Written evidence submitted by

Submission to Digital, Culture, Media and Sport Committee inquiry The future of Public Service Broadcasting June 2020

Netflix in the UK

1. Netflix is a streaming subscription video on demand (SVoD) service that allows customers to watch a wide variety of TV shows, films, documentaries, and more over the internet and ad-free on any one of thousands of internet-connected devices at a time and place of their choice. We are a global service, offered in 190 countries with close to 180 million subscribers, of whom over 12 million are in the UK.

2. The UK is one of Netflix’s top three locations for production globally, along with the U.S. and Canada. In 2019 we invested over £400m1 here in local content, with over 50 different shows in production including co-productions with the public service broadcasters and in total over £500m in UK production - a third of all our production in Europe. We expect our investment here to continue growing; our long-term commitment to the UK creative community and our intention to increase our investment in production is also reflected in our announcement last year that we are creating a dedicated production hub in the UK, based at Shepperton Studios.2

3. Localised content is increasingly a priority for our business, both in the UK and around the world. Since 2019 we have appointed several UK-based commissioners overseeing scripted and unscripted content, including drama, comedy, factual, and kids and family - all of whom built their careers in the UK film and TV industry, including with the PSBs. The decentralised nature of our operations, both structurally and culturally, mean these executives have significant creative and financial autonomy when it comes to making the shows that inspire and excite them.

4. Netflix’s production slate of commissioned originals to date in the UK includes hit series like The Crown and Black Mirror, and major features like Outlaw King. Notable recent launches include Sex Education, created by first-time British writer Laurie Nunn; After Life, from Ricky Gervais and a new season of , a gritty drama series following two drug dealers on an East London housing estate which originally aired on before ending in 2013. Written, produced and filmed in the UK and starring British talent, all three series have been recommissioned for subsequent seasons following wide acclaim.

1 https://www.theguardian.com/media/2019/sep/20/netflix-spend-500m-british-made-tv-shows-films 2 https://www.standard.co.uk/business/netflix-moves-to-historic-shepperton-studios-in-blockbuster-deal- a4181526.html 5. In addition we’ve also recently launched , a six-part series on the origins of football, written and executive-produced by creator Julian Fellows, and filmed in Manchester and The Stranger, a based on Harlan Coban’s novel of the same name which was also made in Manchester and Stockport. We’re also diversifying from scripted drama into an increasing variety of UK-produced content, from natural history programming like , narrated by David Attenborough to our first children’s animation, Robin Robin, which will be made by the talented Aardman Productions.

6. We aspire to be champions of British content, talent and storytelling. We also believe we're uniquely placed to make it globally accessible, finding and building new global fanbases for British content by opening it up to an audience over 180 million strong, and helping British audiences to discover stories from around the world which they might otherwise have never had the chance to watch. The growing appetite for original content on our service is well documented: Ofcom estimates it has increased in the UK from 26% of all viewing in 2017 to 43% in 2019.3

7. The fact that our business model is not dependent on achieving a specific size of audience at a particular time of the day means we can take greater creative risks and invest in a broader range of content that is reflective of the diversity of our membership. As a 2019 Ofcom report noted “Netflix [is] mentioned by LGBT people, people from minority ethnic backgrounds more broadly and younger audiences as providing good examples of authentic portrayal.”4

Netflix’s relationship with the PSBs

8. In general the PSBs and the streamers have mutually supportive roles in the UK AV ecosystem. As the Covid-19 crisis has demonstrated, PSBs have a vital part to play in bringing the nation together and keeping the general public informed; their enduring appeal and strategically important role being reflected in the viewing figures they are commanding during this time. As the BBC’s own Annual Plan highlights, “even at the height of lockdown when VOD growth was sharpest - the BBC is roughly 24% of all UK video, audio and online time spent by the average adult in a week”.5

9. SVoD services do not generally offer the same mix of content as broadcasters, and as well as being global leaders in a wide range of programming areas including news, sport, live entertainment, events of national importance, soaps, and educational programming, the PSBs continue to be essential to maintaining and growing the creatively and commercially dynamic

3 https://www.ofcom.org.uk/__data/assets/pdf_file/0013/192100/psb-five-year-review.pdf (p56) 4 https://www.ofcom.org.uk/__data/assets/pdf_file/0022/124078/report-bbc-representation-portrayal.pdf 5 https://www.bbc.co.uk/mediacentre/latestnews/2020/annual-plan production landscape here. Indeed, this is one of many reasons that Netflix has chosen to make the UK its home.

10. Commercially, Netflix has been one of the PSBs’ biggest customers in recent years, licensing extensive catalogues of UK content from producers for exhibition in the UK - often on a non- exclusive basis - and around the world, including titles like Line of Duty, Sherlock, Luther, Happy Valley, Peaky Blinders (all on BBC One), and The Great British Bake Off (Channel 4) - recent research from Ofcom estimated a total of 1,276 hours of content on Netflix from UK PSBs.6 But we also value them deeply as creative partners, as our ongoing commitment to co-producing with them proves.

11. Building on the success of past projects including , Bodyguard, Collateral, Kiss Me First, Troy: Fall of a City, Wanderlust and Watership Down, we have consistently invested in co-productions with the BBC and other PSBs. In the past six months alone the following co-pros have all premiered on the PSB channels: Dracula and Giri/Haji, both with the BBC; Feel Good, a co-production with Channel 4; and season 2 of The End of The F***ing World, another co- production with C4, which had an Emmy-nominated and Peabody-winning first season.

12. Later this year BBC One will premiere The Serpent, an eight part series produced by Mammoth Screen, part of ITV Studios before it launches on Netflix around the world. We have also announced our first natural history co-production with the BBC, a three-part series with Sir David Attenborough called Life In Colour, which will explore how colour plays a vital role in animal interactions using new cameras built specifically for the show.7 This ongoing partnership across a growing number of formats underlines the mutually beneficial model it offers - and not only for Netflix. Recent research highlighted the increasing volume of co-commissions year-on- year from 16 in 2014 to 30 in 2018, with the BBC consistently the biggest co-commissioner over this period.8

13. Netflix also takes several steps to help our members in the UK discover UK-originated productions on our service. First, we organise content into thousands of genres and micro- genres to offer recommendations best suited to a particular member. These include “British” categories such as “BAFTA award-winning British TV programmes” and “Critically acclaimed British TV dramas”. Second, our UK members can locate British themed and produced films and TV shows in our application drop-down menus where “British” is featured prominently as a genre. Members can also use search terms such as “British”, “BBC” and “Channel 4” in the search bar to discover specific UK content.

6 https://www.ofcom.org.uk/__data/assets/pdf_file/0013/192100/psb-five-year-review.pdf 7 https://deadline.com/2019/09/bbc-and-netlfix-team-david-attenborough-life-in-colour-1202746331/ 8 https://www.coba.org.uk/coba_latest/new-era-for-british-tv-drama-as-co-commissioning-reaches-record- high/ 14. The impact of these measures is demonstrated in Ofcom’s own five-year review of Public Service Broadcasting (2014-18), which concludes that the ‘second window’ on streaming services helps drive engagement with PSB content, particularly among 16-34 year olds who are more likely to watch BBC content on SVoD services than through BBC iPlayer and that on average, content from the BBC, ITV and Channel 4 made up 3% of SVoD catalogues, but 8% of viewing in 2019. This can have a secondary benefit for the PSBs as archived box sets on SVoD can also draw audiences into new series on PSB channels by allowing viewers to discover content and catch up on old episodes before the latest series launches on linear.9

The role of the PSBs and Netflix in the broader landscape for content production

15. The UK has a competitive, mixed ecology in the audiovisual sector, of which the PSBs are a fundamental part. Diverse investment and structured public policy interventions have facilitated the evolution of a rich blend of public and private companies and a successful independent production sector. The broader framework within which they all operate has evolved over time and is part of a complex and interdependent ecosystem.

16. Prior to the advent of Covid-19 this has been an exciting period for the creative sector. According to research commissioned recently by the National Film and School, the creative industries of the UK saw rapid 12% growth between 2014 and 2017, reaching more than £3.6 billion in that time. Where the UK’s wider GVA growth currently sits at 4%, film and high-end television far surpass that at 16% and 15% respectively, with the Office for National Statistics highlighting it as a “significant factor in services growth” last year. The primary driver for growth has been the unprecedented demand for content. As a consequence, UK production sector revenues rose to just over £3 billion in 2018, up 10% on the previous year and up over 40% since 2008.

17. Netflix has been part of this tremendous growth in a highly competitive sector. However, on- demand services only account for 14% of that primary commissioning income, and the strategic importance of the public service broadcasters in sustaining the success of the UK production ecosystem should not be understated. According to PACT’s UK Television Production Census in 2019, over the past decade the UK PSB networks have consistently accounted for more than 80% of all UK primary commissioning spend among independent producers.

18. In some programming genres, particularly drama, investment has been further incentivised by the introduction of the high-end television tax relief in 2013. According to an independent report commissioned by the BFI, production in high-end TV more than doubled over the period to 2017 from £414.9 million to £984.6 million.10

9 https://www.ofcom.org.uk/__data/assets/pdf_file/0013/192100/psb-five-year-review.pdf 10 https://www.bfi.org.uk/news-opinion/news-bfi/announcements/new-report-shows-uk-tax-reliefs-help- fuel-boom-uk-screen 19. This relief has benefited both commercial investors and the PSBs, while generating value for the UK as a whole. In terms of return on investment, in 2016 all of the screen sectors supported by tax reliefs returned a positive economic benefit. Due to its scale, this was highest for the film sector which returns £7.69 in GVA for every £1 of relief granted, an increase of 13% since 2009.11

20. As well as benefiting the consumer, the UK’s evolving status as a hub for content production and distribution has been overwhelmingly positive for the broader audiovisual ecology in the UK. In particular it has helped to establish a virtuous cycle whereby inward investment has served to extend the UK’s production capabilities in terms of both skills and infrastructure and simultaneously stimulated audiences’ appetite for high-quality content, fuelling further demand.

21. In summary there is no shortage of funding, and funding models, for UK content. Third-party funding has reached record levels and PSBs are offsetting any uplift in spend per hour with increased co-commissioning - as Ofcom’s own Market Reports showing growing third-party funding for PSB shows attest. In recognition of this fact the House of Lords Communications Committee concluded in its recent report into the sector there was no evidence to support proposals for a levy on SVOD services at this time12 - a finding supported by the Government in its own response to that report.

Netflix as net contributor to the UK

22. We perceive our role in this landscape as fundamentally collaborative and additive – one that enhances the whole value chain by bringing more investment, more routes to market, more opportunity to work in the industry, more scope for great stories to get made and more outstanding content for our members to enjoy. In doing so we also want to be a great creative and commercial partner to those we work with.

23. We have been proud to see the fruits of our efforts to date: In Broadcast magazine’s annual Indie Survey of 2020, Netflix was named the strongest player by the UK’s independent production community, with producers highlighting “transparency” and a bespoke approach to commissioning along with an “open, collaborative way of working”.13

24. The growing emphasis on local content has generated increasing opportunities for producers and tangible economic benefits for both the wider production community and for the UK as a whole. However much of this growth is now jeopardised by the impact of Covid-19. While it will take time to fully comprehend the economic impact on the sector, the short-term effects are

11 https://www.bfi.org.uk/sites/bfi.org.uk/files/downloads/screen-business-summary-report-2018-10-08.pdf 12 https://publications.parliament.uk/pa/ld201919/ldselect/ldcomuni/16/16.pdf (para 158) 13 https://www.broadcastnow.co.uk/netflix/netflix-rises-above-the-psbs/5147992.article already deeply concerning and particularly keenly felt in an industry dominated by the huge contingent of freelancers who work project to project.

25. For Netflix, film and TV production crews - from electricians to carpenters, hair and makeup artists to drivers, and many more - are vital to our success and we are working to help those freelancers who most need support in these unprecedented times. In addition to continuing to pay cast and crew on our own productions in the weeks following the pause on production activity, we also donated £1m to establish a new industry-backed Covid-19 Film and TV Emergency Relief Fund, headed by The Film & TV Charity and the BFI.14

26. In supporting the sector through the post-pandemic recovery phase that lies ahead, we believe three components of our UK strategy will prove more relevant than ever in helping to bridge the inequalities that may otherwise be exacerbated by the effects of Covid-19: our volume of regional production; our commitment to investing in training; and our emphasis on fostering greater diversity in the sector. Combining these elements of our strategy should also help address the shortages of below the line crew, which are proving increasingly common and risk constraining the sector’s long-term growth prospects.

27. The employment opportunities our productions generate accrue to the nations and regions across the UK. In 2019 we created over 5,000 jobs for cast and crew on Netflix UK original productions and co-productions - with a concentration of production in Bristol, Manchester, Liverpool, Newport, Edinburgh and London; and notable activity in Norwich, Suffolk, Bath and many other locations.

28. At Netflix our investment runs deeper than our expenditure on production alone. We believe strongly in nurturing the next generation of professional talent by giving them the tools to develop their skills at the start of their careers. In 2020, we have partnered once again with BAFTA on their flagship talent scheme BAFTA Breakthrough Brits that showcases and supports the next generation of creative talent in film, games and television in the UK.

29. We are also investing in a number of schemes and initiatives to provide training, mentoring and other career development opportunities, particularly for under-represented groups, across the creative ecosystem - and earlier this year we appointed a UK production training manager to lead this work, further details of which we will share in the coming months.15

30. Sex Education is just one example of a Netflix show which has put training at the heart of its production. Filmed in various locations across South Wales, Netflix and Eleven Film worked with the University of South Wales to find students to take part in a scheme offering different training and paid work placements across the teams, including production, arts, accounts and

14 https://www.bfi.org.uk/news-opinion/news-bfi/announcements/covid-19-film-tv-emergency-relief-fund 15 https://www.screendaily.com/news/alison-small-departs-uks-production-guild-for-netflix/5148161.article location departments throughout the creation and filming of the show. They received on-the- job training and mentorship and were paid a full trainee salary throughout. In addition, we also worked with the university to offer both paid work experience and mentorship to students.16 For the second season the number of work experience and placements on offer was doubled, and the original intake of trainees were rehired in professional roles on set as crew members, helping to develop further the crew base in Wales.

31. We are equally determined to ensure that all our shows are diverse in front of and behind the camera, so our content reflects diverse perspectives and provides opportunities for an-ever broader cross-section of society to work in the industry. We know that creating a truly inclusive industry will take time, and there are many legacy issues to overcome. We are currently crystallising our intentions into specific measures which we will share publicly soon. Alongside this we are also committed to promoting the development of diverse talent, such as the ‘diverse directors’ scheme for Top Boy, which brought in four promising directors to shadow the show’s directors for eight weeks each, across pre-and post-production and filming itself.

32. We share the widely-held assessment that the Apprenticeship Levy has failed to help to address skills shortages in the production sector due to its inflexible application. In the short term we are working with Government and ScreenSkills on an innovative pilot for 20 apprentices to explore a new model for how the Levy can be used to facilitate high-quality apprenticeships across multiple placements on film and TV productions.17 Longer-term we remain of the view that a more fundamental review of the Levy is required.

The regulatory framework and the voluntary standards we uphold

33. Proportionality is a fundamental principle of good regulation - and it is important to recall in this context that Netflix does not offer user-generated content, live programming, sports, or news. Our content is available on-demand and not scheduled as it is on linear channels. There is no advertising on our service and we don’t sell audiences to advertisers.

34. The AudioVisual Media Services Directive (AVMSD) defines the regulatory framework for on- demand services; under AVMSD Netflix is established in the Netherlands. Ofcom has already made clear that following Brexit it does not foresee a need for ‘country of destination’ style regulation for video-on-demand services and it will only regulate a service if both its head office and editorial decision-making capacity are based in the UK. AVMSD was recently revised to introduce further obligations on on-demand services, including a requirement that these services offer at least a 30% share of European content in their catalogues, as well as giving prominence to that content. The revised Directive will take effect in the UK later this year.

16 https://www.standard.co.uk/tech/netflix-sex-education-training-scheme-uk-a4082326.html 17 https://www.screenskills.com/insight/news/warner-bros-and-netflix-join-screenskills-in-innovative- apprenticeship-pilot/ 35. Beyond the parameters of the regulatory framework, Netflix has strong incentives to adhere to the highest voluntary standards to foster and retain our members’ confidence. We offer a suite of parental controls that enable parents to set maturity ratings appropriate to the various members in their family. These have recently been updated, following in-depth research into members’ needs and parenting styles around the world.

36. The revised controls introduce an even greater level of granularity into the features available, including the ability to PIN protect individual profiles to help prevent children from accessing them; create filters to prevent children watching shows or films that are not age-appropriate; restrict specific title(s) from showing up anywhere in an individual profile; see what children have been watching within the profile created for them; and disable auto-play of episodes in children's profiles.

37. In the UK specifically, the effectiveness of our age-appropriate filters is reinforced by our unique partnership with BBFC. In 2019 we also became the first on-demand service to enter into a partnership with the British Board of Film Classification to self-rate our content using their classification guidelines, in a move welcomed by the Government. Netflix now produces BBFC age ratings for content using a manual tagging system along with an automated rating algorithm, with the BBFC taking on an auditing role to ensure Netflix's classification process produces ratings which are consistent with the BBFC's Classification Guidelines for the UK.18

38. We are also a market leader in making content accessible to members with vision and hearing impairments with audio descriptions, subtitles and/or captions. We currently have English timed text for 100% of our UK catalogue, and audio description on more than half of our most-viewed content in the UK. We also subtitle in 27 languages, and dub content in nearly half of those.

39. Privacy is important to our members, and to us: we respect and protect our members’ privacy. We do not sell or otherwise give any third parties access to personal data. Nor do we collect any information regarding our members’ gender, race, ethnicity or age.

18 https://www.bbfc.co.uk/about-bbfc/media-centre/bbfc-and-netflix-announce-new-age-ratings- partnership-parents-demand-greater