Business Letter Assignment You work as a Programming Assistant in the Content Acquisition Department of Netflix located at 345 N. Maple Drive, Beverly Hills, CA. 90210-3869, reporting to Lynda Lipson, the Content Acquisition Manager who, in turn, reports to Ted Sarandos, the Chief Content Officer. Netfix pioneered DVD rentals by mail, has now moved heavily into internet streaming, and depends for revenue on paid subscriptions, not advertising. Mr. Sarandos is considered an innovator in putting together program acquisition deals, and your boss Lynda has been his partner in those deals. Background: Netflix earned enormous publicity for its first venture into original programming, House of Cards, which first aired in 2013, earned 9 Emmy nominations (a first for an online series), and is now streaming its 2014 season. What got the most publicity was that this acquisition changed how deals are structured in the TV industry. Typically, a TV series has been sold by first producing a pilot episode, which alone can cost up to $10 million; buyers then commit to purchasing one “season” of the series (however long that may last, but on broadcast TV, typically 13 episodes, one airing each week), with options to renew for subsequent seasons should that series be a hit. Most pilots never become series, and most series never get past the first season. When the producers of House of Cards were shopping their proposal around to the various content purchasers (eg. TV networks, cable channels, etc.), they were approached by Ted Sarandos and your boss. Netflix until that time had been acquiring already shown movies and TV programs via standard “licensing” deals, which gives Netflix the right to distribute the content to its subscribers through DVD rentals or streaming over the internet, or both---that is, it had never purchased new, original content before, so producers of original series like House of Cards wouldn’t even bother shopping their material to Netflix. However, Ted believed that Netflix in the future had to offer its own original content exclusive to Netflix to continue drawing new subscribers. Ted Sarandos and your boss therefore entered the bidding for House of Cards and won over more prominent rivals like HBO and other well known channels. Their winning bid consisted of purchasing the streaming rights to House of Cards for an unprecedented two seasons, or 26 episodes, sight unseen (no pilot had been made since the project had a big name director and actors committed), with an option to purchase an additional 3 seasons thereafter. They specified that each 13 episode season would be made available to subscribers all at once, without any time limits on when it could be viewed, as opposed to airing each new episode separately at a fixed time over a 13 week period. DVD rights were not included in the deal because it would have increased the price tag, and Netflix had already made the decision to de-emphasize the DVD side of their business. The cost of the bid was in excess of $100 million, and thus was a huge financial risk, given that the fate of the series was completely unknown when the commitment had to be made. The producers of House of Cards picked Netflix because the deal gave them the financial and creative freedom to develop the series as they wished over a two year period without having to worry about ratings, getting cancelled or interference over the series content. They also liked the idea of being part of something new. The 2014 season is already finished and on Netflix, and your boss is currently working with Ted on a deal to extend the show for the 3 additional seasons for which it has an option. Your boss has told you that Netflix will recoup its costs, subscriptions continue to increase, and Netflix has continued to buy original content (such as Orange is the New Black), as House of Cards has been a big success. The Problem: Netflix’s longtime CFO, Barry McCarthy, approved the House of Cards deal, but he was replaced in 2011 by David Wells, who has since been scrutinizing Netflix’s expenditures much more closely. Your boss tells you that David has been questioning Ted about why Netflix continues to pursue what he thinks are hugely expensive deals for original content. She also tells you that David has been concerned about future costs for acquiring movies and TV shows that have aired elsewhere, which have risen at an alarming rate as competition for exclusives has increased. She tells you that David thinks that Netflix could cut its costs and risk by getting out of original content entirely. She says that David was especially angry that the House of Cards deal didn’t include rights to DVDs, which have been snatched up by Amazon, a major competitor of Netflix, and that he thought the growth in new subscribers during 2013 wasn’t that huge, nor could it be definitively tied to House of Cards. Lynda tells you that “Ted and I think that subscriber growth is going to depend more and more on Netflix originals, just like it has for HBO and the other pay channels. But David is a numbers guy, so he just wants deals that reduce our financial risk.” She also tells you that “finally, all the top talent is coming to us after House of Cards, and it’s also gotten easier to get better deals for the old stuff produced elsewhere. So it’s been a win-win. But the downside is that word has gotten out that if you’ve got a crazy, risky deal, go to Netflix! ” She tells you that, for example, she and Ted met on April 2 with a team headed by Lori Rothschild, Senior VP of Development, from LMNO Productions, Inc., located at 15821 Ventura Blvd., Suite 320, Encino, CA. 91436. LMNO is a well established production company with a good track record of producing hits. At that meeting, the LMNO team gave a presentation on a series it was developing called Up the Grassy Knoll, and later in the meeting, Ms. Rothschild demanded outrageous terms for the series, like a 3 season upfront commitment, with no pilot, no big name actors or directors attached, for streaming rights only, for a price tag of $150 million. Lynda tells you: “When we told her those terms were pretty steep, she threw back at us that we had approved the House of Cards deal, so hers wasn’t that different. On top of it, the storyline stunk: who wants to watch a boring drama about a middle aged dentist going through a divorce? We told her we’d get back to her, but Ted already has 3 voicemails from her he hasn’t returned asking about the status.” Lynda adds that “Ted wants us to start getting the word out to these production companies that we want proposals that don’t require such big upfront commitments, that provide the option for DVD rights as well as streaming, that can show us a pilot episode or at least have some big names committed to it…something! He wants to be able to show David that we’re holding the line on the costs of what we’re seriously considering. But we also want to be sure these production companies keep coming to us with their new material, or otherwise we’re really going to be uncompetitive.” She tells you to prepare a letter, for Ted’s signature, telling Ms. Rothschild that Netflix wasn’t interested in pursuing Up the Grassy Knoll further, and getting the message across that Ted wants to deliver. Your Task: Write the letter per Lynda’s request. You must work with the facts presented, but may add reasonable additional material that you deem necessary to achieve your purpose. Please note that the point is your writing and thinking, not mine.

Business Letter Assignment

You work as a Programming Assistant in the Content Acquisition Department of Netflix located at 345 N. Maple Drive,  Beverly Hills, CA.  90210-3869, reporting to Lynda Lipson, the Content Acquisition Manager who, in turn, reports to Ted Sarandos, the Chief Content Officer.  Netfix pioneered DVD rentals by mail, has now moved heavily into internet streaming, and depends for revenue on paid subscriptions, not advertising. Mr. Sarandos is considered an innovator in putting together program acquisition deals, and your boss Lynda has been his partner in those deals. 

Background:  Netflix earned enormous publicity for its first venture into original programming, House of Cards, which first aired in 2013, earned 9 Emmy nominations (a first for an online series), and is now streaming its 2014 season.  What got the most publicity was that this acquisition changed how deals are structured in the TV industry.  Typically, a TV series has been sold by first producing a pilot episode, which alone can cost up to $10 million;  buyers then commit to purchasing one “season” of the series (however long that may last, but on broadcast TV, typically 13 episodes, one airing each week), with options to renew for subsequent seasons should that series be a hit.  Most pilots never become series, and most series never get past the first season.

When the producers of House of Cards were shopping their proposal around to the various content purchasers (eg. TV networks, cable channels, etc.), they were approached by Ted Sarandos and your boss.  Netflix until that time had been acquiring already shown movies and TV programs via standard “licensing” deals, which gives Netflix the right to distribute the content to its subscribers through DVD rentals or streaming over the internet, or both---that is, it had never purchased new, original content before, so producers of original series like House of Cards wouldn’t even bother shopping their material to Netflix.  However, Ted believed that Netflix in the future had to offer its own original content exclusive to Netflix to continue drawing new subscribers. 

Ted Sarandos and your boss therefore entered the bidding for House of Cards and won over more prominent rivals like HBO and other well known channels.  Their winning bid consisted of purchasing the streaming rights to House of Cards for an unprecedented two seasons, or 26 episodes, sight unseen (no pilot had been made since the project had a big name director and actors committed), with an option to purchase an additional 3 seasons thereafter.   They specified that each 13 episode season would be made available to subscribers all at once, without any time limits on when it could be viewed, as opposed to airing each new episode separately at a fixed time over a 13 week period.  DVD rights were not included in the deal because it would have increased the price tag, and Netflix had already made the decision to de-emphasize the DVD side of their business. The cost of the bid was in excess of $100 million, and thus was a huge financial risk, given that the fate of the series was completely unknown when the commitment had to be made.

The producers of House of Cards picked Netflix because the deal gave them the financial and creative freedom to develop the series as they wished over a two year period without having to worry about ratings, getting cancelled or interference over the series content.  They also liked the idea of being part of something new. The 2014 season is already finished and on Netflix, and your boss is currently working with Ted on a deal to extend the show for the 3 additional seasons for which it has an option. Your boss has told you that Netflix will recoup its costs, subscriptions continue to increase, and Netflix has continued to buy original content (such as Orange is the New Black), as House of Cards has been a big success.

The Problem:  Netflix’s longtime CFO, Barry McCarthy, approved the House of Cards deal, but he was replaced in 2011 by David Wells, who has since been scrutinizing Netflix’s expenditures much more closely.  Your boss tells you that David has been questioning Ted about why Netflix continues to pursue what he thinks are hugely expensive deals for original content.  She also tells you that David has been concerned about future costs for acquiring movies and TV shows that have aired elsewhere, which have risen at an alarming rate as competition for exclusives has increased.  She tells you that David thinks that Netflix could cut its costs and risk by getting out of original content entirely.  She says that David was especially angry that the House of Cards deal didn’t include rights to DVDs, which have been snatched up by Amazon, a major competitor of Netflix, and that he thought the growth in new subscribers during 2013 wasn’t that huge, nor could it be definitively tied to House of Cards. 

Lynda tells you that “Ted and I think that subscriber growth is going to depend more and more on Netflix originals, just like it has for HBO and the other pay channels.  But David is a numbers guy, so he just wants deals that reduce our financial risk.”  She also tells you that “finally, all the top talent is coming to us after House of Cards, and it’s also gotten easier to get better deals for the old stuff produced elsewhere.  So it’s been a win-win.  But the downside is that word has gotten out that if you’ve got a crazy, risky deal, go to Netflix! ”  She tells you that, for example, she and Ted met on April 2 with a team headed by Lori Rothschild, Senior VP of Development, from LMNO Productions, Inc., located at 15821 Ventura Blvd., Suite 320, Encino, CA.  91436.  LMNO is a well established production company with a good track record of producing hits.  At that meeting, the LMNO team gave a presentation on a series it was developing called Up the Grassy Knoll, and later in the meeting, Ms. Rothschild demanded outrageous terms for the series, like a 3 season upfront commitment, with no pilot, no big name actors or directors attached, for streaming rights only, for a price tag of $150 million.  Lynda tells you:  “When we told her those terms were pretty steep, she threw back at us that we had approved the House of Cards deal, so hers wasn’t that different.  On top of it, the storyline stunk:  who wants to watch a boring drama about a middle aged dentist going through a divorce? We told her we’d get back to her, but Ted already has 3 voicemails from her he hasn’t returned asking about the status.” Lynda adds that “Ted wants us to start getting the word out to these production companies that we want proposals that don’t require such big upfront commitments, that provide the option for DVD rights as well as streaming, that can show us a pilot episode or at least have some big names committed to it…something!  He wants to be able to show David that we’re holding the line on the costs of what we’re seriously considering.  But we also want to be sure these production companies keep coming to us with their new material, or otherwise we’re really going to be uncompetitive.”  She tells you to prepare a letter, for Ted’s signature, telling Ms. Rothschild that Netflix wasn’t interested in pursuing Up the Grassy Knoll further, and getting the message across that Ted wants to deliver.

Your Task:  Write the letter per Lynda’s request.  You must work with the facts presented, but may add reasonable additional material that you deem necessary to achieve your purpose.  Please note that the point is your writing and thinking, not mine.  Complete a first draft by Tues., April 15 , which we’ll review in class, and a final version for Tues., April 22, attaching your Draft 1 and comments to the back.