a16z Podcast - a16z Podcast: The Internet of Taste, Streaming Content to Culture

Episode Date: February 18, 2018

Once upon a time it was inconceivable that a company in Silicon Valley could make content that was any good; the running joke, shares Marc Andreessen, "was like, what are we gonna do -- we're gonna film a router instruction manual? It was just an absurd idea!" It was also inconceivable at one point (before downloading, let alone before streaming), that an internet company could really do video on the internet. "But Reed talked about it to me like he was telling me the sky is blue," reflects Netflix chief content officer Ted Sarandos, "and it stuck with me because nobody ever changed the world without telling someone they were gonna do it first, and I bet it sounded crazy." Now, with over 117 million subscribers in 190 countries and investments over $7B in original content, Netflix is arguably catalyzing the most dramatic period of change in the television and video industry since the arrival of color TV (and maybe even before that). But how did the company know where to go next, and when, and how? How did they make decisions about the risk/reward tradeoffs, whether it was purchasing a five-part (Marvel universe) franchise at once or betting not just on proven but as yet unknown talent (Stranger Things)? And how did Sarandos (and Netflix for that matter) get there, coming from the very edges of the entertainment industry? This episode of the a16z Podcast covers all this and more, including the business of creativity, changing company cultures, and even the changing culture of taste as content travels across both time and place. The conversation is based on a Q&A from our annual Summit events, which bring together large companies, finance investors, academics, and startups to talk all things innovation.

Hi everyone, welcome to the A6 and Z podcast. Today's episode features a Q&A with Ted Sarandos, chief content officer at Netflix, which evolved from a company that sold DVDs by mail to streaming to including original programming, which is now an over $7 billion investment for them. The interview conducted by Mark Andreessen covers everything from a company culture bridging entertainment and tech and the risk-reward frameworks involved in big changes and decisions to betting on talent and the internet of taste, given it's now in over 190 countries. The conversation took place in November 2017

at our annual summit event. Other talks in the series can be found on our website at a6.c.com slash summit. Ted is in a very relaxed mood this morning because his phone stopped working. I have no phone. I'm deviseless. And so he's entered that sort of zen-like state where he's suspended between total anxiety

and absolute peace and calmness, which is good for the topics we'll be talking about. So we're thrilled to have Ted here. Working, of course, with CEO founder, Reid Hastings, so we were lucky enough to have at this event last year. Ted has not only built Netflix into a massive commercial and creative force. By the way, it was not that long ago that it was considered inconceivable that a company Silicon Valley could make any content that was any good. The running joke literally was like, what are we going to do? We're going to film like a Cisco, like router instruction manual.

Like it was just an absurd idea. And so for Netflix in the heart of Silicon Valley to do what is done, and at this scale, you know, it's just really an extraordinary accomplishment. I also think Netflix, even beyond that, it's catalyzing the most dramatic period of revolution and change in the television video industry. I certainly sense the Rev. Color TV and maybe even before that. So I'm going to try to hit a number of the sort of super interesting topics this morning. But I'd love to start with, you have a very interesting story. How did you first get connected into the entertainment industry? So it was very non-traditionally, meaning I didn't go to the right school.

My dad wasn't in the business, which is a typical path. I grew up in Phoenix, Arizona, worked my part. time job was in a video store where I was going to school to follow what my dream from when I was about 12 years old was I was going to be a journalist and I was pretty clear that I was going to be a journalist and you should just explain for kids in the audience video store yeah video store yes that's like I always I tell my kids all the time that's like having been a blacksmith yes it's a job that does no longer exist you were hammering the horse shoes into the feet of the horses and so and it was a weird like planets aligning thing that the second video store in the state of

Arizona opened about a block and a half from my house. And I met this guy who started the store. His name was Dale Mason, Superstar Video was the name of the chain at the time. But his thing was he had read somewhere in a magazine that the big businesses of the 80s would be yogurt shops and video stores. And he said, well, I hate yogurt and I love movies. So he cashed out all of his savings in Chicago, moved to Arizona, opened a little tiny store, had everything that you could possibly get on video at the time, which is about 900 things on VHS tapes. And And I say things. It wasn't all movies. It was like a Willie Nelson concert. We used to get movies from whoever put them out. But anyway, so I'm working in this store and then about two years into my

schooling, I just had this epiphany that I was a really lousy writer. And it's probably not going to be a journalist. I'm like, wow, if I didn't write this, I would not read this. I would stop now. I was a pretty decent editor. So I was editing the junior college newspaper. And I got an offer to go to Northern Arizona University for journalism, and I went to the guy who was working for and said, I don't know if I'm exactly going to pursue this or not, but he said, I really need some time off, and I was hoping you would take things over for a little while. So I took him up on it. I didn't finish school. And for me, it was this crazy MBA film school mashup that I got paid for that kind of got me to where I'm here today. That really was my kind of entrance to the

edges of the entertainment business. And I went from there to home video distribution. you know, the companies that sold the videos to the stores. Right. And to be clear, it would be like the actual physical distribution, the actual physical, like, warehouses. Warhouses and shipping semi-truckloads of Jurassic Park on VHS tapes all over the world. That's what we did. And so, again, kind of on the edges of the entertainment business. And at all this time, not getting to L.A.

And I think was, wow, I don't want to live in L.A. at all. And I got to offer from a company, West Coast Video, that were kind of like Hollywood video at the time, like the number two, to come, their offices were in the South Bay of Los Angeles. And so they asked to come down, and I said, I don't want to move to L.A. And you go, well, come check this out. This early is in L.A. And I came down and checked it out and jumped in. And after about a year, that's where DVDs were just starting. And I did, at that other company, the first revenue share deals with any of the studios for DVD.

And it got into a magazine, one of the trade magazines, and Reid read the magazine, and said, oh, these revenue share deals, that's what we need to do. Does anyone know this guy? And I happen to know somebody who started up Netflix with Reed and who introduced us and the rest of this history. So Netflix was two years old? Yeah, about a year, a year and a half. Or you joined in 99.

So what was Netflix like at that? Like, what was the company at that point? Well, for me, it was like Mars. Because, you know, my very first e-commerce transaction was buying that airline ticket to go meet Reed in 1989. Yeah, right. And when I got up there, I'm like, look at all the names of a lot of companies I've ever heard of Drugstore.com and all these names that are also like now blacksmithry. But I look at

these things and I said, wow, everyone here like really lives online already. There are people are getting razor blades online. It just was to me that was such a foreign thing. And everybody and Netflix said back in those days had a scale on their desk because everyone was trying to optimize for postal weight. I mean, it was a very cool. It was a very different culture. Because the business was mailing DVD. Mailing DVD. That's all we did. Yeah. It was domestic only DVD by mail. And then I had this. great meeting with Reed, where he basically went on to describe Netflix almost exactly like it is right now. As a digital company, we talked a lot about downloading instead of streaming

because streaming really didn't exist at the time, conceptually even. But he was very clear-headed that all entertainment would come into the home on the internet very soon. And he was telling me about Moore's Law and all these different things. That sounded insane. Because someone had just emailed me a clip from South Park that took seven days to open. I said, there's no way that this is going to displace television. It's hard to even describe. It would have been an absurd idea. Completely. Like just anybody who tried a video on the internet was just known, obviously, this can't work. But Reid talked about it to me that day, like he was telling me the sky is blue. Right. And it stuck with me because nobody ever changed the world without telling someone

they were going to do it first. And I bet it sounded crazy. And I wanted to be on that train. Yeah. And it took me a few months. But when I came in to Netflix, it was hardly like being in the entertainment business. I officed in my house for two years. We bought movies from Costco. You stayed in L.A. I stayed in L.A. I would fly up to El Scotos two to three days a week, and I did that for a couple of years.

Right. And then, you know, just because the story's been told before, obviously Netflix, DVD by Mail was a big success, and the decision to cut over to streaming at a certain point was a big success. And then there was, right, the really big decision, as it turns out, which is a decision to go into original content, right? Because the business model for DVDs, right, had been buy other people's content,

previously produced content. The original business model for streaming was to buy other people's content. And then at some point, you guys started to fund and create your own content. What was that decision? What was that conversation like? So I find the big fundamental difference between Silicon Valley and Hollywood, I think, is the quantum qual.

The whole efficiency-driven thing is very Silicon Valley, and the whole quality-driven thing is very Hollywood. And rarely do those things meet. I think why Netflix has been successful in content, to your point, that it's pretty rare, is that we always have kept a presence in Hollywood and a presence in Silicon Valley. There's about a thousand people who work in L.L. on all the aspects of content, they all think they work at the greatest entertainment company in the world.

And there's about 4,000 people in Silicon Valley who think they work for the best tech company in the world. And I think they're right. And we never tried to jam either culture on the other. We really do respect the two cultures. It's not that we're going to just erase all the challenges between the two cultures, because they are different. They are really different.

At the early days of entertainment and the internet, the tech companies would come into Hollywood and just fly home. and nobody knew who they were. And the entertainment industry is almost all about relationships and trust because there is no quant. So you really have to trust your instincts on a lot of things, including people.

There was no reason on paper to approve those revenue share deals done back in those early days or to give us these big lines of credit to ship us DVDs and all those things. So it was really just that relationship thing that turns out to be very, very valuable. So a lot of Silicon Valley companies,

if they heard this, would just say flat out, like that can't work, or it certainly would not work for us of another company. I mean, the reason is because consistency of culture is viewed as so important. And the reason for that, right, is if it's so hard to just do one thing well, to try to do two things well in two different cultures,

like you typically end up with basically civil war inside a company. How does this kind of split or divide happen inside the company? I mean, it's all credit to read. I think it's created a culture where you're free to ask questions, you're free to push back, but support the outcome. So everyone has got a strong voice at the table, but once the decision is made, everyone supports the outcome. And so I think it's that candor and trust enables people to say, I don't really know what you're doing, but you do. And I trust that you do. And you're going to run as hard as you can. I'm going to support you. Even though you're not in the same city, even though I don't see you very often. We still feel like we have a bond. And we do have this great kind of thing where Reed comes down south and I go up north and we go back and forth. We have this thing called New Employee College. So we do it four times a year. So when people join, they all sit through a day of.

you know, of lectures from all the heads of all the departments who really ground everybody in the vision and ground each other in the culture and what we have to. And so everyone really kind of intimately knows what each other does, but there's no expectation that we're supposed to be able to do both things. What everyone's doing at Netflix is solving a big hairy problem, and all tech companies want to do that. And that's included our people in L.A. And the big hairy problem is making great content and finding people who want to see it and putting them together. And so we're all part of the same, you know, debugging of the hairy problem. Right. So how many pitches or proposals or, let's say, opportunities does your organization

have a year for content that you could buy or make? I guess there's probably seven to ten pitches a day that come in every single day. Seven to ten pitches a day times. Yeah. And it might be in 20. There's days that are 20. 2000. So maybe 2,000 pitches a year. How many times, how many do you say yes. This year we'll have 30 original series, 80 original films, 35 original kids series, 19 local language original series being produced all over the world, 65 documentary projects. So I would say it's about one in a hundred. Is that right? Okay. And it turns out there's no shortage of ideas, but there is a shortage of people's, people with the ability to execute on a big vision. And so you have to really buy into the story, you have to buy into the creator,

you have to buy into their ability to bring that to screen. And that's the magic combination you're trying to look for in these things. Actually, a lot of similarities of venture capital as you're describing it, right? It's actually about 2,000 a year. We fund maybe 20 to 30 is sort of what the top firms tend to do. So maybe even a slightly lower rate of green lights. But as I say, we always worry about sort of two categories of mistakes, false negatives and false positives. Yeah. False positive is we say yes to something that fails, right?

False negative is we say no to something that succeeds, right? At least in our business, I can tell you, those are the ones that, like, tortured that shit out of you. Yeah, we get a couple. The rest of your life. It's not just an emotional thing, but it's actually a financial thing, right? Was there something you failed to fund that then goes on to become some giant hit? Can I ask you a question? When that happens to you, is it basically, can you look at it and say, well, that's exactly the thing that they pitched, and that's exactly how they executed it, and that's the exact team that did it.

No. No. So that's maybe that's the escape hatch for that. Maybe that's how I rationalize too. For the bad decisions, exactly. Well, I guess I would say almost all the ones that we pick to succeed change a lot as well as all the ones that we don't pick that succeed. They also tend to change a lot. And it's part of why you're looking at back a team, right? Is because like if it was a foregone conclusion of all the work had already been done done, they wouldn't need you. They wouldn't need you. They'd just say they'd already be off and running. The Duffer Brothers with Stranger Things is probably the best example of two very young guys who've never really done it. But they had an amazing vision. I knew as soon as we heard the Stranger Things pitch that we were doing this show. And I knew it every step of the way as the scripts were coming in, as the episodes were coming in, that it was something special. Not at the scale that it is. I didn't foresee that it'd be as big a hit as it is. But it was interesting is that we got down to the execution question, can they do it?

All they'd really done is a couple of episodes of a show called Wayward Pines. It was a good show, but it wasn't their show and it was basically executed someone else's vision. and they had made a small movie for Warner Brothers that had never been released and they basically said, well, you should take a look at this movie and we tracked down Warner and asked them if they'd screen it for us.

It was a little tiny zombie movie that was really fantastic. And mostly what it said was on almost no resources, they pulled together this really rich, satisfying movie experience which gave us confidence that they could do it on the small screen too. So when do you know, maybe Stranger Things was a case where you knew earlier, but when do you know,

at what point do you believe that you know with like 80% certainty that a project is going to work, like that it will be successful as a creative and a commercial project. Well, in the commercials that sometimes you really don't know until it hits because there are sometimes that I'm actually really surprised that something doesn't take off immediately.

Like, why is everyone not in love with this? But then over time, people catch on. It becomes like a word of mouth phenomenon that takes off. Making a murder is one of those that, you know, we released it on December 18th last year. It turned out to be like the perfect show at the perfect time, because people We're home. And so when they started watching it and got so hooked on it and started tweeting

about it and posting on Facebook about it and this collective word of mouth around the world just exploded. We spent almost no marketing money on the show at all. And it just exploded on its own. Nobody inside of Netflix foresaw that was going to be an overnight sensation like that, like it was. So a lot of times it doesn't actually gets out there to are you certain certain. But I think when you start getting the early cuts of the show and you realize that that great script shows up on screen that we're in good shape as long as we put enough of the work

into the script. If you get something that's coming in okay and you're like, you know, we probably wouldn't have funded this if we'd know that it was only going to come in okay and not great as you see like the as you see the dailies for example and then but you kind of have the mentality at that point of like hey we can jam this like through the channel we can put this in the recommendation algorithm we can

give people to watch this even though it's not that good or do you kind of say well you know this is a mistake and let's just kind of quietly put it to the side and if people want to see it that's fine. What I feel is we're way better off taking the creative vision that someone's creative vision that they have put out and putting it through the service versus us trying to go in and retool it or us trying to force them to change something or reshoot or recast. A lot of that happens along the way just organically. But at the end of the day, if the creator says, that's my show, we put it up and we support it the best we can. And there is an audience for everything.

The one lesson we learned back in their early DVD by mail days, taste are so crazy to. verse that we had 100,000 titles on DVD and every day 60,000 of them shipped. So the things that I hate, people love and vice versa, and really where we see we have a failure is that relative to what it cost, did enough people watch it, that it was a good use of content dollars? So there is an efficiency measure in that way, which is an efficient use of dollars relative to any other way you would have spent it. The ones that don't ultimately realize that audience, or that audience.

And one of those was Crouching Tiger, Hidden Dragon, too, our first big movie we put out. we thought it was going to be the second coming of our garage which was a huge which was a huge character yeah it was a kind of a commercial and an art house film and it won the Oscar I mean everything and this was a genre film so people who like martial art movies like it

and people who don't didn't and it's priced like a movie that you know for a much broader audience so in that case relative to what it cost commercially you know didn't hit that mark people love that movie so everything's not it's not an all or nothing bet like that right but um but we wish

a lot more people would have watched it for sure. I always kind of thrilled when I discover a movie as a viewer that had a giant budget like four years earlier and then just totally flopped and then I discover it later and I like it and I'm like wow they made it just for me yeah yeah like they spent 200 million dollars in this thing it didn't find you apparently I'm the only one who likes it and like this is great let's actually talk about I want to talk about the hit on that culture thing you mentioned for a second so there's a lot of kind of modern cultural critique and the internet has kind of

caused people to get you know very concerned about this there's sort of a modern critique which is basically like let's just say in the past culture was highly fragmented there were lots of variability among cultures lots of different languages culture, even dialects, right, among languages. There were lots of different niches, you know, and the people in different countries or different regions would have, you know, wildly, even here in the U.S., like wildly different accents, wildly different food preferences, wildly different entertainment preferences.

And the normal critique basically goes that the culture both in the U.S. and globally is homogenizing, right? Because of information, communication technology, information technology. Started with probably radio and television and now with the Internet. And basically, languages are vanishing, dialects are vanishing. Everybody's seeing this, you know, big-budget American entertainment. You know, everybody's seeing superhero movies. everybody's listening to the same pop music like it's there's this kind of mass homogenization kind of washing out of cultural variability and then but then you hear the netflix story and you hear

the opposite which is this sort of increased level of sort of fragmentation specialization where is culture headed in that sense we're actually straddling both sides of it because a show like stranger things is completely global proportionate to our subscriber base people watch stranger things all over the world which is a little surprising because if you're my age you're the exact like you grew up in the midwest in the 1980s like it feels like it is literally I could easily imagine somebody in another country and maybe a different age saying like, what the hell are these kids doing?

But that's not the case. What's new is that nothing is retro anymore, really. Because my kids are 21 and 23. They knew all those movie references. Because those movies never go away anymore because of Netflix. Now, they didn't know all the lifestyle things that you and I knew about that time.

But totally made sense to them. But what I mean we're doing both sides of it is we're making local language original shows now in 19 countries. Those shows, the mandate of those, shows is that they're incredibly authentically local. So the Sabora, the Italian show that we just did, it's all shot in Rome, all Italian cast, all in Italian. And the real art that we're trying to recreate is, you know, when you think about dubbing into English, when you think about Godzilla

and karate movies, and very bad lip syncing and all those things. So it really never really can could never get very mainstream. So right now one of the things we're working on is these local language originals, very artfully dubbing them into English for our U.S. audience to enjoy, too. And you show like the 3%, which is a show we make in Brazil, in all in Portuguese, with an all Brazilian cast, and the watching on Netflix in the U.S. would be equivalent to a pretty good-sized cable hit. I mean, people like to watch the show. They watch it subtitled.

They watch it dubbed. Partly, I'm sure they're not watching it in native Portuguese without the subtitles much, because I don't think any television has ever traveled that in Brazil, really. but maybe a novella or two. So what we're trying to do is tell these stories that are authentically local, and the win for us is that they actually travel more, the more authentic they are.

Because there's something inorganic about the English language, European television show that causes it not to become very mainstream or beloved. Those shows get liked, but they never get loved. So we are trying to push these shows to be as authentically local as possible and betting that that's what will make them travel. And then we'll use technology to overcome the hurdles.

like language. As you said, you think you think a lot about segmentation because you kind of think like there's an audience for everything. So how many audiences are there? Like is it, do you think in units of like dozens, hundreds, thousands, thousands? Yeah. And how many, like, do you have a sense? Is that like a finite set? It depends on how you define the, the floor, right? How big is that audience where you can actually afford to produce anything for them or acquire anything for them? But I don't think it's finite as long as we keep growing. So the bigger we are, the bigger that base actually can get. My big learn from the video, my old video store day is by making the transition to the internet

was about trade radius and what that opens up. If I had a movie in Phoenix, Arizona, I couldn't get that $100-hour tape to rent enough to pay for itself. And it was a puzzle to me. Some of these movies were really great. And I look at that and say,

well, it's not that there's not enough fans of that movie in the world to support it. There's just not enough fans in the five miles around my store where people will come. But once you open up that trade radius, there's plenty of people for almost everything. And then it becomes how do I reach them?

So, like, growing up in Phoenix with my taste a little outside of the mainstream, I liked foreign language movies, I liked documentaries. There was one art house theater called the Valley Art Theater in Tempe that I would get on a bus and go over to seize things every once in a while. But other than that, those movies didn't exist in my world. And once I found them, every time there was a foreign language movie that I would like, the distributor would have to basically cast a net across the entire state of Arizona to find me to tell me there's another one.

so we have all this efficiency of being able to talk directly to an audience once we figure out hey you like foreign language television and you liked stranger things and you like this movie and that movie you like this cast you're going to love this show called dark that we just produced in Germany yeah it's subtitled but you also love narcos it was subtitled what's happening in that algorithm that opens up things for people that they unintuitively turned out to love and how many audience segments are people in like how many audience segments m i.m or the typical typical Netflix there's probably 600 meaningful ones yeah but like how many is each individual in like do you expect each individual each individual subscriber to be in two or three or is it more like

no it doesn't so much about choosing is mood-based so you know they i know you love drama but it's the hard thing about the machine even the why the machine learning really is helpful in this is you can watch 25 comedies and i can tell you a lot about your comedy taste but i know nothing about your drama taste so it requires have a lot of inputs your morning taste is different than your afternoon taste, your taste when you're watching with your wife is different than when you're watching by yourself and all those things. So there's so much work that could be done on this stuff. I'm relieved that Ted is without his phone today because otherwise I think he'd be pulling up my individual viewer profile right now. Yes, that would be revealing you to the

room. And that would rapidly become embarrassing. So we will just, we will move straight on from that. So let's talk about creative control. My sense of the standard Hollywood model in the last 20 years has been that movies are what you might describe in the valley as like a, say, a professionally constructed startup, which is to say, we have this idea, we have somebody to fund it, and then we're basically going to go hire a CEO. We're going to go hire a head of marketing or hire a head of engineering and try to put it together and everybody's going to fight and argue. And at the end of the day, you know, the guy with the money, probably going to make a lot of the decisions about what happens in the company. And then on the other hand, which might describe an organic Silicon Valley

startup, which is a founder with a vision. Yeah. And then ideally, right, the idealized model a founder who then becomes a CEO of the vision or a founder who goes out and finds a partner, right, a CEO or a president to be able to partner with to be able to develop the vision. And TV's more like that is my sense, because with TV, right, there's this concept of the showrunner, right, that's emerged, which basically is... Closer to the CEO. Showrunner's closer to the director. And significantly with TV, right, the showrunner is the writer. Yeah. The writers are actually put in... Like, most movies are not directed by the writer, whereas many, many TV shows, including a lot of the ones that you use... Yeah, TV, they often refer to as a writer-driven medium, but because of that.

Right. And so TV is closer to the Silicon Valley model, so sort of founder-driven, writer-driven. And, like, the creative force. It's more collaborative, too, that way. Okay, yeah. And I know there's this sort of tensions, like, I talked to a lot of people, you know, friends of mine who run up, you know, TV networks. And they say, it's like, well, it's like, great. It's like the good news is these writers have huge vision.

They're not always the most practical people in the world. They're not always the most commercial people in the world. Like, we really need to give them a lot of feedback, you know, and for the founders in the audience, you might have experienced this from your VCs in tech. You know, we might have to give you a lot of, in Hollywood, they call them notes as they come so frequently. But, like, you know, feedback on what you should do. Netflix, I think you had an established early reputation

as providing an unusual level of creative control to the writer and to the show. It actually started out quite practical. I didn't have any staff. So we were trying to run fast and trying to make good things. And I realized along the way that the one thing that the Netflix culture

could bring to entertainment was that kind of freedom and responsibility that's helped us become so successful, which was our job is really picking great people and giving them the resources to do the best work of their life, which requires getting out their way and letting them make decisions and live and die by them. House of Cards was our first original show on Netflix.

And the deal we made with David Fincher was, I'm going to give you two seasons of the show, no pilot. David Fincher is like, I don't know, maybe the, I don't know, like the Steve Jobs or something. I think he's the greatest director of our generation, for sure. The greatest film, like, I mean, if you've seen movie seven and, I mean, maybe he just FI. Fight Club, yeah, Benjamin Button. Yeah.

And so, like, this is like dealing with a super high-end top of professional, right? Yeah. Yeah. And he could give me 26 hours of home movies, but I said, but you have to put your name on it. So the key was, is that somebody who was great, incredibly gifted, and cared about his brand. And then what do you need? Basically, he was super collaborative on the things that he wanted to collaborate on. He was not on the things that he was crystal clear on. And, you know, he has a reputation of being quite difficult. But I found it is that he's no, he's just really exacting, which I loved. I mean, he knew exactly what he wanted to do.

knew exactly what was going to cost. And he fought only for things that mattered. So there was no wasted argument at all. But the critique would be right that you just cherry-picked. You just cherry-picked like getting the chance to work with the person who's like at the top of their field who is this amazing track record of accomplishment. And it all lined up perfect because I didn't have anyone to give notes anyway. Okay.

That was great. But now do 100 more. And there aren't 100 David Finchers out there. And so over time, as you did, by the way, strange things, but many other projects, you're kind of laddering down on people with experience and track record. And let's just even say operational skill. And the, I mean, obviously, the execution experience between the Duffer brothers and David Fischer couldn't be any further apart.

But, but in fact, you know, they turned out to be really great. So I guess my question is, what, at what point do you jerk the leaf? Like, at what point do you assert control and say, like, look, like, this is not, like, this is going, like, way too long, this is way of our budget, this is not good, this actor's miscast, this plot point makes sense. The great thing is they know to. They're not surprised when things are not going as planned. Okay.

I used to think when you read about changing a show runner on a show that's of massive. failure. Oh my God. What broke that this had to happen? And it's actually kind of an organic process. And it's part of the process of making great television. And how do they know? It's recognizing ultimately that this isn't going the way that they thought or where they envisioned it. So it's one thing for you

to know in the sense of you have some level of objective remove and maybe you get to look at the data and so forth. But I mean, as you know, when people work on a project together, it's very easy to get emotionally wrapped up in it and it's very easy to kind of not get the feedback. So when you say they know, like how do they know? How do they come to that awareness? Well, I don't think it's any different than when you let somebody go in the

office. And they're quite relieved sometimes, you know, and it's cut, because they've known it for, they knew it before you, that things weren't going well. You have a day-to-day process, and if you're not shooting X number of pages a day, you know things are not, you know, going off, you're going to go over budget. And if the performances aren't working, does everybody come to the same conclusion at roughly the same time? I think shows evolved. You know, the one thing about you write a show, like the crown, Peter Morgan writes every word of the crown. No, no writer's room. He has some research team that helps. them, but every word of that show is written by him.

And eventually it kind of burn out writing the same people over and over and over again. And so you try to avoid that by infusing some new blood sometimes, too. I wouldn't say every time we've changed the showrunner that it's been because it was a creative failure. Sometimes it's just, you know, the time in someone's life to do something else, too. So, you know, we discussed when the idea of downloading was maybe barely possible, streaming was absurd, and then streaming of recorded programming became feasible. Like, that was obviously the big kind of breakthrough for modern Netflix.

you know, up until a few years ago, I think you still would have said, okay, streaming of pre-recorded programming works, but streaming of live programming is just still not feasible, it was just not technically feasible, certainly at the quality levels that you guys are used to. These days, I think it's fair to say, streaming of live programming actually would work just fine, like at the levels of scale you guys.

The technology now exists to do that. Yet you guys have not yet done live? No. Is that because you think live is just a fundamentally different, and somebody else should go do that, or the timing's wrong, or are you thinking of doing it? You could argue that the remaining, as you say, kind of the remaining pillars of broadcast TV

and a lot of cable TV are alive. Yeah. And, right, sports, news, and maybe a few large entertainment franchises. You know, that thing that makes you strong, makes you weak. But for us, like, focus is really important. And for us, I believe that really core to the consumer proposition of Netflix

is on demand and consumer control. So if everything on Netflix, thousands of thousands of hours, the things to watch are completely your control, but this thing, you have to start watching at 8 o'clock on Wednesday, it kind of breaks the model in a way that I think is okay for us not to be,

doing everything. And the way that networks compete with Netflix is to do the things that we don't do. And they do live Broadway. They do football games. They do the voice. All those things that are really great because they're live. I do think, by the way, that people will evolve away from those things over time. But they do like them. They like them now. But we don't have to do everything that people like. But if you took them, if you took the NFL, if you took the NBA, if you did news, like at some point, to the extent that there's some long-term battle between like the cable bundle and Netflix. At some point, if you could kick the struts up from underneath the competitor's business model, that has to get tempting. Yeah, but it's tempting. But is that the best use

of the next billion dollars to get us to, you know, to keep forward progress? Have we done enough in this space that the next best use of a couple billion dollars is sports rights? The other thing, why I don't get that tempted by the major league sports is that the power and the pricing power all belongs to the leagues. Right now that everyone's knocking each other around and paying increase. The cost of that Amazon NFL deal for basically games that are on two other networks at the same time. So completely non-exclusive programming went up 10 times from Twitter to Amazon. So when I look at that, I think the winner will be NFL.com. They'll just go direct to consumer. And there's plenty of people who pay an outrageous amount

of money for a subscription for NFL or NBA or MLB. And ultimately the winners will be the league anyway. Do you think the networks that have the major league rights right now, the big ones, Do you think that they make money on those deals? No, and I think not only that, I think that lost leader model that made them great is the thing that's making, that really cripples them now. Right. And the ESPN was those sports rights and that audience. I mean, it was a bet that there's just going to be an eternal growth in people's willingness to pay an audience and advertising rates and all those things. And obviously, there's a cap.

So let's talk about a few projects. And then I want to get to technology. I can't resist talking about the Marvel did. So my personal favorite shows, as Ted knows from all of my desperate pleas for early access. So one of the just blockbuster Netflix moves, probably what, four years ago or so now, five years ago, was the Marvel deal. And so this was, and the blockbuster thing in the entertainment industry was this is the simultaneous green lighting and purchasing of five interconnected shows with no pilots? No pilots. Just for people who haven't seen this, this is these characters, Daredevil, Jessica Jones, Luke Cage, Iron Fist.

So they all have had now separate shows. And then there's a fifth show called The Defenders that brings them all together. And those shows were purchased all at the same time. And I don't think that had ever been done before. We tried to look for other models like it and there was nothing like it. And basically it was the bet on the Marvel movie model, which for Marvel at the time, it was a hell merry bet. I mean, they took out a huge loan to produce the Iron Man movie. Marvel, the comic book company almost went bankrupt at one point and was the subject of this huge fight.

So they bet the farm to make Iron Man. To make Iron Man. And the bet was if that works, we do this, and we do this, we do this. and then we bring them all together. It was a perceived universe. How do you do make a comic universe in the movie world? And this one was, well, it's worked in comics. It worked in film.

Can it work in television? My typical model is always just classic risk reward. The risk was that Marvel was going to make a lousy rendition of this content. And people would hate it. And there's been some history of that. The original Daredevil movie was pretty bad. Have you seen the original Captain America movie? Yes.

It is possibly the most embarrassing thing you've ever seen. So there's some history there. Jessica Jones. won a Peabody Award. Daredevil was the first comic book show to ever be nominated for an Emmy. Luke Cage won him for the stunt coordinators this year. So there's a bunch of, these shows have been well regarded with critics, too, which is really unusual. But basically, we put some more production value beyond these things and that the audience would show up and appreciate it. That was the bet, that we would be able to control for that and kind of control the risk reward. And the reward

was, wow, the television version of the Avengers only on Netflix. And the risk of it was, wow, it's a boatload of money for five shows. And as the first one goes badly wrong, that may take the whole thing. The nice thing was, is that they were connected, but they were disconnected enough that if the first one went bad, you could still fix the second one and have the second series. And at any point, we weren't committed to do multiple seasons of any of these shows. At the point, it was just, we're going to do one and then get to five, but we're so pleased with Daredevil results that we went to a second season of Daredevil.

before we got to Defenders. And there's a bunch of little subtle references throughout where that do tie the shows together. And they actually do tie subtly into the Avengers world too because this is the Defender's World. They refer to this happening, all this thing that happened all the time, which was basically the big battle

that happened with the Avengers in New York City. I would really recommend watching a few episodes of Luke Cage. I think it was very special. It was very special creative accomplishment in a lot of ways. Defying conventional wisdom, a lot of people around the world said that that show wouldn't travel.

Yeah. African American superhero and on and on and on. And it was hugely popular for us all over the world. Yeah. Yeah. Yeah, it's an amazing, it's an amazing creative accomplishment. You know, it's why we're talking about the defenders, one of the greatest disconnects that you can point to between audiences and critics,

which is that gap is getting bigger and bigger, I think, is Iron Fist. Iron Fist is literally the worst reviewed show on Netflix. I mean, everybody hated Iron Fitt. Every critic hated it. I think it's fair to say critics took a great delight in hating it. Yeah, they liked hating it. They were enthusiastic in there. Yeah, they did, they did.

And it was the biggest launch of all four. And it's done really well for us, and we've gone to a second season. And it's not to say that these shows are critic-proof. It's just like, I think there's some sport of sport-hating that the fans don't take that seriously. There are entire websites you may know devoted to hate watching. Yeah, yeah. It shows I reviewed entirely from the perspective of I watched it because I knew I would hate it. I remember I had a discussion with a critic one time he was telling me how much he loves movies.

And I go, that's like saying I love puppies. So let's cut one open and see how they were. Let's see what makes them tick. They're not so pretty from all angles. Let's do a quick round of overrated and underrated, relative to the prevailing view of, let's say the conventional wisdom in Silicon Valley or the conventional wisdom in the industry.

So overrated, underrated Amazon's content efforts. Man in the High Castle, Harry Bosch, the Lord of the Rings they're doing that. I mean, I think the perception's pretty fair. A ton of money. They're making a good run at it. I never discount Amazon. I mean, I think in terms of what they're able

What they're able to do eventually has been pretty spectacular in a lot of other areas of the business. And that's the one thing you can always count on that. They'll keep running at it. And they're right behind you in terms of budgets. Maybe not right behind you, but they're second. They're about three or four billion and they seem like they were willing to spend. The fact that it's coupled Amazon Prime is interesting because on the one hand, they have such this giant base of Amazon Prime subscribers and they want to get a lot more on the other hand. The reason it's hard for me to comment on it is that we're such so different. And we are really focused on making great television shows because this is all we do.

Like we make great movies and television shows because we don't ship diapers and we can't. rely on that. And it's really tough to do a lot of great things great. And that's such a foreign thing for me that it's hard to be made in comment on it. I've been searching on Netflix for the last two years. And it's just like, you say you've got everything. And it just, the results just don't show up. There's nothing like having nowhere else to go. Right. They motivate to motivate you to do something well. There we go. Hulu. And just as context, Hulu being a joint venture among Hollywood studios in large part constructed to create with Netflix. Hollywood was concerned there wouldn't be another buyer in the markets. They were trying to create another buyer, and there's plenty of

buyers in the market. But it's an interesting extension of the old model. So, I mean, overrated in that, I don't think it's that totally disruptive. It's just a different way of getting the content to the home, but roughly the same economics, the same beholdenness to advertising and all those kind of things. YouTube. When we saw people push play and video started working, that was the way we said, wow, Netflix is going to work. When YouTube started to work. Yeah, that's what we thought was.

It's that whole download-y thing that never really made sense to everybody, that you have to manage files and everything else. So to me, it's like they've been incredibly innovative in that space. I don't think of them as direct competitors, even in their new incarnations that they're doing now. But I think it's the way that people, it's how do you, you can monetize killing time or you can monetize destination time. And I think they're monetizing killing time incredibly effectively.

I guess the underrated argument would just be, it's remarkable. I believe they're still gaining share of video consumption on the internet, right? Even at this size of stage. Even though Facebook and chat and staff and even though they're right there are many other companies now coming out them trying to do this. You know, in our case, you know, we're in the middle of a production of a movie with Martin Scorsese right now that you can look at it as 50 million plus an hour programming. And right now I think they can monetize and maybe even the hundreds of thousands, but whether or not it scales up to professional content, I don't know yet. If you talk to somebody, I think, traditional film studio or these conversations I've had with people running the traditional film studios, I'll tell you that Twitter in particular, they would say, has really changed what it means to open, what they call. to open a movie, right, to come out with a movie.

Because the bad reviews can kill it fast. The bad reviews can kill it fast. And so basically, the model was in the old days, you could basically, if you had a big enough star and all the rest of the big enough marketing campaign, you could get your Friday, Saturday, Sunday. And then maybe people will start to get bad word of mouth through the next week.

But at least you got that opening weekend. So at least you wouldn't have a complete catastrophe. Whereas now, if the movie's bad, the word of mouth on Twitter kills it on Friday night. And it collapses on Saturday and Sunday. And that might be really unique to this notion of getting in a car and driving to a theater where people really put the stakes

against that are very high. So what it takes to get you out of your house if you're on episode four of Stranger Things is pretty high. So you might be looking for reasons not to go out. But I think that that Twitter effect on television shows has not really been that impactful. And I wonder if that'll be, yeah. Content companies merging with telcos. So let's say NBC Universal and Comcast and then more recently AT&T and Time Warner. Is it in the long run necessary for people who make content to also own pipes? I don't think so. I get the emotional desire to, and I also think it's more a result of kind of

winner take-all, cut-throat negotiating, that you end up in a place where I have to own it because I can't make a deal that we could both live in, where I think you should be able to make a deal that you could both live in, and let everybody do what they do best. Binge watching, obviously you're a big fan, you've created bitch watching, but let me say why it might be

overrated, just say Game of Thrones as an example, which is the fact that it is on Sunday night at 8 o'clock, the social effect, by the way, the twin social effect, people in the house together watching it, having it be a cultural experience and, you know, creating the water cooler moments for the next day. But also now the internet social effect, right, of everybody on Twitter and Facebook and all these other platforms, a critique of binge watching has been that with binge watching, like, the whole thing

is just dumped and then people watch it when they watch it. And there's no, there's no social momentum. There's no, there's no simultaneous viewing experience is really possible other than just whatever is happening in a particular home. And in particular, it kills the kind of viral spread of that community aspect of it. Is that? We have not found that to be the case. We found is that the cumulative buzz plus the roundup of the, watch when you want model, meaning that the kind of, oh my God, I'd watch stranger things in nine hours straight. That's a whole level, a whole different level of a buzz that's created on top of the show from the week to week to week. But the cumulative buzz of orange is the new

black. The cumulative buzz of 13 reasons why. Cumulative buzz of stranger things is actually much bigger than Game of Thrones. So I think the benefits are there. And if people want to do what you're talking about at Game of Thrones, we had the Sunday night HBO ritual too back in the soprano days. But what I found is that the trade-off is really positive for consumers, a net net. Even though there is a little bit of the fun of everyone watching the same thing on Sunday night.

Adam Sandler, and I ask specifically because Netflix was viewed maybe as a highbrow medium and then you did this giant deal with Adam Sandler for movies. I think he's been hugely underrated. Mostly because what we found was if we licensed any one of them in any

window in any country, they would pop immediately into the top viewing. And And what we found is that he travels really well. People think he's funny. People who grow up on him love him. People, you know, younger people were still discovering him. And that because a couple of movies didn't do that well in the domestic box office, people started thinking that this was an overrated thing that we did.

I think it's underrated relative to watching. And some of our top watched movies have been these and other movies, which tells you, again, what people's taste are is so diverse. And then finally, overrated, underrated, read Hastings. This is perfectly that it's the last question because it's hard to say, The guy who's sitting on top of this $80 billion-plus market cap company could be underrated. But he's hugely underrated. Why is that?

He's created something that is unique in terms of this engine to deliver joy around the world. And every step of the way, everything he did was completely unintuitive, down to the business culture and up to the delivery model. And he's created a world. And somebody told me that he spoke here last year, and he was very complimentary to me and, you know, the moves and content. Most CEOs in the world would mostly take that credit. And to REIT's credit, he never will. And he inspires that in all of us, which helps us build great teams. And everyone just wants to work together, and there's not this worry about credit.

No one thinks about all these things that really bogged down a lot of other companies. And he basically wants everyone to succeed. And if he does, he celebrates it like crazy. And it's a unique selfless quality in a CEO that I just have not encountered in most places. and clarity of vision and clarity of thought. I always say that Reed is like the beautiful mind without all the crazy because he can walk into a meeting that's incredibly complicated. I've seen formulas on boards that I have no idea what they're doing.

And he walks in and goes, now that goes there and walk out and it's solved. And it is that clarity of thought and confidence coupled with no hubris and no arrogance that is so rare and on top of the fact that I just think he's brilliant. when we made a move into original programming, we were so convinced as a company that we would never do original programming that Reed had said, we'll never do original programming,

yet I knew that I was in a safe place to do it. Yeah, that's amazing. Great. Ted Serendos. Thank you.