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We complete our two-part Netflix special with the company's bold transition to streaming, including of course the most (in)famous spin-out in business history. Rising from the ashes of Qwikster, we chronicle Netflix's rebirth as a media company and long journey back to the top of the FAANG mountaintop!
Thank you to Tegus for being our presenting sponsor for this episode! Tegus is the world’s leading company intelligence platform. The Tegus product contains thousands of fully transcribed, searchable interviews with experts on companies of all stages, sizes, geographies and sectors – all accessible online and on-demand. They’re trusted by amazing firms like Benchmark, Spark, Thrive, First Round, Redpoint, MITIMCo, IGSB and more. You can learn more and get a free trial by clicking here. Just tell them that David and Ben sent you when you get in touch!
We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.
Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!
Purchase Price: $4.2 billion, 2009
Estimated Current Contribution to Market Cap: $20.5 billion
Absolute Dollar Return: $16.3 billion
Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…
Total Purchase Price: $70 million (estimated), 2004
Estimated Current Contribution to Market Cap: $16.9 billion
Absolute Dollar Return: $16.8 billion
Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!
Total Purchase Price: $188 million (by ABC), 1984
Estimated Current Contribution to Market Cap: $31.2 billion
Absolute Dollar Return: $31.0 billion
ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”
Total Purchase Price: $1.5 billion, 2002
Value Realized at Spinoff: $47.1 billion
Absolute Dollar Return: $45.6 billion
Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.
Total Purchase Price: $135 million, 2005
Estimated Current Contribution to Market Cap: $49.9 billion
Absolute Dollar Return: $49.8 billion
Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.
Total Purchase Price: $429 million, 1997
Estimated Current Contribution to Market Cap: $63.0 billion
Absolute Dollar Return: $62.6 billion
How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.
Total Purchase Price: $50 million, 2005
Estimated Current Contribution to Market Cap: $72 billion
Absolute Dollar Return: $72 billion
Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.
Total Purchase Price: $1.65 billion, 2006
Estimated Current Contribution to Market Cap: $86.2 billion
Absolute Dollar Return: $84.5 billion
We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”. With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.
That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.
Total Purchase Price: $3.1 billion, 2007
Estimated Current Contribution to Market Cap: $126.4 billion
Absolute Dollar Return: $123.3 billion
A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...
Purchase Price: $1 billion, 2012
Estimated Current Contribution to Market Cap: $153 billion
Absolute Dollar Return: $152 billion
When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.
Methodology and Notes:
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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Welcome to season three, episode nine of acquired the show about technology acquisitions. And IPOs. I'm Ben Gilbert. I'm David Rosenthal and we are your hosts. Today we are back with the acquired version of Terminator two, the second part of our Netflix episode. You're like that, David. It's just for you. Oh man, that's great.
That's great. I love it. Listeners. Now, if you remember it, the last episode, we did cover the DVD saga of Netflix and where we left our heroes in 2009 shortly before the Epic launch of Quickster. So today we're going to dive in on the era of streaming and later original content. So David, I wanted to have a, a, a fun fact to start us off on, on Netflix.
So as you remember, they were once a plucky startup mailing DVDs to customers and, and, uh, you know, a remnant of the pre.com bubbles starting in 97. And they were doing this, you know, even before most people had DVD players, they were waiting for the DVD wave to crest. This company now accounts for 15% of all internet traffic.
Oh, no, that's in my show notes. I, well, sorry to blow your cover early, but you know, streaming movies and TV as a category actually now makes up 58% of downstream internet traffic and no single service accounts for more of that, that bandwidth then, uh, that Netflix does, and at peak times it can even account for 40% of the U S as concurrent internet traffic.
So you could imagine maybe like 8:00 PM Eastern or something like that. Absolutely incredible. Yeah. And this is with some of the best compression and optimization technology that like humans as a species have figured out how to do it. The last episode was about a company fighting to get its first 500,000 customers, and this episode is very much about sort of global domination.
All right. Listeners, we announced on the last episode that we had formally launched the acquired limited partner program and we've been just totally floored by how many of you have have joined our LP community and are listening to the bonus show and are sending us really great questions for, um, doing Q and a on the show.
David last week's episode was like very fun, so I'm pumped. I got to meet Dan and thanks for bringing them on. Yeah, it was super fun. We had Dan Hill, uh, who in addition to being the CEO of waves, first portfolio company, Alma co, founder and CEO. He was Airbnb's head of growth for a long time and had just great stories about growing Airbnb from, you know, series B days to $30 billion plus.
And. There's so much to learn from him. Um, so really fun to have him on the LP show. Anyway, listeners, if you want to hear Dan talk about why Airbnb was successful sort of in this space and how they chose their metrics and a bunch of other great stuff, you can click the link in the show notes to support the show or go to glow.fm/acquired.
dot. FM slash acquired. I feel like we really need a jingle for that. Did you do, we could just play that every time. Yeah, that's, yeah. Acquire needs, better jingles, period. That might be one of my holiday, a holiday projects back to the show. Now, before we dive in, as always, listeners, I want to thank our sponsors for all of season three Silicon Valley bank.
We have with us today, Al Guerrero, a managing director in the Santa Monica office. So Al focuses on digital media, e-sports, gaming, and other interactive frontiers. Perfect for this episode. Al, thank you for joining us. One question for you. What opportunities do you see for startups in digital media today?
Yeah, there's a lot of people know it's been a. A tricky year for a lot of digital media companies, and we're seeing a lot of them look at expanding their business model by doing live events, launching subscription models. But the one that I really want to focus in on is the companies that are selling product.
And so what's happening is a lot of these digital media companies are leveraging their audience and their engagement with the audience to sell authentically, sell a product. As an example, there's a company here in LA called click brands that creates female fashion related and beauty related content.
They're leveraging the insights they get from their audience to then launch and develop clothing lines, which they've actually partnered with target to successfully sell clothing line. All leveraging the data and the insight circuit they're getting from their audience. And again, it's a very authentic, natural extension of the content that they're creating on a daily basis.
Awesome. Super interesting. Thank you, Alan and listeners. Al just published a great piece on medium called what's next for digital media startups. That kind of goes deeper into this product idea as well as sort of all the other newer revenue models that digital media startups are trying to use today. So if you're into this topic, you should check it out.
You can click the link in the show notes to get access, and we will also have a link in the Slack. Alright. Now onto the show, onto the show. Indeed. David, I texted you before this. We have a little bit of follow up from, uh, from the last episode. We have some awesome listeners that wrote us in, uh, about Netflix part one.
And since this is a two parter and we do get to actually go back and, uh, and make a few corrections. The first one is actually on my carve out from last week, where I mentioned that the good place, uh, was a Netflix show. That is a classic millennial mistake. It is completely not a Netflix show. It's an NBC show that just got syndicated on Netflix, but my cord cutting had blinded me from that.
And Netflix originals have just gotten so good and plentiful that I just assumed that I was watching a Netflix show. Uh, so that mistake,
I know the other one we a is that we discussed that blockbuster had an incredible business model where they only had to. Pay rack rate for DVDs, and then they could rent them as many times as they would like. Thanks to uh, on Twitter. Jim underscore Brown. Uh, we have a correction. It's difficult actually to track down the exact number.
It's sort of buried in some academic papers, and I think it came out in some court case filings that I gave up on trying to actually find it out, but it's, it's somewhere between 50 and a hundred dollars that they actually had to pay for every DVD rather than just. Getting to sort of buy them at, at store price in sort of a special deal that, that they'd orchestrated so that they could generate the sort of high rental revenues that they, they got from each one of those DVDs.
So good to know there and thank you to Jim for, for correcting us. And the third one is we had an anonymous listener send us some amazing facts about red box, uh, after we briefly touched on it in the last episode. So red box, um, as you know from the last episode was actually. Originally a project at Netflix that, uh, an executive quit to go and, uh, and, and work on full time.
So outer wall, which was red boxes once parent company, uh, was acquired for over a billion dollars in 2016 by the private equity firm, Apollo global management, and a Redbox is now a standalone company inside of Apollo. Turns out it's wildly profitable. They're actually working on starting a streaming service of their own as.
Standing up a a second attempt of that, but looking at their core business like it's not hard to figure out why they're wildly profitable. It turns out running a retail footprint of six feet, eight feet by six feet, um, that rarely requires human intervention, can be wildly profitable. No surprise there.
They have like the, you know, if you think about sort of like the dollars per square foot per month at, at retail establishments, like one way people always focus on improving the numerator there, but you could also lower the denominator. Yeah, they've sort of gamed the system on that metric. But here's another crazy thing about Redbox right now.
So in Disney's attempt to build their own relationship with customers through the, uh, uh, in my opinion, very dumbly named Disney, plus, they do not have a distribution agreement with Redbox. So what does Redbox do to get the Disney titles on their, their machines? Well, we heard a great story. It is official company policy to send employees store to store when new Disney movies come out to buy retail copies of the DVDs or I guess Blu-rays and bring them back to stock the machines.
This is, this is actually how Redbox acquire his Disney movies to put onto their, their platform. Wow. Which I kind of imagine are some of the most popular titles on Redbox machines. I just think in general, I think we sold the company short last episode. Um, they deserve some of that credit also for destroying blockbuster because while Netflix was hard at work, hammering them on the online front, Redbox was also doing for $1 what they used to do for $3.
And in many ways easier because they sort of had more endpoints at more stores. Blockbuster, his main business was sort of under, under attack there as well. So lots of kudos to, to red box for, um, being a major player in this industry. All right. So, David, can you take us in to what your 2007 rewind a little bit and start with, uh, with streaming or are you gonna like find some way to go to like early thirties?
Not that far back this time, but, uh, we will pick up the story in part two as listeners. Remember in part one. We covered the story of Quickster, I mean, Netflix from founding to 2009 and once again, also in part to want to shout out the really excellent book Netflixed by Gina Keating, um, which provides a lot of the history and facts and really for anyone who's more deeply interested in this company, um, and this history, uh, can't recommend enough that you go read it.
So we ended last time in 2009 Netflix. Not yet. Quickster had basically, you know, snatched victory from the. The jaws of blockbuster to keep calling it Quickster because like their whole business basically was quite space was quick. Everything we discussed in the last episode was Quickster. They just reached 10 million subscribers.
It's 2009 there. The recession, uh, has beset the U S and the world recently, and Netflix is one of the few companies that is thriving during the recession. They're basically on top of the world, but the waves are shifting. Streaming is coming. And like any good, you know, sea captains, a Etsy, Reed Hastings in the Netflix management team, uh, they see this and they know that they're going to have to adapt and they're going to have to embrace this, uh, this new title wave of, of streaming that, that they see coming.
So to rewind a little bit, how did streaming kind of come about? So really, I mean, I think you can point to, this was our. First episode, it was our first acquired episode, right? Disney. Pixar. Yeah. First or the second, I can't remember. Instagrammer or Pixar was one of them. So yeah, those were one and two. But anyway, Disney in 2006 had acquired Pixar, and that of course, brought Steve jobs, uh, became the largest single shareholder in Disney.
And Steve jobs joined the Disney board. And after that happened in a couple of years following, Disney made a, made a pretty unprecedented move. They brought all of their video content to the iTunes store. And so for the first time, all of a sudden, I remember doing this in college and right after you could buy.
Digital copies of Disney movies and ABC TV shows. I remember doing this with lost, and you could buy a whole season at a time. Now, this was not streaming. This was downloading. You would buy it on iTunes, download the entire file to your computer. Um, in the beginning, there wasn't even a video, iPod or computer.
It was a sudden like archaic device. It is, it is, I say, as I'm talking into one, but I'm, I'm. Rapidly trying to move everything to iPad, but, and so that really kind of. Started to open the industry's eyes, and this was the first, like, this was real content, mainstream content that, that now could be available digitally.
The other thing that happened right around this time is us broadband penetration finally passed, you know, 50%, and then kept growing and became really ubiquitous. You know, this, this whole business, whether downloads or streaming would have been impossible in the, in the dial up days. Um, but bod ban finally enables it so.
Netflix, of course, and Reed Hastings in the management team, they see, they see all this happening and they know they need to do something. So in 2007 they make a pretty key hire onto the team. They hire a man named Anthony Wood. Now, Anthony had been the founder of a successful. DVR company. Um, so you know, those like set top boxes that were ill, like Vose.
So he had founded a competitor to TiVo called replay TV that had been successful. And so they hire him to come and be a VP at Netflix and to work on what they're calling the Netflix box. And the idea is that this would be a set top box made by Netflix that people would, would buy and put in their homes next to their DVD players.
And initially the vision was it would have a hard drive in it. And just like when you would download a Disney movie via iTunes on your computer, you would download a movie from Netflix onto this box and it would play it off the hard drive hooked up to your TV. I think I glazed over that at the research like that, that before streaming, it really was like, it was, it was basically an ass, like a, a network store.
You know, I just keep a bunch of stuff at, at home. Well, it was a, it was a replay TV. It was a DVR. That's what it was. Uh, it was a hard drive. Um, they realize though that, that actually with broadband, like, you know, you have to wait to download the movie when you're, um, in, in this old paradigm that actually just streaming, they had the technology to do that and that would be better.
So they played with the project into that. The the boxes is coming along, but read in the management team, they start to get worried though. Uh, this is late 2007. They, they worried that if they release their own box, they see that there's fights coming in this new paradigm. They're going to have to fight with the cable companies.
They're going to have to fight with the content companies, and they realize that if they release their own box, they're also going to have to fight with the consumer electronics manufacturers. And reads like one of his main jobs at this point is sort of going door to door with X-Box and with, I think PlayStation and like really lining up these partnerships saying, Hey, we think streaming has been going to be a thing.
We're working on a way to get that delivered through the browser on computers, but we know that a lot of people are going to be reticent to, you know, when we do this. Watch on computers, so they probably want to do on TVs. You guys are plugged into TVs and he's realizing like, boy, these negotiations are, are not going to go well.
A competitive device to you guys. What does he do? We've seen this before. He tells Anthony, yeah, we're gonna have to cancel the project. Just like they did with. Redbox, and, and he says, Oh, okay, well, you know, we've basically built this thing. How about we do something a little bit different? I think they're two weeks from shipping for people who are, who knows, sort of how this process works.
They're in the third phase, so it's DVT design and validation testing or verification testing. Like the whole team has been over in China, like manufacturing these things. They've did done several revs. They're coming off the line. They, I think they have a hundred or 50 units made. That are done and perfect.
And they're taking those on the road show to like show sort of demos, retailers, potential partners. Yeah. Of like, you know, they're, this thing's baked. It's baked. Yup. And, and in a classic, you know, Netflix management team, Reed Hastings move, it's, you know, Nope, we're changing our mind as we will see. But would, would convince them.
Okay. Rather than killing the whole project. How about we spin this out as a separate company? You've already built this device. It will behoove you Netflix to have this device out there to be the initial, you know, device streaming partner for this Netflix streaming service. You know, we can have a win win here and I get to run my own company here.
Well, they talk it over. They decide, okay. They spin the company out and they name it. Roku and Roku. Bob Roku actually, um, was the name. So would had had it essentially a shell company after the, after selling replay TV and are moving on from replay TV. It started a company called called Roku, which I believe in Japanese means six is the number six.
And uh, it was that this was his sixth company that he had started, something like that. And, uh, and so he essentially restarts this company, leaves Netflix, and takes this box that they've built within Netflix and rebrands it as Roku and launches it in early 2008. And it is, um, you know, it goes on to great success and is now its own public company, uh, IPO earlier this year, but they are the first device streaming partner for this Netflix streaming service.
And just like. Netflix wanted following this. This is sort of the proof of concept. They sign up Microsoft and Xbox as a device partner streaming comes that summer to X-Box three 60, um, Netflix streaming, and then they start, you know, going to PlayStation and they go to all these cognitive devices, knocking them down one by one.
Can we just pause and reflect for a moment? What an unbelievably gutsy management decision that is. Like you have this whole like arm of your company for, for listeners who are interested, we'll put a link in the show notes, the team, like a month before canning it or maybe a couple of weeks before canning, it did an all hands where a group of employees did a parody video of the Dharma initiative from last, which was a huge, at the time of.
All of the sort of like secret project to build, I can't remember what they called, what the sort of secret project name was. Um, all I remember about lost is that it was, it's like such a period piece now. Oh, the code name was Griffin. So it was, it was like the Dharma initiative logo with . Griffin in the middle.
But this video is amazing because it was shown at the all hands. It's got everyone from, you know, people who worked on it, to the manufacturing team in China, to Reed Hastings, who like as part of this video and they're showing it to everyone at the all hands as like a hype video for get excited about this, like new strategic direction the company's going to take, we're doing hardware baby, like we're doing our own video codecs, like we're going from Silicon all the way up to the cloud and we're going to own the whole thing, and then just like on a dime, boom.
It's its own comp, like it's its own company that goes on to be wildly successful. I mean, it's really amazing. Like, I don't know if this says more about. Me and me living under a rock or just that, like this history of Netflix is not told that both red box and Roku come out of Netflix like it's crazy.
They've had more spin-offs than they have their own acquisitions. I think they've only ever acquired one company. I know what their first was. I don't know if there were other ones after that. And the, their first was quite recent, but the Roku thing. Just one more note on this. I tried to do a bunch of research to figure out when they spun it out, what did the ownership structure look like?
You're totally not living under a rock cause I looked through the entire Roku and a couple times it mentions Netflix as. Obviously they have a large dependency on Netflix is business. It mentions in two places a lease like that they shared with Netflix in the sort of early days, but it doesn't mention anything about like Netflix is part of the founding story of the company.
Uh, Reed Hastings nor Netflix appears on the cap table, uh, when they're going public of sort of major shareholders, which is interesting because Netflix invested $6 million when they spun it off. But I wonder if they've just been diluted so much. Well, one other thing that's $6 million. I tried to find more information on that to figure out like if there was a valuation on the company, if they, what it looked like a, there is a form D filed on Edgar, which is the SCCs website that you can go to that shows an investment.
It doesn't name Netflix or just names, Reed Hastings. Uh, so maybe it was some kind of proxy thing. Cause I assume it was Netflix and it's scanned in properly. So like. You get to read half the previous page and half of the next page while you're looking at this document and scrolling through it. And none of it's in a digital format.
So it's like one of these things that's like, you really have to scour to find anything. And then you can't find that much other than the fact that it was killed and spun out. Amazing. And this is now a, you know, billion and a half dollar market cap, public company. Crazy. So. That's the story of the dentist, of the one half of the streaming business for Netflix, which is the distribution getting, getting, you know, content into people's homes.
But, but it turns out the other half of the streaming business, the content side. Quite frankly proves to be the harder half over the coming years, or at least the more capital intensive half. So unlike DVD rental that Ben was addressing in the followup in the beginning of the show at the top of the episode, unlike DVD rental, there's no first sale doctrine here, so to stream.
Content will be it, you know, shows or films to people via service. You have to negotiate with the rights holders of that content and you have to buy those rights from them. Now, in the early, very, very early days, the 2008 2009 when they're just getting started here, the content companies don't really. See the future as clearly as Netflix sees it here.
You know, these are the days when cable network content deals are like still huge. And the vast, vast, vast majority of these content companies revenues. Um, so they've used streaming as just kind of like a nice add on. So the first deal that, um, content DL for streaming that Netflix actually does is with stars.
They pay TV, cable network. This is a total steal. So they do a two year deal. In October, 2008 with starters to get all of their content for $25 million. So this is TV shows, movies, their back catalog, everything that they have the rights to. Um, uh, stars quickly comes to regret that, but it's only a two year attempt to stars to stars actually own the rights to all those movies that they're putting on their sort of like.
Hi hundreds cable channels. So I believe the way this works, this is, I'm mostly conjecturing here, but I'm recalling my old days as a media TMT investment banker. Uh, around this time, I believe the way it works is that stars had negotiated with the, with the content production company, but Disney Fox, you know, whoever NBC who had originally made the movies and TV shows, um, they had acquired the rights to show them on cable.
And I believe. It also included streaming or whatever the language, but it wasn't really something that was contemplated them, but they had the right to then resell those rights. That's a theme between music and movie. It's really all media is like you since you don't know what the next frontier is going to be.
Sometimes people can sort of slip it into the contracts, like if, if it's like, Oh yeah, we'll just bundle in forward looking like the VR rights to this thing, and you're like, yeah, yeah, whatever. But like, you don't know what's going to end up being huge and what's not. Totally, this happens. And, and Netflix also does a deal in 2008 with NBC universal for a streaming access to some of their content, including Saturday night live, I believe, streaming the day after, uh, on Sunday.
Um. Once again, just like we saw with Netflix in part one, this is like instant product market fit. So you know, everybody who, uh, has is any inkling of watching video on a, you know, computer or mobile devices or emerging any screen at this point. So, you know, mostly millennials and younger, but, um, but lots of other people too.
I mean, YouTube has been around for several years at this point. They just go nuts. And this is drives tons of signups for Netflix. Even during the recession. It's an a way better product. I mean like why would you, the old paradigm is you only want a video when it's on TV. You know when you, what you want is on versus you can watch it whenever you want, wherever you want.
Like that's a no brainer. Customer value prop there. And I remember in the summer of 2008. Previous to that I wasn't able to do Netflix's, what do they call it, like instant watch or watch now feature? I think it was instant cue. You had your regular Netflix queue for DVDs, and then the instant queue was your queue of what you wanted to watch, you know, lined up, uh, via streaming and you're so right.
Yeah. And, and you could only, it only worked on windows because like, they just hadn't. They hadn't gotten around to building the sort of Mac client for it yet. And then when they did, you had to like use, I can't remember what browser it was, but only worked at one browser and you needed silver light. So like this, Oh my goodness.
The way that this works today and the way that it used to work, it was just the cloogy iest way that you could imagine trying to, like, it would take 15 minutes to get the video sort of set up on your computer so you could watch it. This was the only reason I had silver light installed on my computers.
Wow. How quickly we forget. This is, you know, 2009, 2010. Netflix is just, but they've beaten blockbuster at this point. Yes, they're competing with Redbox, but like, they're the only game in town when it comes to streaming. They're having a Bonanza just adding subscribers, uh, like there's no tomorrow. And so much so that by 2010, uh, Ben gave the stat that, uh, today Netflix is still 15% of all us internet traffic.
Back then in 2010, they were 20% of all us internet traffic. Oh, wow. Internet guru. Yeah. I assume, uh, well think about how much more streaming video there is now versus in 2010. Um, right. Yeah. It probably wasn't 68% of the internet or what, 58% of the internet then. Yeah. I mean, of course there was YouTube, much smaller than one state, but you know, there was no, uh, there was no Amazon prime streaming.
There was no Facebook video. There was no Snapchat, there was no Instagram, nothing infrastructure wise. There also wasn't gigabit to the home. Then. Yup. Yup, yup. And Netflix already knew this was the future. This is like not just the future. This is now. So they realize they need to sign up as much content as possible and just keep this, keep this train running.
So they're willing, the content companies are also seeing this and saying, Oh wow, we can extract a lot of dollars out of Netflix. Netflix says, we're happy to pay dollars. We've got subscribers coming out the wazoo. They sign in 2010 a remember their first deal was started. It was $25 million. They sign an
$800 million deal, five year deal with epics, epi X. Now epics was a joint venture between paramount, um, which is part of a Viacom. Lionsgate paramount was the, the film, uh, studio of Viacom, lion's gate, independent and MGM, which were. The two remaining major independent film studios. So they get all of their content, all the back catalog, all the new content that's coming out.
And MGM, at the time, I remember I was working, uh, on wall street. They were facing bankruptcy, and so they desperately needed this cash. Um, and it was this Netflix deal that, uh, between epics, like really. Keeps a lot of these companies alive through the recession. Everyone else sees this, and they started coming back to stars and NBC come back.
They'd demand much more money and Netflix realizes they need to get really smart. So they spin up a whole content acquisition department and they start spending a lot of money acquiring all this content. So there's, there's foreshadowing there. Netflix spending a lot of money on content. Okay. All right.
It's coming back. But a quick, real quick detour about the media industry. So all of these content production companies, the media industry has been around for a hundred years. In the U S there has been tons of consolidation. They are either. Under the same parent company in the case of like time Warner, um, or, or, or very closely tied to the cable companies to the distribution, like content and distribution are all within the same house, if not directly, then at least they're, they're in bed together also going on as a, as a result of this cord cutting starts becoming a thing.
Consumers are saying like, man, I'm getting so much great content from Netflix, from YouTube, from streaming, and it's the recession and you know, cash is tight. Do I really need to be paying 100 bucks a month for my. Cable subscription. So see, you've got the content side of the house, then you're saying is like very incentivize to do these deals, but the distribution side of the house is like, wait a minute, this is the thing.
Accelerating our death. Can I, can we have a conversation for a minute? Yeah, exactly. So they, the distribution side of the house, the cable companies, they start getting very protective versus Netflix. Now what do the cable companies also own most of in the U S they own the broadband pipes too. People's homes, the most people in the U S at this point in time, and, and really still to this day, I would assume, are getting their internet connections in their homes that they're using the stream from their cable company, from time Warner cable, from Comcast, from whatever, from their cable modem.
Quick side note, do you know about fast.com? Vaguely, but so forever. I use speed test.net to test my sort of upload and download Netflix. Was having all these issues through all the net neutrality stuff where as you're about to suggest the pipes did not like them because they were taking up most of the bandwidth but not paying anything special to be on them.
So Netflix was getting throttled. So what did they do? They created fast.com and put it on the same IP block and on the same CDNs as their content. So then they were, they ran a big campaign and encouraged users, by the way, fast.com is a great way to check your upload and download it as far as sort of like simpler and lighter than speed test.
Um. They encourage consumers, Hey, if you ever feel like, gosh, it might, why is my Netflix slow? Go to fast.com. Um, and, and compare that against however fast do you think your internet should be? And you'll get a, a reading of, uh, you know, uh, what your ISP is actually treating us as in terms of upload and download speed.
Interesting. Well, of course then what you are referencing here is throttling the cable companies. The, the. I SPS, they start throttling Netflix because it's a competitive threat to their whole business model. So what does Netflix do? Reed Hastings is like, I can play politics. I know how this works.
Remember back to part one. Uh, and his day is on the California board of education. He starts a PAC, a political action committee, uh, called, uh, not to support a particular political candidate. It's called Flix pack. Uh, and it's to lobby the FCC. To set up net neutrality rules. So if you, we all go back in the time machine a little bit here and start remembering, when did net neutrality start becoming a thing?
When did we first start hearing about this? It was in 2010 and it was because of this and it was because of Netflix that really, uh, remember all these campaigns about like, you know, net neutrality and stop SOPA and all, all this stuff. Like who's behind it? David, some of us, some of us wrote a big. 40 page thesis paper on network neutrality in 2007 so like, you know, hipster net neutrality, you were just ahead of the curve.
I was, it's the only time in my life I can ever claim that. And I remembered these big, huge, huge fights. And then finally at the end of end of 2010, Netflix wins and the FCC approves rules, essentially preventing ISP from, from blocking content that's under attack again today. I don't know actually the details of the latest FCC ruling.
Um. This year or last year in the Trump administration, uh, I believe reversed a lot of this. This is one of those things I followed. And then the rest of the world's news got so insane that I lost the thread. Yeah. Yeah. Me too. I cannot speak authoritatively on this anymore. Anyway. Um, so 2010. Basically, it goes really well for Netflix.
They're spending a lot of money, but they're, they're growing hugely. 2011 also starts on a very positive note. They finally launched international expansion. Now international was hard to do with the DVD rental business cause you needed, you know, basically cooperation of the national. Post office and all this infrastructure and everything.
Um, but streaming, you know, it's just, it's just bits. It's not Adams. And it turns out a lot of the world speaks English too. And watches us, made a Hollywood, uh, video content. So first they expand first in Canada, naturally. And then before the end of the year in Mexico and Latin America. Um, and this becomes a huge, huge growth driver for them over the subsequent, throughout the 2010s.
Now, international is a, a bigger business for Netflix. Then there, then their us business. Um, so all going well, they're still kind of on the top of the world here. And this is 2011, 2011. Yup. I don't think. We talked about the chaos monkey and the last show, correct? No, I don't know. We didn't even talk about the cat.
Smokey. Go for it. Alright, so this is the, the time that Netflix decides we're fully now an internet company in a bigger way. You know that we're a streaming company, and so we need to be world-class at technology. And anybody that has that watches Netflix today sort of knows, like it is remarkably Bulletproof.
Like that. It kind of always works. And how is that? Well, Netflix invented something that you can find on get hub now that's part of a larger suite of software that's open source in 2011 called the chaos monkey. And what the chaos monkey in its original incarnation did was it was a software package that you would turn on on the server and sort of on your, on your whole infrastructure, and it would just start pinging around all the different.
You know, internals of your system and just kill random processes at will. It was literally a chaos monkey. Yeah. And, and what it would do, and the, the philosophy behind the whole thing was what better way to prevent failure than to always be failing and be able to construct systems that are extremely resilient and sort of fail gracefully instead of failing in a catastrophic manner.
And so some of the original things that they did were. The experience could degrade where the resolution would get worse, or where your recommendations weren't available or your profile wasn't available, but you could always do the number one thing that people want to watch on Netflix, which is search for a thing and then watch it.
And it's just crazy, impressive mentality that, you know, back in 2011, they're pioneering sort of like a, uh, it's actually, it's used in a ton of companies now. There's that book famously named chaos monkeys, about, uh, about Silicon Valley in general. It's sort of a brilliant infrastructure decision and just show the, uh, the sort of level of talent and the engineering department there.
They still run it now like nine to five or something, so they don't have to wake people up in the middle of the night because the chaos monkey tip something over that that you know, was still sensitive. It's very, it's very humane, humane chaos monkey. That's well an apt analogy for what's about to happen here.
I feel like this is also the story of the. Business side of the Netflix house, which is like, there's a chaos monkey running a monk, and they keep shooting themselves in various body parts, but managed to persevere, uh, at our very, very robust, uh, as a business. So summer 2011. Now this is when the dominoes start to tip the other way.
They make an announcement. So again, we're now a couple of years into this streaming business. It's again, instant product, market fit. People love it. It's 20% of the internet. They know this is the future. So up until this point. Everybody who was a Netflix subscriber to the DVD rental business just got the streaming baked into it.
Like you just subscribed to Netflix. It's just one product. It's like prime. We're just going to throw stuff in to sweeten the off. Exactly. Summer 2011 they change the pricing structure or they, they issue a press release and there are a couple of, there are few things in this press release. What gets all the attention is they come out, they build this as a price cut.
It's anything but in reality. Come on. Don't, don't bury the lead like PR role number one. If you're about to announce something that consumers hate, do not make the title bet. You're accusing me of burying the lead. No, the lead comes later. Second separate press release. But yes. Yeah, no, totally. I'm saying, yeah, that Netflix, that press release hardcore Barry.
Yeah. This is a gunshot wound. Self-inflicted number one. So what did they do? They changed the pricing. Their pricing tiers too, so they now have three options. You can subscribe to just DVD rentals, and they build that as a price cut. So cheaper than what just subscribing to Netflix was before. You can subscribe to the greater usage is on the streaming side, right?
You can subscribe to just streaming. Four also cheaper than the price of the old bundled Netflix plan. Or you can have the bundle, you can have both. And that goes up, uh, I think like 20% of price or 20 or 25% or something like that. People reacted very negatively to this quote unquote price cut. Um, so negatively, they lose a million subscribers basically, instantly.
Now they've grown a lot, so it's not like, you know, we're losing a million subscribers back in. Part one was like losing, you know, 20% of their business. Um. But still like it's the stock price takes a beating. It's still very significant people. People are very upset. My father was one of them, and I don't know if he still listens to the show, but I distinctly remember him like boycotted Netflix for a year or two before he signed back up and it was furious about this.
Again, this is the recession like. It's just so tone deaf. Like people loved Netflix, like people were losing their jobs and cutting the cord on their cable company, but keeping Netflix because this was like their, you know, their happiness. Like it was like one of the most high, whatever the, you know, those brand ratings that they do.
Netflix was like up there with Apple and Amazon and like the very, very best. Best brands in America, and this just did huge damage. People felt betrayed. Their stock plummeted too. I mean, I think Netflix has always sort of been valued on their subscriber growth and actually more recently really on sort of what their projected subscriber growth will be next quarter.
Um, and this was to, to have a down quarter where they actually lost subscribers. It was like, what, the only time this had happened in the past is what we saw in part one when, when blockbuster launched a total access. So what are they going to do. Hastings has a plan. Of course. Now we should know, I forgot to mention earlier, um, at the end of 2010 also something, you know, long time coming foreshadow that we knew happened, but sad for Netflix.
They're great hero. Barry McCarthy, uh, retires and leaves the company. He decided not to leave his friends in the knife fight against blockbuster, or I'm sorry, against Amazon when they thought that Amazon was coming in. And so, uh. Now. Now, now they're safe. So he can leave. He leaves and, uh, he takes some time.
He becomes an investor with TCV and, um, then does his short stint at Clinkle and then joined Spotify, uh, as, as we talked about in that episode. But back to Netflix. So there's no, no, Barry McCarthy Reed, you know, he has a plan to address this issue. He thinks that the way to do it is, you know, he knows the future.
It's the public that doesn't get it. They don't get that streaming is the future. He is going to open their eyes to this. He just needs to push harder in that first press release. They about the price. Cut, quote unquote. They got so much negative reaction kind of at the end. He said, you know, and this is a precursor to, we are going to spin off the DVD rental as a separate business.
Eventually he decides that the way to fix all of this is explained that this is really part of the bigger strategy and to do this spin off and execute, executed and show America like the path. Forward. So he decides the way he's going to do this. So the plan is that they're spinning off the DVD rental business into Quickster and a longtime Netflix, um, executive who we didn't talk about in the last episode, Andy Rendez, who ran, um, I believe ran all DVD operations.
He's going to be the CEO now, now of Quickster. Yeah. And he'd been there for like 12 years or something. He'd been there for a long, long, long time. How are they going to do this? They're going to do what? You know all the hip kids are doing these days. They're gonna make a a video and they're going to post it on YouTube and it'll go viral and everybody will understand, you know, the vision it's going to be, this is like the seven 11 dude at blockbuster coming back and we're like, the kids, they're going to come, they're going to eat pizza.
The blockbuster stores. It was, it was, it party on the block. Uh, uh, rock the block. Rock the block. This is the rock, the block moment for Netflix. They're going to post a viral video on YouTube. Well, they make a video, um, read and, and uh, and Andy, they, they make a video and it does go viral, uh, in September, 2011, uh, winning hashtag winning.
Um, but it goes viral for the wrong reasons. We will link to this video in the show notes. Still on the Netflix YouTube channel. I think this might be the most painful thing I've ever. Yeah, it's still there. So I thought it would be, you know, on YouTube, somebody else, and many people have mirrored it and you know, copied it on, on their accounts.
It's still on the Netflix account. This is amazing. They're proud. They're proud. Oh my God. This is the one of the most painful videos I've ever watched in my life. Imagine the least Lake cool, most fake, like corporate like dad thing you could ever imagine and then multiply by 10 that's this. It's so bad.
It is a three and a half minute video. The two of them basically like, it's like scripted, so like they're trying to be hip and cool. They're like patio furniture outside the Netflix headquarters and Reed is wearing like a, like a teal like shirt and he's got his goatee and like most people never seen read in person at this point.
Listeners, if. If this is ever us and like we are, we become like tone deaf, like, well, maybe we are already, please write us emails. Please acquire an email@example.com don't worry if we do something like this, I wouldn't be worried about getting feedback because within like days of this getting posted read on his personal blog, he gets 30,000.
Comments on his blog. Basically just trashing him for like how bad this is. So Saturday night live, they, it's, so, this goes so viral. They parody the video on Saturday night live. They've, uh, Fred Armisen, the, um, uh, you know, the Portlandia guy, he's Andy I think, and I forget who does, uh, does read. We'll link to this in the show notes too.
And it's just like, it's so funny, you know, the stock price got crushed. The first press release this time. It gets crushed. Even for Lincoln, Netflix and Quickster basically become the laughing stock of the internet. Um, Hey, a lot of their big bets pay off. A lot of them don't, but they take big bets. They take, they take big bets.
This is when they really should have thought through it a little more. Before the July press release, they were trading at $305 a share. After the Quickster announcement, they're down to $65 this year, so they lose Lake. Was that 80% of their value as a company in like a couple of months here. And the Quickster thing itself, like part of it is a big part is the way they announced this and how this went down.
It's also just like, it's half-baked, like this is not a good product. This is not well executed. This is not well thought through. So customers. When they announced they spin off and do it. You have to have a separate account on Quickster and Netflix. Separate billing, separate queues that you manage.
Separate customer service, like separate company, man, what do you expect? Yeah, talk about like a terrible experience. And this is, this is like the kicker here. Netflix didn't. Even grab the Quickster Twitter handle. So there was some dude out there who had the Quickster Twitter handle and a fairly, he was like a pot-smoking like soccer player guy.
And he's like, just start trolling Netflix and his like publicly extorting them and you know, so bad, so bad. What is the net of this? What, what all happens within one month. It was September. When they do this, ill advised YouTube video announcing quick stare. Within a month, they cancel Quickstart. They completely unwind the whole company.
Andy, uh, rented, you know, the, the 12 year next Netflix veteran who'd been tapped to CEO, like, he's gone, he resigns, he leaves the company, uh, everybody, you know, like half the people who had gone over to Quickster, they get laid off. They're gone. Like, they just completely like, I mean, this is one thing about Netflix and, and, and read is like, they make.
Big decisions. They make them confidently and um, you know, if they're the wrong thing, then they pull the plug. So they pulled the plug on quick stair. Another bad thing for Netflix. Oh, well, bad thing at the time. I think good thing in the long term happens for them in 2011. Amazon. They didn't launch the Netflix competitor and the DVD streaming and the DVD rental era.
They launched the Netflix streaming competitor, Amazon instant video, and they get into the streaming game and then early in 2012 they also do a deal with epics, the joint venture that Netflix had done a deal with spend. I think about the same amount of money, about a billion dollars, get all the same content.
And so now, not only has Netflix just shot themselves, you know, in multiple body parts with this Quickster thing. Now they have Amazon out there, which is offering Amazon instant video bundled with prime. If you're a prime subscriber already, like Netflix is like, Oh yeah, you were paying for Netflix. Like now I'm going to make you pay twice for this.
Amazon's like, Oh, great. Have it phrase entire company's value prop for free. Yeah, yeah, yeah. Dude. Yeah. Sweetens are offering a little bit. Yeah, here you go. So. The net result of this is 2012 is a tough, tough year for Netflix. I didn't go back and verify every quarter, but I believe they missed their subscriber targets every quarter of the year.
Um, the stock price is totally languishing, uh, still around the $60 a share. You know, one thing they do start in 2012, though, that, uh, is a name no one will recognize, but foreshadows everything to come is a Netflix produced their very first show called Lillehammer. Yes, they do, which was a Sopranos clone.
Um, I don't think it does vary. I mean, I don't never seen it. Um, I've never watched it. Yeah. Yeah. But a harbinger of good things to come. Uh, but one more bad thing in 2012 this is, let's go back to the back. Let's go back to the bad stuff. Let's keep ripping on Netflix. It'll just make their rise so much better.
This was another unbelievable thing that, uh. I, I again, I didn't know about the first part in part one and I didn't know about the second part here. You cannot make this stuff up. Even if you did a Netflix special, Carl Icahn who comes in to, you know, the stock price is languishing by the end of 2012 who returns but acquired supervillain.
He's like, Barry McCarthy's gone. Great buy, take another. Go at this one, take another. Go at this one. He is back in the movie business. Game. He announces that he has accumulated a 10% equity stake in Netflix on the public markets. Uh, I believe this is October, 2012 and, uh, you know, he's going to start getting involved.
I love how this happens too, like in, in public companies, you can just slowly buy and buy and buy and buy, and then, you know, you don't want to announce that you're buying, so it'll move the stock price and then like, suddenly you just say, Hey guys. You may not know this, but through various sources, I have a 10th of your company.
Yeah. Incredible. You know, he thinks that, that really what Netflix should do, you know, they've been so much service management here, you know, the, uh, but it's, there's so much value in streaming is the future they met, represents strategic value. They should sell themselves to a media company or, or to another tech company.
Do you know if he held, like, is he still a major Netflix shareholder? He held until 2015 and then he announced in 2015 that he had a liquidated his whole stake. I believe it was. About halfway through 2015 he made a ton of money, a ton of money. But the only, I guess, good thing for, um, people who dislike, uh, Carl, like, uh, uh, if you're, if you're on the superhero side of the house here, is he misses out on like a ton of gains still.
And like, he believed in 2015 that like Amazon was gonna crush them and well then that hasn't happened. So he missed out on the majority of gains that he could've had. But 2012 despite all this bad stuff that happens, Netflix now, like there, they've really been the only player in this huge new market of streaming for the last, you know, at this point, three plus years.
They started figuring a couple of things out there that nobody else has figured out yet. Uh, and this is really what, what saves the company. They realize that they start to see it, seeing the data for the, how people are streaming. They're doing two things that were not. Obvious one, they're binge binge-watching.
So like when somebody sits down to start streaming, Netflix. They stream for a long time and if they're watching like a TV series or something, they watched it episode after episode and up until this point, the media content industry operated on this assumption. I remember this of like appointment viewing, you know, like, you know, people tuned in at 8:00 PM on, you know, Wednesday to watch the latest episode of mad men or whatever.
And like with linear television, that is still what works. All the top shows on linear TV are still exactly that. And actually most of them are alive. It's just all sit around these like standalone, like half an hour or one hour, like get your face and then tune in next week. And they realize that that's not what people want.
They want to watch the whole thing all at once. And related to that, the other thing that they figure it out is unlike the DVD rental business, the content that really works in streaming is television shows, not films, not, not these self-contained, you know, two to three hour. Films, but like really, really long form episodic content that people can binge watch television at this point.
This, they're kind of like the, you know, the little sibling of the, of the media world. Like it was the big blockbuster movies that everybody wanted to make. Yeah. So this brings back an interesting and classic acquired fashion, jumping forward to tech themes. Um, and we'll pull it back, but this brings back something that I think we talked about in the Marvel episode that is, there's been a trend, I'm going to get the numbers wrong, but if you look at like in 1985 out of the top 25 movies, the number that were sequels, there was like three.
And if in 2015 it was the exact opposite, like 22 were either sequels or some form of unoriginal IP. So you have this trend going on where Hollywood is spending more and more money on films. So because they're spending $100 million plus on every single production. They're taking less risks. So they want more sort of sure things that are reusing IP, um, from, you know, children's stories or, or, or bringing back movies from the eighties and nineties.
So the experimentation needs to go somewhere. It's kind of the same thing as like startups, like the, the sort of the lean startup where, where do you sort of prototype whether IP is good or not. So it sort of opens up the opportunity for this golden era of, of television or golden era of, of, you know, TV shows that attracts really top notch.
Both writers, directors, actors, and it really blows the doors wide open for some of the best people in the business who don't want to be part of Aquaman. Seven to go and do something creative and original. And Netflix is sort of the place where you could actually facilitate that format. Ben, you referenced Lillehammer in in 2012 you know, the one probably in and of itself wasn't that much of a bright spot, but that was what, you know, the sign that Netflix had finally kind of figured this out.
What they'd learned from their customers was, Hey, we, we need to pump more. You know, episodic series based, quote unquote television content into the streaming platform. So they make Lillehammer they released it in 2012 and then in 2013 they do two things. One, they bring back, I remember when this happened, even though I wasn't a fan of the show, but it was just such a big deal.
They bring back arrested development. Yeah. It was worse but better. Like it was more complex and crazy than the original development. But like somehow it just, it didn't quite have the magic, but it was good enough that like you got your fix of, of what you felt like you'd been missing is a good example of giving people what they want, you know, for this new platform.
And then the other thing they do, they, they debut in early 2013 is their first real big swing at content. House of cards, and this was just such a seminal moment. I did some research on this because I remember at the time, I. Binge watched the whole first and second seasons pretty aggressively. And uh, it was, it was a huge fan of the show.
I remember at the time reading about it and just thinking like, wow, this is so special. This company spent $100 million across these first two seasons. And I remember looking it up at the time and I just sort of went back now to double check all of that and see like what a big bet that was. So this isn't early 2013 in 2012, the company had $290 million of cash on hand.
And they had committed 100 million. To creating just this two seasons of this one show. A few more stats on this. So like the, even the total current assets, including their entire content library, prepaid content, short term investments, all of that was just over 2 billion. So like what a colossal bet for the company.
Now if you go to today, like they have $3 billion in cash alone, close to $9 billion in total assets, you know, you can sort of see how they're investing so much in content, but like they created a cultural moment. Around, Oh my God, Kevin Spacey and this incredibly high production value thing just dropped on Netflix.
Yeah, well, and it's crazy. Like they, I mean, one, as we've seen time and time and time again with this company, when they swing, they swing hard. But this was one, unlike the Quickster debacle, like this was so informed, like of course they couldn't know. What was going to happen with house of cards, but it was informed by all the advantages they had.
So they knew, you know, Kevin Spacey, we've learned a lot more about Kevin Spacey since 2013 but at the time he was this like actor that everybody kind of knew about him, but nobody, he wasn't like a box office draw. Like there wasn't, if you had a blockbuster movie coming out, you didn't want to cast it.
Case in point, you didn't want to cast Kevin's, but you know, he's not Leonardo DiCaprio here. Capex was great. Donate it. Maybe there's less of us that that loved it, but it was great. Well, he didn't have mass appeal to the traditional Hollywood movie studios. However, Netflix saw that people, cause they had all the data on what people were watching that once people watched a Kevin Spacey streamed the Kevin Spacey movie, they tended to go find all the other movies that.
He had been watch them and they're like, okay, there's something going on here. And then house of cards had been a British show, uh, that they readapted to the U S and the British show was on Netflix and they were like, man, nobody knows about this thing. But like, people love it when people start watching it.
They get totally hooked. And then they'd been jet. So what do they do when they release house of cards? They release, I believe this is the first time this has ever happened. They released all 13 episodes of the season all at once. People in the content industry are like, why aren't you doing this? You're completely upending the model.
Like, you know, you're not gonna like you're gonna miss the ability to draw out this whole thing over a period of time, like completely like huge win for Netflix. It was David Fincher too, right? He directed it or wrote it. Yeah, I think something like that. And this one, he was, he was super hot at the time cause he had just done the social network and the girl with the dragon tattoo.
Yup. That's right. That's right. Huge win with house of cards in early 2013 subscriptions pour in because again, this is the first time there's like this. Kayla w water cooler moment. Everybody in America is talking about house of cards and you can get the whole season and binge watch it all at once and people are doing this and like, the only way you can do that is if you subscribe to Netflix.
So subscriptions pour in, the stock goes back up for the first time, over $200 remember it was $300 before the whole Quickster debacle. So they're finally like getting back up, and then they followed their, they realize this is gonna work. So then this is the beginning of going all in on this content acquisition and production strategy.
Later in the year, they do a deal with Marvel before Marvel gets acquired by Disney to create episodic TV content around Marvel superheroes. This is like Daredevil and, um, was it Luke cage and all the stuff you see on Netflix, uh, this is where all this comes from. In 2014, they realize, man, we've got this, like this, this flywheel effect here, where the more.
Great original content that we have original and exclusive content that leads to more subscribers. The more subscribers we get, the more financial ability we have to invest in original and acquired exclusive content. How can we start accelerating this flywheel even more. We can do this with the debt capital like this is we've a very predictable subscription based business.
If we can forecast our subscriber growth accurately, and Ben, you alluded to this about subscriber growth becoming the big thing for Netflix. We should be able to raise debt ahead of this and use that debt to invest in content, which we will know will drive subscriptions. So 2014 they basically changed their whole capital market strategy.
They'd been. You know, like most tech companies at this point, no debt, completely equity financed and cashflow positive. They start raising debt and investing it into content to the point where now today they have over $8 billion in debt. And for folks that sort of don't deal in the equity versus debt world, this is the perfect thing to take debt for us, a company like it because it's non-dilutive capital, so nobody's equity is getting pushed down.
The people who are issuing you debt are very happy to give it because you can provide them. Incredibly high certainty about what your ability to repeatedly sort of generate cash on cash returns from you investing that that again, the magic of subscription based businesses that we've talked about on inquired, like, you know what?
Your revenues and cash flows are going to be. Yeah. And to like way over simplify it. I mean, if you know that you have a 10% interest rate on that debt, but you know that by spending that to accelerate your flywheel, you can get 20% per year. It's like, how much debt can we have? You know? So they start slowly.
They do a, I believe, a $400 million bond deal in, uh, 2014. And then they start getting bigger and bigger to the point where their most recent bond deal that I think they did this month in October, 2018 was $2 billion in, and they have 8 billion in total debt outstanding. You know, which is a huge amount for a tech company.
But, but again, based on the cashflow dynamics and the subscription dynamics of this business, as long as they are for. Can accurately forecast subscriber growth. Yeah, it can work. I mean, unless there's some, if there's some competitive thing, I mean, as we saw with Tesla, like if there's something that materially changes David, to go back to your thing from the, uh, the LP show, the going sideways and sort of explaining what that is, when you rack up a lot of debt with a belief that you're going to have very predictable cash flows, and then there's something structural that changes in the industry, that's when you can open yourself up to a world of hurt.
So that's sort of the only reason why you wouldn't want to just keep stacking it. The danger of, uh, of debt. So far, though, it's worked really, really well. So, you know, to wrap things up and get us, get us to today, um, summer of 2014 as they're investing heavily into this strategy, they passed 50 million global subscribers, uh, 36 million in the U S 14 million internationally.
Then in, in 2016 in January, they make a big announcement at CES, uh, that they are launching. Worldwide in 150 countries, I believe literally every country except mainland China, uh, North Korea and one or two others, um, Crimea, Crimea, and Syria. And of course, it's all, you know, English-based they haven't actually translated Netflix into all these languages yet, although they, they start that project and now I believe they have translated into many of these languages.
The past 75 million subscribers globally during the year in 2016, they released 126 original. Films and TV shows series more than any other content company out there, period. Any other cable channel or, or, or network. Now actually, I don't know if that includes like the, I believe it's less than the big conglomerates like Disney as a whole or Viacom as a whole.
Um, but if any one like division, like Netflix is the largest single content production company. And then the irony of ironies is. In 2016 they actually do finally successfully execute the spin off with Quickster. They just don't call it Quickster dvd.com if you go to dvd.com that is the DVD rental business for Netflix, so you can no longer subscribe to the online DVD rental.
Uh, via Netflix, you now have to go to this separate company, separate login, dvd.com. But is it a separate company like it's different shareholders? Uh, it is a, it is a dvd.com quote, a Netflix company. So I believe it is 100% owned by Netflix and it a wholly owned subsidiary and it has something like, they do like 120 million in revenue a year and like 60 million.
Profit or like, you know, cashflow. So nice, you know, classic growth stock, right? Value, stock, value stock, um, and, and, you know, things just keep going from there. So this year in 2018, they passed $100 billion market cap. There've been several stock splits, uh, over the last few years. So the stock prices isn't quite the same, but.
Now, you know, in October, 2018, um, you know, they just announced earnings and they now have just under 60 million us subscribers. So if you go on a household basis, uh, assume there are a hundred ish million us households, that's 60% of the U S market, larger than any cable company in America, Comcast, time Warner, you know.
Uh, what have you, charter in 137 million subscribers worldwide, uh, which is just incredible. If you look at that sort of third quarter announcement and sort of play forward what it's going to be by the end of the year, they're going to do close to $15 billion in revenue this year and over a billion in net income or profit.
And I think this will be their first year that they, that they do $1 billion in net net income. Yeah. One of my other favorite stats on catching us up to today. In the first half of 2018, the stock doubled. So I think that was something like $70 billion of market cap were created. Like $70 billion market cap companies don't double in six months.
Not that a stock prices necessarily. Exactly. Value creation, but um, yeah, pretty. It's pretty impressive. One, this is, you know, maybe something to get into here in, in tech themes that. It's probably the right moment to transition into it. You know, for years, people have been talking about the Fang stocks and, and loving Netflix in with, um, it with Facebook, with Amazon, with Google.
Uh, but Netflix is actually much for, for most of the last few years, and even today, much, much smaller than those companies. And, you know, I think that's how you can get such a, you know, a doubling in market cap is, you know, they're only quote unquote, I think about $130 billion. Market cap company, you know, compare that to the, you know, 500 million, a billion to trillion dollar market caps of the other Fang companies.
Another interesting data point about them being smaller. I was surprised to learn they only had 5,500 employees where if you look at someone like an Amazon who has, you know, eight X the market cap, but they have a hundred X, the employees compared to the other Fang stocks, they have remarkably few employees for their valuation.
Cause you look at Microsoft that has 130 Amazon has over 600,000 Apple is 132,000 including retail. You know, even Facebook's over 30,000 Google at 85 I mean there's, there's no one that's down in this sort of like sub 10,000 employee category. I sort of wonder two things. One, is it because their product offering is so simple that most of the sort of product and engineering work that you would typically have big teams on it as is a lot of sort of infrastructure and that they've really paired down the product line to be pretty streamlined.
But I also wonder. A lot of these people that are working on these productions, I mean those aren't employees. You sort of staff up those productions and staff. I'm down on sort of a contract basis, or are we like ankles deep into a, into the water of tech themes. Now let's do it. I'm doing this. All right.
I mean, at this point, we're two and a half hours into history of Netflix. I think we can get into tech. There was a great tweet awhile ago. It was from one of John Gruber's, like three and a half hour podcasts on the talk show that was like, I can't remember the last time, I wasn't listening to the talk show.
It's like we hope to not quite get there, but we do actually have a pretty good meaty tech themes part. Cause I think whereas the last episode was really more narrative. This one, there's a lot of good analysis to be done on on Netflix, and so I'll start with some of the more sort of like. Uh, things that are interesting to point out, but not crazy analytical.
So one of them is, there's a great business insider page, and we'll, we'll link to this in the show notes that shows the evolution of the homepage over the years. I was thinking about it, it seems very obvious to go to Netflix now and just start watching. Like that's what you do. You go to Netflix, you start watching.
But they had to do a ton of education over the years, both on the sort of innovative DVD model. Um, and then on this crazy idea that you could stream movies over the internet on your computer. And for many years they're in the awkward middle. The, the homepage was like this cluttered mess to explain how to do all this.
So there was like one half of, it was like one, two, three. Like we will mail you a DVD, you will watch it, you will put it in this envelope, you will mail it back. And these like infographics of how to do that because that, that was confusing. And then on top it was like, or. Instant, like click here, then download Silverlight.
And there's this big hairy explanation to consumers to tell people what they did. And today you go to netflix.com you don't have any options. Like they've done a tremendous job, number one, doing what they needed to do to be sort of really messy, to educate people on what are these paradigms that we're basing our company around.
But then also once they've sort of hit critical mass and this this tipping point where now they can be incredibly simple. And there's a bunch of stuff that they've cut over time that has been really like, it's crazy. Looking at the Netflix today and thinking about the Netflix that that was. So the things that they've done that have been less over time.
You know, DVDs are this subsidiary. They spun out this at top box. They said no to vending machines. They deprecate it. A lot of these things that were brands, so like search on their site used to be flexed finder and their algorithm used to be cinematic and they like they were, it was all about having all these like branded things that they were telling you about themselves.
They in 2013 or something, launched this very advanced social feature where you would connect your Facebook and then it would make recommendations. Based on things that your friends liked. They've completely cut that. And the only thing you can do with Facebook anymore is login with Facebook. I mean, it really reminds me of the time, the, the Steve jobs coming back to Apple and pointing out the product matrix and saying like, we're getting rid of three quarters of this.
Netflix never really changed leaderships, but sort of spiritually, they had this moment where. The public now knew what they did, and they could sort of drop all of the posturing and all of the education and just be, we deliver this thing that has an incredible value prop and perfect product market fit, and that's all we do.
The one that that just sparked was, um, we didn't really talk about Amazon, uh, and, and the history and facts other than mentioned that, you know, they launched a, what instant video that became prime video. I think all that, that really did. Everybody was so terrified of it. Uh, and in 2012, that was part of why it was such a bad year for Netflix and the stock price.
In a market that is growing so big and growing so fast as streaming, like the streaming market is, is displacing the cable. All the video content consumption, uh, you know, in America that is a way bigger market than the DVD rental business. So like in a smaller market, like still very large, yet smaller market, like the DVD rental business, blockbuster and Netflix fighting it out, like eventually became like a, a, you know, a fight to the death.
But. Still, even though these companies are so big, Amazon video, Amazon's video division and Netflix, like the market is so big, they are just helping one another. Amazon launching even like an essentially free version of Netflix is just helping Netflix grow right now I think. And likewise, Netflix is just helping Amazon video grow because they're each adding like their own exclusive content.
Uh, and, and people are like, well, you know, I really wanna like, I want to watch men in the high castle and I want to watch house of cards. So like, I'm just going to subscribe to both and like, they're educating the market, you know, both ways. So interesting to think about myself in that situation. Like I'm subscribed to Netflix because that's where I go to watch stuff.
I'm subscribed to Amazon because of course I'm gonna subscribe to prime, other than like, the, the exclusives, I really just haven't gone there to watch stuff. And I don't know, I think lots of our listeners probably are like, I watch all my stuff there. But for whatever reason, like Netflix is the default for me, and it's only when I hit the wall.
If I can't find anything, do I go over to Amazon? I'm not sure I would pay for Amazon if it wasn't bundled into my prime subscription. Well, it'll be interesting to see. I mean, we're going to hit, people have been forecasting this, but it hasn't seemed to happen yet. Hit subscription fatigue where it's like, look, I'm not going to do my HBO now and Netflix and Amazon and Disney.
Effing plus, um, like I, you know, I think we'll have to see, uh, we'll have to see where that lands and see what people's comfort number is. But it's interesting, like to this point, like it hasn't, I don't think any of these companies, I've heard of one another. Amazon is definitely behind in subscribers. I think the, in the same research report that said that Amazon, that Netflix was 15% of internet traffic, the amount that you can attribute to a.
Prime video I think is like, or Amazon video at all. It's like less than a third of that. Interesting. The, the other quick tech theme that we talk about all the time on this show, um, but that this, uh, highlighted for me, uh, which Dan Hill on the latest LP episode talked about. If you make something that people love, it can kind of overcome all sins, right?
Like Netflix kept screwing up so many times about the, you know, product wise, all the stuff you were just talking about, like the whole Quickster thing. But like at the end of the day, like. People loved the fact that they could, you know, binge watch all 13 episodes of house of cards. Like how amazing is that?
Of course, they're going to tell their friends and if you can make something that people love, that they will tell their friends about, like that is a recipe for success. You know, despite many other failures along the way. All right, drifting toward business model. The magic of zero distribution costs and particularly when you don't have a rev share in place, is, you know, worth talking about here where this is, you know, if you compare Netflix to like a Spotify, for example, Netflix licenses all of this content upfront or creates it so they don't even have any licensing fee.
They just sort of create it and take all the risk, um, or spend to create all that risk. So then all the marginal revenue goes to them, but you know, they, they have. High capital costs, high operational costs, very high fixed cost to create this content, but like little, little marginal cost. So then the game for them becomes like, okay, how much can we blow it out?
Uh, once we have this thing, how can we get the maximum utilization out of that asset? This. Kind of dives into two points that, uh, Ben Thompson of Stratec or he talks about these and they're fantastic points. And I'd say he talks about them so often and makes them so well that we would be remiss not to sort of credit him with this thinking when we talk about it.
You know, now that Netflix has this huge subscriber base as a sort of mentioned, how big can we blow it out? They can dump 100 million into things like house of cards without batting an eyelash. Since the cost of producing a show is spread across a massive amount of subscribers. So there's. Strategy to produce a broad set of shows for a broad audience is the winning strategy in this market.
And compare that against what HBO was thinking a few years ago, and some others have done this too, of we want to produce amazingly well produced content that really hits home for a narrow audience. You just can't amortize the cost of that across nearly as many people. And so. Over time. Like you just can't afford to spend to create the best content cause you just don't have as many people to deliver it to.
You know, you can find yourself between a rock and a hard place if you're not thinking about the same thing that Netflix is thinking about, which is more subscribers to sort of reduce the per person cost of producing expensive content. For sure. That is a winning strategy. They've also done both right lower, like there's a tons of niche, like Netflix produced niche content on Netflix.
Uh, they just don't spend that much money on, like, I feel like they're really good analytically at understanding like what is the ROI in terms of, uh, either new subscriber growth or subscriber retention that we're going to get for this piece of content. And for something like house of cards that's going to be so broad based in reach, like.
They can spend $100 million for something like a documentary on. Um, uh, there's actually a pretty good league documentary on, um, like the roots of hip hop on a Netflix that I watched on a plane once and like, you know, great, lots of people should watch it, right? But it's not like it's clearly low budget.
You know, like they did the math on how much they could invest in that. There's also a pretty bad documentary on Vince Carter called the Carter effect. They make all kinds of, might've watch that late one night. Oh, well, okay. So I'll throw out a little counter argument to that. So the thing that drives new subscriber growth for them is hit shows.
So when they have a corridor that tons and tons and tons of people come and sign up for Netflix, it's because they have an orange is the new black that draws in all the people. You know, Netflix is strategy has, has been to stay away from sports and live and things like that, that are not evergreen content.
Even though they, they want to create evergreen content and they amass this really rich catalog. There is a little devil in the details that is, people that sign up that quarter are probably signing up because they have this new hit piece of content that, that everybody's coming for. And so, uh, I think your point still stands that they'll spend a bunch of money on the big splashy thing and then they'll just spend a little bit of money producing sort of the long tail of niche based stuff to make sure they satisfy all the different niches on their, their platform.
But I felt it would be a failure not to point that out. Okay. I have another one that I've been like almost talking about that I wanna. I wanna actually hit, and this is another good Stratec worry thing. So Netflix has flywheel, so they focus on this content that's relatively evergreen, staying away from live.
So the more capital that they amass, either through debt or equity or earnings, the more content they can license or produce. Which then makes the product better for users. So more users come to pay and then kind of feeds back into that cycle of the more capital they IMS. So then theoretically. They have this thing going on where the product actually gets better because the catalog gets richer.
So either they can charge more money over a time, or they can keep their prices the same and reduce marketing costs to reach people that would have been reticent to pay for a worst product. But now that the product is amazing because it has all this content, we can actually start to like really saturate the far edges while keeping the price point the same for people that previously wouldn't have wanted it that bad.
A lot of things about how they've structurally set up the business, enable them to create this virtuous cycle and succeed more as they scale instead of less as they scale. Because I think for a lot of businesses like cost of acquiring a customer goes up over time because you've already hit all your best customers and gotten them, and then you have to spend more, but they just have this amazing characteristic where the product gets better.
It's funny, I hadn't quite thought about this, but it's a little bit like. Uber, right? Like there, there are a few of these businesses out there that are truly special, where you actually have a period in your growth curve where your customer acquisition cost goes down a now, and I don't know, I haven't done the analysis or math to know if this, uh, what you're saying is true about Netflix, but I, but it makes sense at least, uh, intellectually, like Uber got to a point, I believe it's now.
Probably their incremental cost of customer acquisition at this point is probably going up. But there was a point where it went down massively because the service improved so much with density and ubiquity of adoption. Um, I think it's a tipping point. Like if you think about Uber, it's like it needs to get sufficiently good so that there's a ride within three minutes and then I kind of don't care how many drivers are on the platform after that.
But Netflix may not have this. Sort of point of inversion where it's like literally always more content is better. Interesting. Yeah. But there's probably diminishing returns on that too. Actually. That's a pretty interesting framework to think about. A marketplace or aggregator or platform businesses.
When is it that they don't have that good enough? Sort of like a point where the more you operate, the more valuable you get indefinitely instead of with diminishing returns. One more point to make here, which is kind of just an interesting thing to know about the company. Over the last three years, Netflix has grown as subscriber base.
By 30% year over year, give or take like 1% basically every year they're, they're growing 30% interestingly, they're, they're basically the, the company is extremely data-driven about when to do marketing spend and sort of when they feel it's a good idea to go and spend on customers. So I think a lot of this stuff we're, we're sort of talking about is, is true in the abstract, like the product getting more valuable over time.
A new big hits drawing people in. But Netflix, based on their earnings reports, appears to care about growing 30% year over the year and then flexing different levers to get there. So sometimes they spend more money on content, which for other companies you to sort of think about as product investment.
And sometimes they. Yeah. And sometimes they spend more money on marketing. And I think it's probably, I would imagine the way that it kind of works is like when they feel like they have an opportunity to create a superstar show, they go hard into it. If it works and they're going to hit their 30% growth and they don't need to do an enormous amount of marketing spend.
If it doesn't, then they need to do more marketing spend to bring people onto the platform. Um, it's just kind of an interesting way to think about driving the business. And since that's. Been so constant. It's sort of clear, uh, what levers they're moving to accomplish what end. I'm so glad we took like all of this time to dive into Netflix.
Like I at least did not understand this company. Or its history at all before diving in here, despite how nominally ubiquitous it is in Silicon Valley. One last thing I also assumed before really like diving in and looking at market caps, that they were much bigger than they are because people talk about them in as a thing stock and like what are the things, stocks.
Those is great. Yet another thing we'll link to in the show notes, a great tweet today by a Benedict Evans at Andreessen Horowitz with a graph showing on the X axis. Revenue on the Y axis, revenue growth, and sort of plotting all these companies like Apple, Amazon, Google, Facebook. They're sort of understandably at least way far to the right in terms of total revenue and also growing pretty quickly.
Netflix is like way smaller in terms of revenue then than these other companies. And also not like they have less growth, revenue growth and Facebook does less than Amazon does. Like we talk about them like they're, this. You know they're one of those five, but it's kind of arbitrary and that's the, that's the point at Ben is making thinking again, if I were to put my old media TMT investment banker hat back on, I think maybe the justification with that is that is is back to just the, like the stability and predictability of subscription based businesses.
Like the thing about Netflix is like. They know, you know, they know what their revenues going to be to the extent that they understand their churn rates and their gross subscriber ads turn. And then best net subscriber, you know, growth or losses a well and can forecast that accurately. Like that is an incredibly stable and predictable business.
And that has value in terms of valuation versus like a, you know, an Amazon, well, prime is a part of it, but like you're just buying stuff on Amazon. Like you may buy more, you may buy less. So, you know, like, or you know, Facebook advertisers may advertise more or may advertise less. Same for Google, or Apple may create a hit product, may not.
You know, there's just a more inherent unpredictability there. Yeah. It still feels arbitrary. Sure. Well, that's why we're no longer investment bankers. Is there something worth greening in here. So we talked about grading the spinoff of the DVD business just to have something degrade. I think it's worth it to just do it quickly.
I mean like, it's really like, what if they didn't. Yeah. What if they didn't? I mean, of course it was the right thing to do. The future was streaming the DVD rental business online DVD rental business was going to go the way of the offline DVD rental business of blockbuster. Like that market is, it still exists, but was shrinking.
Of course, they had to transition the company. They just executed it terribly the first time and then executed it the right way the second time where they just didn't talk about it. I would say like, um, a for strategy F for execution, like F minus for execution. But, uh, I dunno, what's, what's your take? I'm with you.
The only thing that I have on sort of execution is like, do you group timing into execution? Because I think they couldn't. They couldn't have done it quietly when they did it. And the question is, should they have done it a different way at the time? Probably. But how much better could you have done it, or, you know, was it, was it pressing?
Did it need to be done then, or could it wait three years? Yeah, no, there was no reason to do it then other than Reed Hastings feeling like he, you know, wanted to be, you know, push America and, and the public into his vision of the future, which was correct. It was just, you know, he's just sort of waited a couple of years.
Which gets into, I know we're past tech themes, but like Steve jobs and Apple do this all the time and they take shit for it and then it's fine. Like they pulled the floppy drive out of the iMac and they pulled the headphone Jack off the phone and like, you know, you could argue that was a little too early, but.
Apple usually gets these things right though. Like when they pulled the headphone Jack, like they released AirPods, you know, it's like, here's a better alternative. The thing is when, when the Quickster when they did Quickster streaming wasn't better. Yeah, it was better on some dimensions, but a lot of the content wasn't available, you know?
And so like, it wasn't quite there that it was just . Obviously better on all dimensions to go to the new thing in Apple toes. This line for sure, but like, but they present you with the, like here, if you buy this, if you buy the AirPods they're amazing. They're way better. Yeah, that's good point. Carve outs, carve outs mine real quick.
I believe on the Zappos episode with Alford Lin, uh, we did a carve out of Justin O. Burns, um, Google versus Apple maps. Uh, deep analysis. You remembering what carve outs were on what episodes? Yeah, man, we go deep sea level. Uh, he did an awesome follow up this month, um, on the new Apple maps. And is it, uh, is it now better than Google maps?
Spoiler alert. No. In some ways, if you're interested in forests, yeah. In some ways, but yeah. Um, well worth the whole read. Um, amazing work. Uh, as was the last one. I've got a podcast I recommend. It is from the very first person that I followed on Twitter. I discovered this the other day when taking a deep dive down the Twitter rat hole, Kevin Rose, I used to be like a really big Diggnation.
Fan. I think I watched every episode of Diggnation when he was on, um, tech TV. Uh, the screensaver for G four. Oh yeah, sorry. Oh, I used to watch that in high school. It was, that was actually, that show is like a big part about me wanting to like get into tech and it was a cable channel. I know that was on TV.
Long tail content, cable channels, good businesses. I think that's probably had a good amount to do with me getting into the tech industry too. I mean, I think, uh, who would've thought that by watching Kevin and Alex drink beers on their couch talking about tech news that one day we could grow up to do the same too.
The more things change. Yeah. Well he's got this great podcast episode, uh, where, um, Kevin's very into sort of like quantified self, uh, type things. I know we don't use that phrase anymore cause the way of is sort of passe and, and you know, now it's digital health or whatever, but he's got this, um, sleep PhD researcher Ron from UC Berkeley who starting a company.
Um, it's absolutely fascinating learning facts about sleep. I think sleep is going to be the thing. 2030, 50 years from now, I don't know when, but lack of sleep will be treated like smoking. Some of the facts that he's throwing out on there about the results of even depriving yourself of a few hours of sleep from one night in your body's ability to repair cells before they can, uh, start to become cancerous, for example.
There's just a tremendous amount that, uh, sleep helps us, um, repair. And there's another one specific thing you mentioned that was fascinating was. When you take a sleeping pills, you're not, you're actually sleeping like you're not conscious, but like, he's like, I wouldn't call that sleep and you're, you're not doing your body.
You're not putting your body into the state. Um, that it really needs to accomplish a lot of the sort of healing and repair and sort of regulatory things that it does. So well worth the hour or whatever it is to listen to it and actually has sparked sort of a new area of interest and, um, a set of sort of companies and ideas that I'm starting to look into.
Awesome. Well, listeners, thank you for joining us. If you like the show and you want to hear more, maybe like a week from now, but you're, you know, acquired set out yet and your Jones and for it, um, we would love you to support the show and become a limited partner. It's at glow.fm/acquired you can click the link in the show notes or go there.
Thank you so much for, for listening. As always, thank you to our sponsor is Silicon Valley bank. I think that is all the things that I have to say. Yeah. We'll see you next time for season finale. All right. See you later.
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