Hello, Los Angeles. Today's number: 98% — the percentage of people in this chosen profession who do not make a living in their chosen profession. Acting. Welcome to Prof G Markets.
There we go. So, I usually start with a joke. I was trying to think of a streaming joke. Ed, true story: I broke up with my first girlfriend because she claimed that Netflix was the lowest-priced streaming media company. And I just couldn't have a relationship with someone who was a Hulu cost denier.
Hulu cost. Yeah, yeah, they get it. All right. You want a dick joke? Is that what we're looking for here?
Ed, I just have this sinking feeling my girlfriend has a dick. It's just something I feel inside of me.
Welcome to Prof G Markets from Los Angeles.
That's good. It's very good to be here in Los Angeles, known as the center of Hollywood. That's what a lot of people think of LA, but it's also the center of a very exciting new technology. And before we begin, I'd just like to share some numbers of my own. You know, I love data, Scott, on that technology and this historic city's relationship to it. So before we start, I'm just going to give you, share some data here. So today's number, the first number is 3,000. That is the percentage increase in California's GLP-1 prescriptions in less than five years. The next number is 1 in 10. That is the share of Californians who currently use GLP-1 drugs. The final number is $1.6 billion. That is how much the state of California spent on Ozempic and Wegovy in one year. More than the entire state park budget. Very impressive numbers, Scott. You know, I think maybe half of these people have probably lost their jobs to AI. But the one thing that I can see looking at the audience is everyone is very hot and very thin. So, let's just give it up for the crowd one more time, the city of Los Angeles, and then we're going to start getting into the show. Before we do that,
We can't talk about GLP-1 just for.
So, seriously, I think GLP-1 is going to be bigger than AI. And AI is basically fear is the product. I'm so awesome. I've created this monster that's going to destroy the world after I've sold my shares and peace out to the code desert with a bunch of Russian. That's not helpful. Talk to anyone who's on a GLP-1 and uses AI every day and ask them what's had a bigger impact on their life. And while the incumbents and the current seniors or incumbent industry or politicians want to create this illusion of complexity around how difficult it would be to solve our problems, whether it's inflation, weakness, a lack of optimism for the future for young people, it comes down to our deficit. The easiest way, absolutely the easiest way to solve the deficit problem would be the following. In Japan, they spend $5,500 per capita on healthcare. We spend $13,500. We spend $8,000 more than Japan on healthcare. Times 350 million people, you're talking about $3 trillion a year in incremental healthcare costs. Why? 40% of America is obese. 72% are obese or overweight. In Japan, 4% are obese. If you wanted to solve the deficit, you would go after the health industrial complex, hospital systems, kidney dialysis, statins, pharmaceuticals. And just to piss off people on the left, the diabetes industrial complex has tried to convince us that people aren't obese. They're finding their truth. No, they're not. They're finding a ventilator. Obesity is the menace in this society. And we have a way to solve it. America should put out, the government should put out an RFP for a billion doses of GLP-1 and give it free to any household in any rural area making less than $60,000 a year. You would see slowly but surely our healthcare costs go down and for the first time we could really significantly address our deficit. But instead, the incumbents want to convince you that it's not a solvable problem. GLP-1 is the technology that could revolutionize the West. Back to you, Ed.
I think you're preaching to the choir here. And now that we've done that, I'm going to move us on to our first story of the evening. We are live in the entertainment capital of the world. Here in Los Angeles, movies and TV generate more than $115 billion every year and support nearly 700,000 jobs. Hollywood doesn't just drive culture here. It drives the economy itself. However, the industry is at a turning point. AI is rapidly changing how films are made and at the same time the traditional media model continues to erode. Last year, the combined viewership of broadcast and cable was surpassed by streaming for the first time in history. Meanwhile, short-form video continues to surge as well. So, the big question that is hanging over this city is simple. What will the future of Hollywood actually look like? Here to answer that question, we are speaking with the man at the center of the industry. Ladies and gentlemen, please welcome Ted Sarandos, the co-CEO of Netflix.
Thank you for being with us, Ted.
I hope you weren't offended by Scott's jokes.
I'm glad the joke portion is out of the way.
He was covering his ears.
I was just hearing all about GLP-1s now. So, which is very LA that we want the next thing. We don't want the more advanced one.
Yeah. Is that the one that gives you a head of hair? If I had your hair, I'd be... If I had his hair with my rap, I'd be the number two leading in the polls for the Democratic nomination for president.
Yeah, that's the problem. Yeah. All right. So, we're going to get into the questions here. Ted, I'd like to start with something I think is on everyone's minds, and that is the maybe acquisition, then not acquisition of Warner Brothers Discovery. Just to jog everyone's memory, back in December, Netflix had agreed to buy Warner Brothers Discovery, or at least the studios and the streaming assets, for $83 billion. And at that point, it started something of a bidding war with David Ellison of Paramount. There was kind of a lot of auctioning happening and then eventually David Ellison bought the company for $10 billion. Netflix decided to walk away. So, first question to you. What was the thinking behind going after these assets and then what was the thinking in ultimately deciding to walk away from the deal?
We looked at Warner Brothers as an asset, kind of a once-in-a-generation asset. A company that does television production. We're one of their biggest buyers in that space. And a wealth of IP that we could develop into. You know, I'm very proud of the team and I'm very proud of what Netflix does, but we've been doing it for about a decade and they've been doing it for 100 years.
So, for us it was being able to accelerate our existing business model, our success story with or without it. And we figured out what the price point was. And one of the things that I've been doing at Netflix since the beginning is valuing content and figuring out what is it worth to us? What is it worth in the market? We did all the work. We came up with the price point you talked about and we thought that's what, if we can buy it for that, that would be good for the business, good for our shareholders, good for our members. But a price significantly higher than that, it wouldn't be. And I think typically when people get into these deals, it's a lot of emotion. There's a lot of ego and you don't want to lose. You put in a lot of work. And when they came back with this significantly higher price point, it was more than we were willing to pay and we just said no.
And like I said, we have built to where we are today organically and we have tons of headroom to keep continuing to do that. And this would have just been a little quicker at its own.
What do you think the odds are of AI coming not even at Hollywood but at the creative community in general? Do you think the fear is overestimated or underestimated?
I think it's overestimated. I think like every other technology advance in entertainment and storytelling, it's made the business better and bigger by presenting more opportunity. And I think creators today are going to use it. I've seen this evolution from the beginning of friends who are writers who said that we're going to do everything we can to stop AI. It's going to destroy our careers to the point where they're using Claude as a writing partner today. And they basically use it, train it to say this is how I write. This is how I think about character. This is how I move story. Here's everything I've ever written. Now, you're not allowed to write anything for me, but you can bounce ideas off of me all the time, all day long. And it makes them a better writer. They believe it makes them a better writer. It doesn't replace a writer's room because a writer's room will come up with a couple of good ideas, a couple of interesting ideas, a couple of original ideas. AI is not built to do that ever. I mean, the tool itself is built to give you the most predictable outcome possible, the antithesis of what we're trying to do when you make a TV show or a film. So will AI help things? I look at things right now of how we're using it in production today. Things like previs. So even just think about technically working out a very complicated stunt shot before you do it, which increases the safety on set. I mean, people forget that people die on these productions all the time. And so these kind of things are making the business a lot more efficient with something and again I don't think it's meant to replace any creativity. I don't think it's designed for that and on its best day it won't do that. And if somebody says, well, what about if you need a script? You don't need a script that's surprising. You've seen these Hallmark movies and these kind of things that they want them to be predictable. Well, the cost of the script for those movies is about 1% of the budget. So, it's not a gigantic savings for anyone to do that or pursue that. So, I'm actually much more excited about the upside and the potential of the technology than I'm worried about it displacing creatives.
So, we always make a prediction at the end of the show.
In fact, I'm very long on human creation. I'm building a billion-dollar studio in New Jersey right now. So, I'm very long on human creation.
So, at the end of the show, we always make a prediction. And two years ago, I made a prediction that Netflix would merge with a large entertainment company and become the biggest media subscription company in the world. Except I predicted it was going to be Disney. I look at Disney, its stock is below where it was 10 years ago. And I see a combination between Netflix and Disney where you would take your unbelievable IP, you know, K-pop Demon Hunters, Wednesdays, Stranger Things rides, vertical eyes in what is a singular parks business. And then you would own Family and Adult. You'd be the largest. And quite frankly, I would want to break up. I don't think that merger should ever happen because I think...
You don't like these mergers. I know you don't.
Yeah. Well, we're going to talk about inflation later, but corporations have been able to consolidate and charge everyone higher rents, but that's a longer talk show.
But you could get it done in this administration.
But you could get it done in this administration. Would you ever consider doing it, or let me put it a different way academically? Do you see the industrial logic behind creating this unbelievable vertical juggernaut with your IP, their distribution with parks and owning subscription across family and adult? To me, that just makes all sorts of industrial logic.
Look, I think that right now one of the big benefits we've had as a brand from the beginning of time, we started mailing DVDs just around the US, but back then we carried every single thing ever published on DVD. So, we had over 100,000 titles to choose from on Netflix. So we were a kids brand, we were an art house brand, we're a documentary brand. And because of personalization, we really were all those things to all those different people. So we didn't really pigeonhole ourselves. So when we say what's a Netflix show, it's your favorite show. It's really not like, you know, Disney is going to have a very hard time getting broader than a family brand. They're very, very good at it. They're really great at it. But it's very difficult for them when they try to get too broad. And we are a general entertainment brand, just because it's in our DNA and we got very good at serving all those individual audiences and personalizing the experience in a way that they didn't really have to and most entertainment companies don't. HBO has got a very specific brand, you know, people think, oh, it's an HBO show, it's a prestige television, that's all, but it's pretty narrow and they've never been able to get into the family business for that reason. And I think our advantage is that we are a broad brand and not just casual, but we're, I would argue, best-in-class in all those categories. So, I think that's helped us not need to do the things you're talking about. No. Do I want to someday be in the parks business? I'm not sure. But right now we're looking at, you know, we opened one in Dallas, one in Philadelphia, Netflix House, which is a 100,000-square-foot entertainment experience that does all those kind of things, but it's a night out. It's not where you go on vacation. And that's, we're kind of toe-dipping on some of this stuff, some of the consumer experiences. We have a live tour coming up of K-pop Demon Hunters, that kind of thing. So, it would accelerate that for sure. But, that's a very big transaction you're talking about. And we're really not seeking to go out and buy things. We built everything. We're much better builders than buyers, I think. And I think, like I said, the Warner Brothers aside, because it was a very unique product. It didn't have all the things you don't want in that deal. And it did have great IP and at a price point we'd have closed on it. But I can't think of any other thing like it.
Yeah. You mentioned Netflix House, which recently launched in Philadelphia and Dallas. The plan is Vegas coming soon.
It seems as though Netflix is getting into the parks business. You said it's maybe a night out, but how central is physical venues? How central are live events to the business going forward?
Look, it's mostly about fandom. It's mostly about how do you express your fandom? How do you like, oh my god, I can't wait for One Piece the new season. So, you go and you have this experience inside a Netflix House and there's a big incredible One Piece escape room and you take all your friends and you have a great night out. I don't think these are, these are all kind of additive to the, really strengthens the IP in a great way. And at the end of the day, it can be a very profitable business too if you do it well and do it right at scale.
Yeah, Netflix is one of the largest streamers in the world. It's certainly more popular than Disney Plus, Paramount, Hulu. There is one other, some would call it a streaming service though, which is very popular, and that is YouTube, which is actually dominating in terms of television viewing time. How do you think about YouTube? Do you think of YouTube as a competitor? And if so, what is your approach to competing with them?
I look at anyone who you pick up your remote control and decide what you're going to watch as a competitor. And I think to your point, if people are watching YouTube on television, we compete with them for that time. And I don't think we compete with them directly for that type of content or that kind of engagement, but definitely for that time spent. And I think the beauty of every advancement of entertainment is it keeps ratcheting the bar up and everyone has got to compete for the next thing. So if people are interested in this, you got to get good at that. And you have to keep doing that. I think if you think about how back when broadcast television, it was just broadcast television and then there's cable channels and then there's cable originals and then there's premium paid channels and there's premium originals and they keep kind of ratcheting up on each other. By the time we got into it, the likelihood that a streamer was going to produce an HBO-caliber show like House of Cards was pretty unthought of. But I think this is kind of the same thing. Will people step into YouTube because it's a very easy entry point to develop their storytelling skills and will they find that the monetization there is not quite what they want it to be if they've got bigger ambitions and will they go out and look for other things, Netflix perhaps or another streamer, another network, all those things will happen and it's all just part of the landscape of how people are watching. And I'm frankly fascinated by watching, like for me, if I watch Saturday Night Live on Sunday morning on YouTube, am I watching NBC? Am I watching YouTube? Or am I watching Saturday Night Live? So, are we competing with them? I'm sure we could. If I was watching NBC, of course, we're competing. So, I think so. We're just trying to constantly win those moments of truth when you sit down on the couch and pick up the TV, press the button to choose what you're going to watch. I've got to entertain you.
Yes. One thing you didn't mention on that point, you're competing with YouTube when you pick up the remote and you turn on the TV. Increasingly, people aren't even doing that. They're taking their phones out and they're scrolling on their phones. And for young people, for Gen Z, we're spending around 8 hours a day on our phones. To me, that's eating into content time. That's eating into watch time. And something we've been talking a lot about on the show is the idea that clips seem to be taking over. Short-form content seems to be kind of king at the moment. Those are obviously dominated by basically Instagram, you could argue YouTube Shorts kind of, and TikTok. Do you think of Meta and TikTok as competitors as well?
I think if they're doing it on the TV, I do. And I would tell you this. I think that people, what's really remarkable, if you look at the consumption of professional content, TV film, TV series, films on phones, that consumption has been remarkably flat for about seven years now. So you are seeing a lot more video on mobile. But the professional content on mobile is about 2%. And it's been steady. And what's more amazing is through the entire advent of the internet and tablets and phones and YouTube and all these free options, even that television consumption and movie watching on bigger screens is remarkably stable too. So people are multitasking. There's all these, you know, to describe this, to make it make sense, you have to think, well, how is that possible? Well, they're doing it at the same time. And so, and I do think that there's one of those things where say, well, people don't have the attention span for TV anymore. Well, wait till the new season of Wednesday comes out and people sit in front of their TV watch eight hours of Wednesday. Happens every season.
So, the good news is in 2008, I bought Netflix stock for $12 a share.
Here we go. Yeah. But wait, now you listen to everything he says. So it's, I think on a split-adjusted basis it's now at 700. The bad news is I sold it three months later at 10 bucks a share for a tax loss. I literally want to find a time machine so I can go back, find, track my ass down, kill me, and then kill myself. Anyways, distinct to that, your stock is up I think 850% in the last 20 years. So the last 5 years it's kept pace with the S&P but it hasn't outperformed and the last year has been not a tough year but you're a CEO of a public company and it's very much what have you done for me lately and I think the general sense is, and you tell me if this is not correct, is the clip economy that Ed is talking about is just eating... I mean the fear is of people our age is we don't know what we don't know and what I see with my kids and I think unfortunately right now the most powerful force in media I would argue is probably Instagram, and that is our brain. We have a generation of people being wired to consume content in 60 and 90 second formats. You now have, including the debt, the acquisition you passed up, you technically... after I heard you were passing, I texted, I'm like, you got $12 billion to go play traffic. Now it feels like you do need to inspire some more growth. You're still growing, but I doubt you think of yourself as a mature company. And your growth is still solid, but not the growth it once was. With that $112 billion, where are you going to find growth? Is it continuing to do what you do, or do you have other ideas about new businesses you're currently not in?
Well, look, we're about 9% of total TV watching right now in the US in our most mature market. We're about 45% penetrated in our addressable markets and growing that penetration and growing share in what we're doing is a big business. You know, this first quarter of this year we grew our revenue by 18%. We grew our gross margin by 18%. We've got a guide for this year to be 12 to 14% of growth and 31.5% margin. We also have a doubling of our ad business to $3 billion this year. So we've got a lot of growth on the horizon of what we're doing because we just have barely scratched the surface in what we're doing. You know, it's remarkable to me in some of these TV markets around the world that we're still in our infancy in a way. So you go out and see, and if I worried a little bit about what you were saying, obviously we follow consumer trends. We see what young people are doing and then having tried to distinguish what will they do when they have more money and less time, which is generally how these things evolve. And being part of their media landscape is really important and they may use the phone to get excited about something. You saw that we just redid our TV UI, but we also redid our mobile UI and added vertical video, not to compete with TikTok, but to be more discoverable in a format that's more native to younger people when they use their phone to find things. And the ease of use of going from the vertical video on the phone to the actual presentation on your TV is really where we're focused. And there's a lot of growth there. Plenty of growth.
But you don't see a need or an opportunity to take your content and slice it up in some sort of new, using new technology, and create or play in the short-form video space?
I mean we can, but I think like I said, I don't know, there's a lot on the phone, there's an enormous amount of competition for your attention on that phone and a lot of it is free. It's almost all free. So what I'm looking for is the most valued moments of truth. I'm looking for that entertainment worth paying for. You know, when we first started back on before, you know, from DVD into streaming, our big mantra was our content has to be better than free. Because at that time, piracy was the competition and we had to be better than piracy. We had to give people a reason not to steal because it was so easy to download that back in those days. So, that has always been our focus. We're a super consumer-focused business. We constantly are looking at how we're entertaining people. We look at the metrics in our internal metrics, how we grade ourselves on how we're entertaining people on things like, you know, how do they complete, how fast do they go from season 1 to season 2, do they tell a friend, do they post about it, do they give it two thumbs up? All this internal is always focused not on the quantity of watching as much as the quality of the watching because it has to be good enough to pay for.
On this idea of, I mean Netflix is sort of the premium product. It's better than free. I think everyone agrees on that. But there was a controversial decision that you made back in 2022 that I think you did not support, which is that you launched ads. You launched advertising. It seems to have been an enormous success. Ad revenue is on track to double to $3 billion, more than 250 million ad tier viewers. Talk about the decision to implement advertising in Netflix. A lot of people said, no, this needs to be a premium product. We don't want advertising on our platform. But at the same time, a lot of people use it and a lot of people seem to like it.
Well, look, one of the things I figure out as we go is people have completely different opinions of what they want and how they want it and what's premium to them and how they define it. And the one part of the audience that we were not addressing was the one who wanted a lower price point and didn't care about ads. And there's a lot of them, it turns out, and particularly you're talking about young people who grew up mostly watching ad-interrupted content constantly. So for them it was a completely different thing. The reason we were so not in the advertising business at the beginning was it was kind of a classic counterposition move. You know, when we first got into DVD, our competition was Blockbuster video stores. What did people hate about video stores? Late fees. So we were the no late fee company. We total counterpositioning. So we get into streaming, we're in the TV business. What do people don't like about TV back then? What were they complaining about? Advertising and having to wait till next week for an episode. So, no advertising, everything at once. Great counterposition. And over time, how does that evolve? And we always fancied ourselves a choice company. We wanted to give people unlimited choices. Well, one choice was I would like a lower price and I don't mind advertising and we were not offering that. So, that's why we got into it.
What do you think people are complaining about now that you need to solve?
Well, over time, I think if you go down the path you guys are talking about, I think people will be complaining about AI slop pretty soon because I think they'll look at things, if you see it already, people pick apart a movie poster on Reddit with every little glitch in the system, right?
