Netflix CEO Reed Hastings | ET NOW Exclusive

Thank you so much for joining us Reed Hastings. Truly a pleasure having you on ETNow and I'm super excited about this interview. What a treat to be here. Thanks for having me. So I'm going to start with a little bit about, you know, your background. So I believe you're a master in AI from Stanford. You founded Pure Software, went public with it and sold it, of course, eventually. And coming from a tech background, just so that my audience is clear, how did you manage Netflix? Or how did you even manage to get into the edges of entertainment? Well, I got so lucky because I was at an internet company. So I was very early on the internet. And 20 years ago, we founded Netflix, thinking that we'd be able to stream movies and TV shows eventually. And at first, we were just DVD by post for many years, just in the US. And then we grew and we grew. And then the internet got fast enough. And now we streaming all over the world. Yeah, but you know, the fact of the matter is that bet to stream is a very bold bet. It's also very unintuitive. If one really looks back in hindsight, it may all fall in place. So let me just go back to the fact of, you know, how you came about with Netflix. I believe you've got the idea for Netflix, you know, when Blockbuster charged you a $40 late fee. Is that actually true? Yeah, I had a big late fee like many people in the US at that point 20 years ago. And it always bothered me because it just made me feel bad. And so later, when someone told me about DVD, I realized, oh, I bet you can mail those. And then you can just drop it in the post to send it back. So you don't get the late fee. Right. So you started like that as a DVD rental service, right? And then you pivoted to streaming. So my question really is about streaming, you know, at a time and nobody would have thought or imagined, you know, streaming. How did you make such a bold bet? Desperation. That's usually the key. So we knew the DVD was going to go away eventually. We were afraid of being left behind. And so we pushed really hard into streaming, starting in 2007. And then we had our first big hit with House of Cards in 2013. And Orange is New Black. And since then, we've been doing shows like Altered Carbon all over the world. And now we're actually doing Indian content popular here and exporting it around the world, like Love per Square Foot, our new movie, classic Bollywood film. And it's very popular here, of course. But surprisingly, it's also popular in the US and Canada and the UK. Is it? Yeah. With the Indian diaspora? Yes. And so we've got so many members that we're seeing huge viewing for that movie around the world. Right. So, I mean, you then pivoted from, you know, streaming to, of course, original content and cut to 20 years later. And you're clearly one of the most, you know, one of the biggest entertainment companies we have today. But what's interesting about Netflix is when I was researching the company is that you have managed to, you know, maintain two cultures. So you have your you know, you're in the Silicon Valley and your employees there think that you're the best tech company. And in L.A., they think you're the best content company. So in a world where most of us struggle with even, you know, maintaining one culture, how do you manage to kind of pivot, you know, with both cultures? Well, it's more than just two. There's also all our international offices have to feel very unique. And so what we do is bring out that we want to be both great at tech and content. So if you think of Apple, they got great at fashion and technology and they sold technology as fashion in a way that no one had ever done before. And of course, built the world's most valuable company. So for us, it's about being good in content, good in tech and now good around the world. So we have our Mumbai office and we're investing in local productions and trying to really understand the content ecosystem here in India, both for this market and to export around the world. Right. So, you know, Netflix today is at a very interesting stage because, you know, clearly we have a lot of able competitors who are going to join the bandwagon. So give me your sense of, you know, what do you think of the competition that is currently around you and, of course, competition that will emerge in 2019 with Disney? Well, I'm such a bad competitor in a way because I subscribe and I watch a ton of HBO and some Amazon Prime and Disney. And so I just love content in all these different networks. And if you think about it, so do most customers. I mean, they watch some sports, they go to the movie theater, they watch some Netflix. So it's not really zero sum. You really, if we do great shows, we'll win some of your viewing and some of your time. And so what we should just focus on is how to please you more every day. Right. You know, although I think some of your bold bets have been very unintuitive, but it still paid off so well. I think you're at the cusp of new things. So a question really about, you know, what people are saying about Netflix and you're so much in the news just because, you know, everybody is looking at video streaming as the next big bet. A lot of people, although, you know, you're one of those thanks talks, which people associate with very closely. There is some amount of concern about the fact that you've announced that you're going to be spending close to eight billion dollars for programming. Do you think this concern is misplaced? We're spending so much on content around the world. You do have to have a big stomach for that, you know, because we're doing new things. We're doing this amazing Japanese anime like Devilman Crybaby. We're doing shows here. We're doing shows in Germany, like dark shows in Brazil, like three percent. And then, of course, Hollywood. So it's very ambitious. But the benefit of that is as a customer, you get to sample some of the best content from around the world. Right. You know, when you look at, let's say, binge watching and you're, you know, you're a pioneer, you're a pioneer of that concept. Do you think binge watching as a concept is only going to become bigger as we go forward? Or do you see a change in trend? You know, the original binge was a novel. You bought it and you could stay up late at night reading every chapter. Right. And so binging is very natural. It's what we've always been doing. And yet for a little while in television, it was only linear broadcast and you couldn't binge it. But the natural state is to have control, to be able to be excited and stay up watching something like you do with a book. So really returning entertainment to its original roots. Right. You know, I have a very odd question as we stand today. And if you look at television, not not in India, not the way it's consumed in India, but globally, if you look at TV and the way it's consumed, I don't think we can really fathom or even understand how to be consumed, let's say, a decade later. Right. So given that, do you think you as you and Netflix as a company is experimenting enough to ensure that you're ahead of the curve when that big change of trend or innovation happens? We sure hope so. We're trying all different kinds of content, some interactive content where you get to choose the direction. We're doing some amazing work with Dolby Vision. So the colors and the depth of color is amazing. The brightness. So we're working in multiple dimensions. Of course, we're doing content all over the world and trying to find, you know, what part of Japanese content travels, what part of Indian content travels. So it feels very experimental and edgy and new things. So I think we'll be able to stay ahead as all those changes come. And how do you think you're going to compete with this, you know, super bundled service of Amazon? What's your strategy to ensure that, you know, you are still a superior service? And of course, you position yourself as, you know, a very niche, not niche, but, you know, a superior content player. And they're going very massive. You just look at their pricing strategy versus yours. So how are you going to ensure that despite their pricing and their bundling service that you are ahead of the curve? You know, we've competed with Amazon Prime for a very long time. But the much bigger competitor is YouTube. YouTube wins more viewing time than anybody else. And it's ad supported and free, just like most Indian television. And the unique thing about Netflix is no advertising. So we're more like DVD or the movie theater, a more premium, a more special experience, where you can just engage with the content. And again, there's no advertising at all. You know, your Indian strategy has been pretty commendable because you, you are the most expensive service here. And despite that, you know, you've done significantly well with, with, you know, the elite, the Indian elite at the top of the pyramid. What has been your learnings from the Indian market? And are you looking to change your strategy here? Or are you looking to be a niche player in the Indian market? No, we're looking to be very popular. As you said, we're 500 rupees a month. So if you compare that well, there's different plans. There's different plans starts as low as 500, then the 650 plan too. But for 500 rupees, you can get all of Netflix. And there's no advertising. So that's much more like the movie theater. And if you think about how much just one ticket costs, compared to a month of unlimited viewing, it's quite a value. But we know it's new to do content without advertising. And so it's a different price point that way. But we think it's such a great experience for people. You know, Reid, you're the best person to answer this question. And this is about culture. So if you look at the look at the past, we saw a lot of cultural diversity. And we were accepting of it. Today, we see if you look at it globally, there is everything is a lot more homogenous. So would you say that is something where you see continuing as a trend? Or do you think diversity is going to come back? Because because all trends are cyclical? Well, we're very big on diversity. We talked about our Bollywood movie, Love for Square Foot being successful all over the world. Again, we've got diverse content here, like 3% from Brazil, all the Hollywood. So we're really about a very broad offering giving you always something to enjoy. If I had to ask you to flashback, would you have ever thought that Narcos would have become as big as it did? No, we never realized that drugs really sell. So every, every series we do about drugs turned out to be hugely popular. I think it's like a forbidden fruit thing. Right, right, right. Oh, if I had to ask you, which series were you most surprised with? Which one would it be? I think Narcos actually, yeah, it's been such a global, big hit. And I thought that was a specialty story from 25 years ago. But those themes of kind of getting rich on the black market have been very popular. There's been some concern from creative critics saying that while Netflix is great, going forward, given that you're going to have a lot more competition, will you be a true nurturer of content? There is an observation, and I don't know if the criticism is valid or not, is that a lot of your series are a series that, you know, are basically stuff that we loved, but has been repackaged and retold. And so the criticism is whether you really do pathbreaking out there stuff, which we've not seen, or there is no real data to show that we have enjoyed it in the past. Well, that's definitely not true, because you just have to watch the series Black Mirror to see very far out there content. So you can tell we pack things that are creative excellence, but can have enormous diversity. Another criticism or comment that people make, which again, I'm not sure is fair or not, is that while Netflix does what they do so well, the fact is that they're a bit slow compared to, let's say, the Snapchat of the world. So would that be a concern in the long term? Would somebody outsmart you or out-innovate you going forward is a concern that people have. Always a possibility. That's what keeps us excited. You're so humble. You're so humble. Charging forward. Talking about just your content, give me a sense in terms of how many pitches does Netflix have to do per day? How many pitches do you hear per day? I don't hear any, but throughout the company, we have over 100 people who are curating creative content around the world and listening to multiple pitches a day. So it's quite a lot. So would it be accurate for me to say about at least 10 pitches a day? I think that's very accurate. Yeah? 10 pitches a day. And how many conversions? I'm not sure on that. It really depends on how exciting the idea is. We've got a big budget and just looking for very special ideas. Right. You've been investing in a lot of international markets and that has been your focus now. How long will this investment take in foreign markets to ensure that you're profitable? Well, we're profitable today. So we've had great success and this year we're forecasting about 10% operating margins. So not huge, but positive. So we're making great progress around the world with the content because people want commercial free, great immersive content like Netflix. And we're the specialist in that for movies and TV shows. There's no doubt about that. And that's my next question to you, which is a really bold bet as well. When the world was so used to advertising based models and subscription has always been a big issue. How did you decide to take that big leap of faith and say, it's okay, I'll just go with a subscription model? Well, there are great advertising companies around the world. So many of them do that extremely well. And when we looked at that, we said, we should really focus on something different and really try to be just movies and TV shows. So it kind of counter positioning against the enormous amount of content available with that. Right. And so you're saying you're basically, you're saying you're making money in India? We're making money around the world, a global company. No, of course. Of course. I know that. I'm just talking about markets where you're investing now and you're in your investment phase. Are you making money in markets there? So think of it with a lot of our contents like altered carbon or black mirror, it's really global content. So that's why it's really a global P&L. So we don't think about it that much in any one territory, but we're growing very quickly in India. We're extremely pleased with that as people are getting excited about the show. If you look at your, we're expecting a lot of stuff from your movies table now, because I think your next focus is that. What are the kind of movies we're going to see from Netflix? How different will it be from what we're used to in terms of, you know, if you juxtapose Netflix versus Hollywood mainstream, how different will that be? Well, Hollywood mainstream does some amazing content. And I think we'll be similar in that way. So I don't know that it's that different. You know, we just did bright with Will Smith, which could have been in any Hollywood theater. The main difference is it's in Netflix, so you don't have to pay anything additional for it. And you get to watch those big movies at home. And so it's great having those Hollywood blockbusters as well, of course, as Bollywood and all these other films. Just a random thought. Would you, would you, for instance, look at a model where you, let's say you do a Netflix original movie and after some time, after your Netflix subscribers have seen it and enjoyed it, and just watched it, all of that, you would release it in the theater? We might. Most theater owners don't want to do anything with us. They don't like our model, so that hasn't been a possibility. And what we're doing is such great big movies that sometimes the movie theaters feel threatened. Sure. Because for us, it's, you know, all in that one fee, so there's no additional cost. You know, I have, I can't not, you know, address the big deal you did with Marvel. And, and, you know, that, again, that bold bet. You, you must tell me how you thought of that deal. Go back in time and tell me how you thought that deal and how it's done for you. Well, like we have a new Jessica Jones season two coming up that's very intense and she puts an amazing Marvel character. So, you know, Marvel's had a big vision of comics and characters around the world. So it was about three years ago when we did a deal to really develop some of their television shows, which have worked out well. Going forward, you know, given that Disney now is now owner of Hulu because of the 21st century box acquisition, and obviously Hulu will now get a lot more aggressive than it was before, and they're launching their new service. Do you think it would be time for Netflix to look at a similar partnership? Well, Hulu's just in the US and Disney hasn't yet bought Fox. That'll take a year or two if that happens, but there's a lot going on and we're by far the most global of those entertainment companies now in terms of our consumer business. And so we're doing really well and happy with a steady course that we've been on. Okay, fair enough. But if I had to hypothetically ask you, saying that going forward, would you consider, let's say, partnering or selling to Apple? Because that might be a great, you know, a great match or marriage and would be better to, it would be a better survival mechanism, you know, with people with Disney and the likes of Disney and maybe others going forward, partnering with companies versus being standalone. Would that be an option that you would be considering? One of the reasons that our stock has done so well over the last 10 years is investors love our focus. We focus on doing one thing incredibly well, which is commercial-free movies and TV shows. So no real need to think about those other partnerships. Fair enough. If you look at the India market, what makes you most excited about it? Well, we got so lucky with the timing launching two years ago, just as the internet was really exploding, data costs coming down. I mean, this is the age of the internet in India. So we're so privileged to be a small part of it. Small part, yeah, fair enough. But, you know, going forward, are we going to see a lot more focus on Indian production? Absolutely. We are doing, we just announced today, three new shows. So we're getting very excited based upon books. So those will be big success for us, I hope. And then we'll announce more and more. So just continue progress. Okay, let me play a quick game with you. If I had to ask you to get off your Netflix hat, as the founder and put on a subscriber hat, what is the best show for you in Netflix? Best show for me in Netflix is a Spanish show called Money Heist. It's so dark and brilliant and unusual. Okay, what is the best movie, according to you, in the Netflix library right now for you personally? Well, the one that I watched most recently was Love per Square Foot, the Bollywood movie. I watched that two days ago. It's very funny. Okay, fair enough. You're a very good marketer. On that note, I also want to ask you about your, you know, your $2 billion that you've kept aside for marketing. How are we going to see you market, you know, different shows, different movies, and Netflix per se in terms of increasing subscribers? In India, of course, we've seen you go very aggressive, but also globally and in the US. Well, if you flew through the Mumbai airport to get here today, you can see we're covered in altered carbon, and it's really making a big statement. It's all over. Trust me, we know altered carbon tickets. Almost every billboard is altered carbon. But I mean, that's an India-specific answer. If I had to ask you globally, what would be different in terms of your marketing and getting people to sample Netflix? You know, we're really focused on building those show brands, like an altered carbon or a money heist to be very popular. And that's why people join Netflix is, you know, to love one of those shows. You've also spent a lot of money getting some of the brightest brains in Hollywood onto your site. Now, there again, there's been, you know, some people who said that's too much money and, you know, this, that and the other. What is really you thinking with getting the brightest people on your site? With Ryan Murphy, we're so excited. He's done so much great content around the world. So, you know, when we get these great talents, it's because they come with a whole stable of people to be able to do really high end production. Okay, and Shonda? Shonda Rhimes, very similar, Mitch Hurwitz. And of course, we've done a lot with Red Chillies here in India. Okay, going forward. What do you think will be some of the key content trends that you end up? Well, we're really exploring and learning. So we try something, see how it works, like Black Mirror and Anthology, totally different. Or the Crown, a big, you know, epic production. And then of course, our shows here in India. So we're very experimental and curious. So we'll try a lot of different things and see what works. Yeah. Okay. Three things that we should be excited about in 2018 from the Netflix table? I think that's really the new show. So Altered Carbon, we have a new one coming in a month, Lost in Space. You know, it's a new update of the amazing franchise from a long time ago, and it's spectacular. And then there's a final season of my special love BoJack Horseman. Well, on that note, thank you so much, Reid. Truly a pleasure speaking with you. So excited about Netflix's journey in India, and all the very best with your journey with Netflix around the world. Time to go watch another show. Thank you so much for having me.