Kubrick, the economics of streaming, and why Arabs love Turkish TV shows

Posted by Mike Walsh

6/28/15 7:26 AM

Aaron

 

 

Despite being the founder of Mubi, an arthouse movie streaming platform, Efe Cakarel is not what you might call a conventional cinephile. He studied electrical engineering and computer science at MIT, got an MBA at Stanford and then worked at Goldman Sachs - before throwing it all in to dedicate himself to the world of film. In his office, situated in the heart of London’s Soho, and surrounded by old film posters, vinyl records and computer equipment - we talked about the influential behaviours of Asian consumers, the dynamism of emerging markets, the economics of online streaming, the paradox of infinite choice, and why the Middle East is so in love with Turkish drama. 


Mike Walsh: I'm here in Soho in London today in the offices of Mubi with Efe Cakarel who's the founder of the company. Truth be told, Efe and I met quite a few years ago. How many years ago was it Efe?  

 

Efe Cakarel: Almost 10.

Mike Walsh: Almost 10 years ago. Efe and I have a very special relationship because he actually saw me give my first speech, I think. It was at Etech ... Where was it? San Diego?

 

Efe Cakarel: Was it in San Diego? Yes. 

 

Mike Walsh: Etech was an amazing conference, do you remember? Jeff Bezos was there as a guest. There were lots of alpha nerds.

 

Efe Cakarel: The early days, and it was a great conference. 

 

Mike Walsh: I was incredibly nervous. 

 

Efe Cakarel: Yeah. Me too!

 

Mike Walsh: You made me feel great. After I spoke, you came up to me and said that you were really inspired by all the stuff I was saying about what I'd seen in Asia, especially in China and Japan. 

 

Efe Cakarel: Yes. Absolutely. At the time, I was working for SAP. One of the biggest software companies. I was responsible for our first pure web based application for small and medium businesses. It was a very interesting time on the Web. I was spending a lot of time trying to understand where innovation came from. So yes, your talk about Asia was quite influential actually. I was spending a lot of time in Asia. For me, Asia still is a very stimulating place. It's an incredible social lab, particularly on mobile. 

 

Why? Firstly, a young population. The average age in Asia is late 20s. Here in Europe, 35.

More than 40 in places like Germany and Spain. That 10 year age difference makes a very big difference in the way you interact with the world around you. 

 

Second, really fast broadband. The average broadband speed in Tokyo is 63 megabit per second. In Seoul, it's 49. Here in London where I live, 7. That also makes a difference. Then, there's also a bit of a healthy disrespect for copyright. The content is available. You bring these three things together, it's an incredible place. 

 

Mike Walsh: Especially 10 years ago. Back then, smartphones were non existent really outside of Japan. 

 

Efe Cakarel: Correct. 

 

Mike Walsh: You really got a glimpse of a different world of possibilities in terms of entertainment. I think people forget sometimes, they think that Steve Jobs invented the iPhone, but in many ways, he took a lot of his ideas from these markets. 

 

Efe Cakarel: I think Sony should have come up with the iPhone…

 

Mike Walsh: I'm sure they did in a lab somewhere, but they didn't realize what they had done. 

 

Efe Cakarel: Actually, the idea of starting a service to show movies online actually came to me in Tokyo..

 

Mike Walsh: Really? What's the story behind that?

 

Efe Cakarel: It was eight years ago in 2007. I was sitting in a café in Tokyo. I wanted to watch a particular movie, “In the Mood for Love”, by Wong Kar-wai but I could not find a service that allowed me to watch it - and here I was in the third largest film market in the world. 

 

The consumer experience I started to observe was already shifting at the time. We were already watching long form content TV series on YouTube. And yet in a place like Japan where the broadband speed was incredibly high, people were really media savvy and device savvy, there was not a single platform that I could watch a movie. So I started looking at the opportunity. 

 

It turned out that the home video market was worth $150 billion, almost entirely pay TV and DVD. That was going to significantly shift to a TCP/IP protocol. I started writing a business plan on the flight back from Tokyo to San Francisco. Within two months, I started Mubi.

 

Mike Walsh: At this stage, Netflix was still sending out movies in envelopes.

 

Efe Cakarel: Exactly. This was a year before Netflix started the streaming. It was the year when SmartTVs were all the rage at CES.

 

Mike Walsh: Right.

 

Efe Cakarel: This is before iPhone, before iPad. It was really early days. But you could close your eyes and see where the world is going, especially sitting in a cafe' in Tokyo. 

 

Mike Walsh: Was it a challenge for you being so ahead of the market? Because even the studios weren't prepared to have those sort of conversations...

 

Efe Cakarel: Yes, it was a very difficult conversation to have with rights owners at the time, because the market wasn't there. The shift only really started to happen over the past two or three years. It was very challenging and actually, a lot of people who started - subsequently ran out of money and went out of business. Juice, Blinkbox, these guys wasted tens of millions of dollars, but they were early. Either they couldn't get the content or they spent a lot of money, which didn't make economic sense. The market just took a very long time to mature.

 

It was very challenging. The key was to just stay in business. Because now, it will come to where we are today. It was a very difficult first five years for Mubi, but the past two or three years has just been amazing. 

 

Mike Walsh: You just showed me your growth chart. It looks like a classic exponential..

 

Efe Cakarel: The exponential r square is .82 right now. We are growing organically two percent a week, globally. Our revenue is growing two percent a week. Week over week, over the past 18 months. It's insane!

 

Mike Walsh: A lot of people would think in this post Spotify, post Netflix world that it's a “winner takes all game”, and there's no room for niche players. You've managed to reinvent your proposition. 

 

Efe Cakarel: I think the market is really big and it's going to support many services that appeal to a certain audience. Some are going to be more niche than others, but home entertainment and watching movies, that's the big market.

 

Mike Walsh: You started originally with independent movies, right?

 

Efe Cakarel: That's our DNA. I love foreign classic independent films. The English speaking countries are producing some wonderful stuff. We started with movies, just like Netflix and anybody else, but focusing on independent film. You could only get about three, four hundred titles in each territory. It was very difficult for us to sign big deals. They were really good, quality films but smaller films that you may not have heard of. 

 

By the way, just a side note: in film, I don't believe in the long tail. Film is very different from music. Film is a big investment of your time. You actually don't watch a film very easily. It's two hours. 

 

You take your time to decide. You really are either heavily marketed to, so you see Whiplash everywhere or Interstellar everywhere and you go watch it. Or someone who knows you well says, "Mike, you have got to watch this film - it's amazing." In any case, you don't go to a platform with thousands of films and try to find something that you want to watch easily. You really need to focus on either the very well known films or really good quality films. Otherwise, you're not going to fulfil your promise. 

 

Mike Walsh: Is it like an 80-20 thing or is it more like 99-1?

 

Efe Cakarel: It's more like 95-5. I know this based on our data, 5 percent of our titles bring 95 percent of the viewing and the revenue. That's why, in film, you really need to focus on quality. You either focus on quality or you need to give people everything (which is what Netflix, Amazon, and iTunes are like). 

 

We initially focused on quality but it was independent film. Archive and foreign. But it was too niche of a product and an offering to really scale. So we took a step back. This was about three years ago. It was an amazing project. It had very loyal, very engaged community around it, but it would never scale to become a sustainable business.

 

We went back to the drawing board and we said, "Okay. We need bigger films. Quality but bigger." The studios also produced amazing quality stuff. I just named Whiplash. Whiplash is a film that belongs to Mubi and so is Interstellar, right? Transformers 4 is not a film I would ever show because that was a bad film. We take sides, but the studios produce wonderful films, both contemporary and classic. 

 

I want to show the Kubricks. I want to show the Hitchcocks. Those are also all Studio films. We said, "Okay. Let's get those studio titles." Studio titles meant very significant minimum guarantees and license fees. We couldn't possibly do it everywhere, so we chose one country, Turkey. 

 

In Turkey, there are 40 million people, less than 28 years old. The market is growing really nicely, very media savvy, social media savvy audience and a booming e-commerce markets. All the ingredients were there with very little competition. We started negotiating with the Studios and we realized, my God, even in Turkey, in order to create the Netflix US equivalent library of those 10,000 titles, you need to spend $15 to $20 million dollars in license fees and minimum guarantees. But not the $3.5 billion Netflix spent over the past year on content ...

 

Mike Walsh: They spent $3.5 billion? 

 

Efe Cakarel: They spent $3.5 billion on content over the past year. 

 

Mike Walsh: How much did they take in subscriber fees...? 

 

Efe Cakarel: About $4 billion. Their cash flow is actually very small. When people ask why the Netflix' library outside of US is so limited and it doesn't have all the films, it is because even Netflix doesn't have the capital to have an offering of all films everywhere. It's just a very, very expensive value proposition. 

 

We realized that very quickly in Turkey 3 years ago. Then we said, "Look. You do the math. We need to charge $6 to $8 per month. You need 300 to 400,000 subscribers to break even. I don't think you're going to get there anytime soon in Turkey."

 

You're also not going to get there without spending another $10 to $15 million in acquiring them. Even if I'm able to raise $50 million for a Turkey Netflix opportunity, that's a very poor use of capital. That's also why you haven't seen Netflix, Amazon, or Google and all there guys there yet. At the same time, all these smart devices are selling like crazy - smart TVs, tablets, smartphones - selling with double digit quarterly growth. 

 

Mike Walsh: And to people who, economically, you wouldn't think would be buying them..

 

Efe Cakarel: Yes! That's their entertainment. Entertainment is where you spend money on, after food. It's incredible. We thought, "How we can enter a country like Turkey, Mexico, Indonesia, Poland, Russia or Brazil and so on and so forth, and make a value proposition for all these devices?” 

 

There is no premium content for these devices. It came to us. It hit us one day - why not offer - instead of 10,000 titles, a limited, curated offering of only the best films. Our motto became - just one film a day, that stays for 30 days. Now there are always 30 films you can watch. 

 

We curate an amazing selection of 30 films. It is like the staff selection at your favorite video store - at a much lower price point. In a place like Turkey, just $2 a month. Which is less than what pirate DVD costs in Istanbul. You go into a market, at that price point, and you bring one great film after another. Suddenly, look at my unit economics. Instead of 10,000 titles, I need 365 movies a year and I'm negotiating 30 day windows. 

 

Mike Walsh: It's not just economics. In these new markets, consumers also need some help to work out what is a great movie. Because they often see these things without context.

 

Efe Cakarel: Yeah. I was going to say, the starting point of this model shift was the economics of making it work. But we also saw that people were really hungry to have an expert choose it for them. This is what we do. We're really passionate about film. The kind of people that we have in our offices in Istanbul, Mexico City, New York, Munich, or in London - these are people who really understand film and the audience. 

 

Mike Walsh: How do you decide? Is it just talented people who decide for everyone? Do you use data?

 

Efe Cakarel: We use a lot of data. We use a lot of data because we have more than 7 million people on the platform globally right now. They are giving statistically significant feedback on what they want to watch. Based on what they rate, what they add to their watch lists, what they become a fan of, what they actually watch or share ...

 

Mike Walsh: I guess, like what we said before, this is a 95-5 market. 

 

Efe Cakarel: Yes. We look at all the data. and when a Studio gives me their availability list of 4,000 titles, and I need to chose 50 to show this year - I first run it through our algorithms to determine the 300 out of those 4,000 that people in Mexico would like to watch. That's completely different from the list in Japan.

 

Mike Walsh: Ah, so you have different movies for different countries. 

 

Efe Cakarel: Yes. Of course. For example, in Turkey people like Middle Eastern dramas. Scandinavians like Japanese anime. Germans like German films. 

 

Mike Walsh: I heard that the Middle East likes Turkish drama because they think it’s racy. 

 

Efe Cakarel: Absolutely. The real magic happens when you get the programming and editorial team to go over those 300 titles and determine the 50 that they want to program. Then they contextualize. For example, Cannes Festival is starting next week. So for three weeks, we are showing all the amazing films that were in competition - right at the time when everybody is really curious about the films that are coming out of Cannes. When Birdman did theatrical here in London, a couple of months ago, that date, we were showing, Amor Esperos as the film of today. Because everybody is talking about the director and we think Amor Esperos is his masterpiece, that's what we are showing. It's about contextualizing. It's about having the right editorial.

 

Mike Walsh: It's more like wine, in way.

 

Efe Cakarel: There are a lot of similarities. 

 

Mike Walsh: You're giving people the information, almost like a tasting guide, to understand how to be more informed about their choices.

 

Efe Cakarel: This is the paradox of choice, there is so much information. Think about your Netflix experience. You go and you spend 45 minutes trying to figure out  what you want to watch.

 

Mike Walsh: My wife hates that part of the Netflix experience. Because as soon as I open up Netflix, she knows I'm going to spend half an hour sampling things… and I may end up watching nothing. 

 

Efe Cakarel: What you really want is a selection of films. You may have never heard of the film of the day, but you press play, and you're delighted. If you can fulfil that promise, if you're really delighted, then you come back and you watch another film and you're like, "Oh, wow!" The point is, every film chosen, there is something special about it and it's a great film. 

 

Mike Walsh: Isn't it important that it's chosen for an individual? Do you think eventually you'll show 30 films for just one person?

 

Efe Cakarel: Eventually. I think that's the holy grail, right?

 

Mike Walsh: Right. 

 

Efe Cakarel: The model is going to evolve, to really personalize for you, the film of today. I will send your wife a film of the day, different than you. Of course, that comes back to the problem of, "I need to have a massive selection of films that I can delve into”. Right?

 

Mike Walsh: But with data, we can be really intelligent about that too, over time.. 

 

Efe Cakarel: I went to Warner Brothers and I asked for Inception. Instead of millions of subscribers, what if I can say I want Inception for 132,000 people? Because I know the 132,000 people who really want to watch this film. Then it's a very interesting conversation. But these are very early days for such things ... Do you know, everything that I'm saying here is so innovative for these guys. When you sit down and discuss with rights owners and Studios and production companies - it is such a conservative industry. Things have been done the same way for a long time. We are completely innovating on digital. Different value propositions, different models. You will see more and more of this really interesting stuff coming up. Netflix was the first wave and they are ...

 

Mike Walsh: They're like Costco. 

 

Efe Cakarel: Yes. That's a very good comparison. I actually use that a lot. I think you're going to see this new wave. Netflix is trying to do it at a massive scale. They are realizing their own limitations. They can't show everything. They brilliantly invest in TV content to have something exclusive, so that they can control the windows. That really worked for them, so they are skewing heavily towards TV. They are leaving a very big vacuum and a very big opportunity in movies - because there is no service that really satisfies the movie offering.

 

Mike Walsh: How do you really think that the whole kind of streaming business is going to play out? Not just the movies, but in music? In some ways, it looks like a “winner takes all game” when these guys have got the scale to negotiate massive output deals. What you're suggesting is it may also be a world where things become more differentiated by data. You have niche players, A brand that stands for specific forms of entertainment curation. 

 

Efe Cakarel: The market is so big, it will support multiple players addressing various different audiences. 

 

Mike Walsh: Where is the leverage point? Is it your presence on a Smart TV or ... Where is the point where you're really acquiring customers? 

 

Efe Cakarel: No, the technology is not the key differentiator because all of us will be on all the devices. And yet the Web, still amazingly, is where we get the most registrations. We see that people who then connect their device, whether it's IOS or Android, tend to stay two times longer. They watch on average 50 percent more movies. Because it's just more convenient. They watch it on their laptop and then they watch in on their iPad on a flight. Mubi is the only service where you can actually take your movie offline with you. 

 

Mike Walsh: Oh, that's just great. 

 

Efe Cakarel: Similar to Spotify. There is no other VOD service that allows you to do that. You can just download it and take it with you on a flight. You can't do that on Netflix. 

 

Mike Walsh: It's closer to an IOS rental model, right?

 

Efe Cakarel: Yes. But because of our model, because I expire the film after 30 days, I can get away with it. It feels more like a rental. A temporary rental, instead of an electronic sell through. Because if the film was there all the time, it feels like you bought the film and that's a completely different right. It took many, many months to negotiate. 

 

Mike Walsh: It's like a hybrid right.

 

Efe Cakarel: That's what I mean by we are going to innovate in this space. The thing is, it's all about the consumer experience. Consumers want to take this thing offline. We should be able convince the rights owners and build services that allows you to take it offline. You are lucky if you are living in Central London. But what if I was living in a suburban area where the broadband is not very good? I should be able to just download an HD version. Takes three hours. Instead of streaming it in HD, I can use either Chromecast or airplay to stream it on my big screen. I will only be able to do that if I can download it offline and use it offline. It's all about the consumer experience. That's what I fight for. Every time that I try to convince rights owners who don’t want to give me the download rights of the film. When you take care of the consumer, everything else falls in place. 

 

Mike Walsh: Let's talk a little bit about these new consumers. You mentioned Turkey and Indonesia, very youth orientated markets. What other characteristics have you observed that make them very different than consumers in more developed markets?

 

Efe Cakarel: I'll share with you one data point. What do you think is the percentage of people in the US who have a Facebook account? 

 

Mike Walsh: 80 percent?

 

Efe Cakarel: It's more like 65 percent. In UK, it's about 50, 58 something like that. In Turkey, it's 92 percent. There is only one country in the world that has a higher penetration, and that's Mexico. Almost 100 percent. In Mexico, if you have a connection to Internet, you're on Facebook. 

 

It immediately tells you something really powerful about these markets. They are very media savvy, they are very social media savvy. They are always online. This is their entertainment. We find these three things very powerful. We see that the audience is very receptive to services that are delivered online in these countries. There is an increasing propensity to pay online in these countries that makes them immediately a very, very big market. When I say 40 million people less than 28 years old, that's a bigger population than most countries in Europe. It's a very, very significant big market as well. If you have very little competition, very little access to these kind of services, if you can figure out the right value proposition, the right content, the right price point and localize the content and localize the offering, editorial, customer service, and then launch countries like that - you can expect to gain significant momentum. 

 

Mexico, over the past six months is our fastest growing country. UK's our biggest country right now but Mexico is the fastest growing. I'll give you one more interesting piece of data. We launched on Playstation 4. We have a joint venture with Sony Computer Entertainment. We got together and co-developed an application to watch movies on Playstation and we launched in some 56 countries in December on both Playstations 3 and 4. The countries that had the highest growth rate and pick up were countries like Russia and Saudi Arabia. It wasn't Spain or Italy, right? It's really powerful. 

 

Mike Walsh: Is it from a lack of alternatives do you think?

 

Efe Cakarel: That explains a lot of things.

 

Mike Walsh: That explains Saudi but then Russia? 

 

Efe Cakarel: Saudi Arabia, yes. Russia, you have a very large, young population who are very media savvy. And in a country like UK, you are also growing of course, and growing really fast and also in Germany and France. But the characteristics of these markets are different. These markets, it's because the amount of people who are willing to pay for our service is a lot bigger in these countries. Whereas, in a country like Turkey, you really need to educate the markettThat you don't need to pirate. 

 

Pirating, especially on a mobile device is very, very difficult. On the web, it's very easy. Tell me any film that went theatrical over the past year. Give me three minutes, I'll find you five places that I can download the HD version of that film, right now. It's a lot more painful if I want to watch that film on an iPad, because I need to make sure that the content downloader is encoded with H264 and then if it's not re-encoded, then sync it with my iTunes. It's takes a lot of steps. Instead of that, people are willing to pay $2 or $3 and have access to an amazing library of content in HD on any device. We're makingm for the first time, the consumer experience good enough to offer a “better than piracy” experience at a price point that makes sense. I couldn't possibly show a Kubrick in UK in 2004. Now, I will be able to. That changes the whole game.

 

Mike Walsh: Last question Efe, in many ways, this has been an incubation period for you. What's kept you going all this time? What's been the source of your passion? 

 

Efe Cakarel: I always have a long term vision. I always knew that this was going to take a lot longer to execute. When you say, "No, you've been doing it for 8 years, that’s amazing." I'm sitting here thinking the next 10 years will be amazing. 

 

Mike Walsh: Well, I don't see you going back to SAP…

 

Efe Cakarel: We have a mission. It's a big vision as well, because what we want in 10 years is this: when you want to watch a movie, anywhere, from Buenos Aires to Tokyo to New York, we want you to think of what's on Mubi tonight. And that's an audience, an amazing audience of hundreds of millions of people who want to watch a film. 

 

Look at how the consumer experience is shifting, and how the young population especially, is interacting with content. I have a nine year old sister in Turkey. I can tell you for a fact that this girl will never buy a single DVD in her life. That’s a fact. She would also probably not get a cable subscription. She's going to access all her entertainment on one of her mobile devices.

 

We are moving very fast into a world which I am really, really excited about. There is another two billion people over the next 8 years coming on mobile, so the opportunity is so amazing that I am dizzy. The next 10 years will be quite amazing for Mubi.

 

Mike Walsh: Thank you very much.

 

Efe Cakarel: Thank you Mike, thank you. 

Topics: Global

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