The Broken Billionaire
“We have to take you to Reed now,” says the PR person shepherding me around Netflix’s Los Gatos headquarters. “That’s weird,” I thought. Reed doesn’t have an office in the Netflix HQ because he’s a hip, young CEO that likes to get amongst the people. You know.
Being taken to see him means he’s being fenced off somewhere, which seems counter-productive for a CEO of the people. Then I realised why.
Reed was trying to be too cool, too young and too hip, and broke his leg snowboarding last month. Still, he’s not letting it get him down today when he has to meet the Australian press to talk about why the hell it’s finally coming Down Under.
Hastings apologises for his lack of mobility after he shakes my hand and we sit back down.
“I’m not meant to put weight on it but it’s not too bad,” he assures me before I ask how exactly it happened. He tells me about how he was trying to follow his 17-year old son down a snow run on “vacation” last month before it all went horribly wrong.
“He drops down into these trees,” he says, referring to his son, “and I just go flying down after him…and I just couldn’t make the turn. And then, there’s this tree. Boom!.”
I jump slightly as the ashen-haired near-billionaire (he’s reportedly worth $878 million) bounces up in his chair like a guy who has a broken leg probably shouldn’t be doing.
“Sort of snapped the femur right here. It was one month ago yesterday. They put a pin in,” he says, pointing to his left leg and smiling.
He’s all about doing things that he shouldn’t be doing, though. In his official headshot Reed Hastings looks a bit like a child who has done something naughty, and in a way, he is. Since it launched its Instant streaming product in 2007, Netflix has been making the film industry look foolish. Not the studio heavyweights that Netflix relies on to sign distribution deals, but the people who work for them who help to design catch-up services that 21st century customers can actually use.
In a week, Netflix will launch in Australia: the streaming service’s 52nd market in its quest to “go global”.
My first question for Hastings was obviously, “why now?”. Australia has been a streaming entertainment wasteland for years, and it’s a plight that Netflix has been extremely conscious of.
Way back in 2013, Netflix flogged the rights to House Of Cards, its flagship Original (proper noun, Original), to Foxtel. Foxtel also picked up the second season too.
So why didn’t the service just throw caution to the wind and launch Down Under back then? Well, it was a matter of fibre connectivity and decent data caps, which we didn’t have three to five years ago. Back then, the National Broadband Network was still a pipe dream.
“We’ve been watching the Australian market for a number of years. Five years ago most of the residential plans had fairly low [data] caps and you had BigPond with Telstra and [certain] data was exempted and others wasn’t so it was pretty cosy and Telstra…I’m searching for a better word than dominated,” he laughed, “was a powerful market player there.”
Australia has since raised its data caps, but Hastings would rather see them abolished than raised again. Instead, he wants ISPs to sell speed rather than caps.
“There’s no reason for data caps. We want to make the internet unmetered. Period. The capped model is antiquated: we want to make it about speed. 10Mbps will cost more than 1Mbps and 50Mbps will cost more than 10Mbps and that makes sense. Historically, there was so little content in Australia that many users went over the international links and those are pretty expensive, but now there’s more and more content and content caching in Australia.
“Canada is a good example. Four years ago? Really low data caps. Like 10GB overall. That’s lower than Mexico, [Canada] had third-world internet. Over the four years that we’ve been there, the usage has grown and almost all of the ISPs have got rid of their caps,” he says.
He adds that he’d certainly like to see Aussie ISPs drop data caps, but laughs that “they don’t really care what we feel.”
In the meantime, Netflix has managed to hammer out unmetered streaming deals with some of Australia’s major ISPs, including Optus and iiNet.
Selling speed instead of a data cap is certainly a dream scenario when the National Broadband Network becomes more ubiquitous. It’s built as a tiered service so ISPs can offer different tiers, be they 25Mbps down or 100Mbps down.
Despite the fact that Australia’s tech faithful may have lost faith in the NBN due to the political fracas over it, Netflix is looking at the bigger picture.
“NBN was a big factor [for launching in Australia]. NBN’s what got us to think ‘let’s get in there and go now’, and it’s really viable from a technology standpoint.
“With NBN, Australia has jumped to be one of the leaders in the world in internet infrastructure and the idea that the fundamental fibre backbone is going to get — knock on wood — 97 per cent of people to at least the neighbourhood is unlike anything that has ever been done in the history of the world. That really got our attention,” he says.
Despite his optimism about Australia’s infrastructure, however, he acknowledges that politics has got in the way of the dream.
“It’s been harder with the NBN than has been thought. It’s been pretty predictable and the new government doesn’t like the old government plans as much — just typical stuff right? Still, the fundamental idea of fibre for all is very powerful and will make Australia one of the digital meccas of the world,” he says restoring his wry smile which slipped slightly while talking about a slow-down in infrastructure deployment. His feelings mimic our own.
Netflix’s Los Gatos office
Still, Netflix reckons it can deploy its streaming products even in nations with worse infrastructure than Australia’s. Reed points to Mexico as an example, adding that if engineers can figure out how to cover Mexico, it can figure out how to service rural Australia.
“We’re really strong in Mexico which is a DSL nation. We figured out how to adapt and there’s a lot of experience there we can carry over to rural parts of Australia, but we’re betting forward that speeds will increase rapidly partially because of the attention of Presto, Stan and Netflix and the use of video. Consumers care more about their broadband speed as opposed to just doing Facebook and email on their connections.”
And there’s the rub: Netflix knows it won’t be alone in the Australian market when it launches next week. All of a sudden, Australia is a paradise for content streamers: something that surprised Hastings.
“I’ve never seen anything like it where there’s no good internet [streaming] services for five years and then three, boom,” he says, mimicking an explosion with his hands.
“The competition between us [Stan, Presto and Netflix] will be fun and intense and great for Australians. We’re all going to scramble for content with these services,” Hastings says of his new Aussie streaming competitors, both of which have at least a three month head start.
When Australian TV executives collectively realised that their consumers were beating a path to Netflix’s proverbial front door to use the service via VPNs, the collective race started to build a competitive product before Netflix could lace up its shoes to race for dollars Down Under.
The Nine Network and Fairfax Media, two of the oldest media companies in the nation, came together to build Stan: the newest player on the block, and Foxtel wedged its armada of content into a stand-alone streaming app it’s calling Presto. Foxtel has also teamed up with Seven to bolster its TV content.
Disclosure: Stan is a 50/50 joint venture between Nine Entertainment and Fairfax Media. Allure Media, the company which publishes Gizmodo Australia, is also owned by Fairfax.
Hastings bears no ill will to his competitors, instead saying that it’s exciting that there’s a friendly rivalry going on for the on-demand streaming dollar right now.
“A lot of people will subscribe to multiple services just like newspapers, people subscribe to multiple papers,” he says casually of his Australian competitors.
Netflix is no stranger to a fight. It knows it has to win hearts and minds of potential users before it can even begin to engage in a battle with its competitors in the same space.
“Our challenge in every market is to get across this idea that you get to watch whenever you want. People have had 50 years of linear TV and shows on at 8pm. For a TV show, why shouldn’t it just be on when you want to watch it? It’s like going from fixed line phones to mobile phones: it became this idea that you can make calls while driving. It’s a radical idea! Now it’s ubiquitous and fixed line is heading down. We’re going through one of those big transformations now.
“Linear TV will be like fixed line telephones in 10 years: it will still be around in a bunch of homes but it will go down and down and down. There will be some key things [that bring people back to linear TV]: when there’s a war people watch the news and when a sport match is on and that kind of thing, but for all of the entertainment viewing, it’s all going to be on demand in 10 years.”
Netflix also wants to wrest people away from piracy when it sets up in a new market. In Australia, Hastings has his work cut out for him there.
I told him: “Our Attorney-General thinks we’re the worst pirating nation on the planet…”, before he cut me off mid-question: “I doubt that,” laughs Reed. “It’s certainly a good headline!”
The laughter dies down slightly and his serious face comes back.
“The VPN thing is a small little asterisk compared to piracy,” he confesses.
By “the VPN thing”, Hastings means users accessing Netflix from Australia when they shouldn’t be. Using digital connections to mask the fact that they’re hailing from Australia in order to access the service. It’s an ongoing problem for Netflix which has specific content agreements in place not to export certain content outside of a particular territory, and one it’s always trying to fix. Clearly Hastings would rather give up the fight against dodgy VPNs if he could win the war against piracy instead.
“Piracy is really the problem around the world. The VPN scenario is someone who wants to pay and can’t quite pay. The basic solution is for Netflix to get global and have its content be the same all around the world so there’s no incentive to [use a VPN]. Then we can work on the more important part which is piracy.
“The key thing about piracy is that some fraction of it is because [users] couldn’t get the content. That part we can fix. Some part of piracy however is because they just don’t want to pay. That’s a harder part. As an industry, we need to fix global content,” he says resolutely.
Netflix isn’t just fighting to change the habits of its users and the world’s pirates, though. It’s also fighting a battle for net neutrality in the US. A battle it hopes not to have to import into Australia against local ISPs. Hastings wants to get Aussie ISPs on-side as quickly as possible with the streaming dream proposition.
“It’s hard to say [if we’ll have to fight a net neutrality battle in Australia]. Most of the ISPs, we’ve been talking to them, and they’re embracing us because they get to sell bigger plans…so there’s a lot of positives for them in terms of revenue in that way. But in any society where the internet becomes important, the public doesn’t want it to be controlled by the ISP,” he says.
“Consumers don’t want the ISP changing the ads or monitoring it like what am I watching, what am I not? They don’t want the ISP limiting the options. They can go to BigPond but not Netflix, something like that. The more the internet becomes important in a society the more it’s thought of like a fundamental utility like water and electricity, and not something to be manipulated by the supplier. That varies a little by country, but on balance if you look around the world, Australia’s the only country that’s trying to pull off NBN. More than any country it’s had an attitude of acceptable public investment so it can become a digital nation and I wish more homes had it now.”
The big question Australian content creators want answered is whether or not Netflix will contribute to the pool of home-grown content while it’s here.
Hastings is cagey on that, but argues that it has been bringing Aussie content to the world for years now.
“There was a show previously in Australia called H20 that was sort of a regional favourite four years ago. We worked with the producer to take it global and it’s now huge in Canada and Mexico. We’re working on a follow-on production. Now, it’s not super high-brow, it’s not going to win an art award, but it’s actually very enjoyable! That’s how we work with producers around the world to create big markets for them,” he says.
And indeed, he’s right. H20: Just Add Water was an old teen show which originally aired back in 2006 and starred Phoebe Tonkin (who has since gone on to star in Tomorrow, When The War Began and The Vampire Diaries, among others).
The original trailer for H20: Just Add Water
Netflix noticed its potential, and gave it a pseudo-reboot in 2013. Mako: Island Of Secrets aired on Ten in 2013, but on Netflix it had the title Mako Mermaids: An H20 Adventure. Season two kicked off on Netflix in 2015 and there’s another planned for 2016.
While Hastings won’t be drawn on Australian content specifics, he adds that the Mako Mermaids model is something the company will look to repeat once it sets up shop here.
“Definitely in terms of Australian Originals, it’s not the first thing we do when we open but we launched an original in Norway — Lillehammer — and we’ve got one now that’s being produced in Mexico for August and we’ve got one filming in Columbia that’s the story and history of cocaine, we’ve got another one set in France and Marseilles which is about the politics, all filmed in France. We produce them locally for the globe. Look to us to do that: find great stories to tell that are set in Australia with Australian talent but are global phenomenons.”
We look for something that’s unusual, [something] that people get excited about. Stuff that after you watch you want to tell a friend about. There’s content you watch and just shrug about, and then there’s content that’s like ‘oh my God you’ve gotta see this show!’. Thaaaat’s the content we look for. That fresh angle.”
Recommended For Reed
Underneath the careful consideration of where to steer his streaming empire next, Hastings is just a California dude who likes to chill (despite the fact that he was born in Boston).
“The Interview I watched again on Sunday and that’s great. I tend to be drama, comedy and some stand-up when I watch. There’s a show called Maron about comedian Marc Maron, and my kids’d look at it and go ‘like, boring!’ but it’s different shows for different people, I guess.”
“I’m not a big sports guy,” he adds, going through the list of other media he enjoys, “but I like some YouTube and viral videos. I don’t game at all, I missed that. It’s generational! I’m 54 and when I was growing up I was in the arcade with Pong and it was like ‘that’s ok!’, I remember playing that as a teenager but the big console generations kicked off, and now there’s a new generation. Like my 17-year-old is totally into DOTA 2 and spends hours and hours. We’ve got all the consoles and he’s bored of it! These big online games is what his friends do so he does that.”
At the end of our half-hour together I’m ushered out of the meeting room and back into the funky Netflix offices and ask my PR chaperone if I can get a photo of Reed on his crutches. The blank, terrified faces tell me everything I need to know.
Despite the fact that Netflix is confident it can win the Australian market, it’s still concerned about optics. The war for hearts and minds is already on, and you’re the target.
Like it or not, Netflix is coming to the weird island on the bottom of the Earth, so that the millions of people who screamed for it for months will be happy. Soon, Australia will have more decent streaming services than it has had in its history, and we’ll be there to cover it.
Over the next week we’ll bring you exclusive interviews and galleries in the lead-up to the launch.
Luke Hopewell travelled to Los Gatos as a guest of Netflix.