Invest Like the Best with Patrick O'Shaughnessy
· Reed Hastings, Patrick O'Shaughnessy
[00:00:00] S1: Well, in most businesses, that's highly material, you know, building a lot more warehouses or something. But honestly, for Netflix, there's very little capital allocation. There's the total budget and per show. But the biggest shows we have, like Stranger Things, were less than 1% of viewing in a year. So we have extreme non-concentration and lots of different budgets and spread. There was very little CapEx of any long-term nature. Margins were pretty close to free cash flow. And then we just have always done buybacks with it rather than build it up. Probably the related tension was how profitable, how soon. It wasn't a strictly cash one, it was essentially a P&L margin question. And what we decided is let's have low margins relative to cable, which ran at like 35%-40% margins, so that we can invest a higher percentage of revenue into the content to have better content for our revenue level than we would otherwise. And that became the fundamental lens that we ran the business, and they still run it today. [00:00:00] S0: How did you know when it was time to leave being full-time CEO? [00:00:00] S1: Because Greg and Ted were ready. I've been developing them for at least a decade. And I felt like coming out of COVID, they were ready. And then, unless I was going to be around for another decade and train a different set of people to take over, this was the time. So it was really driven from them. And since they took over, they've tripled the stock and, you know, they've done incredibly well.
· Reed Hastings, Patrick O'Shaughnessy
[00:00:00] S1: Because Greg and Ted were ready. I've been developing them for at least a decade. And I felt like coming out of COVID, they were ready. And then, unless I was going to be around for another decade and train a different set of people to take over, this was the time. So it was really driven from them. And since they took over, they've tripled the stock and, you know, they've done incredibly well. [00:00:00] S0: How does something like the set of ideas we've talked about so far translate to a totally different domain like what you're doing with Powder Mountain? Like, it seems it's such a wildly different project in almost every way that I can imagine. It's very, very different. How much directly translates and how much needs to be left behind, given the different nature of the project?
· Patrick O'Shaughnessy, Reed Hastings
[00:00:00] S0: How does something like the set of ideas we've talked about so far translate to a totally different domain like what you're doing with Powder Mountain? Like, it seems it's such a wildly different project in almost every way that I can imagine. It's very, very different. How much directly translates and how much needs to be left behind, given the different nature of the project? [00:00:00] S1: So Powder Mountain is a ski mountain and real estate development that fell on hard times in Utah. So the original people running it ran out of money, so they never finished a lot of the project. We happen to have a house there. I love the place, its natural beauty is insane. It's 10,000 acres. And so after retiring from Netflix, I decided to take control of it and invest in it and do a turnaround. And so then it's rebuilding the staff, rebuilding the vision. And I would say 90 plus percent of talent density, no rules rules, the whole model has worked extremely well. The ability to move fast, hire incredible people, have them do things. It's everyone being very creative. And I would say the talent density model has been worth the pain, i.e., the turnover, and has created an amazing set of leaders throughout the company. [00:00:00] S0: How did you approach it from the beginning, in terms of the original vision and plan? So it's a distressed asset that you go in and buy. How do you determine the initial vision? And then, what were the first couple steps to execute against it?
· Patrick O'Shaughnessy, Reed Hastings
[00:00:00] S0: How did you approach it from the beginning, in terms of the original vision and plan? So it's a distressed asset that you go in and buy. How do you determine the initial vision? And then, what were the first couple steps to execute against it? [00:00:00] S1: It was a series of transactions to gain control. So it took six months to buy out a majority of the company, of the shareholders, to have control. Everyone wants the billionaire to pay a lot. And being clear with them that this thing could collapse if I don't come in. That was stage one. Then stage two was figuring out, okay, this is a great mountain, but if half of it were private, like Yellowstone Club, and half stayed public as it was, then it could be a real win-win where they share operating costs and are more efficient. And we can then have a very uncrowded resort on the public side, which gets to something that's gone on in the ski industry, which is high crowds. So it gets to compete with that. And then, on the private side, it's building a 650 home community of ski lovers, where they get their, basically their own enormous ski resort, the size of Heavenly or Vail, just for the 600 homes. So it's pretty spectacular. [00:00:00] S0: In terms of what drives the ski business, what — aside from the real estate stuff — what are the most important variables or considerations that you've figured out in your studying of its history?
· Patrick O'Shaughnessy, Reed Hastings
[00:00:00] S0: In terms of what drives the ski business, what — aside from the real estate stuff — what are the most important variables or considerations that you've figured out in your studying of its history? [00:00:00] S1: Yeah, skiing is about one-eighth or one-tenth as big as golf in terms of number of people and playing. So I'd love to close some of that gap. You know, it's cold, but it's very family-oriented, you get outdoors, it's social with your friends on the lift. It's got some of those same properties. Interesting that there are 25,000 golf courses in the U.S. And about 20%, 4,000 are private golf courses. And private golf courses, you get better tee times, the nice clubhouse atmosphere, social, you get to know people. And that's really what it is for private skiing also. There's about 500 ski areas instead of 25,000, but only three are private: Yellowstone Club, Wasatch Peaks Ranch, and Powder. So it's a very underserved market relative to golf. [00:00:00] S0: What's most fun about it to you, the whole project? [00:00:00] S1: That it's very right-brained. Everything at Netflix was very strategic, logical. A lot of big competitors. In skiing, the competitors are very cooperative. It's, I think, because you have 20 or 30 miles between you. And so it's a lot more collegial. And it's aesthetic. The big wins we've done have been building up the art at Powder Mountain. So there's a lot of outdoor land art that's incredibly beautiful to ski through. So if you've had the good fortune to go to Storm King, north of Manhattan.
· Reed Hastings, Patrick O'Shaughnessy
[00:00:00] S1: That it's very right-brained. Everything at Netflix was very strategic, logical. A lot of big competitors. In skiing, the competitors are very cooperative. It's, I think, because you have 20 or 30 miles between you. And so it's a lot more collegial. And it's aesthetic. The big wins we've done have been building up the art at Powder Mountain. So there's a lot of outdoor land art that's incredibly beautiful to ski through. So if you've had the good fortune to go to Storm King, north of Manhattan. [00:00:00] S0: It's beautiful, yeah. [00:00:00] S1: Okay, so think of Storm King on a ski mountain. [00:00:00] S0: Skiing through it. [00:00:00] S1: Yes, and skiing through it. [00:00:00] S0: Tell me about that part of it. So how did you conceive of that, and how did you execute it? Like, how does one acquire Storm King-like art?