Netflix | Reed Hastings | 12/12/19 | Newsmakers

Support provided by Walters Papillon Thomas Collins LLC. It is such a treat to be here. I want to thank the Cable Association, all the members here. I understand this is your annual gathering and that you chose to invite me. I'm quite touched. Greetings and thank you to the mayor and to the governor for coming. It's really a special honor. I could talk all half an hour about what's going on in public education and what's important and I would love to do that but I want to sneak in a little bit about Netflix. You know it was 21 years ago when we started Netflix. At the time we rented VHS cassettes from Blockbuster stores. Blockbuster had 8,000 stores around the world so it was easy access to everyone. We were fascinated by Amazon. Amazon was starting to mail books around and we realized well maybe we can't beat Amazon at what they're doing but maybe we can be the Amazon of video rental. We started exploring it and it quickly became apparent that mailing a VHS cassette was too expensive and too slow so we gave up that idea. Then a friend told us about the rise of DVD which was about to launch and here was this little plastic disc and we thought oh what if you can mail that? How much does it weigh? It turns out that a DVD weighs 0.9 of an ounce so you can mail it for one stamp but would it break? We didn't know. We quickly ran out and bought some, put a stamp on it, mailed it to ourselves. The next day they arrived. They all were workable. I was like this is gonna work so we launched then in 98 and 99. This was the first internet bubble so you could raise money so easily and we needed a lot because you had to buy DVDs and buy marketing and buy these logistic systems and we raised over 100 million dollars and then the internet bubble crash came and it was devastation everywhere. Companies all around us going out of business. We had to do a big layoff. We struggled but we just kept focusing on what we're doing trying to make the service better. In 2002 we were able to go public and that's a big moment because we got in a bunch of money and we realized you know we're gonna survive and now we have to focus on being great. Unfortunately we were 50 million in revenue and Blockbuster was five billion so they were a hundred times larger than us and as we grew we knew we would attract their attention and in 2004 they launched their first effort to directly competitive by mail service. In 2005 they did a price cut and of course we foolishly matched them and exceeded them with even lower prices and then they went down and we realized too late a war of attrition with someone who's a hundred times bigger than you is not a smart thing to do. So it's pretty desperate times in 2005 and six and then we got incredibly lucky and all of you in in business and maybe in life know that luck plays a great role but Blockbuster was squeezing us hard. It was like hard to believe in us and then the shareholders of Blockbuster decided that they wanted to elect a corporate raider Carl Icahn to the board of directors and he got elected to the board of Blockbuster and he's been very successful at sort of bluffing and playing poker and but getting down to like operating a business and being on the board so he wasn't his specialty. So he refused to pay the CEO the contractually guaranteed bonus because he thought that's a good way to save money. We fired the whole management team. He brought in a new management team that was from the stores business, 7-Eleven. Nice people but all they knew was stores and the first thing they did is close down the competitive effort that was crushing us. A miracle! We were just like in shock it was so great. So no less than we escaped you know disaster that way then we realized streaming is coming. YouTube had started in 1995. It was starting to build you know still mostly just on PCs and Macs but then we launched our first beginnings of a streaming service. It barely worked but we got a little bit farther along and this was we were licensing old television series so at that point it was like heroes and things. We couldn't license many movies. It was pretty niche service. It continued to grow a little bit. We were able to do a deal with stars and this was an interesting one because it didn't really make sense for them but the way their executive comp program worked is if they made certain targets they got a big bonus for the executives and the way they did it is they could recognize all the revenue from a three-year deal at once and so if they did a three-year deal it made all their bonuses and they did it and again we were like wow the world's a funny place here. So we got all the Sony content, all the Disney content and suddenly our business started growing. That was tremendous. Then we started getting into original content and my partner Ted Sarandos was a big fan of House of Cards, the British series and he really wanted to go big and invested in House of Cards. We were not actually the developer of it. That was an independent studio, small independent studio. We were the first window licensor in the U.S. but it was under our brand and then when we launched with Robin Wright, Kevin Spacey and this dark White House drama, it was like a whole change of how people perceived us and then we went on with Orange is the New Black and Stranger Things and then this week Irishman and Six Underground and we've become now eight years later one of the largest producers of content around the world. We've expanded. We launched first Canada and then Latin America and then Europe. Now Netflix is available in the entire world except for China where we're blocked. We're about 60 million members in the United States so thank you to all of you and we're about 100 million outside of the U.S. so tremendous global growth and when I look back on it, any one of these transitions, beating Blockbuster or going to streaming or going to original content or going global you know in 20 years, any one of those could have killed us and when we look back and we try to say how did this all come together, I really think it's been about our corporate culture. So my first company which was before Netflix was pretty traditional and every time something went wrong, I put a process in place to prevent that thing from going wrong again because I hated seeing things go wrong and year by year the process built up and the employee base settled into like following process. That was the culture and we did really well until the market shifted and then everyone just wanted to follow the process but the market had changed and we were unable to adapt in this first company and luckily we were able to sell ourselves to our largest competitor and so later I realized wow when you search for efficiency you also limit flexibility and there's a very subtle trade-off because in the short term efficiency is wonderful so we all seek it but in the long term flexibility is essential. So with Netflix it's sort of been my redemption. It's like your second child when you do a much better job than your first. So in Netflix we really set about to have as much freedom and as few rules as is humanly possible. So we have just like rules about expenses or rules about contract signing or all the things that normal companies do to prevent error and instead what we do is lead with values, talking about context, what's the market we're trying to serve, what's the customers, a lot of metrics on what's happened in the past and we do have some mistakes that are made but now I see that as a small price to pay for the long-term flexibility and because of that we have all types of cases where people do crazy things that are good for Netflix that they would not have been able to do if people were following the rules or seeking approval. So what we say at Netflix is don't seek to please your boss. Seek to do what the right thing is for the company and the customers and most of the time when we are in working life we've learned the key to success is to please your boss okay but we want people to be really independent thinkers and because of that lots of people contributed to the innovations and DVD against Blockbuster, then the beginnings of streaming, then the beginnings of global and original content and so I think it's that distributed intelligence and it's that very few rules, wide open responsibility that has really helped us. So I've got a book coming out, you're the first audience I'm plugging the book at in May called No Rules Rules that goes into a lot of this and what we've experienced and when I think about when it's appropriate I think it's not appropriate for the industrial era. So the miracle of the last 300 years is being able to manufacture 10,000 doses of penicillin perfectly, 10,000 automobiles perfectly. To do manufacturing you need to reduce variation to reduce error and that's been the primary economic driver again for the last couple hundred years and so it's natural that that mindset becomes very broad and if you're in that business then you want to do process but if you're in a creative market like an ad agency or like an internet company or much of our economy now is creative services then you want to lean away from process as much as you can towards farming for descent trying to increase variation and now again much of our economy and the growth sectors are all around these creative. So what we see as a chance to really reinvent and to free ourself from the industrial excellence to creative excellence and again that applies to creative businesses, businesses that are manufacturing we still want or health or safety. I don't want the airline pilots to adapt our philosophy of complete independence. I love the fact that they go through their checklists. So safety critical, high replication, we've got well understood paradigms but the new paradigms where you want to be able to have error to be able to learn that's what's new. So you can see I've become a big believer in sort of organizational cultures and how you set them up and I think that's influenced my approach to education. So I was a high school math teacher for the first couple years out of college and then I got into computers and technology and when my first company went public in 1997 I had a chance to start being a philanthropist and since I had been in the classroom I thought okay education this is you know this is going to be an area for me to contribute in and it didn't take long for me to figure out that a lot of very smart people have been working in education for more than a hundred years and that very little had changed. In fact someone told me a story of the beginnings of kindergarten and the founders of kindergarten imagined something very different than what we have today and for the first several years kindergarten was this place where you really weren't focused on learning you were focused on play and focused on human interaction and this was the philosophy of it but within 10 years all the public school system did is take 1 through 12 which they ran and put a k on it and then they co-opted that effort and for the founders of the kindergarten movement it was a terrible disappointment that in fact now it's just one more year of regular learning. Now I don't know if that reform or the open classroom reform or any other reform is really the way to go but I what I will say is everyone who's had big ideas in the past has found that they don't last. Take more recently the testing movement we've had 20 years of let's test them we're going to really test them a lot and that's going to improve education and you know it had some marginal positive effects in places and showing what's going on but now the public attitude is all anti-testing and the testing systems are getting less and less and think of that as that was the 20-year effort in ed reform. So what's happening is that we as a nation want relatively quick fixes let's add kindergarten let's test let's do this let's add computers that's going to change everything and if you look at all the past changes it has made almost no difference to the lives of our pupils. So education is a service business okay you need to recruit develop motivate inspire teachers. When you focus on teachers and teaching excellence then the kids do well they feel loved they feel invested in they feel enthralled and it's all about teachers and when you look at great service businesses like Hyatt or Sheraton or anything they put a ton into leadership development it's a steady let's build if you look at the military and all what they do to develop our warriors it's phenomenal so those are steady well-governed systems. The problem is is we set up a school district system that no other country has where we get rapid superintendent turnover so there have been five superintendents in Baton Rouge in the last 15 years and that's typical of the nation every three years the leader of school districts larger school districts 10,000 and above turn over. Okay so many of you have run organizations have been on the board so imagine your organization if the leader changes every three years you know it's kind of chaotic and imagine worse if the you know now when we bring in a new leader we try to get someone who agrees with the vision but can implement it at a higher level but in politics what do you run on what does anybody run on change so you get elected to school board darn right you're going to make change you're going to change the superintendent and so the constant flow of school board members generates this constant flow of new superintendents so the problem is governance there are great people in our public school districts they're trying really hard they think it's normal to have a new leader every three years not all of you are pro-union but I would say if you worked in a school district and every couple years you worked for an idiot you'd be pretty open to having a union if you worked in a school district and saw your leadership change for sort of random political reasons you'd feel pretty good about your teacher tenure so the things that some of us don't like because of their effect on kids are natural outgrowths of the way we've organized school districts so nobody's made much change in any of this until the last 20 years and we figured out that non-profits should run most of our public schools non-profit governance you all are intimately aware of you get new board members who want to help the organization they didn't have to run on change to get elected they try to help you make it better non-profits have consistency values purpose they don't although they any non-profit can be unionized most of the employees feel so respected they hardly ever are okay so it goes with good management now not every non-profit is a perfectly managed organization but the ones who are well managed with good boards and leaders they grow and have impact and that makes the biggest difference so we started with non-profit public schools uh about 20 years ago and then there was the tragedy of katrina and the school system which went entirely into the recovery school district and now in new orleans you have a miracle that school district in new orleans was one of the lowest performing school districts decade after decade after decade and yet today it's an extremely high performing urban school it's one of the only urban school districts that's increasing on nape the other ones washington dc which has 50 non-profit schools not 100 like new orleans so we've got in new orleans a high scale proof point of what's possible when the schools are non-profit now it takes many years to get there and there's benefits along the way again like washington dc is about 50 non-profit schools and they're continuing to add value and improve so the key now is okay what is it about non-profits it's stable leadership that's what creates the great teaching conditions that teachers thrive on and that's what allows kids to get excited about learning to do the reading to do the work and so it's all about that management stability that non-profits can offer now politically the problem is is public schools are fundamental to america and many people have come to see non-profit public schools as an attack as privatization as exploitation as the destruction of the american dream and when you think about america we are big on freedom we have more freedom than any nation on earth and the price of freedom is inequality and we struggle with inequality and the way that we come to moral acceptance is because we say everyone's got a fair chance everyone's got an opportunity and the proof point of that the symbol of that is public education and so when you try to change public education the fear is is that you're undercutting our great symbol of the melting pot of the land of opportunity and that's a very sensitive symbol and in fact the non-profit public schools movement wants to deliver on the promise of public education and the non-profit public schools movement wants everyone to get opportunity like we're seeing in new orleans and growing now in baton rouge but again with symbols you have to be careful and we haven't been great about understanding this we've been technocratic we've said our schools work better hand over the school district and of course they don't react well to that so we own some of it of being politically simplistic and what the future is is to have the civic infrastructure like all of you realize you know what they've got going in new orleans is pretty impressive and there's no other city in america that's made sustained results like that and so let's learn from that and let's year by year expand the non-profit school sector we know the school district's probably not going to like it but we're not against them we're all we're for good schools period so if there's a very high performing school district school let's keep it but the low performing school district public school let's have a non-profit public school take it over and serve those kids at high excellence and it's a way to bring in people just like you recruit companies to invest here in baton rouge it's a way of getting other non-profits that have had great success to come i'm on the board of kip and i'm excited to reflect on the fact that kip is opening here in baton rouge this year or next fall and we're very excited about that so thank you for welcoming us to the community and again kip is a non-profit 220 schools 100 000 pupils i've been the board about 15 years and every year it's gotten a little better the teacher training is better the recruitment is better the curriculum is better all the things that make a school great is what i see in kip and kip is not the only one basis is doing amazing work great hearts many others so the key is having many different providers in your city and continuing to basically provide the political air cover and when you hear that non-profit public schools or charters are bad say look they're trying to deliver on the promise of public education to have every kid have the opportunity to participate in our rich american life and that's really the key and what you're seeing in the results will demonstrate that this happens and then you can see it in new orleans and the school district and the education is so much better than it was 20 years ago 30 years ago and obviously it shouldn't take katrina to create that kind of proof point so many of us around the u.s are now investing broadly in many cities camden and new york and uh indianapolis and baton rouge and atlanta and there's a whole movement now and the key to it is winning school board elections there's nothing more important than all of you getting involved in winning school board elections with people who are open to change with people who are open to learning the lessons from the success in washington dc the success in new orleans the success in camden which is about growing the non-profit charter schools movement and when you hear of other ideas to fix schools recognize that those ideas come and go if we could fix the schools we have that's definitely the best solution i mean this thing of you know transforming by rebuilding you know new non-profit public schools it's hard work school by school by school if there is any way to fix what we have that would be better and people have tried for decades and decades and decades and every effort that gets started it's promising for a couple years and then the superintendent changes and that program was the prior person's effort and the new person just flip-flops and then that generates the employee cynicism where you want tenure and where you want unions and where things get very stuck so it's deeply part of that system that changes the superintendents that's the problem i really think the solution is on the non-profit side and then we're gaining momentum now some people will say gosh at the current rate it's going to take us 10 or 20 years to build enough non-profit schools to serve all the kids that's too long we got to change it faster kids are suffering and they are but we have to realize things change slowly america's founding was a great thing incredible opening of democracy and incredible words but in the beginning our democracy our voters were only landed white males and it took our great country with freedom you know one person one vote is not a hard concept to understand i mean non-profit public schools that's hard but one person one vote that's kind of obvious right and yet it took another 50 years after the founding of our country for andrew jackson to lead the movement to make unlanded poor white males able to vote and then america we took another 50 years to emancipation proclamation to have african-americans be able to vote in principle and then another 50 years to 1918 for women to be able to vote and then another 50 years for civil rights movement and african-americans to be able to vote in practice so 250 years on a simple idea so we have to recognize we're not going to change this overnight we have to have the patience the commitment the guts to be in this decade after decade after decade and if we do american public education will deliver on the promise of the american dream and be able to provide opportunity to everyone and make us so proud of our great nation so thank you for having me today and i think i've hopefully been briefing up that we can have a few questions thank you thank you so much a couple of questions if anyone has one they want to submit forward in the past year we've read about netflix making long-term commitments for production space in albuquerque new york and toronto what factors went into those decisions to base in those cities and what can we do to convince you to plant the netflix flag in louisiana louisiana's long been a great state for investment from hollywood firms because there's been great incentive programs which is how you jumpstart the ecosystem so in the first round it's incentives that bring companies in and ultimately they're looking for really strong labor force that can you know the carpenters the electricians so for those who don't a typical sound stage is a little bigger than this room it's basically a warehouse and then you build house of cards in a room like this okay so you do this very specialized carpentry and electrical work to make it look glamorous uh when in fact it's uh cardboard and then you know we need uh lighting and photographers and all the different trade professions so it's building up those trade professions so george has done an incredible job by having uh developing that market so that's one of the most nearby markets so i think that's really the the focus is developing that economic infrastructure uh on an ongoing basis you have made um education um investments personally in louisiana what about louisiana attracted you to make those investments uh sure i've been a supporter uh both here in baton rouge in a small way in new orleans in a big way and a number of schools uh opening um and uh serving kids um and uh why i because all of america is important to me i mean all the world's important too but this uh system that we have is uh in the united states and so i'm uh i invest all over you have 550 of the premier uh business leaders in louisiana sitting in this room today literally the best of breed from just about every industry in your mind what is the role that a business leader should play in the business community should play in public education you know the the key thing is business leaders understand organizations and organizational strength and organizational capacity and the roles of boards and so it's using all of your depth in there as your lens on why we need this change um from a school district rapid superintendent turnover model uh to more stable leadership better teaching conditions because again organizational health is too abstract for most voters if you run a campaign on higher organizational health you will not be a two-term governor you have to be much more specific and visceral okay but you as leaders understand how important organizational health is so then it's just backing up uh the non-profit movement and doing that so that they can deliver on that organizational health promise this is one from our audience uh you touched on the industrial age and one contributing factor is the lack of skills and our students is how how schools have not focused on creating have been focused on creating industrial workers how can we reshape curriculum to give students skills for today's and tomorrow's workforce it's an excellent question um we've probably got in our curriculum a lot of things that hang on from the past uh an easy example is calculus um so calculus uh you know is hardly ever used after college uh except for like tiny little parts of physics and yet it becomes the standard thing that you know people take in either late high school or early college uh and in comparison statistics and probability are fundamental to understanding modern systems and voting and polling and computers and all kinds of things and yet it's a very slow to change so i i think the key there is really focused on you know for the students in the non-profit side we don't really focus somewhat on high school graduation rates and test scores that's the traditional stuff but we really focus on fulfilling work what percentage of our graduates end up with fulfilling work because if you have fulfilling work at any wage level um you're much more likely to have a fulfilling life and so on the kip side you know again we've got these 200 schools we're learning a lot okay these are the things that didn't work well for these kids these are the things that did work and then we're doing that feedback back into the high school curriculum so think about if you run a large hotel chain you're constantly asking about service experience the guest experience and what you learn you get better at that's how the non-profit side operates okay and then the school district side it's just keeping up with this three-year turnaround and so it doesn't get a chance to improve or think ahead in that way so once we have a mostly non-profit public school system i think this issue will be much less and we'll be constantly be adapting to whatever the kids need for the future and we have just one time for just one final question and i promised my wife that i would ask her question she took four pages of notes hung on your every word and then submitted this question to me when is season four of the crown coming out i think the show you might want to watch together is marriage story marriage story is a new movie we have out with adam driver and scarlett johansson and it will keep you married because it's so scary and awful the story of their divorce and separately of course you know the irishman but a movie we have coming out in a week is the two popes it's extraordinary it's the first time in 700 years we've had two popes and this is the story of francis and benedict played by jonathan price and tony hopkins and you see two old men who really don't like each other over time fall in love and it's this beautiful beautiful meditation on friendship and fundamental values and as well as really funny so i definitely recommend two popes to everyone here thank you very much for having me support provided by walters papillon thomas collins llc