Ted Sarandos

Supported by Greenhaven Road Capital, finding value off the beaten path.

Ted Sarandos is the Chief Content Officer at Netflix, who started his journey in a Phoenix video store and went on to greenlight six billion dollars worth of content. Most of this post will draw from Sarandos’s November 2017 conversation with Marc Andreessen, who said;

“What Netflix has done, and at this scale, is an extraordinary accomplishment. I also think that Netflix beyond that has catalyzed the most dramatic period of revolution and change in the television and video industry since the arrival of color TV and maybe before that.”

Sarandos explained that he had a non-traditional start and his trajectory is thanks to serendipity. He planned to become a journalist, but “I was a really lousy writer.” Instead, he worked part-time at a video rental place. The owner read in a magazine that video rental and yogurt shops were the future, and he hated yogurt.

Whatever we call it; serendipity, luck, fortune – conditions matter. I’d wager that Sarandos would have had career success no matter what. But to become the Netflix CCO, he needed a writer to compose an article, a guy who hated yogurt to read it, and for that guy to land in Sarandos’s part of Phoneix.

That guy would eventually ask Sarandos to “take things over for a little while.”

“I took him up on it. I didn’t finish school and for me, it was this crazy MBA and film school mashup that I got paid for, and that kind of got me to where I am today. That was my entrance to the edges of the entertainment business.”

We call this education-via-action the XMBA and it turns up often. Just in the food world, we have stories of David Chang, Alice Waters, Ken Grossman, and Rich Snyder all learning by doing.

That’s what Sarandos did too. The early days of Netflix were Costco trips to buy movies. At the time, Sarandos said, everyone had a scale on their desk to determine postage.

“Netflix was hardly like being in the entertainment business. I worked out of my house. We bought movies at Costco.”

Soon Netflix moved from DVD to streaming. It was once Sarandos and Reed Hastings saw YouTube, “that’s when we knew Netflix was going to work.” These see-it-to-believe-it moments are powerful. Tony Hsieh said that he was dubious about ordering shoes without trying them on until someone showed him that people were already doing it, via magazines.

Netflix used this same sort of reasoning – it worked there why not here – for Marvel content. Those characters have succeeded in comic books and in movies, why not in a television show?

And the same reasoning for binge watching. Sarandos told The Guardian: “We saw that people would return those discs for TV series very quickly, given they had three hours of programming on them – more quickly than they would a movie. They wanted the next hit.”

Netflix’s streaming success comes – in part – from understanding early on about Wholesale Transfer Pricing. Tren Griffin has wonderful posts (one, two) on Netflix CEO Reed Hastings.

It’s why you shouldn’t expect sports on Netflix anytime soon. “The reason I don’t get tempted by major league sports,” Sarandos explained, “is that the pricing power all belongs to the leagues.”

Sarandos said that Netflix succeeds making original content because they understand the quantitative and qualitative aspects.

“The fundamental difference between Silicon Valley and Hollywood is quant and qual. The whole efficiency driven thing is very Silicon Valley and the whole quality thing is Hollywood. Rarely do those things meet. I think part of the reason Netflix has been successful is that we’ve always kept a presence in Hollywood and we’ve always kept a presence in Silicon Valley.”

Another thing that helps is the ability to argue well.

“It’s all credit to Reed. Reed created a culture where you’re free to ask questions, you’re free to push back – but support the outcome. Everyone has a strong voice at the table but once the decision is made everyone supports the outcome. “

Good arguments are hard but worthwhile. Marc Andreessen has said:

“It’s the responsibility of everybody else in the room to stress test the thinking. If necessary we’ll create a red team. We’ll formally create the countervailing force and designated some set of people to counter argue the other side…Whenever he (Ben Horowitz) brings in a deal, I’ll trash the shit out of it.”

These red teams work, but try to finding someone with a real belief is better said Josh Wolfe. “Some firms implement a devil’s advocate or red corner person to actively do that, it’s much better when it comes naturally.”

Sarandos sees about eight pitches a day, but sometimes it can be up to twenty. “There’s no shortage of ideas but there is a shortage of people who can execute on a big vision…You have to buy into the creator’s ability to bring a vision to the screen.”

That’s about the same investment rate for Andreessen’s firm, a16z, but how do you know which ones to pick? Andreessen said it’s the errors of omission that hurt the worst:

“We always worry about two kinds of mistakes, false negatives and false positives. False positive is, we say yes to something and it fails. False negative is we say no to something and it succeeds. In our business, those are the ones that torture the shit out of you.”

Well, explained, Sarandos, “Almost all the ones we pick and succeed change a lot and almost all the ones we don’t pick and succeed also tend to change a lot.” This is why picking the person is so important. Sarandos and his team saw a small movie the Duffer brothers had made. “Mostly what it said was that on almost no resources they pulled together this really rich, satisfying movie experience, which gave us confidence that they could do it on the small screen too.”

In the year before, Hastings explained it the Stranger Things choice to Andreessen (~37:00).

 

Once Netflix finds a person they mostly let them be.  “We’re way better off, taking someone’s creative vision and putting it through the service than us trying to go in and retool it….At the end of the day if the creator says, ‘That’s my show.’ we put it up.”

At Netflix, they have hunches about what works but don’t know for sure. Sarandos told The Guardian about House of Cards:

“It was generated by algorithm. I didn’t use data to make the show, but I used data to determine the potential audience to a level of accuracy very few people can do…We’ve been collecting data for a long time. It showed how many Netflix members love The West Wing and the original House of Cards. It also showed who loved David Fincher’s films and Kevin Spacey’s.”

Yeah But! – Andreesseen notes – it’s one thing to let one of the best directors in the world – David Fincher – do whatever he wants, what about television shows number two and beyond? Sarandos instills ownership. He explained the Fincher arrangement like this:

“You can give me twenty-six hours of home movies but you have to put your name on it.”

This same sense of ownership, wrote Ashley Vance, is how Elon Musk motivates his engineers. Ownership is how Intelligent Fanatics run their businesses too.

 

Thanks for reading, Mike.