Netflix's Ted Sarandos touts ‘superior’ UK streaming service; says Sky output deals could be threatened

US streaming VOD (SVOD) service Netflix launched in the UK on Monday, sparking a price-point war with UK SVOD kingpin LoveFilm, which on the same day announced a new streaming-only package priced at £4.99, one pound cheaper than Netflix’s streaming-only offering. [LoveFilm also offers a greater variety of packages that include DVD rental via post and VOD as well as streaming.]

Netflix has already locked up exclusive streaming deals with major UK indies including Lionsgate and MGM. On Monday, while speaking to Screen, Netflix chief content officer Ted Sarandos confirmed a content deal with Momentum.

Netflix will be adding more content in the coming months, said Sarandos, who was in London to discuss the company’s UK launch. “There will be a rapid expansion of the content. We didn’t want to launch with everything we’re going to have,” he told Screen.

Sarandos estimated that UK take-up could reach “a couple of million [subscribers] within a year or two.” The service has close to 23m users in the US.

“First [pay TV] window” [after retail DVD] titles from MGM, Lionsgate and Momentum will be available in a similar window to titles licensed by the major studios to Sky Movies - generally within six months of DVD release in the UK. LoveFilm has similar deals with eOne and StudioCanal.

Netflix will also be reaching out to smaller UK independents, Sarandos confirmed: “A lot of the launch deals are to secure the more high- profile content then we’ll wind up working across the complexities of the distribution spectrum. We work with local producers in our other territories and arthouse content is a very important part of our business.”

Sarandos stood firm in the face of LoveFilm’s price drop of its streaming product: “Our product is vastly superior in terms of the content offering, definitely in terms of distribution across platforms and definitely in quality of streaming. We’re streaming in high def at 5.1 audio, and across every device with a screen and internet connection. We forced their hand on price, we’ll probably also force their hand on quality so they’ll have to do a bunch of investment to get better. At the end of the day the consumer wins.” [Unlike LoveFilm, Netflix plays on the Apple TV and Wii console and streams in HD at 5.1 audio].

“We have a five-year headstart [Netflix was created in 1997 and started streaming in 2007; LoveFilm was created in 2002 and started streaming in 2009] on the technology and the consumer experience and on licensing so I feel very good about the advantages that gives us in this market,” he continued.

Netflix recorded 2 billion streaming hours globally in the fourth quarter of 2011, but CEO Reed Hastings announced late last year that the company’s global profitability would dip in 2012 due to the UK launch. Sarandos estimated that the UK operation would not become profitable for “a couple of years”.

Sarandos also expressed scepticism about the likelihood that Sky will retain its output deals with the studios at their current deal prices: “As the studios deals with Sky come to an end it will be interesting to see what that take-up will be. I am not particularly enthused about the major studio output deals at those prices because I don’t think they represent enough viewing for people to be excited about.”

Sarandos was sanguine about UK broadband speeds not hindering the Netflix service and about smart TV uptake: “If you can watch YouTube you can watch Netflix. The product is optimised at variable speeds. Canada has variable speeds and we’re growing well there. And we think the entry of Netflix will accelerate the sale of smart TVs.”

In response to a question about Warner Bros’ recent decision to push back the DVD rental window for its content in the US, Sarandos said: “The DVD service is a legacy business for us. If Warner decide to sell their product in 72 days or 2 days, we still buy the product they sell. Wherever they land on their window we still want to buy from them rather than a third party. But the DVD business in the US is a mess now. Some studios are same day as sale, some are delayed. The consumers are confused. It’s these usage rules that have held back digital distribution. It should be a simple business.”

Netflix didn’t disclose the precise number of titles on offer in the UK but a company statement touted “tens of thousands of film and TV titles”.

LoveFilm has streaming deals in place with Warner Bros, eOne, Sony, StudioCanal, ITV and BBC among others and has 2.3m subs across UK, Germany and Scandinavia.

Netflix has already locked up content deals with Disney UK & Ireland, Lionsgate UK, MGM, Miramax, Momentum Pictures, NBCUniversal, Paramount, Sony Pictures Entertainment, Twentieth Century Fox, Viacom International Media Networks, ITV, All3Media, the BBC, CBS and Channel 4’s 4oD.