david: this is my kitchen table

and it's also my filing system. over much of the past three decades i've been an investor. the highest calling of mankind i've often thought was private equity. and then i started interviewing. i watch her interview so i know how to do some interviews. i've learned from doing my interviews how leaders make it to the top. jeff: i asked how much he wanted, he said 250, i did not negotiate and i did no due diligence. david: i have something i'd like to sell. and how they stay there. you don't feel inadequate being only the second wealthiest man in the world, is that right? one of the most valuable entertainment companies in the world in one of the most popular entertainment companies in the world's netflix. it currently has more than 270 5 million subscribers. i recently had a chance in washington, d.c. to sit down with the co-ceo of that company and ask him how he got started in this company and a modest background and how he now sees the future of netflix. when you join netflix in 2000,

the company was about three years old, but relatively small. did you ever in your wildest dreams imagine the company would be one of the most valuable companies in the world and you would have today, a market value of over $300 billion? ted: the short answer to that question is no. when we joined we had a couple hundred people, including the people who were stuffing dvd envelopes back then. blockbuster was the biggest entertainment brand in the world with a market cap of about $8 billion. they were definitely the biggest in terms of global footprint. most people watch their movies renting a dvd from blockbuster. at 8 billion, that seemed almost unattainable when we went public in 2002, about 200 50 million. david: for people who were too young to remember, blockbuster was a place he would go to buy something called a dvd and you went there, you rented them, then he put them back on your vcr, for a couple of days, like a library brook you would bring them back and so forth.

the novelty that netflix out when it started in 1997 was that you didn't have to go to a blockbuster, you could order something, i guess online, then he would have it sent to you by fedex or a company. ted: through usps. david: who came up with the idea saying fedex is old and mailing is old and we ought to go to streaming? ted: the company was always conceived to be a digital company. reed hastings was taking about it very much, so when he named the company called it netflix, not dvd flicks. this idea when i met him in 1999, he describes netflix pretty much like it is right now. this was at a time when literally no entertainment was coming into the home on the internet and he described a world where all home entertainment would come in on the internet. david: when streaming came along, the theory was that people would be willing to pay a monthly subscribing rate, and

that they would see programming they couldn't otherwise easily get. but the idea of doing your own programming was relatively novel. you are seen as the person who came up with the idea of not just taking stuff that's already out there, the 100,000 things that might already be available, but producing your own programming for netflix, so where did you get the idea from? >> in the very beginning we didn't think about doing original programming because it wasn't the problem we were trying to solve. the problem was distribution and the consumer relationship with how to watch a movie. you go to the video store, you rent it, you return it, you pay a late fee if you are late. it was a clunky way to distribute things. the subscription model gave the people the ability not to ever have a late fee. they could pick and choose however they wanted things. so we were solving a distribution problem, and the other one was may be a bigger problem, which was marketing. incredibly inefficient to market movies and tv shows to people because tastes are so diverse

and so eclectic that in order for me to tell you about a movie that i think you might like, i would probably have to take out an ad in the newspaper until the whole city about it and hope that you see it. david: the industry lore is that you got this off the ground by agreeing to pay $100 million to a new show that had not showed. it was house of cards. >> is all about location, location, location. david: it had not produced anything yet but it was a concept. when you told reed hastings i just spent $100 million to buy something that doesn't exist yet, did he say, great idea? ted: no, a little surprise, when i explained it to him he was very supportive of it immediately. you have to remember he created the cost -- this company culture that enabled me to take a big swing like that. for me, i looked at it as a classic risk-reward. yes, this is a lot of money. if this doesn't work we will have dramatically overpaid for a show. which we are at risk of doing all the time.

but if it does work, we could fundamentally change the course of the business. david: if it didn't work, did you think you might be out of a job? ted: i prepared my wife it could be a possibility. i said it was fireball. david: there's another idea that you are credited with coming up with, which is called binge watching, i guess i would call it, i don't know if you like that word. ted: i didn't initially. david: as i understand, historically when there was a tv series on, he watched a series episode one week, the next week you watch the second one and so on. you came up with the idea of having the ability to watch everything at once, more or less. binge watching. did you come up with that idea or did it evolve some way? ted: it was heavily informed by what people were doing in the earliest days on dvd. i notice we would have discs that would have four episodes of a show on it and they would turn very fast because people were

turning to the show as quick as they could. then we started streaming we were licensing shows that already aired on television, so we got them a year later but we got the whole season and put it all out. and you notice people watch two episodes at a time, some people fast becausewatch three, nobod. so when we got house of cards we had to decide how to release it. i said, why don't we just put lihe other thousands of things are on netflix end to it all at once and see what happens. david: in the technology world summit he might have a great idea and they have an advance on somebody for two years or so and everybody else figures out what they should be doing and they catch up and sometimes they have more resources and be the original person who came up with the concept. we worried that companies would figure out streaming and then wipe you out where you were never worried about it? ted: i always worried about it. we couldn't believe it took so long for them to catch up. it's one of the motivators to make our own content. i was pretty sure that if we were right, that all of these people who were supplying us

their old shows would never sell to us. david: when he started producing your own shows and making her own shows, did you become the most popular person in hollywood? all the sudden you have somebody who could greenlight something and then did you go out to dinner or lunch without having people descend upon you with scripts and so forth? how did you deal with all that? ted: it was heavy because they knew -- a new buyer was popular in town. it was never limited to business hours. if i was at a restaurant with my wife, someone would come in and start pitching at the table. somebody tells these people in film school, if you ever see a buyer anywhere, sell to them. david: nobody came up at lunch with an idea? ted: i can't think of one. david: there's been a lot of consolidation in the entertainment world. time warner was sold and then you've got paramount now being sold. is all of this good for you because there's consolidation and then you have fewer people to compete with or is it not so good because you have more powerful people that can compete against you?

ted: a little bit of both, competition has been very good. i usually don't talk about other people shows publicly, but someone asked me recently, what's a show that's not on netflix that you like and i said, the bear. the reason i talk about the show is because i think it raises the bar for everybody. you have a competition out there to keep pushing you. david: the consolidation want to clarify your vitamin if a few studios because that's not in your house of cards kind of thing? ted: we are mostly builders, we have done a handful of small ip acquisitions over the years, that may change in the next few years, but for now, we are -- without the -- i would say a big library of ip could be a really nice benefit. for us, that has really been a benefit not to have it because it has pushed us to make a original creative things not to stay corralled into one school of ip. we are spending $17 billion on our programming and as our revenue grows, that number will

keep growing because we do think there is an incredible appetite for more movies and more tv shows that people love. david: a few years ago there was a writer's strike in hollywood in one of the issues with how you deal with artificial intelligence. how do you prevent artificial intelligence from taking over what writers do and how do you compensate them when artificial intelligence does something that adds to what they've already done? is artificial intelligence an important part of your business and how do you use ai with deciding what and how to produce ? ted: i think of ai as a creator's tool, not a creative tool. i think creators will use it to tell better stories. you're not using it to tell stories instead of that. and i don't think we would be very effective at it for ai would be effective at doing that instead of people. david: when you put something on netflix, you can analyze within an hour or so or maybe 10 minutes when the people are watching it, do you get those data algorithms that show you exactly how much people like it

and do you actually change things after you see what people like, how do you deal with the instant feedback you get? ted: what i'm really looking for is if they watch episode one, do they roll in to episode two, and do they get the three, how much time is a spending? we are in a unique place -- place and entertaining history where every time he released a new movie or tv show, used only compete with three other shows on three other networks. today you compete with every single thing ever made. one click away you can switch to something else. you want to watch these things -- if you push play, do you stick around? that's the biggest indicator of did we do it right. david: let's talk about today were netflix is. today you have how many subscribers? ted: 270 7 million subscribers. you figure, a couple of people per household watching, fewer should now over 500 million people. david: 200 77 million subscribers are more than half

in the united states? ted: 70% outside the united states. david: what is the second-biggest country other than the united states? ted: we report territory by region. if the second largest, but we are very big in the u.k., brazil. david: for 20 plus years your subscriber numbers went up every month without fail, than one month you announced on quarterly earnings that subscribers went down a little bit, all of a sudden the world took a large part of your market capitalization away, were you shocked that people were upset about the fact that you lost a few subscribers compared to where you thought it should be? ted: the magnitude was shocking but we knew the fundamentals of the business were in tact. you had the whipsaw effect from covid, a lot of things were happening that we are still trying to figure out, but it was a temporary blip, but it was a hard thud. david: when your market cap has come way back in higher than it has ever been, so that flip was

not a big problem i guess, but one of the things you did that also upset people for a while was you said you can't use your passcode to give it to somebody else and historically, as i understand it, somebody could say to his friend, i have a passcode for netflix, why don't you use it and i suppose that was taking revenue away from you. how did you figure out how big the problem was and how did you have the courage to say, no more of that and not worry people would get rid of their netflix subscription? ted: there was a couple of problems, one was revenue. the other part was the personalization helping you find something to watch works better if you don't have five or six different people using your account. for us, it was a way to really hone in with the personalization technology, but also a way to test the value proposition. our average members are watching about two hours of netflix every day. when you would go back out to people and say, you know the thing you are using for two hours a day and not paying for, we would like you to get your own account. what's turned out nicely as most

paper -- most people said, that's well worth it for me to do. ♪

david: when i had my company and i was the co-ceo i had a co-ceo i started with. we had different responsibilities and it worked out reasonably well. you have a co-ceo, initially, the company was started by reed hastings that he asked you to be the co-ceo, were you surprised that the founder of a company talk to somebody who had been employed and made him the co-ceo, was that a surprise? ted: it would be a shock if i didn't know him that well at the time because the first time i met reed in 1999 he talked about this desire to build a company that would be around decades and centuries after him. so, he first saw some kind of succession already.

i believe that he saw this succession that we just went through recently, 15 years ago and start acting on it 12 years ago. which is very unusual as you point out, for a founder, but for somebody who is really thinking about the company first and the longevity of a company first, he has been amazing. david: he's executive chairman now, not involve day-to-day, when he stepped back did you say i should be the sole ceo or did you say i want to co-ceo in addition to my responsibilities. ted: in classic fashion, he modeled something that really worked and we did it together for a few years, so i really got the sense of how well it works. greg and i -- read and i worked together for more than 20 years and greg and i were together for 20 years. we had the same, similar short hands. complementary skill sets and we push each other in a healthy way. what's cool about having a co-ceo, this saying -- usually sayings are rooted in reality, i think there's something to that.

having somebody to be able to kick around hard problems with that is in an employee or board member is really helpful. ted -- david: where were you born? ted: i was born in long branch, new jersey. i was there for a few years and my family moved to phoenix, arizona and i was raised in phoenix. david: was it unusual to go from new jersey to arizona? ted: my grandfather, who was a greek immigrant, grew up reading cowboy novels. actually, when he came to america, he came to be a trail cook, he but there was a real job in america and he ended up being a cook cook, but he loved the american west and he always talked about it and he took one vacation in his life and it was to arizona and he saw a rodeo and he wore a bolo tie every day until the day he died and talked about rodeo in arizona, so when he passed away, all eight of his kids moved to arizona. david: so how old were you when you move to arizona?

ted: six years old. david: did you say we are going to watch the cowboys? what if you think about that? ted: we didn't see any cowboys, it was a pretty small town back then, arizona. my father passed away recently but he was an electrician and my mom was a stay-at-home mom who took care of myself and my three older sisters and a younger brother that i just recently lost. david: when you were a boy, what were you interested in, did you want to be an athlete, and artists, what'd you want to be? ted: from the earliest of what i wanted to do i wanted to be a journalist. from probably 10 years old or so. but i loved movies and television. my parents were young, that the house was pretty chaotic, i kind of like to order and i liked the order that i saw on television. i liked those families that sat down for dinner, we did not do that in my growing up, and the

schedule of television i found it to be very appealing, but i really fell in love with movies and television at a pretty young age. through that, i saw journalists as heroes and i always wanted to be a journalist. david: you graduate from high school and then what did you do? ted: i was the editor of the school newspaper in high school and then i went to community college because i couldn't afford university at the time. i was editing the college paper, the community college newspaper, glendale community college. there i met a lot of really incredible people, probably one of the more influential ones was ed adams -- ed asner who made this connection for me between entertainment and politics, and just opened my mind to a different world. now, i also had an epiphany that time that i was in a very good writer, likely i was not going to be a professional journalist. david: eventually you got a job at a video store. david: that was mike -- ted: that was my part-time job when i

went to glendale community college, when i realized i wasn't going to pursue that degree, i dropped out and it was meant to be a year but it turned out to be a permanent move to business. david: i understand you became so knowledgeable about videos that when people come in and asked what to rent, you had seen a lot of the videos and could make recommendations. people came in because they liked your recommendations and wanted to see what you would recommend. ted: it's true, we did not have the money for, my mom bought a vcr, i didn't know anyone else who had a vcr. serendipitously, the second video store in the state of arizona opened up a few blocks from my house, so i started devouring movies by renting them, then i get a job at that store in the stores are empty all day so you can watch movies all day. i watch everything the story. i had a pretty bleak memory from back then and i could remember what people like when they brought something back and i remembered that was like this and this was like that and sometimes the store would get so busy but people would wait for me so they could asked me what

to watch. david: did you go to the owner of the store and say i should be the manager of the story, i'm so popular, how did you think you would advance your career by being knowledgeable about these videos? ted: it was in a plan he came to me and said, i love what you do here, my wife has had a couple of kids since you've been here in business has been growing -- growing, he says i never see my wife and i need to take some time off and would you take things over and he gave me the keys to a video rental chain and it was an nba course in film school all wrapped into one for me. david: how did you go from there to netflix? ted: in between i went to home video distribution, so the companies that sold the vhs and dvd's to the video stores. while i was there, i did a pretty unique deal with warner bros. and sony to revenue share dvds, which had not been done before. reed hastings -- i got written about in a trade magazine and he read it and said, this is what we need, so a mutual friend introduced us.

david: if that article had not been in that trade press you would still be at the dvd store? ted: no, that one store is still open. i feel like one approach that we put into netflix and into programming and films and tv in our games is that we put the audience first and think about how are they going to love at first. we will build a business model around it, but think about pleasing the audience first. ♪ david: the company is extremely successful, the problems you may have had seem to be behind you, so what is the future of netflix, do you think you could keep growing the subscriber base or how do you view your future success? what is your goal to be in the future to do? ted: i think we have plenty of room to grow both the subscriber base and revenue with the long runway. 277 million sounds like a lot of folks, but you could double that and still not be halfway to wet the pay television universe was.

this is a much better product, economically, choice, control and all the things that go into it. i think there's plenty of room to continue to grow. the spaces we are in, professional television, game, this is a $600 billion consumer spend market that we are at in 5% of. we only get 10% of screen time today. 10% of the time you're watching something on television, you're watching netflix, a lot of room to grow. david: you are always pitched on new projects that you will presumably do in the future, you are in sports now, games i guess, you could say you are into the traditional content you have, are you going to do news at some point? ted: it's a pretty well served market. there's a lot of choices of how to get to news, there hasn't been an expertise of ours yet, so we aren't really looking at that. david: the most important thing people want is interview shows. ted: i have a feeling this would be a good pilot for one. ♪

david: what is the last thing you watch on netflix and if i say i want to watch one thing on netflix, what do you think i should watch? ted: the first part of that is, the thing i like to watch the most on netflix is the things that my wife and i can watch together, we do not have similar tastes in movies and television. every once in a while you find something you really love to watch together and that was the new season of emily in paris that we just binged through in two sittings, she loved it and

it was very fun for me as well. for you, we have a new show coming in, just starting this week called monsters, the eric m wolman in this story, ryan murphy, who created dahmer, it is a phenomenal drama. david: let's talk about your future, you are now in the company for how many years? ted: 25. and i'm 60 or so. david: that's a teenager to me. you are very young, so do you have any interest in ever going to government, could public service, running for office, being an ambassador, that kind of thing? ted: i can't see myself running for office, but i would love to be of service to the country. david: at some point you might do that, did your parents live to see your success and did they ever tell you how proud they were of you? ted: my dad passed away two years ago, and he did see the success and i don't think he totally understood what i did,

but he knew that it was pretty cool and he knew because people would tell him, that's pretty cool what your son does. and my mom unfortunately passed away before netflix became what it is today, but, at the beginning, when we first start a house of cards days we would show up on all the award shows, my mom liked to watch a lot of television, so she would always love to see me on television at an awards show and she would call me every once in a while and say i'm watching this award show, are you there and i would say, no, i'm not a part of that. so she really got a kick out of it all. but they didn't get to see all of it, but they got a sense of it. david: did they have a netflix subscription? ted: i bought them one. david: what would you like to see is your legacy to the world of entertainment? what do you think your legacy should or would be? ted: i hope it is or will be your hua -- however you want to phrase it will be the guy that put the audience first.

tony bennett was a great friend of mine and he was my hero and he said it best, he said the audience is the most important member of the band. and i feel like one approach that we put into netflix and into the programming and into our films and tv and games is that we put the audience first and think about how are they going to love it first. we will build the business model around it. but think about pleasing the audience first. ♪

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