listing, is unclear. But Mr Hastings says there is still appetite to publicly list a pure-play internet company even in today’s climate.

“There’s a tonne of opportunity as things move from old linear to on-demand and Foxtel has these incredible sports franchises,” he said. “Foxtel will do a lot and invest heavily and so that leads to a lot of competition, a lot of great offers for consumers.”

Like Foxtel and its online service, Kayo Sports, Stan has also tried to enter the live-streaming space. But it’s an area that Mr Hastings says does not suit Netflix.

“We’ve got so much to do in the creative part and sports is just a different dynamic of how you become successful. It’s very national - rugby plays here and not many other places, so it has a lot of different characteristics than drama, and comedy and film.”

Mr Hastings says the competition now lies mostly in creating new programs that young people want to watch - rather than nostalgic sitcoms such as Seinfield, Friends or Brooklyn Nine-Nine.

So, what will Netflix do to compete? Program its heart out. In about a month it will launch one of its most controversial local projects to date - Byron Baes. The show, which was filmed earlier this year on NSW’s North Coast was heavily criticised by locals who felt it misrepresented the area.

At a lunch on Friday, Mr Hastings said he was looking forward to the Australian slate rolling out starting with Byron Baes, and seeing how it will please local members. He watched the first episode on the weekend (he hadn’t before this interview). He’ll be hoping you do, too.

(The Sydney Morning Herald)