How tech transformed the way Netflix tells stories | Ted Sarandos, Netflix co-CEO

Key Concepts

• The Innovator's Dilemma: A theory explaining why successful companies can fail when faced with disruptive innovations.
• Disruptive Innovation: An innovation that creates a new market and value network, eventually displacing established market-leading firms, products, and alliances.
• Content Creation vs. Distribution: The shift from primarily distributing content to producing original content.
• Data vs. Intuition: The balance between relying on data analysis and trusting gut feelings for decision-making.
• Co-CEO Model: A leadership structure with two chief executive officers, often representing different skill sets.
• Storytelling as a Force for Connection: The power of narratives to engage audiences and influence behavior.
• Global Content Phenomenon: The ability of content to achieve widespread popularity across different cultures and regions.
• Shoulder Programming: Content created around a primary event or sport to enhance audience engagement.

Summary

This discussion features Ted Sarandos, co-CEO of Netflix, sharing insights into the company's remarkable transformation and its strategies for sustained success. The conversation, hosted by Brad, delves into Netflix's journey from a DVD-by-mail service to a global entertainment leader, highlighting key decisions, challenges, and philosophies.

The Innovator's Dilemma and Netflix's DNA

Sarandos frequently references "The Innovator's Dilemma" as a guiding principle for Netflix's existence. He posits that Netflix's success stems from its early recognition of the shift towards an internet-based digital business, rather than remaining solely a DVD-by-mail service. This foresight, exemplified by the company's name "Netflix" (not "DVDflix"), allowed them to anticipate and adapt to technological changes, a rarity for established companies like Greyhound failing to become airlines. This proactive approach is seen as a core thread throughout Netflix's history.

From Video Store Clerk to Content Pioneer

Sarandos's journey began as a video store clerk in Phoenix, Arizona. Growing up in a market with limited access to interesting films, he developed a passion for discovering and recommending independent movies. This early experience in understanding consumer preferences and the importance of choice deeply influenced his later work at Netflix. He learned that supporting niche content at scale was possible with a national distribution model, a stark contrast to the limited reach of individual physical stores. This hands-on understanding of customer desires and the mechanics of content consumption laid the groundwork for his future role.

The Leap to Original Content Production

A pivotal moment discussed is Netflix's strategic decision to invest heavily in original movie production, a move met with skepticism from some board members. Sarandos explains that this was driven by the realization that relying solely on licensed content, especially with long pay-TV windows, would lead to a "race to the bottom." He argued that original programming was essential for differentiation and control over their destiny. The studios, initially seen as suppliers, were increasingly viewed as competitors for audience attention. Sarandos states, "If we want more control of our destiny, we have to have control of our programming. And the way to do that is to produce." This was seen as a necessary hedge against potential future restrictions on licensed content.

Navigating Data and Intuition

The conversation explores the dynamic tension between data-driven decision-making and intuition. While Netflix excels at data analysis, Sarandos emphasizes that not all answers lie within the data. He shares his personal experience of learning business through intuition in the video store era, contrasting it with Netflix's data-centric environment. He believes data is excellent for understanding past trends but less effective for predicting future shifts. The global phenomenon of "Squid Game," which lacked prior data indicators of its massive international appeal, serves as a prime example. Sarandos concludes, "all the answers are not in the data. Right. It's a great competitive advantage that, that we do respect the data, that there's data that is helping steer the decisions, but they require good intuition."

The Co-CEO Model: A Synergy of Strengths

The unique co-CEO structure at Netflix, with Ted Sarandos and Greg Peters, is examined. Sarandos describes it as an embodiment of "left brain and right brain," with Peters originating from the data and technology side and Sarandos from the creative and intuitive side. This model, designed by founder Reed Hastings, allows for a balanced approach to the business. They operate with an informal agreement: if they disagree, the decision goes to whoever has greater expertise and passion in that specific area. This synergy allows them to tackle complex challenges from diverse perspectives, fostering innovation.

Storytelling's Impact on Culture and Behavior

Sarandos highlights the profound impact of storytelling, not just on entertainment but on broader cultural and economic behaviors. He uses the example of "Drive to Survive," a documentary series about Formula One, which significantly boosted the sport's popularity in the US by focusing on the human drama and narratives behind the races. Similarly, "Full Swing" had a similar effect on golf. He notes that shows like "Bridgerton" led to a massive surge in book sales, and "Emily in Paris" is credited with a 38% increase in tourism to France. The Korean show "Culinary Class Wars" is linked to a revival of the restaurant industry in Korea. This demonstrates Netflix's ability to influence consumer behavior and create tangible economic impact through compelling narratives.

The Future of Content Creation

Looking ahead, Sarandos anticipates the next major disruption to be in content creation, rather than distribution, which was revolutionized by the internet. He points to evolving tools like virtual production as enabling more scalable, safer, and imaginative storytelling. These advancements allow creators to bring visions to life that were previously confined to imagination, ultimately feeding audience desires. He believes the fundamental human need for stories, art, and science will continue to drive the industry forward.

Conclusion

The conversation underscores Netflix's consistent ability to adapt and innovate by embracing disruptive technologies and understanding the core human desire for compelling stories. The company's success is attributed to a blend of strategic foresight, a deep understanding of consumer behavior cultivated from its early days, a willingness to take calculated risks, and a leadership model that leverages diverse strengths. The enduring power of storytelling remains central to Netflix's mission to be a dependable destination for audiences worldwide.