In Good Company with Nicolai Tangen - Reed Hastings founder and co-CEO of Netflix

Episode Date: September 21, 2022

In this episode, Nicolai Tangen talks to Reed Hastings Founder and co-CEO of Netflix. They talk about how Netflix changed the entertainment industry, their unique corporate culture and how Netflix is dealing with the current competitive environment.The production team on this episode were PLAN-B’s Tor-Erik Humlen and Olav Haraldsen Roen. Background research were done by Sigurd Brekke with additional input from our portfolio manager Soumi Mitra.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi, everyone, and welcome to our podcast, In Good Company. I'm Nikolaj Tangen, the CEO of the Norwegian Wealth Fund, and your host today. In this podcast, I talk to the leaders of some of the largest and most interesting companies in the world so that you can learn what we own and meet these impressive leaders. Today, I'm talking to Reid Hastings, the founder of Netflix, and he's still the CEO today. We own 1% of the company, translating into more than 25 billion kroner or 2.5 billion US dollars. Netflix has pretty much single-handedly changed

the way we consume entertainment and has, in a way, introduced binge-watching to the world. On top of that, Reid is one of the most interesting and fascinating CEOs I've ever met. So tune in. So Reid, you pretty much single-handedly have changed the way we consume entertainment. How does that feel? Well, obviously, it's been a huge team effort, and there was this little thing called the

internet, so we did get some help. The internet's been transformative over so much of our lives, and in video, whether that's YouTube, TikTok, Netflix, a lot of new innovative companies. But when you had that kind of success, how do you stay humble? Well, my success was later in life. So I think it's not that hard in your 40s and 50s. I think if you have great success in your 20s, it's probably quite challenging. Now, going back to your early days, you taught English in Africa, and you said

a few places that that's really taught you resilience and empathy. How come? Yeah, right out of university. I went to eSwatini and was a high school math teacher, actually. And I worked hard at a very rural place, the kids worked hard. And I remember at one point, there was a question on the exams that was tile floor, it's, you know, so many meters by so many meters, and the tiles are, you know, x centimeter by y centimeter, how many tiles, you know, like a pretty basic question. And they all struggled with it. These were very sophisticated kids. And it was only later in the session when one of them raised their hand kind of sheepishly and said,

hey, Mr. Hastings, what's a tile? And, you know, they just didn't have the mental map because they didn't have any tile floors. It was all cast concrete, you know, or dirt floors. And so I realized, well, so much of what we're doing is, you know, or dirt floors. And so I realized how so much of what we're doing is, you know, projecting and assuming things. And once we went through, you know, what tiles were, the kids did great. So there's just a lot of assumptions that get built in and miscommunication that happens. And so, you know, that, you know, incident stuck with me for a long time about, you know, what do I think everyone gets, but they don't really get. Instead, I could blame them and say, you know, these kids aren't doing the work. You know, these aren't very good students, you know, when in fact, but for the bravery of that one student, it was my mistake of, you know, not understanding that they haven't been exposed to tile floors.

Now, how do you think this resilience and empathy has helped you? I think it's helped me because I often, when something goes wrong, I try to figure out what context do we not share instead of blaming people. So if you start from the assumption that they're great and smart and talented people, then you want to back up and think about, okay, what did I as a leader, in this case, not a teacher, but a corporate leader, not say or misstate that led people to do something that was not optimal. So it's always gotten me to be a bigger systems thinker. not optimal. So it's always gotten me to be a bigger systems thinker. Now, you also had a software company before Netflix, Pure Software. What were the learnings

from that? I mean, that was a hugely successful company. It was modestly successful by today's standards. So it started when I was 30, and then it got acquired when I was 37. And that was pure hard work, very technical software. And so I was initially the inventor of it and patenter and brought in a bunch of people then. And it hit a niche problem very well. So it's like a software x-ray. They could see problems, one class of problems inside a software. And so everybody wanted it at the time. And that was very exciting, but it was chaotically run. I was working crazy hours and not my best self. And ultimately, again,

the company got acquired. Yeah. Now moving on to Netflix, what are the company got acquired. Moving on to Netflix, what are the most important decisions you made at Netflix which has made it such a success? I think fundamentally we were in the right place at the right time. We knew that streaming would be a phenomenon over time and that we could get started with DVDs by post. Our first decade was DVD by post as a simulator of the network. You still went to a website and chose you were a subscriber.

So it had all the properties of today, except the delivery was the DVD by post. And then we had to do the evolution into streaming itself. And that, you know, was challenging at times, but ultimately gave us a leg up compared to all the big media giants so that we could participate in this great revolution of on-demand television. Now, it seems like the corporate culture at Netflix has been really instrumental in driving their success. You lay it out on your website and so on. But what are the most important factors in your corporate culture? Yeah, fundamentally, we realized

we want to work with incredible people and that that's the most stimulating thing. And we're willing to tolerate professional job insecurity to be on the chance to be on a high-performance team. And it's a lot like a sports team. That is, if everyone around you is great at their position,

then the team play is amazing together. And so that's very satisfying and very thrilling. And so it's all lined around this high-performance culture. And to attract high-performance people, then you want a lot of freedom and responsibility. You want top of personal market compensation. You want openness. All the things flow from that talent density orientation.

Did you have a role model in developing that corporate culture? It's inspiration from many sources. There was no single source that really defined that. It was breaking convention. A simple example, in most of Silicon Valley, you focus on vesting, how to have golden handcuffs. And early on, we said, let's not have golden handcuffs. Let's make people love their work and not need any handcuffs. You know, and so let's reverse it. So, we've never had vesting, and we've got low employee attrition.

And so there's many, I think, imperfections in the traditional model. And that instead, if you focus on an incredible work environment for high performers, then you get a lot of success. Seems like you have very few rules. Well, again, very creative people are oriented around freedom, impact, and we're not a safety critical business. You definitely need rules if you run an airline or nuclear power plant. But again, if you're in an inventive and creative business whose fundamental value is being able to invent new shows or new business models. Then it's good to have a very

fertile ecosystem where it's a little bit chaotic. Sometimes we talk about it as managing right on the edge of chaos. You don't actually want to tip into chaos, but you want to be right on the edge of it. That's where you're most creative. But isn't this more difficult to do when you have grown to become a larger company like you are now? It definitely is harder at 10,000 than 1,000 or 100. But on the other hand, we've got more sophisticated people who are running the different groups. And so, so far, that's worked out in balance extremely well, and we've continued to be very productive. The keeper test is famous. What is that?

Sure. The keeper test is how we model high performance culture. So normally with a job, it's seen as a right. You have a job right. You have to steal money or something awful to get fired. And that comes out of the industrial economy. And instead, if you think about professional sports, you play for your position every season. It's not an automatic thing.

And so we model ourselves like that. And the keeper test is if one of your people quit, would you work hard to change their mind to stay? Or would you sort of be secretly relieved? And that's our test on exiting someone with a generous severance package, is if you wouldn't fight to keep them. One of the first words he says is psychological safety. And we have an episode with Amy Edmondson coming up a bit later. Now, how do you see that being differently from what you do? Yeah, I mean, you do want people to play at their highest level.

So let's think of an athlete. Any time you could get injured and change your entire economic future. And yet, if you think about getting injured, you don't play your best. And the best athletes can will themselves to ignore the danger of possible injury and to play their heart out. And so that's what we look for is people who can understand intellectually that there isn't, you know, high job security, but they will themselves to do their best possible work. And so it's a bit of a boutique strategy, just like athletics is boutique. You know,

it's not for everyone. But certainly we've collected 10,000 people who thrive on having incredible colleagues and playing their heart out. Now, transparency seems to be one of the other things. And we at the SOS1 Wealth Fund consider ourselves the most transparent fund in the world. Talking about our voting intentions five days ahead of AGMs and so on. Do you think there can be too much transparency? Transparency, no. I see it as very useful, very helpful to stimulate.

If people know what's going on, then they can do better. In the old world, people controlled information. Sometimes it's for a legitimate reason, like the risk of a leak, but most of the time it's sort of don't want other people to know what's going on. We do lean into transparency pretty heavily internally. Now, Reid, moving on to the current environment, I see you've said somewhere that you absolutely love competition, and for sure you have some competition now.

So how do you look at the competitive landscape? Sure, think of it as we've always been competing with linear TV. And then we were on demand, and linear TV was not. And then, for example, in Norway, NRK has been a

real leader on the public broadcaster side, which has NRK's leaned into on-demand viewing faster and harder than any other public broadcaster in the world. But that's not the typical, but it does happen. And then so then we've got on-demand and the competitors have on-demand. And so now we're competing on the quality of our programming, the quality of the recommendations. And so that's a lot tougher competition. And that's what you've seen. Now we've got a good lead and we've got strategic clarity about what we're trying to do.

So the odds are very good. But again, it's not the black and white differentiator. They're on linear. You can only watch it at 8 o'clock. We're on on-demand. You can watch it anytime you want. You can binge view it. Now everybody does the binge viewing.

Well, you kind of invented the binge viewing, no? Yeah, and that's what happens. You invent something. I mean, invent's a big word for letting the viewer have the freedom to watch what they want when they want. So I think the vision's always been out there. And really, the internet is natural to allow that. Again, but now what you see is all of the linear broadcasters, whether that's Disney or NRK, they're all moving over to the internet.

And most people are watching on the internet. So it's great that we have... Think of Tesla doing the electric car. I mean, it's great that we have kind of think of Tesla doing the electric car. I mean, it's great that they invented the category. But now everyone's cheering for Mercedes and BMW and Ford and GM and Toyota and Honda to all get in the game and give Tesla a run. So we as consumers, we want competition. So I recognize that that's what consumers want in our field too, is they want Disney and again, NRK and BBC and others to really give us a run, which ultimately serves the consumer. What's the key to winning the content battle?

I'm not sure anyone's going to win it. There's going to be a lot of different providers. But the key for us is really focusing on the quality of the shows that once you start watching, you just can't stop. It's just so gripping. That's the key. What about the entry into the gaming industry? How do you see that? It's a type of content.

We've had series for a long time, and then we expanded into unscripted, like Love is Blind. And then we expanded into film and documentaries. So, you know, we've been expanding categories steadily. And for us, games is another category of great entertainment. Reid, you have some really impressive algorithms, which kind of leads people to new programs. Do you think there's a danger

that this is kind of leads people to new programs. Do you think there's a danger that this is kind of dumbing down the audience? No, if you need to show the same series to everybody, then that's kind of the dumbing down because then you program for the masses. If you've got good algorithms, good personalization, good recommendations, you can do lots of specialty content. And so you get everything from The Crown to Squid Game, which very few people watch both of those two. Those are like different demographics. And so the algorithms really support diversity and storytelling. When did you, for the first time, become interested in storytelling? I think all humans are interested in storytelling. Really, since the advent of language, probably 100,000 years ago,

stories have been the way that we come to communicate, understand each other. But on a professional basis, it was really my frustrations with video rental, how difficult it was to drive there to get the, back then it was VHS cassettes, and bring them back. So it was kind of a logistics orientation. And then it was only in the last 15 years that my partner, Ted Sarandos, really led us to be creators ourselves. ourselves. You have become co-CEOs with him, which is rare.

We have a similar structure in the Someone Wealth Fund here in Norway, where we are co-pilots. It works well here, but it doesn't work for everybody. What's the key to get that one to work, you think? I would say co-CEO is a very high performance technique

that when the two people are very compatible, it works incredibly well. But it's only for a few situations where you've got a great chemistry match and you can get a one plus one equals three phenomena and be even more effective. And what is it with the two of you who make that so successful? Well, we've grown up together. We've been working together for 22 years. We were kids when we started. I would say there's just a deep respect for our complementary. I'm more business analytic, and Ted's more creative, human, marketing, excitement.

He's more fun at a party, and i'm more of the spreadsheet person but hey one thing which i think is uh very interesting uh is you talk about your own career as uh kind of being the tortoise rather than the hare and you claim that you have been a bit slow out of the books tell us about it yeah i mean in The Tortoise and the Hare, the tortoise is slow, but eventually wins the race against the speedy hare. And I find that as a life metaphor also, which is a lot of people want to tear the world up by the time they're 30 and, you know, change everything. And, you know, God bless them, but not all of us are wired that way. You know, and I feel like I was just beginning to hit my stride at 30 and didn't really hit it till 50. And so that's more of a tortoise metaphor. And everyone's different. So again,

I don't want to take away from someone who at 25 is changing the world. That's great, too. But I don't want everyone to think that that's normal or that you have to do it. There's many times when people develop later in life, emotionally, intellectually, spiritually, you know, in every dimension. Why do you think so many people are in such a hurry when they're young?

You know, I think our culture glamorizes amazing things. And it's amazing when you see a 25-year-old running a big company. You know, I think our culture glamorizes amazing things. And it's amazing when you see a 25-year-old running a big company. So, you know, it's a little bit like the danger of the high wire act, you know, a high wire between two buildings and someone's walking across it. It's like, you know, you know, they might die. And that's what kind of draws you to it. So I think there's a little bit of that voyeurism. Because I think it's quite funny, I'm kind of looking at myself, I'm much more long-term now when I'm kind of soon about to die

than I was when I was 25 and I had a whole life ahead of me. Yeah, it is ironic that it takes a long time to develop, but then we move aside and create room. Do you watch a lot of shows? Yeah, I love the content. I try to watch a little bit of many things and then the things that I love I'll watch with my wife. And so I get both professional enjoyment and personal. What do you love these days? I think I just watched is Partner Track. It's this high octane Asian-American lawyer, M&A wizard

and so it's a fascinating kind of New York high-end show. Well, and here being based in the middle of a central bank, of course, I love a money heist. Yes, getting hold of the presses and printing paper money while we still have it. That's quite a good story. Yeah. Have you had any personal setbacks? Oh, sure.

My life's been filled with ups and downs of things that didn't work out. One of my first projects, I was 27, 28, and I got excited about a new product for a computer because I was always typing on the computer, but then taking my hand off to use the mouse. And then I realized, oh, we should really develop a foot mouse where you control it like a sewing machine or a piano, you know, but control the mouse with a foot. And so I spent a long time developing this, what I thought was going to be this revolutionary device.

And it turns out that your leg cramps. It's not very precise. And then the floor is also a very dirty environment. So a couple days into using a foot mouse, no one wanted to touch it. So my first big, exciting adventure in that way in business was a total failure. Well, that's interesting. We have sourced some questions from some crowdsourcing. And one of the interesting questions I think came up was, do you think great companies are led by happy people? Not consistently.

I would say they're led by entrepreneurial-driven people. And some of the time those people are very happy and some of the time not. And that gives them an edge which pushes them. and some of the time not, and that gives them an edge which pushes them. So when you look at young people who ask you for advice, what are the advice you give them? You know, it really varies tremendously on the kid.

There's certainly an aspect of, you know, follow the passion, find things that you're really excited about. There's also an aspect of be excited about the things you're doing. Some of it is just an attitude of finding all the nuance on it. Another is don't be in too much of a rush. It's okay to take time to develop skills in various areas. So when I left university at 21 and then was the teacher in Africa, when I came back, you know, all my peers had moved ahead. They all had amazing jobs and had finished school. And, you know, I definitely felt behind. But I'm still glad that I did,

you know, that time in Africa. And I encourage people to push themselves. A lot of your philanthropy is based on education. Is that where it started? Yeah, exactly. Because I had been a teacher, when I first had money to do philanthropy with, I focused on education.

I don't know that it's better than environment or nuclear disarmament or many other great causes, but it's the one that I've chosen to work on. And then, you know, now I've put 30 years of philanthropy into education and, you know, every year try to learn more. I'm flying a red eye out tonight to New York and got a bunch of education meetings tomorrow. So it remains 10, 20% of my life. Well, you for sure changed a lot of the world in many different ways. And we've been really, really pleased to have you on here today.

So safe travels to New York. And thanks for taking the time. Awesome, Niklas. Great treat to be with you and look forward to another visit together. Thank you so much.