Last fall, an announcement of a $500 million investment in Canada from Netflix was made jointly between Netflix and Canadian Heritage. The announcement prompted this paper, which looks at the investment and broader context of using Netflix as a platform for Canadian producers to export their content globally. This paper will focus specifically on exporting television series globally. It focuses on series and specifically dramas, as they are becoming an increasingly valuable currency for broadcasters, digital or not, in attracting and retaining audiences.
Within our current media landscape, a small amount of Canadian series have found success on Netflix. While some are based on franchises that span generations, others are new creations. These early wins speak to the potential of Canadian productions to find success on digital platforms like Netflix to gain exposure to international audiences. Historically, Canadian productions have found audiences around the world through co-production, but broader strategies must exist for successful export of Canadian content in a globally competitive world. With platforms like Netflix which do not adhere to CanCon requirements, producers cannot rely on government mechanisms to preserve Canadian content on digital platforms. This is despite the $500 million investment by Netflix, the use of which is solely restricted to bringing Canadian originals to the platform (the money could also be used for filming US content in Vancouver).
Still, global competition also means a global audience. Canadian producers can generate wins by directing efforts to gathering intelligence and market research on what global audiences want. Content and good storytelling are now more valuable than ever for buyers hunting the best stories to earn coveted audiences. Good storytelling transcends borders, and with pipelines into the homes of the world through Netflix, it is here that Canadian producers will find success.
Netflix Canadian Investment
On September 28th, 2017, the Ministry of Canadian Heritage and Netflix announced a deal that would establish a new entity – Netflix Canada. The news also brought with it a $500 million investment in original productions in Canada over the next 5 years (Canadian Heritage, 2017).
Highlights from the agreement included establishing a permanent production presence in Canada, English and French original content productions, and the promotion of Canadian content to international audiences on the Netflix platform.
However, the investment drew criticism among Canadians with regards to Netflix and the Canadian government agreeing on the $500 million dollar deal in exchange for Netflix’s ability to skirt other tax laws and content quotas.
Netflix felt the need to set the record straight and on October 10th Corie Wright, Director of Global Public Policy wrote a blog post to explain the nature of Netflix’s investment.
There it was highlighted that no tax deal had been negotiated as part of the investment and further that Netflix’s commitment was part of a long-term commitment to Canada and Canadian content.
It is here that we will examine what opportunities these long-term commitments provide to Canadian content creators and producers. Below I'll explore the impact on Canadian film and television creators and producers from Netflix of the $500 million dollar deal and continued operations here. Specifically, I will focus on the impact in terms of any advantages or disadvantages that this deal, and Netflix in general, provide to Canadian content producers and creators for gaining international exposure.
The Canadian Content Landscape
An International Perspective
Telefilm recently conducted a research paper on exporting Canadian Television Internationally. Among other things the report highlighted the immense competition for Canadian productions in a global market and the benefits and dangers that come with operating in the current environment.
Highlights of the report, from the perspective of Canadian content on a global scale and the opportunities that exist through Netflix include the following:
Currently Canada is not among the top countries globally exporting film. The vast majority come from the US, followed by the UK through co-productions.
When it comes to shows that are exported globally, dramas remain king. High production value comedies, documentaries and animated shows were also noted as having an increasing value but expensive drama’s were overwhelmingly important.
Within these dramas it was noted amongst interviewees that “Marquee factors” played an important role, like having a marquee actor, director or writer on the show.
The strength that was highlighted for Canada was strong potential for co-production and co-ventures and successful projects that had been undertaken in the past with the UK and France. Along with this was the ability to raise capital through provincial and federal bodies.
The report noted that: “The small size of the Canadian market, which supports only a few major broadcast groups, combined with a generous funding system, project an image of a market that is not as dynamic as its competitors.”
(De Rosa & Burgess, 2017)
Global demand, but also competition for high quality dramas was seen as particularly important as broadcasters as well as OTT services such as Netflix and Amazon Prime vie for exclusive shows to lock viewers into their platform or purchase a channel subscription.
In the world of expensive, high production value dramas, with marquee actors, competing on a global stage, Canada has seen the most success in selling their dramas to the UK and US . To understand the competitive positioning of our content producers as a whole, it is useful to look at the current Canadian landscape with regards to exporting television programming and specifically dramas.
The Current Landscape
Co-productions to Create Success
For Canada to create successful dramas in on a global stage, financing increasingly expensive productions is an issue. It is not one that is limited to Canadian productions either. Research from Telefilm highlighted that to finance properties like Game of Thrones ($3 million/hour) level, producers are turning to co-production with other countries to compete against the US in terms of budget (De Rosa & Burgess, 2017). It is noted that heightened competition is causing co-production to occur sooner in the development process, with the tri-party produced Versailles – (Canada, UK and France) cited as an example. It was reported to have a budget of 30 million euros for the ten – one hour episodes and was the most expensive French series ever made (De Rosa & Burgess, 2017).
Indeed, The CMPA notes that “International treaty co-production is an important avenue through which Canadian producers tap into international financing and talent to create films and television programs with international audience appeal.” (CMPA, 2017)
It seems that for Canada, gaining that international audience is one way that we are using co-production not only as a means of financing international worthy productions but also distributing them.
(pictured right) Room - A 2015 co-production between Canada, Ireland, the US and UK
For example, in terms of our Canadian biparty co-productions in 2015 and 2016, of the total 104 productions, 80% (Telefilm, 2017) were co-produced by the top 7 countries in Figure 9 below, other than the US.
(De Rosa & Burgess, 2017)
However, these international pre-sale numbers also highlight our reliance on exporting to the US and UK, each of which outnumbers all of the next 6 largest pre-sales numbers combined. Looking deeper, we can see that the bulk of these pre-sale amounts are for dramas, with over $ 206 million of the total $ 313 million in international presales coming from the drama genre (De Rosa & Burgess, 2017).
Exporting Drama: Content Is King
Content matters. Some would say that it is all that matters. With the level of competition for eyeballs globally among broadcasters and OTT providers it is no wonder why, just consider the statistic below:
“With the digital expansion of television broadcasting, coupled with globalization of the industry, a fiercely competitive television landscape now exists in which channels and web based platforms around the world are using drama as the Holy Grail for building and retaining audiences. For example, by one estimate, US TV networks typically launch 346 new scripted series a year.” (De Rosa & Burgess, 2017)
While the CMF has stipulations around Canadian writers, actors and budget spend %’s in Canada, the average global viewer does not. They want the best show possible and they have the ability to be choosey in our golden age of television, coupled with an abundance of media (including social) competing for our precious time.
(The Economist, 2016)
It may seem like a no-brainer that from a story telling and drama standpoint – content is everything, however in the Canadian context, some have felt that other stipulations around financing compromise content.
It is in terms of artistic vision and providing more freedom around work to ultimately create a superior product that digital platforms like Netflix may provide an advantage to creators and producers of Canadian Content. Co-production dollars are important but they often come with strings attached that can be prohibitive. Co-production treaties can come with strings attached like quotas for the co-producing country’s actors and writer. The Telefilm report highlighted the fact that limitations on marquee factors hindered Canadian produced shows' ability to compete at a global level (De Rosa & Burgess, 2017). Indeed, there is limited Canadian star power and a talent pool to choose from, despite having to compete against the best in the world. Like any industry, the ability to be the best requires drawing the best talent and media is no exception. Put the best developers at Google up against the best ones at Yahoo and I think you would have a good idea of who would win.
Netflix may provide financing with less strings attached when compared with bigger studios, but in exchange are taking global rights. Now Canadian producers would still have to meet CMF requirements if they wanted to raise funding there, but they would be freer from a co-production standpoint – or potentially have even more leverage if they brought Netflix on as a co-producer in a triparty agreement with an international partner (Canada Media Fund, 2017).
With $500 million going towards Canadian content it is also possible that Netflix could solely produce Canadian content or raise financing outside of a government funding framework, allowing our talent complete freedom. This would also allow producers to ascertain the best marquee options possible to enhance their storytelling and content to the highest and most competitive level, globally. It’s an enticing option if you have the skill set required to make a hit – if the potential upside of more freedom and a global deal with Netflix outweighs the downside of giving up government funding.
Competing on the Global Stage, Are We Ready?
Netflix, in its unique ability to navigate content quotas internationally and CanCon domestically (as it would seem), is changing the content landscape for viewers in countries that enforce content quotas. On Netflix, viewers get to vote with their time with each show watched, for what they believe to be the most worthy and best. In a world previously driven by ratings, Netflix argues that their algorithms and business model now allow viewers to get what they want, without commercials and whenever they want it (Nocera, 2016).
Niche shows that may not have made it onto mainstream broadcasters or even their specialty channel are now available for a consolidated global audience, which together make up a profitable audience segment. If the story and audience is there, Netflix appears to have the money to back it – creating the top 2 most expensive shows to date, according to CinemaBlend (Venable, 2017). Hit Netflix Originals like House of Cards or Stranger Things have the potential to become global sensations and compete with HBO and primetime shows for audiences. But in this digital media market economy, has our model of subsidizing and mandating Canadian content positioned our native talent to succeed?
Ask Alias Grace’s producer and she points to mandated Canadian content on our airwaves as sheltering Canadian content creators and producers from the reality of competing head to head with the US. Certainly, co-productions have helped from a dollar to dollar standpoint, but as mentioned before – even Canadian media executives cite CMF funding requirements as prohibitive in terms of securing the best international talent and creating the best product.
Netflix and the World: Quality, Not Quotas
This brings us to the double-edged sword that a digital platform like Netflix provides. While there may be a great potential for financing without stipulations, your content is up against the best in the world, and when it comes to the US – those that were competing before without mandatory quotas for airing their productions on national stations. It is also where the loose language and uncertainty around the Netflix $500 million investment in Canada will not offer much solace to those hoping that the investment will act as another safety net. In her October blog on behalf of Netflix, meant to shutter criticism of the Netflix announcement, Corie Wright provided great insight into how they viewed their $500 million going to work:
People choose what they want to watch on our service so we have to invest in the best content from around the world. We didn’t invest in ANNE, Frontier, Travelers or Alias Grace to fill a quota, we invested because they are great global stories. We will continue to invest in great Canadian content, and in other productions made in Canada like Hemlock Grove, A Series of Unfortunate Events and Okja, that are not Canadian content but that make use of, and showcase to the world, Canada’s outstanding talent, facilities, resources and locations. (Wright, 2017)
The statement says so much about the global competition for quality drama, but also how the $500 million investment may be allocated. Netflix is specifically highlighting using Canadian facilities, resources and locations for shooting. It would seem they are doing so in similar vein as the CMF 75% budget spend requirements in Canada for points (Dentons, 2015), that go beyond actor and writer credits. That means some of the spend could go towards shooting on location like CW’s Smallville shot in Vancouver (Not what many would consider Canadian content, although it ranks in the top 10 most popular shows with Canada as the country of Origin). Upcoming Netflix Original productions like Altered Carbon, or season 2 of A Series of Unfortunate Events are shot in Vancouver (What's Filming, 2016). Meaning that renewed seasons of these Netflix originals may be included in the $500 million spend over 5 years.
Other Netflix Productions like Lost in Space or UK co-productions like Dirk Gently will also shoot in Canada
Therefore, It is important to note that it would appear that all the $500 million will not go towards co-ventures or solely be used for financing Canadian television series or films. Noreen also suggested that this is the case and that when you read the fine print on the deal, it goes towards more than just bringing Canadian TV series or films to life. This is important because as Netflix stated publicly, and specifically with regards to its investments, that they have not invested in Canadian content to fill a quota – but because they were good stories with global appeal. Looking at the television series listed on Netflix’s site as their upcoming original content (Netflix, 2017) – paints a picture of what their content makeup by country in the pipeline looks like right now:
Canada, along with a number of other countries makes an appearance, with 1 series. But it is also important to note that homegrown content for Netflix makes up only 35% of their new series that are being renewed or making global original appearances. With Netflix making investments in Latin America, both Brazil and Argentina made it on the board and accounted for 9% of Netflix’s listed upcoming series. The chart both highlights the opportunity and competition for Netflix original content.
And it appears that Netflix does indeed have an eye for good content. The 4 movies that Netflix mentioned in the October release, all ranked in the Top 10 most popular TV series of Canadian Origin on IMDb (2017). This highlights the potential for success in working with Netflix and potentially more creative freedom. Certainly, they have the global audience and they have seen success with the Canadian shows mentioned above.
While the new investment in Canada does not guarantee that filmmakers will be chosen because they are producing Canadian content, it does mean that those producing good content have a shot. I spoke with the Strategy and Research branch at Telefilm and when asked about the deal, a staff member pointed out that at the end of the day, money going towards Canadian content is positive.
It’s true that the money should still benefit Canadian producers, but it may not be substantially greater than what was being invested before.
The Netflix Opportunity
Alias Grace, A CBC - Netflix Co-Production
The Netflix $500 million investment over 5 years may not be material when compared with what they would be investing otherwise. But what does matter is there is a new player in the game that can finance Canadian productions and distribute them around the world. Good Canadian producers and content creators should be happy about this. Global competition should drive existing players and new entrants in our domestic market to step up their game and explore stories and options that may have not been viable from a North American perspective, especially considering what the opportunity looks like. Figures on sales of Canadian television shows between that 2012 and 2015 made up only 5% of sales (although it is noted that this may be higher due to a proportion of “Undefined” sales that consist of digital) (De Rosa & Burgess, 2017).
Increased investment is a good thing and the dollar amount does not have to be limited to $500 milliion if Canadian producers suddenly start minting global favourites that can go toe-to-toe with Game of Thrones or Stranger Things. Further, in some areas, Canadian media executives note that Netflix is driving the price they would receive higher – as there is another player available to increase demand (Canada Media Fund, 2017). Netflix certainly does not seem shy about pouring money into produced or licensing content.
Despite any upside from financing, Netflix’s market insights and distribution to niche audiences previously inaccessible to Canadian producers, may be an even bigger benefit. One of the biggest recommendations from the Telefilm report was that Canada needs global intelligence, similar to the likes established in Germany, the UK and France, that have been proven with success (De Rosa & Burgess, 2017). A number of other suggested changes all relate to increased support for the industry and more flexibility. But the piece on export strategy was important because it is something that individual producers can work on themselves.
Understanding different global markets, the growth in their adoption of digital OTT services, and key cultural phenomena are indispensable traits for executives, producers and content creators in our new age of digital media, Netflix, Amazon, Hulu and now even Apple and Facebook.
This is standard market research in any industry, and knowing what the global landscape of potential customers looks like will allow Canadian producers to meaningfully compete at the global level. For example, I recently spoke with a Canadian filmmaker who licensed the rights to a book on the emerging Punk scene in Toronto in the 60s and 70s. Through his experience he already identified that there was a market for the topic in Japan and Eastern Europe and Scandinavian Countries. He mentioned that marketing is something overlooked in terms of creating Canadian content – not from a merely promotional standpoint, but from the perspective of knowing what customers want and understanding your audience. It's segmentation that can go deeper now that global audiences can be aggregated. Furthermore, working to serve specific needs of specific international audiences aligns extremely well with what Netflix is trying to do. They are doubling down on original content where they can get rights to the world. In doing so, they can first off prevent backlash from different libraries in different jurisdictions (The days of Canadians and everyone else using VPNs to get American Netflix). Secondly, there’s the benefit of being able to go out to the market and find the exact piece of content they need for a certain segment of their customer.
Netflix can drill down deeper than ratings and estimates of who is watching what. The company claims to be able to use a number of algorithms to tailor specific content based on user interests (Nocera, 2016). It allows them to create and license shows that would not be viable on an individual country and broadcaster basis. What better market intelligence could there be for Canadian producers?
Granted Netflix will not be providing that information publicly, but it means that through a producer's own market research, if a trend was identified, it would be possible and maybe likely that Netflix identified the same segment and is willing to invest dollars to finance high quality drama content around the subject.
Gathering Market Intelligence: Canadian producers and content creators should be looking at their own ways to generate market intelligence on emerging global economies. The CMF recently published a research paper entitled: Adjust Your Thinking – The New Realities of Competing in the Global Media Market, along with a series of other reports as part of an international market series. The other reports are a series under the title “Your Market is Everywhere” and each profiles a unique location: India, China, South America, South Africa, South Korea, Mexico and Africa. Reports like these provide good insights into local markets and their adoption of digital OTT services as well as unique preferences within these regions. Producers should also get creative when looking at gathering intelligence. Social media such as Instagram, Twitter and other platforms like YouTube will provide insight into regional trends, preferences and even global niche interests.
Changing geolocation settings on any of these apps would allow you to plug into real time trending topics around the world. Furthermore, digging into specific influential accounts or channels would provide insight into what resonates well in particular areas with specific audiences. There is no shortage of ways to gather information on regional specific trends and cultural interests, and these are all opportunities waiting to be exploited in the world of Netflix. Further, relationships with Netflix should be leveraged to tune into data driven insights they may have with regards to emerging niche audience segments and regional demands and desires. With more data Netflix may be able to provide more granular data on what they want for a show: i.e. not just a cop show – but a cop show thriller mystery with a supernatural vibe to it that is delivered in a 6-8 episode, 1 hour long, series.
Focus on Good Storytelling: Good storytelling transcends all borders. Netflix has even had success with foreign language films that feature English subtitles, like Narcos. For Canadian producers and content creators, it is important to focus on the quality of the story first.
Use market intelligence to guide the themes explored and take the opportunity to learn from the best global writers wherever possible- through online collaboration or in person sessions if limited constraints exist. Digital platforms have exploded the category of drama on a global scale but they now demand the best product. If the story is good, the Canadian skill set of creative co-production or co-venturing can make the rest of the production work. Alias Grace is a great example of this and the show's producer emphasized the importance of quality writing in making the show a success.
There is a longer time process involved in creating quality content and that needs to be seen as an R+D expense, but the payoffs can prove large and the reputational benefit and relationships formed with platforms like Netflix should pay off in the long run. Once again, as Netflix themselves have proclaimed, their investment in Canadian content is not about quotas but rather about quality, Canadian producers need to keep this in mind to take advantage of the opportunities to attract global audiences that lie ahead.
Know your rights: The Adjust Your Thinking report from the CMF highlights the importance of understanding rights, specifically in one or two genres. The reason to focus on specifics is because of the complexity of rights in our digital world. The report also notes that co-production deals may provide more leverage in licensing rights with platforms like Netflix (Canada Media Fund, 2017). As co-production is a strength of Canada, we should understand how to leverage that to be able to hold onto some rights on global deals with Netflix.
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