Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Reed Hastings
[00:00:00] S0: What do you think will be the most interesting impacts of AI on the Netflix business specifically? And this could mean, from the perspective of cost to create the content, it could mean for the service. Where does your mind go as you think about the raw capabilities of the technology? [00:00:00] S1: Well, visual effects is one, where there's a lot of that workflow that can be automated. But in terms of like, recognizing a K-Pop Demon Hunters at a script stage or pitch stage — which is the biggest value creator, you know, which things do we back. That will be a far distant skill. So eventually, AI might eat up everything and be better than humans on everything. But, you know, in terms of the sequencing, so think of it — AI is not particularly incented, and the companies are not, to do long-form character development. But at some point, they may do that and focus on that. And then the AIs will be winning the Booker Prize and doing the best fiction of the world. And remember, we're only interested in, like, the top 0.0001% of the stories that get written. So simply writing a story, I mean, there's a million film students. We could just go to them. So the issue is trying to find one that's really unusual, extraordinary, and recognizing that one early. So I think AI will have had a lot of other effects before it hits us on that.
· Reed Hastings, Patrick O'Shaughnessy
[00:00:00] S1: Well, visual effects is one, where there's a lot of that workflow that can be automated. But in terms of like, recognizing a K-Pop Demon Hunters at a script stage or pitch stage — which is the biggest value creator, you know, which things do we back. That will be a far distant skill. So eventually, AI might eat up everything and be better than humans on everything. But, you know, in terms of the sequencing, so think of it — AI is not particularly incented, and the companies are not, to do long-form character development. But at some point, they may do that and focus on that. And then the AIs will be winning the Booker Prize and doing the best fiction of the world. And remember, we're only interested in, like, the top 0.0001% of the stories that get written. So simply writing a story, I mean, there's a million film students. We could just go to them. So the issue is trying to find one that's really unusual, extraordinary, and recognizing that one early. So I think AI will have had a lot of other effects before it hits us on that. [00:00:00] S0: Can you imagine kinds of innovation in the form factors or formats of shows? Like, it seems like we've got a couple, you know, there's the show, there's the documentary, there's the full-length feature movie. Can you imagine lots of different kinds of form factors starting to proliferate?
· Reed Hastings
[00:00:00] S1: Well, let's step back a second and think about contrarian thinking generally. So you love contrarian thinking, right? But you probably need to remember that contrarian thinking most of the time is wrong. And once in a while, it's right. And that's when you get the big reward. But you have to say, most of the time, contrarian thinking is wrong. And the conventional thinking is right. So, for example, on formats, people have been trying to think about multi-ending, design your own story, short form, Quibi. There's all kinds of things, right? And the enduring aspect of a film at one and a half to three hours as a story has stayed strong like the enduring form of a novel, or the short story, or the TV series. So these things are tapping into something human, that other things — so you've got video gaming as a different modality. And that's quite a bit different. But like, most of the hybrids between TV series that you kind of interact with have been very small markets. That doesn't mean we won't eventually come up with a new art form that's quite different. But I don't think it's as easy as choose your own adventure. We're in lean-back mode with TV and we mostly want it to tell us a story. And if you think of young kids, two-year-olds — half of the time, they're like, "Daddy, read me a story", and half of the time, it's "Daddy, play with me". And these are two different modalities that are different. One is passive, and I mean, again, I think it's very biological and we're selected for it, and one's very active. One of those becomes TV and another becomes video gaming.
· Patrick O'Shaughnessy
[00:00:00] S0: I'm also fascinated by the technology backbone and story behind Netflix, the sort of invisible part of the business. Everyone just takes for granted they can hit a button and have this beautiful thing pop up. But I know there is quite a lot of building that happened behind the scenes. Can you tell that part of the Netflix story — of what it took, infrastructure-wise and technology-wise to make what we all enjoy possible?
· Reed Hastings, Patrick O'Shaughnessy
[00:00:00] S1: Well, it's always been a sort of medium barrier to entry, I would say, first with DVDs. And we had incredible sorting and shipping machines and postal integration. And I used to spend all this time on types of polycarbonate plastics that break and don't break. And we were impressing plants. And the biggest issue we had was that the DVD would get to you without cracking or shipping or being damaged, it was on time, the postal carriers didn't steal it. So there was like a huge amount of machinery to shipping a million red envelopes a day, consistently. FedEx style, right. And then certainly, streaming, the mechanics of getting the bits to people was challenging. We first launched in 2007. And for probably 15 years, the internet was underpowered and you had to do a lot of clever engineering things. But for the most part, there's 100 companies that stream now. Consumers can't particularly tell a difference between them. So I would say that's now just become part of the base systems, and commoditized. What's unique is still being able to do the AI recommendations, all the deep learning on — there's a thousand things on Netflix you would enjoy, which one would you enjoy most, at what time? That's still a big area of tech innovation. The gaming is — we're trying to push into different types of games and figure out gaming in addition to TV series and films. [00:00:00] S0: Why do gaming at all? Like, if you're so good at the core thing and there's room for scale, still — you're only 10%. Why bother with gaming?
· Patrick O'Shaughnessy, Reed Hastings
[00:00:00] S0: Why do gaming at all? Like, if you're so good at the core thing and there's room for scale, still — you're only 10%. Why bother with gaming? [00:00:00] S1: We used to just be movies. And then we expanded to TV series, and we're really glad we did that. And then we expanded into unscripted content. You know, "Love is Blind." So we've always been expanding in new categories, and gaming is just another category of entertainment. And so we've got some cool stuff going on with TV where your phone is the remote control, which has higher latency, but it's easy for party-mode type games. And it's really fun on these kind of social interactions. [00:00:00] S0: How do you know when to keep betting on something and how long term to be behind something? Like, gaming is a great example. I'm sure there's examples of things you tried that didn't ultimately work that you stopped doing.