Internet company expects to spend $200M annually in original programming
By Michael Liedtke
AP Technology Writer
LOS GATOS, Calif. (AP) — Netflix’s Internet video subscription service works around the clock, but it’s unusual for more than two dozen of the company’s engineers and top managers to be huddled in a conference room at 10:30 on a midsummer Wednesday evening.
This is a special occasion. It’s near the end of a grueling day that will culminate in the premiere of “Orange Is The New Black,” the fourth exclusive Netflix series to be released in five months. The show’s first episode is called “I Wasn’t Ready,” and everyone in the room has been logging long hours to ensure that the title doesn’t apply to the debut.
Netflix Inc. invited The Associated Press to its Los Gatos, Calif., headquarters for an unprecedented glimpse at the technical preparations that go into the release of its original programming. The shows have become the foundation of Netflix’s push to build an Internet counterpart to HBO’s premium cable channel.
“This is Silicon Valley’s equivalent of a midnight movie premiere in Hollywood,” says Chris Jaffe, Netflix’s vice president of product innovation.
Netflix made a name for itself as a DVD-by-mail provider and an Internet video streaming business mainly by offering content from other companies. Lately, the company has been releasing its own content as a way to hook new customers on its $8-per-month streaming service.
The company promised its 37.6 million worldwide subscribers that they can start watching all 13 episodes of its latest original series at the stroke of midnight, Pacific Time, on July 11. So Jaffe and Netflix engineering director Bob Heldt have summoned a battalion of key employees to a conference room named after “Dark Passage,” a 1947 film noir starring Humphrey Bogart and Lauren Bacall.
On this night, the setting has been transformed into Netflix’s version of a war room. The engineers are flanked by seven flat-screen televisions on one side of the room and two giant screens on the other. One big screen is scrolling through Twitter to highlight tweets mentioning “Orange Is The New Black,” an offbeat drama set in a women’s prison. The other screen is listing some of Netflix’s most closely guarded information — the rankings of videos that are attracting the most viewers on an hourly basis.
If all goes well, the pizza and snacks that Netflix’s bleary-eyed workers have been munching will be washed down with a champagne celebration after the show starts streaming.
“This will be a successful night if we are here at midnight and it turns out that we really didn’t need to be because there were no problems,” says Yury Izrailevsky, Netflix’s vice president of cloud computing and platform engineering.
The mission is to ensure each installment of “Orange Is The New Black” has been properly coded so the series can be watched on any of the 800 Internet-connected devices compatible with Netflix’s service.
It’s a complex task because Netflix has to account for viewers who have different Internet connection speeds, various screen sizes and different technologies running the devices. About 120 variations of code have been programmed into “Orange Is The New Black” to prepare it to be streamed on Netflix throughout the U.S and 39 other countries. Another set of engineers had to ensure foreign-language subtitles and dubbing were in place and streaming properly.
Others are still checking to make certain that the English dialogue properly syncs with the video being shown at different Internet connection speeds. Just before another Netflix series, “House of Cards,” debuted in February, engineers detected two minutes of dialogue that was out of sync with video played on iPhones at certain speeds, prompting a mad scramble to fix the problem before the series was released to subscribers.
Netflix typically doesn’t have to go through all these steps when it licenses content that has previously been shown in theaters or on TV networks. Much of the technical work already has been done on the recycled video, leaving a minimal amount for Netflix’s internal team to do. Not so with the original programming being made expressly for Netflix.
“We have to start from scratch with these original series,” Heldt says.
Netflix CEO Reed Hastings is so confident that his team will get it right that he doesn’t feel a need to show up in the war room, or even bother to stay up late to make sure everything is going smoothly. “They know what they are doing and I know everything will be working great, so I can see the episodes in the morning,” he said.
The stakes and anticipation surrounding Netflix’s original series are much higher than with non-original programming from Netflix’s library.
Netflix hasn’t revealed how much it paid for each series, but Hastings has estimated the company will spend about $200 million annually during the next few years on original programming. That represents about 10 percent of Netflix’s roughly $2 billion budget for video licensing.
The original series also are being given a bigger piece of Netflix’s $450 million annual marketing budget as the company tries to exploit the shows to boost subscribership. Netflix gives newcomers a month to test the service for free, which gives the company a chance to impress viewers with the quality of programming in its library. Any kind of technical glitch with a new series such as “Orange Is The New Black” would likely be a quick turn-off.
At the same time, Netflix is counting on the original programming to reduce the number of subscribers who drop the service. This is important because Netflix charges by the month, making it easy for its subscribers to drop the service as soon as they conclude there’s nothing interesting to watch. Netflix’s cancellation rates usually hovered between 4 percent and 5 percent until the company stopped disclosing the figures last year.
Subscribers keep Netflix afloat because, like HBO, the company doesn’t subsidize its programming with commercials.
As part of its efforts to keep customers on board, Netflix tries to target promotions about its original series at subscribers most likely to enjoy the themes and approach, based on an analysis of their past viewing habits.
Netflix believed “Orange Is The New Black” would have wide appeal because the series is the handiwork of Jenji Kohan, the creator of critically acclaimed “Weeds,” which aired for eight seasons on the Showtime cable channel. All 102 episodes of “Weeds” are now available on Netflix, providing valuable information about the number of subscribers who are likely to be interested in “Orange Is The New Black.”
Netflix has been pitching the new series to all subscribers who watched all or most of the “Weeds” episodes. The new series also is linked with other shows that share its characteristics, such as “strong female leads.”
This matching system has become so finely attuned to the tastes of Netflix’s audience that the company estimates its recommendations now steer its subscribers to three-fourths of the video watched on the service.
Netflix’s emphasis on original programming has worked out well so far. “House of Cards, a political drama starring Kevin Spacey, became the first made-for-the-Internet series to be nominated for multiple Emmys in major categories. The series received nine nominations, including outstanding dramatic series and best actor and actress in a drama. “House of Cards” also helped Netflix add more than 2 million subscribers during the first three months of the year.
Two other Netflix exclusives, “Hemlock Grove” and a revival of “Arrested Development,” rolled out in April and May. On Monday, Netflix said those series helped its service add 1.2 million global subscribers during the three months ending in June. Investors had been hoping for even bigger customer gains, increasing the pressure on the “Orange Is The New Black” to help Netflix deliver on its projection of about 2 million additional subscribers worldwide during the July-September quarter.
Investors clearly like the way things have been going. Since the end of last year, Netflix’s stock has nearly tripled in value to about $250. The rally has recovered most of the losses from a sell-off that began two years ago after the company imposed service changes that raised its prices by as much as 60 percent and triggered mass customer cancellations. The stock had peaked at around $305 at the time of the backlash.
About a half-hour before the debut of “The Orange Is The New Black,” many subscribers are eagerly awaiting the series’ release.
The activity on Twitter has accelerated and includes some messages from subscribers on the East Coast who mistakenly thought “Orange Is The New Black” would be available starting at midnight in their time zone. Netflix’s rankings of its most-watched video lists the series trailer as number eight in the pecking order. The company wouldn’t allow the AP to reveal the titles of the other top-ranking videos as a condition of being allowed in the war room.
Finally, midnight strikes and the engineers are scurrying to different devices to see if “Orange Is The New Black” is streaming without glitches.
One employee reports that it’s working fine on Apple TV, one of the world’s most popular ways to stream Internet video to flat-screen televisions. Similar reports come in about how the series is appearing on the Xbox, PlayStation and Wii video game consoles, other major conduits. No issues on the Netflix application for the iPad either, but one employee raises concerns, saying the series trailer is the only thing available on the iPhone app. The warning turns out to be a false alarm. The app just needed to be refreshed.
All the subtitles in different languages are working fine, too.
“Anyone seeing any issues, anything at all?” Jaffe yells across the war room as he looks around at all the employees gazing into their devices and staring at big-screen TVs. “It sounds like we are in good shape.”
Just how smoothly things are going becomes apparent on the list of Netflix’s most-watched shows.
Just seven minutes after its release, the first episode of “Orange Is The New Block” has grabbed the No. 9 slot. It takes less than a half-hour for it to move up to Netflix’s third-most watched video, even though it’s way past prime time in the U.S., where 29 million of the company’s subscribers are located. Without specifying the total viewership, Netflix revealed on Monday that more subscribers watched “Orange Is The New Black” during its first week on the service than any of its other original series.
About 35 minutes after the series’ debut, Jaffe and Heldt uncorked the champagne raised a toast to their co-workers to celebrate the successful start.
Before the summer is over, they will return for another late night in the war room to troubleshoot the Sept. 12 debut of Netflix’s next original series, “Derek.”
