Intvr If I can kind of take you back a few years, can you tell me what first inspired you to launch Netflix?
Reed Well lets see back in erm 95 or 96, erm I made a mistake like a lot of people do and erm did forgot to bring home, bring back to the store a video, a VHS cassette, of the erm movie Apollo 13 and it sat for a couple of weeks in my house, and when I finally brought it back it was a super large late fee, about forty bucks. And erm you know it just bugged me, cause erm of course it was kind of my fault but you know I still erm felt that it was a bad way to do business. And erm about 2 years later in 97, erm a friend pointed out, a DVD for me it was the very beginnings of DVD, erm and I realised, oh you could mail DVD's and you could have a system where you didn't get late fees, and erm it got exciting erm at the time, you know the Internet was booming, erm there was easy venture funding, erm and so erm I got some friends together and we decided to launch this company. And erm then the subscription service finally launched, about 2, it took us about 2 years to get the subscription service all up and running, erm and now 10 years later we're over 10 million subscribers.
Intvr When you first started the business, did you want to have a lot of movie buffs on your team or were you looking for kind of a more analytical approach to how to identify movies?
Reed Erm, Netflix is really a Silicon Valley company, we understand the Internet very well and we've all gotten in to movies. There are some people at Netflix that are movie people first and Internet second, but for the vast majority of people they're Internet first and movie second. And we look at movies as a really rich area to try and understand human behaviour, and how to create a better experience than erm any other video system, so that people watch more and more movies.
Intvr And so what, what did you create software to do?
Reed In the beginning we realised, you know that we were going to ship a lot of DVD's, but that getting fast DVD's through the post was not the only thing that was important. What was also important was helping people choose movies, movies that they would love, and if you asked 10 people what's the best movie they've seen in the last 6 weeks, you get 10 different answers. I mean movie taste is very personalised. But what we realised is if we asked people to tell us what other movies they've loved, in the past, that our computer systems can do a really good job of helping them choose movies that they're more likely to enjoy in the future.
Intvr So what, what does that, what does that enable you to do?
Reed The great thing about erm movie recommendations online, is it gets consumers just more excited about movies. I mean for most people one out of three movies that they watch they love. But with Netflix, what we're trying to do is make it so easy to choose that it becomes two out of three movies you watch, you love.
Intvr And why is that so, why is that so powerful, why do you think that's good for the consumer, and why is that good for you as a business?
Reed What's good about recommendations for the consumer erm, what's good about movie recommendations for the consumers is they enjoy more of the movies they watch and because of that they tend to watch more, they tend to stay with Netflix, they tend to enjoy movies more, and so it increases the whole eco system. And then for us, as a business, it gives us a differentiator against things that's much harder to do in stores, because online we can do this at very large scale.
Intvr So can you, do you supply a wider range of movies than you could if you were a retail store, erm and can you use the information about what people want, to help identify which movies you want to stock in future?
Reed Not really, we carry erm, you know we carry virtually all DVD's, and we'll just react to erm growth and demand and buy more copies. Erm, so recommendations really helps mostly on the consumer satisfaction side, as opposed to the demand fulfilment side.
Intvr And what about, I suppose from your point of view that the happier your, the happier your customer are the more likely they are to stay with you and the more likely they are to tell they're friends and?
Reed Exactly right, recommendations form the basis of a lot of the happiness of our subscribers and they tell more people. And its so powerful that the average Netflix subscriber has told us how much they like 200 different movies. The average number of movie ratings is 200 per subscriber. And a rating is just a one through five scale, it's a quick flick, you don't have to write a review.
Intvr Do you think that by having lots of, by being recommended lots of different titles, so you enjoyed Apollo 13, you therefore might like erm another Tom Hanks movie, erm do you think that broadens people experience of erm cinema, is that how you would see it?
Reed Erm movie recommendations can be broadening or they can be narrowing, what they're really focused on is increasing enjoyment. There's a hundred thousand movies out on DVD and in your lifetime you're only going to see a couple of thousand. So we want to help you pick the thousand or two that you're going to love most.
Intvr Some, some cultural critics would, they would say the one of the problems with kind of automated recommendations is that it does, it keeps on giving you things that your more likely to like, and rather than you know the, the perhaps more haphazard experience than we've been used to, or you know certainly generations ago, where you know you would go to see something and maybe because it was based on what a reviewer that you trusted said, or you know one of your friends said or just because you know for some other kind of happen stance, so erm that in some way that they would argue that the recommendation system is kind of narrow our experience, because we don't, it kind of it, it automatically funnels us down the thought process of things that we've already kind of identified as liking, is that fair?
Reed In doing recommendations you can focus on the artist first, the movie producer, and trying to say who are all the people that might enjoy this movie. Or you can focus on the consumer and say what are all the movies that that consumer's likely to enjoy. And we take the latter approach, we are a hundred percent about trying to improve our consumers enjoyment of movies. And we help them get the movies that they're going to laugh at most, cry the most, love the most, its all about pleasing the consumer. And if that narrows, that's fine, if that broadens that's fine. Erm, but for us its in search of the consumer happiness.
Intvr So do you think your kind of it's a, your erm, erm what's the right word erm your kind of your indifferent to the, you've got no cultural agenda essentially, you know if it so happened that all of your customers suddenly liked, started liking erm polish animation, we'll give them polish animation. If they all want the, the blockbuster, you know the Hollywood studio movies, that's what you would supply, is that?
Reed That's exactly correct, so our view on it is we're here to serve the customer, not a cultural agenda of some sort, and if all the consumers want a particular type of movie we're happy serving that to them. That's what admits making them happy, so you know we're focused on making it easy and erm fun and, and very enjoyable for the consumer. Erm, in fact, because consumers are very different, all different types of people, that ends up being a very wide group of tastes. Because everybody's different.
Intvr I guess this is the erm again some of the kind of cultural critics would say, well you should be challenged, you shouldn't just be given you know erm given just kind of the thing that you want, erm you should be you know somehow you know, you should be made to experience erm things that perhaps challenge you more or you weren't expecting to like. I mean is that how do you see that?
Reed Well if someone believes that they should do a business that's in the business of challenging people, we're in the business of making people happy, that's were very focused on it and we're erm very clear about it, what we want to do is have our consumers erm love movies, and love more and more of them. Erm but different people can take different angles, ours may not be the only one.
Intvr Do you think it matters that you know some of the old content producing industries sort of struggled so much since erm, erm since the you know the with the rise of the web?
Reed You know change is a hard thing, it was very hard on shipbuilders you know when the aeroplanes came and you know and erm it was harder on railroads when trucking came along and erm so it is, its very tumultuous, when a new technology comes along that serves consumers better. And erm now that's what we're seeing in the news business, is that more and more consumers are erm choosing to consume news on line, erm instead of erm in printed paper. And that has a whole set of economic ramifications to it.
Intvr Ultimately do you think that you now erm its just kind of it's the evolution you know it's the evolution of the media and it's a natural process and we just kind of, we shouldn't mourn for erm you know, or do you think, some people would say actually in this process we're going to, we will you know erm we will miss out on something tht those old institutions have created. Do you buy any of that argument?
Reed Well you know look at erm shipping, so for thousands of years, commercial shipping used long shore men to individually load the holds, you know bag by bag full of coffee and sugar and copper and all kinds of other things. Erm and then about 50 years ago containerised shipping came along, which was dramatically more efficient, so costs are way down so everything's cheaper, you know buy and large the worlds a much better place, but if you were a long shore man or if you were in the community that was supported by long shore men, it was a you know a very wrenching and difficult time. And there will be pockets of that, that come with a change, so you know its not all good. Erm, you know it really depends upon your frame of reference. But it doesn't slow down, generally the adoption of the new model, whether that's containerised shipping or on-line news. Cause consumer preferences have a way of trumping everything.
Intvr Is there anything else you want to say ...................
Reed No but I would say, your, you know erm as you picked up, I'm cynical that your macro thesis isn't right, I don't think the webs that unique, you know you've got this long term expansion of data, erm.
Intvr Would you say that because one of the things I'm absolutely interested in is this point that erm actually erm perhaps the web hasn't, it isn't any different that you know erm as you say?
Reed If you think about retail over the last couple of hundred years, erm a shopkeeper would get to know they're individual customers, and they would stock the things that they thought made sense to the individual customer. So there was personalisation on a kind of ad hoc basis, as one person would do it. Then the real change came with computers and data systems, where there was large-scale retailers now able to use large databases with lots of say all of your credit card history or now, lots of erm hypermarkets have store cards and you're able to store all of that information so they can do a better job. And he webs not unique, its just one more data source in the total data pie. Erm, credit cards, erm your shopping history, your travel history erm your web history these are all various aspects of the ability for companies to use computers, to try to serve the consumer better, because all those companies are always competing for the consumer's business.