This man holds the key in the Netflix-HBO battle

Netflix may have created a new mould for how people watch TV, but plenty of other companies are now imitating it. Photo / AP

Ted Sarandos is the man who has reshaped how consumers view TV and movies online

Ted Sarandos, the man who decides what shows and movies run on Netflix, was on a stage recently interviewing Norman Lear, the creator of some of television's most controversial and groundbreaking shows, like All in the Family and Good Times.

Sarandos asked Lear if he considers himself a "provocateur" in the world of television.
Lear demurred. Then he turned to the audience and pointed to Sarandos.

"Does everyone in the audience know what this guy is up to?" Lear asked. "At one time it was Milton Berle," he said, referring to the legendary comedian and actor who became known as "Mr. Television." "Today it could be Ted Sarandos."

Sarandos is the Internet's Mr. Television, the man who has quietly amassed power in the deeply entrenched television industry and reshaped how consumers view television and movies online from his perch at Netflix, launching hits like House of Cards and Orange is the New Black.

But after a decade as pretty much the biggest player in the world of Internet-streamed television, Netflix is getting some new competition, and from some of the country's most powerful companies. Time Warner's HBO, CBS, Sony, Showtime and Amazon are all aping the Netflix model: Let people skip cable and give them their favourite shows over the Internet.

With so many alternatives coming online, the question is whether Netflix will continue to be as important for its 36.2 million US customers, many of whom have relied on Netflix as an alternative to cable. Netflix says its recommendation technology, which helps guide viewers to what else they might want to watch on the service, will give it an edge. But for the Silicon Valley company, its future will largely lie in the hands of its Hollywood guy.

Netflix plans to modernize "antiquated" distribution model, confident others will follow http://t.co/GNrJbv5s6R pic.twitter.com/UaBHDwW21f

— Brandon Gabriel (@BGabriel83) October 15, 2014

Sarandos's rise symbolises a new reality in the entertainment world. With the waning influence of cable bundles, and viewers picking and choosing what they want to watch from all over the Internet, the future of television has become a cutthroat race for whoever can produce the best shows. Netflix has spent $3 billion on acquiring content alone in 2014, even as subscriber growth in the United States is slowing.

Now with HBO and others treading onto Netflix's turf, the 50-year-old Sarandos, an affable, TV-obsessed college dropout turned Hollywood dealmaker, has a target on his back.

"When his first original, House of Cards, came out, I joked with Ted, 'You're going to think this is easier than it really is by hitting a grand slam home run right away,' " said Leslie Moonves, chief executive of CBS, whom Sarandos considers a friend, mentor and sometimes a business rival. "But it's hard. It's about the negotiating process, how people view the content and many other things."

The slacker hero

Sarandos could be cast in someone's show as the slacker hero. He was the fourth of five children of working-class parents. Their Phoenix home had the television running at all hours, "to deal with the chaos," he said.

His life revolved around TV. He rushed home from school on Tuesdays to see early afternoon episodes of Happy Days. He kept track of time - when to study, when to eat - by the television schedule. He slept just three to four hours to watch Jack Benny and Dick Van Dyke shows slotted for overnight hours.

When Sarandos's sister and brother-in-law moved to Houston, he processed his grief through All In the Family. He wept along with the television patriarch Archie Bunker as Gloria and Meathead left Archie and Edith's home.

He once watched five back-to-back episodes of Mary Hartman, Mary Hartman with his family on a local Sunday broadcast, what he calls his first exposure to binge watching shows the way fans of House of Cards do now.

He enrolled in the local community college and worked on the school newspaper. But he spent more of his time writing about movies and TV than studying and eventually dropped out because of poor grades.

Sarandos was also having more fun at his job working at a local video store, bantering with customers about films and offering recommendations. Soon he took over management of the store and eventually ran the company's chain of eight locations. He learned about contract negotiations with Hollywood distributors. He widened his network. He drew closer to the orbit of television and film.

"I didn't realise then that I wanted to get into the business, but I knew I wanted to meet those people, those people in that little box," Sarandos said.

In 2000, he joined Netflix, which was then reinventing how people rented movies and taking on Blockbuster. From his spot as the chief content officer - the same job title he holds today - Sarandos began building his reputation as a behind-the-scenes operator in Hollywood, cutting deals for what shows and movies would be distributed through Netflix.

With rosy cheeks and a Sunday service haircut, Sarandos has a chipper demeanor that has helped him cultivate powerful and older allies.

He has powerful ties - his wife of three years Nicole Avant was a bundler for the Obama campaign and served as ambassador to the Bahamas. Sarandos and his wife are friends with other power couples in Hollywood, including Moonves and his wife, Julie Chen. He became friends with studio head Harvey Weinstein of the Weinstein Company and says he tries to model himself after friend Ron Meyer of Universal Pictures, who he says "never loses his temper or raises his voice."

"I've discussed the most obscure movies and documentaries with him that when you talk to somebody in our industry or even some the other heads of a studios, they have no idea what I'm talking about, but Ted knows everything from the film's plot to behind-the-scene production facts," said Weinstein in an email. "He's a true cinephile."

It was remarkable for any outsider - particularly from an unusual company like Netflix - to break into the upper ranks of Hollywood. It also helped that he had a blank checkbook from Netflix's chief executive, Reed Hastings, to license programs from companies like CBS and then create shows.

Now, Sarandos can't go to a lunch or cocktail party without getting pitched to pick up a film or television idea. His team in Beverly Hills weeds through dozens of email, phone and mail pitches each day. They bring about three or four ideas to Sarandos each day.

"Was there suspicion at first?" said Moonves, of the possibility that Netflix would somehow threaten CBS's business. "Sure. But here was a company willing to pay a fair price for our content. And that's really what CBS is all about, making sure our content is distributed on as many platforms as possible for a fair price."

Competition

Netflix may have created a new mould for how people watch TV, but plenty of other companies are now imitating it.

Sarandos has long considered HBO to be Netflix's biggest competitor. He has said the company needs to become more like HBO, with its premier content, before HBO becomes like Netflix with compelling online technology.

And now, with HBO unveiling a new Internet-only service next year, that moment is arriving.

Netflix says it's ready for the threat of HBO, which will roll out its stand-alone Internet service next year. Netflix has more US subscribers than HBO but lags in overall global users with 50 million subscribers compared to HBO's 130 million.

HBO, for its part, rejects the idea that it will compete directly with Netflix for online customers. Most consumers, HBO believes, will see the online services as complementary.

"Obviously we are a premium offering," said HBO chief executive Richard Plepler at a recent event in New York. "I think everybody understands while Netflix is a wonderful . . . option to catch up on shows . . . HBO is a very, very unique premium service and I don't think there is any confusion about that."

To stay ahead of the pack, Sarandos has his eye on upending the movie business.

He has argued to studios that the strategy of delaying the television and online releases of films many months after they show in theatres hurts creators. Why not bring the biggest audiences possible to movies, he has argued to studio heads, with simultaneous releases on Netflix?

In September, Netflix shocked Hollywood when it announced it was producing its first original film, a sequel to Crouching Tiger Hidden Dragon to be produced by the Weinstein Company and simultaneously released in IMAX theaters. That deal was immediately followed by a four-picture contract with the comedian Adam Sandler.
Every major theatre chain protested the announcement. Chains that operate IMAX screens said they wouldn't participate.

"We thought if we are putting $1 billion into output deals with studios over three to five years, let's spend that $1 billion into making our own films, not just TV movies, but real movies that you would want to see in theatres," Sarandos said.

But funding those programs may prove challenging.

Netflix's fast growth began to slow last quarter. The company said last month it added 980,000 domestic subscribers during the third quarter compared to 1.3 million additions it had during the same period the previous year. Immediately the stock dropped 26.4 per cent on the news.

Netflix "is likely not as inelastic as we and management had hoped," BTIG analyst Rich Greenfield wrote in a note. "We do believe that the ability to drive gross adds and pricing power is directly tied to the amount of great content Netflix offers and the timing of new headline original content."

Sarandos downplays the idea that HBO will knock out Netflix anytime soon.

"It would have been right to dismiss us from the early days with DVDs and even with House of Cards, which no one expected to be such a hit right out the gate," Sarandos said.

He said the company slowly built its relationships, made deals, developed its technology while most weren't looking.

"We just kept reinvesting and reinvesting and iterating on what we had," he said.