Spotlight: Will Netflix’s Red Envelope Entertainment be Sundance 2.0?

Authored by Scott Goldberg on January 25, 2007 - 1:12pm.

Currently playing at Sundance and due in 22 cities by the beginning of March is a documentary about Ralph Nader’s life entitled An Unreasonable Man. Regardless of your opinion of Nader or the film, perhaps the most intriguing aspect is the involvement of Red Envelope Entertainment, the content acquisition and production division of Netflix. A company with a reputation for innovative business ideas, Netflix is hoping to become a tastemaker as well, leveraging its 6 million subscribers to acquire, create, and distribute original content. It’s a logical addition for the company, though puzzling on the surface. Why, many might ask, would a DVD rental company believe it could succeed in the fickle waters of the film industry?

Enter Ted Sarandos, Chief Content Officer for Netflix, who has been in charge of content acquisition since 2000. He proposed the idea to produce original content to CEO Reed Hastings in 2002 and was awarded an acquisition budget – though a very small one – of $100,000. The first deal was a revenue-sharing agreement for the film Nice Guys Sleep Alone, which he had seen at the 2000 US Comedy Arts Festival in Aspen, CO. The movie was a success on Netflix. “An awful lot of people started renting this no-name title with zero marketing budget,” said Stu Pollard, the film’s director. “As a result, it was picked up by HBO.”

Since then Red Envelope has scored other critical hits. It signed a deal to distribute Born Into Brothels six months before the documentary won an Oscar, and co-produced the documentary This Film Is Not Yet Rated with the Independent Film Channel (IFC). “They buy and move more independent film than anybody else on the planet,” said Evan Shapiro, GM for IFC. “They're the Google of DVD. They are FedEx.”

Today, Ted Sarandos has an annual budget over $100 million. “Last year we acquired four new titles from Sundance, and this year we're working on about 12 deals,” he said. “Eventually we'll be coming to Sundance and saying, 'We can buy everything.' There's a deal for every film.”

That represents a scary proposition for Netflix competitors. With the company’s January 16th announcement that it would offer free movie and TV programming via internet streaming, it’s clear the company is entering HBO’s territory, but with a key differentiator – its recommendation system – in tow. Netflix has over 1 billion user-submitted recommendations, something that not only improves the customer experience, but assists Sarandos in understanding the tastes and viewing habits of his audience. In an industry where audience interest is a moving target, the database improves the accuracy of the acquisition and creation process, thus mitigating Red Envelope’s risk.

Netflix is also infringing on Sundance’s territory. The popular annual festival in Utah receives over 3,000 submissions and in 2007 only selected 122 of them. Netflix now has a user-submission link on its site, which allows film creators to bypass Sundance altogether, moving along to a company with a large appetite for acquisition, and a large venue to show them.

It’s Web 2.0 filmmaking, and positions Netflix among the elite in the quickly developing areas of social media and user-generated content.

Scott Goldberg

Related Links:
Indie Film Purveyor Sundance Launches Dedicated Channel on YouTube
2007 Sundance Festival Short Films to Premiere on iTunes
Zoom In Online to Produce Podcasts of Sundance Festival Panels
Netflix to Launch Online Movie Viewing With 1,000 Titles
Netflix Gets 82 Submissions So Far for $1 Million Programming Prize
www.netflixprize.com/leaderboard