The Half-Billion Dollar Netflix Bet on Hollywood North

“Are you still watching Canada?”

There’s nothing good on TV–so goes the proverb as old as television itself. But, like cable TV, that saying may quickly be on the way out. Before the advent of streaming, big-budget original content was relegated to huge studios and their traditional distribution networks. In the movie I Love You, Man, Paul Rudd’s character tries to bail on a Rush concert with the excuse we’ve all thought of at least once: “It’s not TV, it’s HBO…Have you ever watched Sunday night programming on HBO? It’s spectacular.”

Netflix has unequivocally outpaced HBO.

The streaming giant is past considering Amazon, HBO and many others as competitors. But Netflix also now realizes they now have to fend off original content from Apple, Facebook and Google, along with every broadcast network in the world. That’s fine though. Netflix’s reach is already global, so the only way to expand is to focus on the local.

A Series of Fortunate Events

Towards the end of 2017, Netflix unveiled plans to create the company’s first ever subsidiary called Netflix Canada. Along with that came a promise of $500 million over five years to fund content in Canada, in addition to $25 million to help further develop the market for French-language content. Sources indicate that $500 million could end up being much more as well.

“Regulations often backfire. What happens is a whole lot of not very high-quality content gets produced to comply with a quota which doesn’t really reinforce Canadian content.”

Initially met with cheers, Netflix soon found themselves with a deluge of questions from audiences hungry for high-quality homegrown material. They didn’t quite know how to respond right away.

“A lot of people were expecting us to have a full-blown plan already, and the absence of that plan made people skeptical,” says Bao Nguyen, a manager at Netflix who is heavily involved with the Netflix Canada program.

“We’re slowly realizing where people are more confused,” he says. “You’re going to see us saying ‘this is how we’re spending this money’ more. I get that people were skeptical about the lack of information we were able to provide because we didn’t actually have the information to provide.”

After regrouping and ironing out details, Netflix’s director of global public policy Corie Wright penned a blog post explaining the content fund a bit more. No deals regarding taxes were made, as the $500 million fund was created through the Investment Canada Act.

In addition, Netflix clarified their stance as an online service and not a broadcaster, meaning they were exempt from CRTC-mandated quotas in terms of content production. The streaming service doubled down on their belief in consumer-driven open-internet services and not being relegated to observing mandates.

“Regulations often backfire,” says Reed Hastings, co-founder and CEO of Netflix. “What happens is a whole lot of not very high-quality content gets produced to comply with a quota which doesn’t really reinforce Canadian content. So, we’re sympathetic with that goal.”

Netflix co-founder and CEO Reed Hastings.
Netflix co-founder and CEO Reed Hastings.

The goal of the subsidiary is twofold: one objective is to invest in Canadian content, but the other is to navigate a long-standing law that prohibits foreign companies from spending directly in Canada. Traditionally, U.S. companies had to work with local production companies to hire staff, as non-Canadian companies that seek to localize in Canada must notify the Canadian government and get approval—whether it be hiring stylists or caterers. With this new subsidiary, Netflix can now manage hiring themselves.

The inspiration for the new subsidiary was holistic. No single team was responsible for the creation of Netflix Canada. It came together as a realization to the company that, as a top-three market for the service and a creator of some of their top content, a formalized deal with Canada was merely an instinctive progression.

“It came up naturally as we’ve grown our investments in original content and had great success working with Canadian talent,” says Nguyen.

Critics attacked Netflix for the new announcement, dubbing it a PR ruse meant to capitalize on what they already do, considering the service has created or distributed original Canadian content like Trailer Park Boys and Orphan Black for years.

“It would be jejune to think this deal is anything but highly advantageous for Netflix, a company that pays no taxes in Canada [and] has no offices or staff here,” Globe and Mail writer John Doyle penned.

Doyle published his opinion the day after the original fund announcement and criticized the idea that Netflix will co-produce content—like they have with the CBC and shows like Anne—that will be streamed upon release around the world without ads on Netflix. Canadians, Doyle argues, will have to sit through commercials until the program is available on the streaming service at a later date. The only clear winners from it all were, of course, Netflix.

But when an international company comes knocking, Canadian content becomes difficult to fully define. Netflix’s ability to avoid mandates is as an annoyance to some and a blessing to others. Co-productions like ones with the CBC are only one of three ways Netflix Canada creates homegrown content—besides, if sitting through a few ads means giving Canadian creators access to over 190 countries, it’s a trade worth taking.

House of CanCon

In Canada, the word “CanCon” is more loaded than its actual non-abbreviated meaning. Many citizens have mixed feelings about the quota systems enacted by the CRTC, whether it means they have to hear more local bands on the radio (or the same old popular ones) or be exposed to tired content on public broadcasters and local stations. The controversial relationship with CanCon is made even more unclear by the deep connection Canadians share with U.S. content. We are so inundated with television, movies and music from our southern neighbors that we have almost become a local market instead of an entirely independent country. That’s why Netflix is blurring the lines of CanCon—love it or hate it.

“A lot of producers might be used to working a certain way in Canada with traditional broadcasters. We knew they were hungry to learn how to work with us.”

Shows like Altered Carbon represent one arm of Netflix’s Canadian content: shows or movies produced entirely in Canada. Though the show’s talent—like directors or actors—are not necessarily Canadian, it was all filmed in Vancouver at locales like the Vancouver convention centre west (as seen above) or the UBC campus. The green screen and effects were done at Skydance Studios, just outside the city, and represent some of the work that makes up Netflix’s eight-year contract with the studio.

Altered Carbon was said to be one of Netflix’s most expensive shows ever—as a comparison, Marvel shows like Jessica Jones or Daredevil run around $40 million USD per season, while the platform’s most expensive show The Crown cost $130 million USD for the first season.

The draw of high budgets may entice creators even more. One of the higher-budget Canadian TV shows, Flashpoint, rang in at $2 million per episode—peanuts compared to both U.S. rivals and Netflix.

“A lot of producers might be used to working a certain way in Canada with traditional broadcasters,” explained Nguyen.”We knew they were hungry to learn how to work with us. A lot of producers are coming to us, but we’re also looking for content anywhere. If we go to a film festival and see a great film to acquire, we can do that too.”

That came true when Netflix acquired the distribution rights to the Quebecois film Les Affamés, which won the 2017 Toronto International Film Festival’s (TIFF) Best Canadian Feature Film award. It premiered on the service earlier this month and represents one more way Netflix can liaise with Canadian creators. The only places Les Affamés is not available are Latin America, Eastern Europe and, to some surprise, Canada. The film already has distributors at home, but a different local purveyor is a small price to pay for suddenly infiltrating over 150 new markets.

Finally, co-productions also fall into Netflix Canada’s $500 million fund. Anne, Alias Grace and Frontier all fall into this category. The first two were produced with CBC while the latter was through Discovery Canada. Partnerships with Netflix allowed tens of millions of new viewers to see these shows, as they were largely relegated to Canadian audiences only. In fact, when Alias Grace premiered on Netflix, it was watched in every single country on the service—189 in total.

A high-profile midnight launch of Jessica Jones—the graph indicates streaming starts.

The demand from Canadian creators looking to work with Netflix has been voracious, but interest in the other arm of the Netflix Canada fund is also high.

“The second thing we’re getting a lot of outreach for is the $25 million market development fund,” says Nguyen. “A lot of people think it’s a content fund—it isn’t. It’s to help independent programs. For example, a First Nations writing program, or a masterclass. Things we can do for the community.”

“Part of preserving creative intent is understanding it.”

Canadian networks like the CBC have made diversity an official part of their programming and staffing, as roadmaps like the 2015-18 Inclusion and Diversity Plan indicate. The network has held workshops for “diverse content creators” to help pitch shows. But Netflix might have beat them to the punch.

Diversity is the New Black

Comparing viewership of a Canadian show on Netflix to that of a Canadian show on a local network is a difficult connection, but it’s the best way to see into the how the streaming platform is bringing local content into other countries.

Altered Carbon drew in close to six million viewers for its first episode, though it dwindled down to just over a million for episode 10. That last number still topped the Canadian Screen Awards (CSA) Best Comedy winner, Kim’s Convenience, which averages around 950,000 viewers per episode. By the way—the CSA Best Drama and Best Limited Series winners? Anne and Alias Grace, respectively.

The localization team at Netflix is perhaps the most well-equipped team in the world to bring Quebecois French or Indigenous content—or anything besides English, for that matter—made in Canada to foreign audiences. Localization is the translation or adaptation of content or product into a specific market or locale. The ultimate goal is to uphold artistic intent, and Netflix has a specialized team of hundreds dedicated to localizing content.

“We are always looking to have more ways of expanding our reach, and accommodating certain visions.”

“Part of preserving creative intent is understanding it,” says Denise Kreeger, the manager of international dubbing at Netflix. “Sometimes, we even have the opportunity to work with the creators and what that vision is, so we can uphold that through the localization process.“

Denise Kreeger, Netflix’s head of international dubbing.

The team at Netflix is able to bring foreign language productions to the mainstream through both their massive reach and the immense detail paid to localization. Dark, a show made in Germany and spoken in German, premiered on Netflix and performed 3.4 times better around the world than the average German show, according to Parrot Analytics. Other foreign shows on Netflix like the Brazilian 3% or the French Marseille also performed much better than an average show produced in their home country.

“We are very creative-friendly. So we are always looking to have more ways of expanding our reach, and accommodating certain visions,” says Kreeger.

Netflix’s localization team pays close attention to nuance, which translates to big time viewership for local titles. For an Italian original series called Seburra: Blood on Rome, a Romanesco dialect remained unchanged.

“We didn’t touch it at all,” says Kreeger. “We left it only in subtitles. We didn’t dub over it, or anything like that. All to preserve what that creative intent that is.”

Netflix can reach audiences that others just cannot—and in ways others cannot. Clever campaigns help English-speaking titles reach beyond North America, like a video promoting the Canadian-made Altered Carbon in Spain. The ad (shown below) profiles inhabitants of the coastal city Fisterra who have become immortal due to technology present in Altered Carbon.

Criticism aside, there’s no denying Netflix is one of the best distribution networks in the world. They are not limited to a handful of premieres a year—Netflix released over 1,000 hours of original content in 2017 and will top that in 2018. But there’s still scrutiny.

Unbreakable Canadian Spirit

There’s no doubt that Netflix benefits from the Canadian deal—they are still a business. Netflix is a U.S. company, and the Canadian investment will bring huge returns for their non-Canadian pockets. The dilemma comes down to how much creators, production crews and Netflix customers in Canada will benefit from the deal.

The thing is, this has been the status quo for Hollywood for decades. From A Christmas Story to Inception, non-Canadians movies have been made in Canada, by Canadians, with almost all of the profits returning back to the U.S. This has largely been a mutually beneficial arrangement, but it still left Canadian content in the dust.

But with this announcement comes more legitimacy from a company that is quickly outpacing Hollywood. Even though The Shape of Water (Best Picture winner at the most recent Academy Awards), garnered several Toronto shout-outs during the thank-you speeches, it still seemed like Canada wasn’t getting enough recognition. Sure, Netflix is going to benefit hugely from content made in Canada—but recognition from the company that is disrupting old-Hollywood models is important. How important, though, depends on who’s asking.

The question then revolves around if that additional exposure—along with the economic boost that Canadian companies like Skydance and local creators/personnel receive—is worth Netflix gathering good press and additional revenue. When so much Canadian content ends up falling on deaf ears at home, let alone in other countries, then maybe it’s time for Netflix to derail Hollywood’s status quo and be proud of investments like this.

Netflix is betting on Canadians to make them money and drive their platform. It’s a bet we should all be willing to take.