david: this is my kitchen table, and it's also my filing system.

over much of the past three decades, i have been an investor. the highest calling of mankind, i've often thought, is private equity. [laughter] and then i started interviewing. i watch your interviews, and 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 him how much he wanted, he said 250, i said fine. i did not negotiate and i did no due diligence. david: i have something i'd like to sell. [laughter] and how they stay there. you don't feel inadequate now being only the second wealthiest man in the world, is that right? one of the most valuable entertainment companies in the world, and one of the most popular entertainment companies, is netflix. it currently has more than 275 million subscribers. i recently had a chance in washington, d.c., to sit down with the co-ceo of that company, ted sarandos, and asked how he started the company from a modest background, and how he now sees the future of netflix. so, when you joined 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. i think 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. i mean, most people watched their movies renting a dvd from blockbuster. and at $8 billion, that seemed unattainable. when we went public in 2002, that was for about $250 million. david: for people who are too young to remember this, blockbuster was a place you could go to buy something called a dvd. you went there, you rented them, then you put them back on your vcr, for a couple of days, like a library book, you bring it back, and so forth. the novelty that netflix had when it first started in 1997 was that you didn't have to go to a blockbuster, you could

order something, i guess online, and then you would have it sent to you by a fedex or equivalent company. ted: it came right through the u.s. mail. usps. david: ok, so who came up with the idea said said, fedex is old and mailing is old and we ought to go to streaming? who was the brilliant person who came up with that idea? ted: the company was always conceived to be a digital company. reed hastings, when he came up with this idea, was thinking about it when he named the company. he called it "netflix," not "dvdflix." when i met reed in 1999, he describes netflix pretty much like it is right now. and this was at a time when literally no entertainment was coming into the home on the internet. he described a world where all home entertainment would come in on the internet. david: and so, when streaming came along, the theory was that people would be willing to pay a, let's say, monthly subscribing rate, then they would see programming that they could not otherwise easily get. but the idea of doing your own

programming was 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. where did you get the idea from? ted: in the very beginning, we did not think much about doing original programming, because that wasn't the problem we were trying to solve. the problem was really 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 very clunky way to distribute things. this way, their 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, one. and the other one was maybe a bigger problem, which was marketing. it was incredibly inefficient to market movies and tv shows to people, because tastes are so diverse and so eclectic. in order for me to tell you about a movie i think you might like, i'd have to take an ad out

in the newspaper and tell the whole city about it and hope that you'd see it. david: so the industry lore is that you got this off the ground by agreeing to pay $100 million to a new show that had not actually showed yet. it was "house of cards." >> power is a lot like real estate. it's all about location, location, location. david: it had not produced anything yet, it was a concept. when you told reed hastings, guess what, i just spent $100 million to buy something that doesn't exist yet, did he say, great idea? ted: no, he was a little surprised. but when i explained it to him, he was supportive immediately. you have to remember, reed created this company culture that enabled me to take a big swing like that. and for me, i looked at it as classic risk-reward. yes, this was a lot of money. if this doesn't work, we would have dramatically overpaid for a show. which we are kind of at risk for 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 told my wife this was a possibility. she said, will you get fired if this doesn't work? i said, well, it's firable. david: there's another idea you were credited with, binge watching, i guess you would call it. i don't know if you like that word. ted: i didn't initially. david: if i understand binge watching, historically, when there was a tv series on, you watched a series episode one week, and then the next week, you can watch a second one, and so on. you came up with the idea of the ability to watch everything at once, more or less. binge watching is what they call it. did you come up with that idea, or did it evolve some way? how did it come about? ted: it was heavily informed by what people were doing in the earliest days on dvd. i noticed that we would have discs that had four episodes of a show on it, and they would turn very fast. because people were churning through the shows as quick as they could. and then, when we started

streaming, we were licensing shows that had already aired on television. so we got them a year later, but we got the whole season and just put it all out. i noticed some people would watch two episodes at a time, some people watched three. nobody watched one. so when we got "house of cards," we had to decide how to release it. i said, why don't we just put it out like all the other thousands of things on netflix, all at once, and see what happens? david: sometimes in the business world, in the technology world, somebody might have a great idea, and they have an advance for maybe two years, and everybody else figures out what they should be doing. they catch up and sometimes have more resources. they beat the people who came up with the original concept. were you worried that companies that have programming like disney would figure out streaming and wipe you out? or were you never worried about that? ted: i was always worried. we couldn't believe it took them so long to catch up to it. in fact, it's one of the motivators to make our own content. i was pretty sure that if we we were right, that all of these people supplying their old shows would never sell to us. david: when you started producing shows and making your own shows, did you become the

most popular person in hollywood? because all of a sudden, somebody has somebody who could greenlight something. could 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: yeah, it was heavy, because a new buyer is very popular in town. it was never limited just to business hours. if i was out at a restaurant with my wife, someone would come and start pitching away at the table. somebody tells these people in film school, if you ever see a buyer anywhere, sell to them. [laughter] david: does that ever work? ted: it never works. david: no one came up at lunch with an idea? ted: i can't think of one. david: now, there's been a lot of consolidation in recent years in the entertainment world. time warner was sold, in effect, and now you've got paramount 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 to compete against you? ted: a little bit of both. i think competition has been very good. i usually don't talk about other

people's 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 want competition out there to keep pushing you. david: but the consolidation won't occur with your studio, it's not in your "house of cards" kind of thing? ted: we are mostly builders. we had done a handful of small ip acquisitions over the years. that may change in the next few years. but, for now, without -- i would say, a big library of ip, can be a nice benefit. for us it has been a benefit not to have it, because it has pushed us to make really original, creative things and not to stay corralled into one school of ip. we're spending about $17 billion on our programming. as our revenue grows, that number will keep growing. because we do think that 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. and one of the issues before it got resolved was how do 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 have already done? is artificial intelligence an important part of your business now, and how do you use ai deciding what to produce and how to produce it? ted: for me, i mostly think of ai as a creator's tool, not a creative tool. so i think creators will use it to tell better stories. we are not using it to tell stories instead of them. i don't think we would be very effective at it, or ai would be very effective at doing that instead of people. david: when you put something on netflix, you can analyze within an hour or so, maybe 10 minutes, whether people that are watching it. do you get those data algorithms that show you exactly how much people like it, and do you 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 on episode two, and if they do two, do they get to three, and how much time are they spending? we are in a really unique place in entertainment history right now, where every time you release a new movie or tv show, you used to only compete with three other shows on three other networks. today, you compete with every single thing ever made. and one click away you can switch to something else. so you want to watch these things, or if you push play, do you stick around? that, to me, is the biggest indicator of, did we do it right? david: so let's talk about today where netflix is. today, you have how many subscribers? ted: 277 million subscribers. so, you figure a couple of people per household watching. you have viewership now of over 500 million people. david: so 277 million subscribers, are more than half in the united states? ted: about 70% outside the united states. david: 70% outside! what is the second-biggest

country other than the united states? ted: we report by territory, by region. so, amea is the second largest outside of the united states. but we are very big in the u.k., in brazil. david: so for 20-plus years or so, your subscriber numbers went up every month it seems, without fail. one month, i think you announced quarterly earnings that subscribers went down a little bit. all of a sudden, the world took a larger part of the market capitalization away. were you shocked that people were upset about the fact that you lost a few subscribers compared to where you thought you should be? ted: the magnitude of it was shocking, because we knew the fundamentals of business were intact and fine. you had a whipsaw effect from covid. a lot of things were happening that we are still trying to figure out. but it was kind of a temporary blip. but it was a hard thud. david: your market cap has come way back, and it is now higher than it's ever been. and so, that blip was not a big problem i guess. one of the things you did that upset people for a while was,

you said you can't use your passcode to give it to somebody else. 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 assume that was taking revenue away from you. how did you figure out how big that problem was, and how did you have the courage to say, no more of that, and not worry that people were going to get rid of their netflix subscription? ted: we had a couple of problems. one was revenue. the other part of it was, this 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 kind of test the value proposition. our average members are watching about two hours of netflix every day. when you go back out to people and say, hey, that thing you are using for two hours a day and not paying for, we would like you to get your own account. what has turned out nicely about that is that most people say, yeah, it's well worth it for me to do that. ♪

david: now, when i had my company and i was the co-ceo of it, i had a co-ceo who i started the company with, so we got along well and had different responsibilities, and it worked out reasonably well. you have a co-ceo. let me talk about -- initially, the company was started by reed hastings, and he asked you to be the co-ceo. were you surprised that a founder of the company took somebody who had been an employee and made him the co-ceo? was that a surprise to you? ted: it was a surprise. it would be a shock if i didn't know him well at the time. first time i met reed in 1999, he did talk about this desire to build a company that would be around decades and centuries after him. so, he foresaw some kind of succession already. so i believe that reed saw the succession we went through recently 15 years ago and started acting on it 12 years

ago. which is very unusual, as you point out, for a founder, but for somebody who is thinking about the company first and the longevity of a company first, he has been amazing about that. david: he's executive chairman now and stepped back, not involved day-to-day. when he stepped back, did you say, well, no, i should be the sole ceo, or did you say i want a co-ceo in addition to what my responsibility is? ted: i think in classic reed fashion, he modeled something that really worked. we did it together for a few years. i got the sense of how well it works. reed and i worked together for more than 20 years, and greg and i worked together for 15 years. we have the same similar shorthand. we had complementary skill sets i believe, and we would push each other in a healthy way. and what's cool about having a co-ceo, you know, there's a saying, usually sayings are rooted in reality. it's lonely at the top. i think there's something to that. and having somebody to be able to kick around hard problems with that isn't an employee or a board member is really helpful.

david: tell us about your background. 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: in those days, was it unusual to move from new jersey to arizona? why did they move to arizona? ted: it's a great story. my grandfather, who was a greek immigrant, grew up reading cowboy novels. when he came to america, he came to be a trail cook. he thought that was a real job in america. he ended up being a cook-cook, but he loved the american west, and he always talked about it. 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: really? [laughter] ted: yeah. david: so, how old were you when you moved to arizona? ted: six years old. david: did you say, we are going

to be watching the cowboys? what'd you think about that? ted: we did not see any cowboys. it was a pretty small town back then. david: what did your parents do? ted: my father passed away recently, but he was a union electrician, and my mom was a stay-at-home mom. she took care of myself and my three older sisters and a younger brother, who i just recently lost. david: so, when you were a boy, what were you interested in? did you want to be an athlete, did you want to be an artist, what did you want to be? ted: from the earliest i could think about what i wanted to be, i wanted to be a journalist. from probably 10 years old or so. but i loved movies and television. my parents were young, the house was pretty chaotic. i kind of liked order, and i kind of liked the order that i saw on television. i liked those families that sat down for dinner on tv. we did not do that when i was 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. and through that, i saw journalists as heroes, and i wanted to be a journalist. david: so you graduated from high school. then what did you do? ted: i was editor of the school newspaper in high school, and i went to community college, because i could not 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 asner, who kind of made this connection for me between entertainment and politics, and just opened my mind to a different world. now, i also had an epiphany about that time that i was not a very good writer. so, likely i was not going to be a professional journalist. david: ok, so eventually, you got a job at a video store. ted: that was my part-time job when i was going to glendale community college. and then when i realized i wasn't going to pursue that degree, i kind of dropped out.

and it was meant to be a year, but it turned out to be a permanent move to business. david: so i understand that you became so knowledgeable about videos that when people would come in and say, what should i rent, you had seen a lot of the videos, and you could make recommendations, and people came in because they liked your recommendations and wanted to see what you were going to recommend. ted: it's true. for no reason, my mother -- we did not have the money for it, but my mom bought a vcr. i did not know anyone else who had a vcr. and 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. and then i get a job at that store. and the stores are empty all day, so you can watch movies all day. i watched everything in the store. and i had a pretty good memory for it back then. i could remember what people liked when they brought something back, and i remembered that was like this and this was like that. sometimes the store would get so busy, but people would wait for me, so they could ask me what to watch tonight. david: did you tell the owner you should be the manager because you're so popular?

how did you think you would advance your career by being knowledgeable about these videos? ted: it wasn't a plan. he came to me and said, hey, i love what you do here, my wife has had a couple of kids since you been here, and business has been growing, he grew to several store chains. he said, i need to take time off. would you take things over? and he gave me the keys to a video rental chain, and it was an mba course and film school all wrapped into one. 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. and while i was there, i did a pretty unique deal with warner bros. and sony to revenue share dvd's, which just hadn't been done before. and reed hastings, it got written about in a trade magazine, and reed read it and said, this is what we need. so a mutual friend introduced us. david: if that article hadn't been in the trade press, you would still be at that dvd store?

ted: it's still open, that one store is still open. i feel like one approach that we've put into netflix and into our programming and tv and our games is that we put the audience first, and we think about how are they going to love it 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. what is the future of netflix? do you think you can keep growing the subscriber base? how do you view your future success? what is your goal in the future to do? ted: well, i think we have plenty of room to grow the subscriber base and revenue with a long runway. 277 million sounds like a lot of folks, but you can double that and still not be halfway to what the pay television universe was. and this is a much better product, economically and choice and control and all the things

that go into it, and so there's plenty of room to continue to grow. the spaces we are in, professional television, film and games, this is a $600 billion consumer spend market that we are about 5% of, and we can only get about 10% of screen time today. so about 10% of the time you're watching something on television, you're watching netflix. so, a lot of room to grow both of them. david: you are always pitched on new projects that you would do in the future. you are in sports now, you are in games, i guess. 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 news. so, it hasn't been an expertise of ours, we are not looking at it. david: the most important thing i think people want is interview shows. do you have enough interview shows? [laughter] ted: i have a feeling this would be a good pilot. ♪

david: what is the last thing you have watched on netflix? and if i say all of a sudden i'm going 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 my wife and i can watch together. we do not have similar taste in movies and television. every once in a while, you find something that you really love to watch together. for us, that was the new season of "emily in paris," that we just binged through in two sittings. she loved it and it was great fun for me too. for you, we have a new show this

week called, "monsters: the eric and lyle menendez story." ryan murphy, who created "dahmer," and it's a phenomenal drama. david: let's talk about your future. you are in the company for how many years? ted: 25. coming up. david: and you are how old? ted: 60 years old. david: that's a teenager to me. you're very young, do you have any interest in, let's say, going to government, public service, running for office, being an ambassador or anything? ted: i would love to do something in public service. i can't see myself running for office, but i would love to be of service to the country. david: so at some point you might do that? ted: some point. david: 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. i don't think he totally understood what i did, but he knew that it was pretty cool. and he knew that people would tell him, that's pretty cool

what your son does. my mom unfortunately passed away before netflix became what it is today. but at the beginning, when we first started "house of cards" days, i would show up on all the award shows, and my mom liked to watch a lot of television. and so, she would always love to see me on television at an awards show. she would call me every once in awhile and say, i'm watching this award show, are you there? i would say, no, that's the espy's, mom. i'm not part of that. she got a kick out of it. but they didn't get to see all of it, but they got a sense of it. david: did they have a netflix subscription? did you buy them one, or did they already have one? ted: i bought them one. david: what would you like to see as your legacy to the world of entertainment? what do you think your legacy should be, or will be? ted: i hope it has been -- or is or will be, however you want a two phrase it, will be the guy who 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 in our films and tv and our 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 how you are pleasing the audience first. ♪

[laughter] you go to sandals to get really, really close... to the caribbean. we should do this every morning. [dramatic music]

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