The Pomp Podcast - #960 John Pompliano On Netlix’s Insane 20 Year Takeover Of The Movie Industry

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off in this episode i sat down i talked to my brother john pompliano about netflix we talk about where their revenue comes from what products they have subscriber growth and what the future of netflix could look like there's some wild stats and insights in this episode that i think you'll enjoy. I always enjoy having these conversations with my brothers and hope you guys enjoy these episodes as well. Before we get into this episode, though, I first want to talk about our sponsors. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware

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Starting point is 00:01:21 desktop, mobile, and hardware crypto wallet. Go to Exodus.com slash Pomp today. Today's episode is sponsored by Abra. They're based in California and they're backed by top VC firms. Abra is an all-in-one, simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral, and earn interest with up to 13% APY on stablecoins and 7.15% APY on Bitcoin. You can join nearly 2 million users by downloading Abra from the Google Play or Apple App Store. If you download the app today, you will get $15 in free crypto once you fund your account. You came, you invested, now conquer. Abra, conquer crypto. Go check it out today. This episode is brought to you by DeFi Technologies.

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Starting point is 00:03:21 that used to send freaking red dvds to your in uh mailbox and now you stream them all right before we talk about never i gotta i gotta go on with you he's got beef yeah you know my beef is how you gonna come out here talk about netflix but you texted me today and said going to talk about spotify yeah because i looked up spotify and i thought netflix was more interesting i bet they would like it more i appreciate you looking out for the audience a little learning session all i just want to make sure we're all clear about the uh the text message game go ahead what's going on with netflix we are blasting dms all right what's going on with netflix all right like netflix obviously pretty old company founded in 1998 uh mark rudolph reed hastings this was their first

Starting point is 00:04:01 website bro looks nothing like the company you see today what they've done over the last 20 years is insane it looks like a future billion dollar company at least they got the word netflix right at least they still have the same almost branding you see the top left sony picked the flicks yeah so obviously they used to literally mail dvds to your home and that's what they did for years uh this was they started to rebrand over the years obviously and then you get to the site that they use today and the logo they use today um but you can see over time they have literally just tried to switch brandings the entire time they've done a really good job of pioneering certain things like pioneering kind of the at-home streaming service on top of what blockbuster did

Starting point is 00:04:40 so when netflix started to send out dvds dvd players were only in two percent of homes in america when they were sending out dvds they were only in two percent vhs was the time right it was uh it was kind of early mid 1990s and vhs's were running what people used to play their things on um and then we just have a quick timeline about netflix kind of break it down for everyone so they were incorporated in website launch 1998 monthly subscription concept in 1999 they went to blockbuster to try to have the ceo blockbuster buy them in 2000s two years after launch okay blockbuster said hell no we're not buying you for 50 million dollars um turned out bad move blockbuster good move for netflix so 50 million and blockbuster didn't want to do it

Starting point is 00:05:30 and is it because blockbuster was launching a competitive uh uh blockbuster didn't think they were gonna do well yeah it was you know like this was a new idea it was just a new idea it's like i don't know do people really want their dvds delivered to their home instead of the experience i'll call it a blockbuster okay no not really then they went public in 2002 with a 309 million dollar valuation so two years after getting declined for 50 million dollar valuation they went public with 300 million dollar valuation okay then they reach what a million subscribers 2003 yeah million subscribers 2003 which is that's a lot of freaking subscribers for uh for a business that's five years old then they delivered a billion dvds by 2007 who entered

Starting point is 00:06:13 the market in 2008 so you started to see they still grew in subscriptions but uh competitors started to enter into the market they weren't like the first and only and then uh they started making original content which is another pivotal move for them in 2012 2013 and house of cards was one of the most popular shows we saw squid games which we'll talk about one of the most popular shows in in the world 2017 so what uh 19 years after starting they had uh the same amount of uh subscribers as uh cable subscribers yeah that's nuts that's a wild stat took 19 years to get there cable had been around for decades i mean think about their model though yeah yeah no i get it okay all right so what's next one's cheaper so why we're talking about netflix is because i saw

Starting point is 00:06:55 someone break down their economics when they released it and i was shocked at one number in there okay so netflix the economy netflix they still make that bottom left 182 million dollars of dvds wait where are we looking here bottom left dvd revenue they make 182 million dollars of dvds all right so the streaming revenue is sent dvds out so they have 20 go back real quick 29.5 billion total netflix revenue is 29.7 billion but streaming so that difference between total netflix revenue of 29.7 and 29.5 from streaming is literally about 200 million comes from dvd revenue and they have gross profit of 12.4 billion and an operating profit of 6.2 billion that is absolutely bonkers both the 200 million 180 million of dvd revenue and 6.2 billion of

Starting point is 00:07:51 operating profit 24 years later that's how it goes that's a big business just getting to 182 million dollars of dvd revenue is a great accomplishment and now that the fact that they're a 30 billion dollar um 30 billion dollar a year in revenue company is insane uh but then you can see their revenue over the years has obviously grown exponentially uh since like 2010 2011 in 2009 they made 1.6 billion and they've slowly worked their way up 2017 is kind of when they took off um and they found their stride now they're 30 billion dollars a year in annual revenue insane they have the most subscribers at uh any streaming service outside of amazon prime amazon prime cheat code they obviously uh have everyone who has amazon prime has amazon prime

Starting point is 00:08:44 video already right so it's a little bit of uh it's a little bit of a cheat so i think that amazon prime is actually that number is greater um than 150 million yeah that is a crazy crazy statistic man all right so what else what else you got for us all right well i'm working through it all right let's go let's say i'm trying to learn all right well let's let's let's actually let's quiz you that's the best way to learn perfect where are most of their demographic uh the subscribers yep i'm going to say that most people would guess the united states but my guess is that there's more international subscribers than us but i don't know percent based what percent base where most of their subscribers coming from i would say international rather than us but i don't

Starting point is 00:09:24 know like total international user base is bigger than us but i don't know where the biggest single location would be so i'm gonna teach you something we have a chart right here that will bring it up for us so 43 are in the united states and canada yep europe covers 30 that's also including africa and then latin america is 18 and then asia is actually a very low portion at only nine percent which i was shocked by yeah so yeah so so basically i was right that it's the total hold on the total international uh percent is bigger than the u.s and canada percent that north america uh but actually i would not have guessed well i maybe i would have thought europe but not middle east and africa for sure and then i'm actually surprised as you are too it sounds

Starting point is 00:10:05 like the asia pacific region is uh sub 10 i wouldn't have thought that you think that would be much much larger yeah yeah it's fascinating though um and really if you think about it latin america is double the size of asia pacific yeah but latin america they only make eight eight just over eight dollars off each user um and in america they make almost 15 per user uh so they make a lot more money uh just generally on the idea that america's prosperous they got 222 million that's like two-thirds of the entire american population yeah look right in size not not that two-thirds of americans are actually subscribed but just like there's 330 million americans give or take so 222 is about two thirds they have the the same size platform as twitter or any other these thing

Starting point is 00:10:48 is they charge a subscription revenue so they get money from each and every single one of these people which is an insane thing to do for 220 million people but if you see that last month right there and then in q1 of 2022 um they lost 200 000 subscribers and that's really important because people obviously, it's a publicly traded company and people bet on things like this and bet if their stock price and the valuation of their company is going to go up or down. So I'm not sure, I know you're aware.

Starting point is 00:11:15 I'm not sure if you guys are aware, but there is a man who lost $400 million in three months on Netflix. Most expensive subscription you're ever going to have. $400 million, Bill Ackman. He lost $400 million, three months. He went ahead and placed a position, i believe in late january early february of this year and netflix tanked netflix obviously had a

Starting point is 00:11:41 terrible terrible quarter but hey look can i ask can i ask a question can we go back to the twitter financials real quick or uh the netflix uh financials real quick uh where they had that that flow chart i'm looking right now you you made me think that if twitter has 220 million or so users and netflix does as well look at this stat netflix is operating profit is 6.2 billion the operating income of uh twitter is negative 127 million on a quarterly basis so they lose let's just call it about 500 million dollars versus a 6.2 billion dollar operating profit but even if you looked at like a net income and these so it's not perfect uh comparisons but net income at Twitter, uh, based on March, 2022, uh, quarter numbers was 500, a little over 500

Starting point is 00:12:37 million. So that's 2 billion in net income annualized Netflix, even though they have the same numbers to your point about how they monetize it ends up being 6.2 billion from an operating profit standpoint. And the reason why that becomes interesting is because Elon Musk's whole idea around Twitter is to get people to pay. And so you pay $3 a month or whatever, all of a sudden, can they drastically increase the financial performance of twitter which it shows that somebody like netflix even though they're charging 9.99 1999 whatever the the price points that people are at uh they definitely are able to make more money on a per user basis and so it lends itself like is twitter could you just make more money by simply charging people well

Starting point is 00:13:17 i think the obvious answer is yes to both in the sense of yes you can make more money by charging people do people stick around is yes that's the real argument question of like are people actually gonna pay for the product uh i bet you lose a lot of a lot of subscribers right people enjoy stuff that's free um but with that said it's a different model right it just is like the content that you get on netflix is different than the content you get on twitter in a meaning for you can get video content on both but the time that's spent and like what you're doing on netflix is different and i don't think like they could institute this ad model i don't think they're gonna go straight only ads and just dip the subscription revenue. They've obviously done a good job of the last 20

Starting point is 00:13:56 years using subscription revenue, but I do think they will incorporate ads. And I think Twitter will do something similar as well, where they will both have a subscription based model and an ad based model where you can kind of toggle between more or less ads on your feed before you watch a video. After you watch a video, there is an ad that you can't exit out of or something like that. I think Twitter will go that route, but Netflix, Netflix doesn't need ads, right? They make money. they're profitable yeah i think uh i think it's pretty cool all right you got any more stats for us uh yeah so they started making their own content obviously they spent a ton of money on their own content they started in like 2012 with house of cards which i know you were a fan

Starting point is 00:14:31 i did watch that i like that one yeah what'd you rate it one out of ten yeah uh i don't really remember all of it i mean it was years ago but like it was probably like an eight eighty percent match for anthony's netflix if any of y'all want his algorithm uh so let's look at what they've spend obviously 2020 is a down year um but 2021 this was their prediction they were expected to spend 17 billion dollars just on content creation alone um that also includes i believe ip and licensing of other people's content as well and then you can see they're actually just gonna they're just gonna ramp up more and more content more and more original content you can see that about was it 37 percent of their content right now or in 2020 was originals and by 2025 they're

Starting point is 00:15:12 expected to produce about 50 of that content on their platform instead of just acquiring it from other people which obviously means more revenue for the company if the content works out but we've seen a few busts from netflix for sure and seen a few great great movies from netflix but you can see netflix versus top five studios they're coming in the game once they uh once they start getting recognition they have some of or i think they're what fifth in the total oscar nominations in the last 10 years since they started making content they are already up there with big name players 20th century fox universal sony warner brothers they literally are in the game so did you ever watch squid games uh no i did not wow all right you should go watch that it's very good it's

Starting point is 00:15:57 actually very good i just couldn't get into it well check this out netflix spent 2.4 million per episode on squid games their other popular shows stranger things and the crown was 8 million 11 10 million dollars respectively there but 111 million accounts watched netflix watched the squid games within the first month that's a big number 11 million that's over half their subscribers that's just about i would say about half to a little bit under half of the pop i don't know how to say like the adult population almost the united states like the kids and stuff like You're not going to have a Netflix account and stuff. No, they're using their parents' password.

Starting point is 00:16:39 I'm using yours, so be careful. Thank you, Netflix. Yeah, but they obviously made a ton. But their impact outside of what they just do is insane. So there's a stat that Netflix, after it launched Squid Games, the sales of white slip-on vans, which were the shoes worn in the game, increased by 7,800%. So the sale of a product that's been around for years increased almost 8,000% based off

Starting point is 00:17:07 a culture that was created inside an organization that streams you videos on the internet. I just don't understand how they got this big. Like, yeah, it's 20 years, but like, that is absolutely nuts to have that much influence. I think they had, they had a very, very large headstart. they were one of the first streaming companies to kind of adopt that model but i'm shocked that they haven't lost more of their subscribers to hulu paramount disney um r.i.p cnn plus right things like that but streaming services are popping up all over the places people are realizing hey we have all this content we have all this ip disney's a great example that we have hundreds of thousands

Starting point is 00:17:52 of movies that literally we haven't premiered in years why don't we just make a streaming service where people can watch that and then pay us for that content that we already made. We're literally repurposing content. It's a genius idea for every single company that already makes content to get into the, or excuse me, not content, movies or TV shows that are successful, get into the streaming business

Starting point is 00:18:12 and build their own platform. What's your big takeaway from Netflix? They're not going anywhere. You think it's a robust, durable business? Yep, they're switching their business model every time something comes up, and they're doing it well. 180 million dollars of uh dvd uh rental revenue you still make money from the old school business too i know you like that all right where can we send people to find you on the internet so you

Starting point is 00:18:36 saw a few of these awesome stats you guys just saw here right now go follow me john pompliano few people try to dm me yesterday trying to talk like we're friends because i was answering people in dms the day before sorry you missed out will you answer dms today if people follow you nope i will do it uh well um no i can't do it sorry that's too many times i will do it later this week all right all right sounds good i appreciate you uh coming on here educating me every day can't answer every dm yeah i uh wait till i start uh uh dm thank you very much and have a great day thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking

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The Pomp Podcast - #960 John Pompliano On Netlix’s Insane 20 Year Takeover Of The Movie Industry

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