The Netflix Culture Code That Changed Entertainment Forever | Reed Hastings Interview

To me, the most interesting thing about studying Netflix and talking to Reed is that it is as a business probably the single most relatable example since we all watch Netflix of two really simple

ideas that everyone talks about but are very hard to do in practice. The first

is this notion of finding a simple idea and taking it extraordinarily seriously.

Netflix has effectively been scaling up its core original model since its inception. Reed talks in our

inception. Reed talks in our conversation about how even the DVDs were nothing but a stepstone towards the streaming future that they envisioned at the very outset of the company's

founding in 1997 and simply letting that idea play out over decades without getting distracted and how powerful that can be. And the second is this notion of

can be. And the second is this notion of talent density. This is a term that now

talent density. This is a term that now gets thrown around every major company and really it was Reed and Netflix that pioneered this concept of what can happen if you set and keep a talent bar

exceptionally high. We get into why

exceptionally high. We get into why that's difficult, what Netflix did to make that talent density bar work and sustain itself over decades. This

conversation really is an ode to those two simple concepts. And of course, in this case, it's fun to learn about because it's something that we all watch every day.

I want to go back to your first business and the sort of origin story of this notion of talent density that you've become very famous for. We'll talk about talent density for sure. It's one of

these ideas that's now ubiquitous in in most technology companies. I think you were sort of the originator of the concept, but I want to hear how you came to learn that lesson in the first place.

Presuming that your very first team wasn't just incredibly talent dense and perfect. What what was the early origin

perfect. What what was the early origin story of that concept? So I founded uh pure software in 1990. Uh we grew kind of typical great software company

doubling. I wasn't careful about it and

doubling. I wasn't careful about it and I would say talent density declined in later when I analyzed that company uh

we went public in 95 got acquired in 97 and when I analyzed looking back what happened one of the major things was declining talent density and then with

declining talent density you need a bunch of rules to protect against the mistakes and that only further drives out the high caliber people and so it

was through that experience that I realized okay I've tried to run software like a manufacturing plant and um reducing error and putting in process um

and then that doesn't get high productivity or high talent and we should manage uh software much more artistally with inspiration rather than

management. So typically we humans um we

management. So typically we humans um we value being nice and we value loyalty.

And yet in the workplace that's attention because being nice is in contrast or intention with being honest. I I

generally like people that are nice. Uh

and yet I want you in the workplace to be honest with each other so that we're more productive. So we have to find a

more productive. So we have to find a way to give each other permission to not be conventionally nice and instead to be um focused on the team success uh which

is being very direct. Similarly with

loyalty we come to see loyalty which is something in your family like you would never fire your brother if you were tight on money. Okay, you would share

and and that's what we admire and yet in a company what we do is we lay people off. And so this whole idea that a

off. And so this whole idea that a company is a family, it's unintentional uh but it just derives from all the structures of society were family. You

know all companies used to be family companies and then corporations have grown more recently. All countries used to be family countries and kingdoms and so basically family was the deep

organizing unit. So it's natural that

organizing unit. So it's natural that that spills in to how we think about an organization.

But the contrast is a professional sports team and that's an admired model.

It's really focused on achievement and everyone understands that you change players as you need to try to win the championship. It's changing the language

championship. It's changing the language that you use and don't use things like we're a family. I treat you like my family. Okay, which is like a little bit

family. Okay, which is like a little bit true but not true enough. and instead

we're a professional sports team and we all got to fight every year to keep our position because if we can upgrade we must to achieve the winning of the championship which is producing a great

company.

>> How do you protect against uh the natural way that companies seem to bleed down towards lower talent density over time like there there seem to be very few

organizations that get it high and then keep it at that same level especially with scale. What are the ways that you

with scale. What are the ways that you learn to keep talent density as high as possible as the company grew so big?

>> Well, as the companies grow, uh, you may be able to pay people more. So, uh, that will help. If you think of the sports

will help. If you think of the sports team in the biggest markets, they can afford the highest compensation and like the Yankees or the LA Dodgers, they

often have the best uh, players. It's

not uh direct uh onetoone on how much you spend and quality but there is a strong correlation. I think the second

strong correlation. I think the second thing you can do is continue to really evangelize the benefits of talent density over like total quantity so that

more and more of your leaders get adept at managing for for density.

>> I would love to talk about each stage of the funnel to creating talent density in in a business starting with how you found people in the first place. what

the most reliable ways were of finding people and then also how you evaluated them and then I want to talk about you know further down the funnel but starting just with like top of funnel what were the most effective ways of

finding people that had the potential to be extremely talented inside of one of your businesses >> I've come to look at it more like keeping a pretty broad funnel >> and hiring a lot of people and then you

know over the first year you really get to know them and you can figure out um what you want to do you want to keep them or not >> you know other people have a view like

keep uh very hard to get in but then you can stay no matter what and I I think that's been more of the Google orientation as an example and it comes from their graduate school background

right it's really hard to get into Stanford graduate school um and then it's hard to get pushed out too and so it's just natural that they mapped themselves onto that model and there's

some benefits of that but that's a different model and mine is more have relatively open doors. We'll

interview broadly and try to select what we think is the best person.

>> And it stands to reason that maybe your one-year attrition rate was higher than say Google's or somebody else's.

>> Oh, quite a bit.

>> Um what was it like? Do you do you remember the >> 20% in the first year?

>> And so give that's pretty high. Um what

would you tell people on the way in or tell the organization about that rate itself to make sure it didn't spook people that lots of people would leave after? Well, it did spook people. And

after? Well, it did spook people. And

so, um, I would say we want, it's only fair to let them know what they're getting into.

>> Yeah.

>> We would say we're not going to guarantee you a lot, but we'll guarantee that we'll always surround you with great people and have you work on hard problems. That was our core. That you

may not be happy, the hours may be long, you know, the food may be okay, but like the essence of what we can do at work is hard problems with great people. You

think of it, if your primary orientation is around job security and you're willing to put up with working with uneven levels of talent, then there are

other companies that are a better fit.

>> And there's some benefits of that, you know, which is you you have stability in your life. Um, if you're more of a

your life. Um, if you're more of a performance junkie and the thing that makes you vibe the most is working around incredibly talented people and running fast and loose with great

teammates, then you're willing to put up with the job and security. Nobody likes

it, but you're willing to put up with it to get the performance density.

>> You said fast and loose. Can you say more about loose? If you overmanage, for example, a tight process or specific hours that you have to be in the office

or a wide variety of things, you filter out uh performance and creativity. And

the looser that you can run, the more creative that the organization will be.

So we talk about it as managing on the edge of chaos. You don't actually want to fall into chaos. Okay? In chaos, the product barely gets released. It's full

of bugs. People are upset. Payroll's not

made. Lots of bad things happen. Okay.

But it's getting us close to that edge of chaos where there's last minute saves and a lot of dynamism uh as you can possibly tolerate as opposed to say a

semiconductor factory which is trying to reduce variation and reduce error to get rid of variance. And if you're going to be a creative organization, you want to

be high variance, high creativity, uh, and again managing on the edge of chaos.

>> I'm curious with the 20% attrition rate, what you learned about letting people go well and the right way. How did how did you get really good at that specific part of the life cycle?

>> Well, I think there's two parts to it.

One is to release the moral thing. Most

uh managers uh they're people managers.

They like people, they don't want to hurt people. U so it's very difficult

hurt people. U so it's very difficult for them. And so one of the best things

for them. And so one of the best things is to do large severance packages like four to nine months of uh salary. Um and

so it feels expensive at first, but one is it makes the person who's let go uh feel a little bit better because they've got a bunch of money in their pocket.

Two, it helps the manager do their job because then they don't feel as bad in letting the person go. And then you know it just sets up a much better mutual

feeling. Um and then the third on the

feeling. Um and then the third on the terminations is setting a context where it's not a moral issue. You didn't fail.

It's just like a professional sports player. We think we can get someone

player. We think we can get someone better here. Okay. So it's a pity for

better here. Okay. So it's a pity for the person. U but it's seen as natural

the person. U but it's seen as natural as opposed to like a a failure. So,

typically I would say something like, "Hey, I see you know, Patrick, you're working really hard. You're trying. I'm

so sorry to tell you that, you know, honestly, if you quit, I wouldn't try to change your mind to stay." Okay? And the

the reason I wouldn't change your mind to stay is I think I could get someone um in in your role that could do what you're doing, plus even more. And here's

why. And that the way the company is set up is if I wouldn't work to keep you, um, I'm supposed to let you go. In that

way, we're sort of executing on an agreed upon framework, that whole keeper test framework.

>> How did the keepers test literally work?

Like how was it rolled out across the company?

>> Well, it was always there that, you know, in the original slide deck, you know, it was adequate performance gets a generous severance package. Okay. So,

it's really just starting up front and that the test that we encourage people to use is if someone were quitting, would you try to get them to stay to

keep them? Um, because that turns out to

keep them? Um, because that turns out to be a good test uh relative to, you know, all the relief we sometimes feel when someone not great moves on. Was there an episode in Netflix's history that you

can remember where you were on the edge of chaos and it like really it either did or very nearly cost you very dearly >> during the you know uh Netflix 25 years.

There's a couple small things that we did wrong and one big one being the the Quickster separation of DVD and streaming.

>> So maybe taking the Quickster example, what is it like to see high talent density operate against something like that? So, um, Quickar, uh, for your

that? So, um, Quickar, uh, for your listeners was a sad episode at, uh, 2011, uh, where I became convinced we really had to go all in on streaming and drop

DVD and put DVD in its own company that would drift along and free ourselves from that. Unfortunately, most of the

from that. Unfortunately, most of the customers were mostly using DVDs.

Disagree. So, so yeah, uh, they were still mailed me the discs. Um, and so, uh, they didn't like it. lots of

cancellations, stock dropped by 75%. So,

it was a tough time um as we had to and ultimately it's the right thing to have separated DVD and streaming, but we did it too fast. But the the big analysis of

it afterwards was lots of the executives thought that it was very problematic.

But they kind of said to themselves, geez, Reed's made, you know, 18 decisions uh right before, so you know, I'm probably wrong and Reed's probably

right. So they kind of suppressed their

right. So they kind of suppressed their own significant doubts. And what we realized is if they all knew of each other's doubts, they would have been

much more likely to weigh in to probably just have us do it slower. And we

instituted a much more collective uh information process on decisions going forward where everybody weighed in 10 togative -10 on decisions and it's all

in a big shared document so everyone sees what everyone else thinks. So that

way if we had had that um decision process in place then I think I may well have thought well these are all fantastic people and they're all horrified at this idea. So I may be

right but let's at least go a little bit you know uh more gently to figure out that and we wouldn't have had as deep a hole. If you think about all the value

hole. If you think about all the value creation that you've been a part of or the leader responsible for, was most of that the result of a of a fairly non- consensus

idea because that seems like a consensus process or at least um if not decision by consensus at least being aware of what the consensus is and I'm curious the about that tension there. It seems

like very often non-conensus is the is where the value comes from. Is is that generally true in in your personal history of decisions that you made that created most of the value? Well, I think you want to be super careful here

because this is the source of much value. You want to be totally

value. You want to be totally independent in your thinking and not consensusoriented at all, but you want to know what other people are thinking

otherwise you're, you know, flying blind. So, I think there's a high value

blind. So, I think there's a high value on information, gathering opinions, but then not averaging them. Uh, we would never do that. We were very clear that

the concept was the informed captain. So

we wanted to make it like the captain of a ship. Okay, the captain of the ship

a ship. Okay, the captain of the ship makes a decisions but um it's good for them to collect a lot of information.

And so we were very strong on no committees, individuals make decisions, but we want them to be informed about that decision. Um and then it's up to

that decision. Um and then it's up to them to make it. I'm so interested in the bucket of seems like a bad idea but turns out to be a good idea because there's just less competition if it sort

of seems bad.

What is the what has been your process of coming up with good ideas in the first place?

>> I fall in love with ideas easily. Yeah.

Um and so like I'll see some combination or insight. So uh the original one was

or insight. So uh the original one was that DVD which was just coming out when Netflix started uh was very lightweight

and this was coming out of the AOL mailing CDs to everyone to install AOL on CD ROM. So I was kind of like pretty familiar with mailing because I've gotten tons of these just through the

mail. DVD for movies was just replacing

mail. DVD for movies was just replacing VHS or just starting. So I kind of like clicked on that. And then the classic computer networking uh thought

experiment you do is kind of what's the bandwidth of a FedEx of a taped you know a tape through the mail and it turns out you calculate it and it's like terabits

per second at low cost you know to send a backup tape by FedEx. So you start thinking about networks a little bit differently. So all those combinations

differently. So all those combinations made me think of DVD by mail as an extremely efficient digital distribution network that someday um the internet

would be faster than and cheaper than and lower latency than it was an unus I never thought I love the mail business.

I thought I love network business to deliver me. The contrarian part of it

deliver me. The contrarian part of it was when we were fundraising in uh 1997 989 everyone was excited by internet delivery and I'm like but it's not even

close u but didn't matter they were excited about it and so it was very we were contrarian and we had a contrarian thesis that we could build a business

with DVD and then transition it to streaming. So um and it's precisely

streaming. So um and it's precisely because of that contrarian thesis that we didn't have much competition in that and um because it worked um you know we created great value.

>> When did f streaming first enter your mind as like clearly this is the place that we're going to have to ultimately go.

>> Oh that was from the beginning.

>> From the very beginning >> that's why we named the company Netflix is internet movies.

>> Yeah. And so it was it was really just about managing the transition even from day one. designing the efficient system

day one. designing the efficient system for DVDs was just a notch on the timeline getting to streaming.

>> Correct. It was one digital distribution network and then eventually we would replace it with another.

>> Um and and we knew that would be a challenge, but we knew the best way to be successful at it was to get big on DVD. Um and so that became for the first

DVD. Um and so that became for the first decade that's all we worked on.

>> One of the other really cool things about your background is that for a long time you were on the boards of I think Facebook and Microsoft. I don't know if you're still on those two boards or not.

Um, >> no I'm not.

>> But today I think you're around the anthropic board and the Bloomberg board.

So you've had this sort of, of course, Netflix itself at the center of technology. You've had this very cool

technology. You've had this very cool 360 view of the probably the most interesting era of technology development ever. I'm curious from those

development ever. I'm curious from those seats what the technology landscape looks like to you today. Like what are the key considerations, things that you have your attention on that you that

seem the most important to you from those vantage points? Well, first of all, because of uh exponential phenomena, it's always the coolest time ever to be in computer science. I mean,

you know, in the 1980s, I thought, "Oh my god, so much better than the 1960s."

So, I just think that's a it'll always be true.

>> It'll always be true. I would say as a CEO at Netflix, I learned so much being on the boards of Microsoft and Facebook.

You know, they had quite different businesses. Um, but uh they made very

businesses. Um, but uh they made very interesting trade-offs the way they thought about things. I mean, both of them were very long-term oriented in what they thought they were willing to

lose money in certain new areas for a decade. What I loved about looking at um

decade. What I loved about looking at um Facebook's business was, you know, ad supported um and everything they did that was on the core like Instagram worked incredibly well and when they

tried to do crypto or when they tried to do other things that were not big ad supported businesses, it didn't work well. And so that's an example of um

well. And so that's an example of um companies get good at something and then if you can add to the core mechanism uh that's great. So we've always wanted to

that's great. So we've always wanted to add content to the Netflix subscription to make it more and more useful uh more and more enjoyable you know but kind of keep it like one big model as opposed to

also do theatrical movies or you know also do something else as a way to expand revenue. So to answer your

expand revenue. So to answer your question, I would say trying to find simple large models that if they work um you can continue to expand and expand on

the kind of core monetization engine that you've already got. Um or if you look at Microsoft's case, you know, it's building high-scale software. And then

I'm on the board of Bloomberg, which is owned by Mike Bloomberg. It's a trading stations of Wall Street and uh media around that. and he's been incredible at

around that. and he's been incredible at kind of this long-term orientation to having this intimate relationship with the customers like becoming a trusted utility uh for the industry that's been

very powerful and so big Moes uh you know for that business um that are really customer loyalty that he's been serving you know in multiple dimensions

for a for a long time and then Anthropic I've only been on the board for a year and it's a you know a wild uh story because you know it's growing so fast.

>> What have you learned from Mark? You

mentioned what you learned from Facebook, but what did you learn from him specifically?

>> You know, super committed like when you look at uh the metaverse and the you know convinced that there's going to be something beyond the phones maybe

that'll be a glasses format and not wanting to be dependent on it, wanting to be really the invention of that layer which is you know extraordinarily ambitious. Um, I probably would have

ambitious. Um, I probably would have just been like the ad giant if I was doing that business and try to like go after Tik Tok. Um, but he wants to do bigger and broader things for society.

It's great because he does amazing amounts of innovation funded uh with what would otherwise be the profits of the company.

>> You've been on these great boards. You

had a board yourself, of course. What

advice would you give to people to either be a great board member or run a great board process themselves?

So typically um board members u want to add value. The problem is by the

add value. The problem is by the conflict rules they don't really know the business. They're not you know if

the business. They're not you know if you run an airline you can't be on another airlines board but you're doing that board one day a quarter for the

most part. And on one day a quarter it

most part. And on one day a quarter it is super hard to add value. And so what you see is a lot of directors who struggle to add value and then management has to be super polite to

them. management can't tell them you

them. management can't tell them you don't know what you're talking about.

Okay? Because they run the thing. And so

you see this dysfunctional thing where board members ask hard questions and management, you know, uh ducks and weaves and it's not very functional. So

I would say um first part is board members to realize okay I'm not here to add value. They can hire consultants who

add value. They can hire consultants who know the industry and are not conflicted and that they pay for the advice. So I

shouldn't spend my time trying to give advice. So then what am I doing? I'm

advice. So then what am I doing? I'm

here as a board member as an insurance layer. Okay? If the company falls apart,

layer. Okay? If the company falls apart, I will step in and be part of replacing the CEO. And that's basically the entire

the CEO. And that's basically the entire job, which is replacing the CEO. Well,

okay. And um and to do that and to have the confidence to do that, you have to learn the business. So you can't be asleep. You've got to really ask a lot

asleep. You've got to really ask a lot of questions and learn what drives the profit streams, how does the business work, um what are the issues with it.

But again, you're not trying to solve those problems. You're trying to get a grasp of the business so that you can determine, you know, who might be the best person to run the firm. And if you

get that right, as say Microsoft shareholders or board did with Satcha Nadella, then the business takes off and all the advice in the world, you know, doesn't matter compared to that. If

you're on a board, uh, don't measure yourself by did you give a suggestion.

Measure yourself by did you get more and more prepared for the small chance that you will have to take big action. And so

it's a lot like a firefighter who drills and drills and drills and, you know, hopes that there's never a fire.

>> Yeah.

>> Okay.

>> When selecting for people that would be that insurance layer for your own business, what did you select for?

because a lot of these boards are full of very fancy people like you that are great names to have on a you know website as a board of directors and that seems to be a selection criteria versus like this person's actually going to be

good at this insurance layer thing. How

did you select board members?

>> Yeah, people who I believe will be wise in a crisis um and so uh you know we talk through the the board model you know we call it

uh extreme duty of care. Okay. So duty

care is one of the responsibilities of a director and we amp it up that they really have to know what's going on. We

ask directors to come to management meetings so they can watch what's going on, watch the sausage being made. Um

again, not so adding value, but so they're highly informed. Um and so we look for people who are wise in crisis.

And so a board interview process would be those kinds of things. Tell me about different, you know, business crises that have happened. and uh in case that happens that they would be wise.

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months. Visit works.com to skip the unglamorous infrastructure work and focus on your product. How much of your time when you were running the business full-time was systems structuring and

thinking around the business versus like the marginal, you know, strategic initiative or something?

>> I never like booked hours on my calendar to like, you know, think about the culture. you you end up just trying to

culture. you you end up just trying to make things better and then watching kind of what's going well and what's not and making observations and then here's

an example from maybe 2004 on we had open compensation so uh basically the top 100 or 500 people of the company could see all the

comp throughout the company and the rationale was then they could keep like similar people in a similar vein and uh and there would be more trust around uh

gender, around other dimensions that could be discriminatory because the data was all out for everyone to see. That

was all true. Um but it also created a lot of petty rivalries. You know, I make a, you know, huge amount of money, this other person makes a huge amount plus

$10,000 more. And um and so it got

$10,000 more. And um and so it got pretty distracting. And ultimately we

pretty distracting. And ultimately we put it to a question of the VPs about 10 years later, 2016.

uh and they decided to take it away from themselves and from everybody else and do the traditional uh you know you know your direct reports and their teams but

not the whole company. Um so I would say that was an experiment in human nature which got resolved pretty decisively to be less mavericky

but it ended up working a little better.

So again, we would take on an experimental view on things and that's a good example because then you can see like we're not um you know geniuses.

We're just willing to question things and try them. So we did open comp for a number of years and then uh decided that it's net costs were negative.

>> Another strategic question that always fascinated me about Netflix was how you determined how much to spend on originals and original content. as much

as we possibly could >> and and yeah, so say say more about just like the the core calculus or thinking there um I'm sure there would be some directors that would accept an unlimited amount of your money to make

>> well there's there's how much on any one show that's a different question but in terms of the total budget >> we would always try to shovel money into

that uh on the hopes of creating the great next you know K-pop demon hunters >> um in terms of any one show then the question is you know what's the

likelihood um based on what we've seen um that this is going to be big and it's also a competitive market and the very first original series that we had that helped make our reputation was House of

Cards and we had to bid that away from HBO. So as Media Rights Capital was

HBO. So as Media Rights Capital was making it, they had bids both from HBO and us and we were not we were a DVD company. Okay. So, we had to overpay um

company. Okay. So, we had to overpay um relative to HBO and uh and then they went with us. Um and we had to overpay by a bunch because, you know, it's a it's a lot of risk.

>> Yeah.

>> Uh and then they came through and made a fantastic show. Um and then we were off

fantastic show. Um and then we were off to the races and original content. And

it's a simple way to think about it almost like one would think about a venture capital portfolio or something that you want to make lots of bets and you don't know exactly which one's going to be K-pop Demon Hunters, but that

there being a K-pop Demon Hunters is the thing that matters that you have some dominant massive franchise.

>> Um, very much so. Uh, but it's similar to venture capital if every A round were 100 million and there was just an A round. So it tends to be pretty much a

round. So it tends to be pretty much a single round to >> fund the construction.

>> You do get sequels and other things you have option rights too.

>> Yeah.

>> Uh but that would be the big difference from venture. If you think about the

from venture. If you think about the portfolio of content, what else would surprise people about the conversations happening inside the business as you especially in the early days of

developing that portfolio? The key the considerations that matter to you as you expanded it so that it's a combination.

I mean, now it's so many things, but in the early days, you know, you're obviously making choices. It's House of Cards. It's not something else and

Cards. It's not something else and there's trade-offs. What what would

there's trade-offs. What what would surprise people about the conversations that led to the portfolio that that you ultimately chose? I mean everything for

ultimately chose? I mean everything for us was around reinforcing the brand and trying to figure out what should the brand be. So

brand be. So >> the cable networks um by necessity were narrow brands because they got one cable slot.

>> Yeah.

>> Okay. And so FX and Hallmark were both interesting doing different types of content but the handle on the brand gave you the type of content which was inherently pretty niche because it had

one network slot. and we were doing something that had all the network slots. And so then we spent a lot of

slots. And so then we spent a lot of time thinking about how much of the programming do we want to be Hallmark uh soft easy romantic stories feel good

versus uh FX and be sort of cutting edge and violent and dark um uh versus uh the comedy central. Okay. So, you know, our

comedy central. Okay. So, you know, our main issue relative to the industry was that we had this incredible breadth of content to choose from. And on any new

film or series, unless it's completely derivative, uh you know, there's just so many variables compared to other things. So, it ends up, you can do asset allocation, which

is how much in comedy, how much in drama.

>> Okay. But in terms of the stock picking, it ended up being intuition and people's judgment. And then we promoted those

judgment. And then we promoted those people with great judgment um who got this right again and again and had we called it great taste but they had more than taste. They had taste and judgment

than taste. They had taste and judgment about you know would the people deliver um would this come together and all kinds of ways. So it became just people picking and so then it's trying to

figure out uh how much money to put in each area and then the people in those areas would figure out how to best spend it. The other side of the equation of

it. The other side of the equation of course is the beauty of the business model is fixed cost for a piece of content and then a growing subscriber base across which to spread those costs.

But that requires that you grow the subscriber base. How did those two

subscriber base. How did those two interrelate? Like what did you learn

interrelate? Like what did you learn about what sorts of fixed spend on content would create you know great and reliable and high subscriber growth.

What I loved about Microsoft and Facebook's business is they at that point basically had one big product or you know maybe two highly related ones and then it was grow those products to

be you know 50 billion in revenue on a product. So when I started Netflix I was

product. So when I started Netflix I was like well thankfully we can do this as you know one uh really big product because entertainment is an extremely

large market. Basically, every human on

large market. Basically, every human on the planet watches television, okay, to varying degrees, but uh it's a deeply human thing to watch stories. Uh and so

then the question is, okay, what percent of that could we capture? And so, you know, even today we're only about Netflix is about 10% of US television.

We've got a long way to go and internationally it's less than that.

generally plenty of in terms of how do we think about uh subscriber growth. We

knew that if we could produce better television, make it lower cost and more enjoyable being on demand that there would be a huge market for it. So is it was kind of constrained on essentially

product quality. What kind of shows do

product quality. What kind of shows do we have? Now the streaming is kind of

we have? Now the streaming is kind of flawless and not differentiated between competitors. But for a decade we did it

competitors. But for a decade we did it much better than our peers. That other

90% is that defined as just traditional television or does that include like YouTube watched on >> No, YouTube uh is about 12%. I mean you know so >> so includes everything includes

everything sports video gaming it's uses of the television screen. I mean we compete for time uh on mobile phones too but we're very small there. it's not a

big use case. Um and television were a big use case but still um you know again under really it's under 10%.

>> If you think about that percentage as an important thing for Netflix the business what are the competitive frontiers or fields on which you feel like you're competing against something like YouTube. It's more easy to imagine

YouTube. It's more easy to imagine versus cable cable or network shows or something like this but versus something like YouTube that's sort of a a pure UGC platform. Do you think about it that

platform. Do you think about it that way? like we are competing against them

way? like we are competing against them and therefore we want to do certain things to win.

>> Well, they're growing and we're growing.

Um and traditional linear is shrinking.

So, you're right that um mostly we both compete with linear TV.

>> Um but we do worry about uh YouTube because it's sort of a substitution threat. Does it get better and better

threat. Does it get better and better with AI creators and it just becomes, you know, more and more of people's time? uh and that that's the user

time? uh and that that's the user generated world and it's not really user generated it's on spec that is there are some very professional people who make

content for YouTube but they don't get paid on it in advance then they put it up and they see what kind of ad revenues they get so in our case you know we preund the programs uh which gives them

a bigger budget they don't have to do it on spec um and that's really the biggest difference in the business model um but it's ultimately do we produce produce uh

content like The Perfect Neighbors, a a documentary that just came out, won all these awards and it's been the number one documentary this last month, you

know, clever, fresh perspective um content like that. Uh or K-pop Demon Hunters, which was our hit this summer.

So, you know, it's ability to create those hits.

>> What is that magic like? what what what is shared amongst the people like Ted and others that have been able to reliably and consistently create be a part of creating those big hits over

time.

>> If only it were reliable and consistent.

>> I I mean I think K-pop was probably our 30th animated film.

>> Fascinating.

>> Okay. So it's not at all uh reliable and consistent again >> it no it is a lot more like that of art and seeing the contrarian edge and what's the story I mean imagine the

pitch for K-pop demon hunters right you know uh so it doesn't fit a set of formulas um so in that way it is a lot like venture um and also that a few of the companies will generate outsized

returns >> what do you think will be the most interesting impacts of AI on on the Netflix business specifically and this could mean from the perspective of cost to create the content. It could mean for

the service, it could mean for any. How

do you how do you where does your mind go as you think about the raw capabilities of of the technology?

>> Well, visual effects is one um where uh there's a lot of that workflow that can be automated. But in terms of like

be automated. But in terms of like recognizing a K-pop demon hunters at a script stage uh you know or or pitch stage, which is the biggest value

creator, you know, which things do we back? um that will be a far distant uh

back? um that will be a far distant uh skill. So you know eventually AI might

skill. So you know eventually AI might eat up everything and be better than humans on everything. But you know in terms of the sequencing so think of a

when uh AI is not particularly incented and the companies are not to do long form character development but at some point they may do that and focus on that

and then the AIs will be winning the booker prize and you know uh doing the best fiction of the world and remember we're only interested in like the top 0.001%

of the of the stories that get written.

So simply writing a story, I mean there's a million film students, you know, we could just go to them. So the

issue is trying to find one that's really unusual, extraordinary, and recognizing that one early. So um I think AI will have had a lot of other

effects before it it uh hits us on that.

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>> Can you imagine kinds of innovation in the form factors or formats of shows?

Like it seems like we've got a couple, you know, there's the show, there's the documentary, there's the full length feature movie. Can you imagine lots of

feature movie. Can you imagine lots of different kinds of form factors starting to proliferate?

>> Well, let's um step back a second and think about contrarian thinking generally. So, you love contrarian

generally. So, you love contrarian thinking, right? But you probably need

thinking, right? But you probably need to remember that contrarian thinking most of the time is wrong, >> right? And once in a while it's right

>> right? And once in a while it's right and that's when you get the big reward.

But you have to say most of the time contrarian thinking is wrong. Um and the conventional thinking is right. So for

example on formats people have been trying to think about multi-ending design your own story uh you know short form uh you know there

was quibby there's all kinds of things right and the enduring aspect of a film at you know one and a half to three

hours as a story has stayed strong like the enduring form of a novel or the short story or the TV series. So these

things are tapping into something human um and that other things. So you got video gaming as a a different modality um and that's quite a bit different but

like most of the hybrids between TV series that you kind of interact with you know have been you know very small markets. It doesn't mean we won't

markets. It doesn't mean we won't eventually come up with a new art form that's quite different. Um but I don't

think it's as easy as um you know choose your own adventure. Those aspects the particular ones is we're in leanback mode um with uh TV and we're mostly

wanted to tell us a story. If you think of young kids, two-year-olds, they're half of the time they're like, you know, daddy read me a story and half of the time it's daddy play with me. And these

like are two different modalities um that are different. one is passive and I mean I again I think it's very biological and we're selected for it and one's very active and that but one of

those uh becomes TV and another becomes video game.

>> Um I'm also fascinated by the technology backbone and story behind Netflix the sort of invisible part of the business everyone just takes for granted they can hit a button and have this beautiful thing pop up but I know there's quite a

lot of building that happened behind the scenes. Can you tell that part of the

scenes. Can you tell that part of the Netflix story of what it took to the infrastructure-wise and technology-wise to make what we all enjoy possible?

>> Well, it's always been a sort of medium barrier to entry. Um, I would say uh first with DVDs and we had incredible sorting and shipping machines and postal integration and you know I used to spend

all this time on types of polycarbonate plastics that break and don't break and we were impressing plants and the biggest issue we had was that the DVD would get to you without cracking or shipping or being damaged if it was on

time. The postal carriers didn't steal

time. The postal carriers didn't steal it. So there was like you know a huge

it. So there was like you know a huge amount of machinery to shipping a million red envelopes a day consistently you know kind of FedEx style right and then certainly uh streaming the

mechanics of getting the bits to people uh you know was challenging. We first uh launched in 2007 and for probably 15 years the internet was underpowered and

you had to do a lot of clever engineering things but for the most part the you know there's a hundred companies that stream now uh consumers can't particularly tell a difference between

them. So I would say that's now just

them. So I would say that's now just become part of the base um uh systems and commoditized. What's unique is still

and commoditized. What's unique is still being able to do the AI recommendations.

Uh all the deep learning on what do you you know there's a thousand things on Netflix you would enjoy which one would you enjoy most at what time. Um you know

that's still a big area of uh tech innovation. Um the gaming is you know

innovation. Um the gaming is you know we're we're trying to push in different types of games and figure out gaming in addition to TV series and films. >> Why do gaming at all? Like if you're so

good at the core thing and there's room for scale still you're only 10%. Why why

bother with gaming?

>> Yeah. Um we used to just be movies um and you know then we expanded TV series and we're really glad we did that and then we expanded into unscripted content. Um you know Love is Blind. So

content. Um you know Love is Blind. So

we've always been expanding in new categories and gaming is just another category of entertainment. Um, and so we've got some cool stuff going on the TV where your uh phone is the remote

control which has uh, you know, higher latency, but it's easy for party mode type games and it's, you know, really fun on these sort of social interactions.

>> How do you know when to keep betting on something and how long-term to be behind something like like gaming is a great example. I'm sure there's examples of

example. I'm sure there's examples of things you tried that didn't ultimately work that you stopped doing.

>> Sure. Well, let's do one of those. If

you look at the New York Times, uh the January 2006, there was a launch of Netflix friends.

>> So this was friendto friend sharing about uh films and what you were watching. You know, Facebook was still

watching. You know, Facebook was still just at Harvard. Okay. And then we worked for two or three years on that.

Could we get people sharing? What DVDs

were you picking? Could you give each other? We tried different permission

other? We tried different permission schemes. Uh then Facebook started doing

schemes. Uh then Facebook started doing that whole integration, you know, where they did photos and you could share via Facebook. So then we said, "Okay, that's

Facebook. So then we said, "Okay, that's the problem. You don't want to set up

the problem. You don't want to set up your own network." And so let's all share via Facebook. And then that didn't work any better. Then we tried one or two other variants. But it was probably eight solid years. And that's part of

what got me on the Facebook board, which is trying to figure out more of this >> of, you know, how is social going to be?

And ultimately that probably got solved by Tik Tok.

>> How do you think about Tik Tok? What are

your impressions of it?

>> It's like old cable used to be. and

you'd change channels and you'd just be there numb changing channels >> uh looking for something to watch but really it was the numbness of the new or the endorphin hit of the new thing

constantly so it's hitting that part of uh enjoyment so I mean very creative as a business and all of that and very effective but I would say not a thing I want to spend a lot of time on

>> when you were CEO I'm curious how you thought about uh generating and keeping business power and then c- which leads to free cash flow and then allocation of

free cash flow. Those seem to be, you know, especially as once you've got product market fit and you're growing and you're huge, those are really important things. How much would you sit

important things. How much would you sit down and think about where does our power come from? Is it scale? Is it some other cornered resource? Is it some set of different things and and really like

guide the decisions to get more power?

How much was that like specifically on your mind?

>> Power is a way of saying above market margins. So the theory is that we can

margins. So the theory is that we can all earn a marginal rate of you know maybe 6%. Um but to earn above that is

maybe 6%. Um but to earn above that is because it's hard for competitors uh to do what you do. Um and then you can get an above market margin. So um we

definitely spent time thinking about that. You know which things should we

that. You know which things should we license our content exclusively non-exclusively our deals on televisions and those kinds of things. They would

often want to tax us. So a typical television maker thinks well Netflix you're making a lot of money so if I'm putting the app uh you know on the TV I

want 30% like Apple gets. Okay so there would be battles over that and then power is essentially could they sell a TV without Netflix or could we how many

members would we lose if um Sony televisions for example didn't have the Netflix app. So that's an example of of

Netflix app. So that's an example of of how that worked out. Amazon and Bezos very famously uh for constantly reallocating capital back into the business to keep generating more

customer benefit which you know obviously Netflix has done as well. How

did you think or would you think about the point of the in the company's life cycle to do more harvesting to pay dividends to buy back shares to do this sort of thing and just I'm just so curious how you thought through like the

capital allocators toolkit of the things that you could do with the capital that you were generating. Well, in most businesses that's highly material, you know, building a lot more warehouses or

something. Um, but honestly for Netflix,

something. Um, but honestly for Netflix, there's very little the capital allocation. There's the total budget and

allocation. There's the total budget and per show. But the biggest shows we have

per show. But the biggest shows we have like Stranger Things were less than 1% of viewing in a year. So, we we have extreme non-conentration um and you know, lots of different

budgets and spread. There was very little capex of any long-term nature.

margins were pretty close to free cash flow and then we just have always done buybacks with it rather than build it up. It wasn't probably the related

up. It wasn't probably the related tension was how profitable how soon.

Okay. So, uh it wasn't a strictly cash one. is essentially a P&L margin

one. is essentially a P&L margin question. And what we decided is let's

question. And what we decided is let's have uh low margins relative to cable um which ran at like 35 40% margins so that

we can invest a higher percentage of revenue into the content to have better content for our revenue level than we would otherwise. Yeah.

would otherwise. Yeah.

>> And that became the fundamental lens that we ran the business and they still run it today.

>> How did you know when it was time to leave being full-time CEO? Uh because

Greg and Ted were ready. Um so uh you know I've been developing them for at least a decade. Um and I felt like coming out of COVID they were ready. Uh

and then unless I was going to be around for another decade and train a different set of people to take over this was the time. Um so it was really driven from um

time. Um so it was really driven from um uh them and since they took over they've tripled the stock and you know they've done incredibly well. How does something like the set of ideas we've talked about

so far translate to a totally different domain like what you're doing with Powder Mountain? Like it seems is such a

Powder Mountain? Like it seems is such a wildly different project um in almost every way that I can imagine. It's very

very different. How much directly translates and how much needs to be left behind given the different nature of the project?

>> So Powder Mountain is a ski mountain and real estate uh development uh that fell on hard times in Utah. So the original people running it ran out of money. So

they never finished a lot of the project. We happen to have a house there

project. We happen to have a house there and love the place. It's, you know, natural beauty is insane. It's 10,000

acres. And so after retiring from Netflix, I decided to take control of it, invest in it, and do a turnaround.

And so then it's rebuilding the staff, rebuilding the vision. Um and I would say uh 90 plus percent of talent density

no rules rules um the whole model has worked extremely well and the ability to move fast uh hire incredible people have them do things. It's everyone being very

creative and I would say the talent density model uh has has been worth the pain i.e the turnover and has created an

pain i.e the turnover and has created an amazing set of uh leaders throughout the company.

>> How did you approach it from the beginning in terms of the original vision and plan? So, it's a distressed asset um that you go in and and buy. How

do you determine the initial vision and then what were the first couple steps to execute against it?

>> There it was a series of transactions to gain control. So, it took six months to

gain control. So, it took six months to buy out a majority of uh the company of the shareholders to have control.

everyone wants the billionaire to pay a lot and being clear with them that you know that this thing could collapse and you know if if I don't come in that was stage one then stage two was figuring

out okay this is a great mountain um but if half of it were private uh like Yellowstone club and half stayed public as it was uh then it could be a real

win-win where they share operating costs and are more efficient um and we can then have a very uncrowded resort on the

public side. Um, which gets to uh

public side. Um, which gets to uh something that's gone on in the ski industry, which is high crowds. So, it

gets to compete with that. And then on the private side, it's building a 650 home community of uh ski lovers where they get their basically their own

enormous ski resort uh the size of Heavenly or Veil um just for the 600 home. So, it's it's pretty spectacular

home. So, it's it's pretty spectacular >> in terms of uh what drives the ski business. Yeah.

business. Yeah.

>> What what aside from the real estate stuff, what are the most important variables or considerations that you you've figured out in your studying of its history?

>> Yeah, skiing uh is about uh 1/8 or onetenth as big as golf in terms of number of people and uh playing. So, I'd

love to close some of that gap. You

know, it's cold. Um but it's very family oriented. You get outdoors. It's social

oriented. You get outdoors. It's social

with your friends on the lift. It's got

some of those same properties.

Interestingly, there there are 25,000 uh golf courses in the US. Uh and about 20% 4,000 are private golf courses. And

private golf courses, you get better tea times, the uh nice clubhouse atmosphere, social, you get to know people. And

that's really what it is for private skiing. Also, there's about 500 ski

skiing. Also, there's about 500 ski areas instead of 25,000, but only three are private. Yellowstone club, uh Wasach

are private. Yellowstone club, uh Wasach Peaks Ranch, uh and Powder. Uh so it's very underserved market relative to uh golf.

>> What's most fun about it to you? The

whole project >> that it's very rightrained. Um

everything at uh Netflix was very strategic, collogical. Um a lot of big

strategic, collogical. Um a lot of big competitors. Um in skiing the

competitors. Um in skiing the competitors are very cooperative. It's I

think because you have, you know, 20 or 30 miles between you and um so it's a lot more collegial. Um and it's aesthetic. The the big wins we've done

aesthetic. The the big wins we've done have been uh building up the art at Powder Mountain. Uh so there's got a lot

Powder Mountain. Uh so there's got a lot of outdoor land art that's incredibly beautiful to uh ski through. So if

you've had the good fortune to go to Storm King north of Manhattan. Okay. So

think of Storm King on a ski mountain.

>> Skiing through it.

>> Yes. And skiing through it. That's

>> Tell me about that part of it. So, how

did you conceive of that and how did you execute it? Like how do you how does one

execute it? Like how do you how does one acquire Storm King like art for a ski mountain?

>> Um well I think that for your audience the conceptual parts the key which is we wanted to have a ski resort and to differentiate. Okay. So what are we

differentiate. Okay. So what are we going to do in summer? Well you could do zip lines and mountain biking but it's like it's all been done over and over and frankly it's high adrenaline and

it's like okay but it's not that great a match for real estate sales. Um, but

most importantly, it's conventional.

It's been done. So, what's like interesting and scalable and and uh fantastic, but hasn't been done, and that's the art part. And, you know, I'd

been to Storm King, but Storm King is a level 600 acres. Um, so it's not like in a mountain, but it is outdoor sculpture and incredibly stunning. Um, so again,

it was that synthesis to then trying to do that uh on a mountain. Um, and then it was building in the curators and getting the work going and now we've got

uh, you know, dozens of pieces already in and a lot more coming and that that side's really coming together as the heart of our summer fall experience.

>> How did you decide to focus so much on education as one of the buckets of your time? We talked about Powder Mountain,

time? We talked about Powder Mountain, but education, charter schools, etc. is a huge chunk of your time and and philanthropy as well. What was it about that sector that drew you? And I'm just curious for you to riff on the problems

that you see in the space.

>> Yeah, it's interesting. I I spend probably a third of my time on Powder Mountain because it's a joy. And then on the education side, I was a high school math teacher as my first job out of

college. And so I've always, you know,

college. And so I've always, you know, uh cared about K12 and I've done a lot of philanthropy in that sector over the last 25 years. And then the new big

thing is AI. So, it's easy to then put those together and how are we going to apply AI and it's super well articulated by your your prior uh guest around alpha

school um is kids should be taught individually as opposed to having a teacher stand in front of a class uh and lecture to them and that that um

industrial model of the teacher the sage on a stage we call it um you know needs to be replaced with individualized tutoring.

Prior to AI, individualized tutoring would cost you, you know, $100,000 a year per kid. So, out of reach of everyone. And so now with software, we

everyone. And so now with software, we can have individualized instruction. And

the teachers become more like social workers where they're helping on discussion, uh, social emotional learning, uh, a lot of the more human

and emotional factors. But the content transfer um you know what were the roots of the civil war how to do fractions um that's all becoming software and

hopefully as quickly as possible because then it's very global and because kids will learn more.

>> What do you think we can do to speed that up the most? You mentioned it could take decades because of the regulated nature of the of schools. Things move

slowly. What could we do that could speed that up? It's focused on apps that really help kids learn more. It's

helping parents see that um they all wonder, hey, with AI coming, you know, and my kids uh six or 16, what's going to happen to them in the workplace? And

they need, you know, more and better skills than ever. Um that and you know, every 16-year-old is learning things,

you know, on uh AI anyway. So, it's

having them be more uh focused on that and less on traditional classrooms. And you know, when you think about classrooms, we use it uh in K12, we use it in college, and then like in the

workplace, we never use it again. You

know, you did all this classroom learning and it has like no bearing in um you know, the your working life. And

so, again, it's really driving the percentage of kids time um that's not in a classroom. you know, as Joe says, it's

a classroom. you know, as Joe says, it's helping kids really love school um because then they'll continue to love learning and the classroom and the

boredom and frustration of that is uh at the heart of it.

>> I'm curious as you think about the future just broadly across all your interests. Uh you've got a cool purview

interests. Uh you've got a cool purview on the world. What most worries you and must what most excites you about the future? um part of the anthropic camp

future? um part of the anthropic camp where it's good to talk about the negatives, not because we think they're going to happen, but because we'll lower the chance of them happening if we're

honest and talk about them. So, uh I don't think the AI boomer and doomer thing is that useful. I think we all uh want to acknowledge there's some pretty

significant risks. Um but they're not

significant risks. Um but they're not dispositive and that we humans may be able to capture tremendous benefit by harnessing AI uh for higher quality of

life on a global basis. I'm on team human for making that happen. Um but I would say that's the biggest uh you know swing factor of the next uh 50 years is

how well we do that.

>> What do you think the biggest risks are?

Well, the near-term risks are unemployment causes uh societal chaos and strife. So, if you were to get a lot

and strife. So, if you were to get a lot of unemployment, um then you might get radical politicians promising to get rid of AI or promising to do other things

and that destabilizes society. there's

the long-term power competition between us and say China and then you know is war become you know how many robots do you produce and you know it' be unfortunate if we both end up having to

spend a bunch of money on that because of distrust kind of a new cold war would soak up a lot of uh GDP growth um and the benefit side would be that you know

we cure disease we get nuclear fusion with you know huge amounts of lowcost energy um humans don't have to work as much, maybe not at all. They get to do

things like learn chess and learn how to play all kinds of games. All learn you learn biology for fun like you learn chess today. Um so there's tremendous

chess today. Um so there's tremendous upside uh to automating a lot of this um and taking it to the next level.

>> My traditional closing question for every interview is the same. What is the kindest thing that anyone's ever done for you? 30 years ago I worked at a

for you? 30 years ago I worked at a startup. Um I was a frontline engineer

startup. Um I was a frontline engineer you know 28 so you know doing all nighters all the time. Um and I used to

have uh coffee cups uh spread around my desk and you know over a couple days it would get kind of ugly and messy and and then the janitor every now and then would clean them all and I'd come in

there'd be clean mugs and I didn't think about it that much. one morning woke up early and in those days you had to go in the office because of the computers were there. You couldn't take them home. Uh

there. You couldn't take them home. Uh

so I went into the office at you know 4:35 in the morning. Uh walked in went into the bathroom uh and there was my

CEO uh washing coffee cups and I looked at him and I was like uh Barry are those my cups? And he said yeah. And I said

my cups? And he said yeah. And I said have you been washing my cups all year?

And he said yeah. And I said, "Why?" And

he said, "You do so much for us, and this is the one thing I could do for you."

you." >> And uh you know, I was just very moved uh about his humility and his uh caring,

kindness in in your question. Um and so I felt like, God, I'll follow this guy to the ends of the earth. And so simple gestures.

>> Holy cow. Great story. Amazing place to close. Thank you so much for your time.

close. Thank you so much for your time.

>> Real pleasure, Patrick.

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