The interview begins with Altucher asking how Netflix got its start and Lowe tells the story that Netflix wasn’t started by Reed Hastings, at least not in the same way Apple was started by Steve Jobs. Jobs was like a force of nature, a black hole, pulling in anyone he wanted. Netflix was more like an asteroid bouncing around, requiring a critical mass before becoming something. For people it needed Lowe, Marc Randolph, and Reed Hastings came together. It also needed the breakthrough of DVD’s, which could be shipped in a first class envelope and DVD players, which was the biggest hurdle at first.
The Netflix team was confident in what they were doing, they just had one problem, not enough people had DVD players. Lowe and the others went to the DVD manufacturers and pointed out that “all consumers saw were VHS everywhere.” The Netflix people proposed that there was move value for the consumers if, as Lowe says, “no matter where they live, they can get every single title that’s available.”
Netflix ended up having free rental coupons in 95% of all DVD boxes sold in the country. About marketing, Altucher says that even though all companies are different, “every company has its own unique way to market its product” and “often there is a giveaway.”
Ted Leonsis shared the same idea in his interview with Altucher, sharing how AOL came up with the idea to give a disk away that had the AOL software. In the interview Leonsis says, we assumed you had a computer and a modem and you wanted to get online. We started mailing to your house. You would get on a plane, and they would give you your peanuts and an AOL disk. You would go to a game and people would hand out disks. You’d buy an Omaha steak and the steak would come with the disks.” This was all inspired by a partner Leonsis had who saw the same thing happen with shampoo.
Free samples weren’t the only thing going for Netflix, they also had a strategic alignment. I recently finished the wonderful book, The Fish that Ate the Whale. The book is about Samuel Zemurray, the banana king and his conquest of Guatemala. In the 1940’s Zemurray was faced with a challenge in Guatemala, a new government was elected that wasn’t willing to have the same relationship with him. Kickbacks and bribes were out, power to the people was in. Rather than paying foreign politicians, Zemurray paid a lobbyist to hound domestic ones. The man to do this alignment was Edward Bernays, who shifted the question from one of bananas, to one of communism. Bernay and his agents lobbied, campaigned, and informed anyone who would listen that communism was taking hold in central America. Eventually the CIA got involved, and as where most places the CIA gets involved, murky waters get murkier. The essence though is the same, a small boat rides in the wake of a larger one. Both found more powerful partners that could help pull them along.
Lowe left Netflix in 2003 but tells James he learned 3 key things from Reed Hastings.
To focus. Lowe says, “find that one thing you know you can be absolutely the best at it and drop all the others.” For Netflix this meant abandoning a DVD rental box (like those Redbox rental machines you’ve seen.)
How to use analytics. Lowe says that Hastings taught him not to look at analytics like a crystal ball but more like a weather forecast. If you can get a general idea from the data, take it. In the interview he tells James that for a time Netflix couldn’t’ pick out its core demographic because of so much noise in the data. Hastings helped Lowe find the trend of the data though and after keying in on this they grew their business even more.
Double down on high performers. Lowe says he learned to cut out the average to low performers and keep the best ones. At Netflix this meant spending less on obscure movies and more on popular ones.
Around the midpoint of the interview Lowe tells Altucher about “Netflix Express” a physical location in Las Vegas that was shuttered before the IPO because Hastings didn’t want investors to think Netflix was going to be a brick and mortar location too.
Lowe eventually left Netflix as a full-time employee but continued to consult for Netflix as he worked more and more with McDonalds before finally leaving the former for the latter fulltime. There he was Senior Director and VP of Operation for two years before becoming CEO of Redbox. Even before Netflix, Lowe had built a vending machine prototype for VHS tapes and only now did he fulfill his vision.
As James and Lowe talk about the current state of Netflix, Lowe says that part of Netflix’s recent success is that they know what people like and how to promote it. About knowing what people like, their first two original shows Orange is the New Black, and House of Cards were created by first sticking their finger in the air to see which way the wind was blowing and then typing out the scripts. In one interview Todd Yellin, VP of product innovation says, “We climb under the hood and get all greasy with algorithms, numbers and vast amounts of data. Getting to know a user, millions of them, and what they play. If they play one title, what did they play after, before, what did they abandon after five minutes?” House of Cards and Orange is the New Black are based on other works, but only in the same way any original work is deviated. Netflix was in the same seat as Christopher Nolan when he made Batman grittier and darker.
This data idea is true at the movies as well as who you are at the movies with. In Dataclysm, Christian Rudder writes about a blind date experiment on the site OKCupid. To test it, the engineers temporarily jumbled the site profile pictures and only matched people based on interests and location. Rather than looking at a picture, then the interests, a user got a message saying so-and-so has a lot in common with you and is nearby. With these blind dates people had a good time about 80% of the time, the same figure as when people were looking at photos. Rudder writes, “In short, people appear to be heavily pre selecting online for something that, once they sit down in person, doesn’t seem important to them.” Like a fisherman that can see the ferocity of the ocean, a good data scientist can find all sorts of things about you.
Another conclusion, might be what Steve Jobs once said, “people don’t know what they want until you show it to them.”
The interview ends with Altucher talking with Lowe about Quarterly.co, where Lowe had most recently served as CEO. Quarterly is “a subscription service for wonderful things” and some of the curators that Lowe mentions are; Tim Ferriss (who Lowe says is making north of six figures on the site), Pharrell Williams (who gave away a copy of The Alchemist), Nina Garcia, and Andrew Zimmern.
Lowe has an interesting journey and I got the sense from the interview he’s steadily moving forward. Netflix canned his pet project, oh well. Being CEO of Quarterly was temporary, that’s fine. Things that might seem like full stops, periods, ends to others are like commas to Lowe. Even at the end of the interview he says to James, “I’m just kind of exploring. I don’t have anything specific. I realized I want to get back into that business (of how people choose movies) again.”
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