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Netflix Co-Founder on streaming wars: ‘We’re seeing the new rules of the game’

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The streaming wars continue to escalate as users pivot to digital platforms. Netflix Co-Founder Marc Randolph joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: Discussing the updates around Disney's progress as they continue to add an impressive amount of subscribers in this pandemic. For more on that, I want to bring on our guest here today with us. The co-founder of Netflix, Marc Randolph, joins us now. Once again, welcome back to the show, alongside Yahoo Finance's Alexandra Canal.

And Marc, I mean, we've talked about this a lot. The story's not going anywhere. But when you look at maybe where we're at now in this inning of the streaming wars, what do you make of what you're seeing in the tit for tat between Netflix, Disney, and all the other entrants now coming into the space?

MARC RANDOLPH: Well, Zack, we certainly have been seeing a lot of things going on in the last few months. And probably the closest analogy I can think of is it feels to me like a presidential primary debate, where we have 40 people on the stage. Everyone's fighting to be heard. You have the big contenders mixed in with the, who knows who the hell these people are.

But what I think has been happening in the last few months, which is actually interesting, is, I think we have our frontrunners. It's pretty clear, at least to me, that, of course, Netflix is going to be one of those. But I think Disney has really fought its way up into a really, really strong position. We have the dark horse. We have HBO Max, which everyone's wondering, are they going to be able to pull it up and go neck and neck with the leaders? Or are they going to drop back? And then, you, of course, have the candidates who haven't even announced yet, like Paramount Plus coming out.

But what I really think is happening is, we're kind of seeing the new rules of the game developing. This is not just announcing. This is not just having a promotion. What you have to demonstrate is that you've got the content, content, content. And not just a few things, you've got to have a continual slate of tent poles. You've got to have a continual slate of new things coming out. It's really saying, this is a war of people who are prepared to make the content.

AKIKO FUJITA: Marc, you know, you said it sort of feel like a presidential election or sort of that this race or not. I mean, I was thinking to all of these launches that have happened, and it starts to feel like we're going back to the days of cable, except we're just paying for individual channels because there's so many different options out there.

You talk about diversity and content being key, and I wonder how much-- when you look at something like a Netflix that has tended to do not just movies, series, but also more documentaries, you know, whether that's sort of the strength of the platform, or something like Disney, which has pretty much been on brand in the content they've pushed out. How do you think they win over some of these viewers out there who are still sort of only dabbling in one or two streaming services?

MARC RANDOLPH: Well, I think what's going to happen, of course, is there is going to be a consolidation. I don't necessarily mean industry wide, but certainly consumers are going to settle down on the three or four or maybe five streaming services that are their primary outlets. And I think you're correct. Netflix has a big leg up in terms of its diversity.

And its not just diversity of genre, it's also their geographical diversity and the tremendous slate of content, which is non-US originated. But, you know, listen, Netflix, I think, is announcing 70 movies for the next year. I mean, that's more than Disney and Warner combined.

The people who are going to have a problem are the ones who are trying to fit into a niche. I mean, you look at Discovery Plus, which I think was the number two downloaded app in the last month or so. I mean, they're really trying not to own the blockbuster tentpole stuff. I think they're going for treadmill TV. You know, I had to write these down. They have "Amy Schumer Learns to Cook Uncensored" and "Judi Dench's Wild Borneo Adv--" I mean, how does that compete with "The Mandalorian"? Yeah, I don't know. I guess, it correlates to Peloton sales.

ALEXANDRA CANAL: And to that point, Marc, I want to bring up Apple TV Plus because it seems like they are just falling way behind because they came around right around when Disney Plus launched. And they just haven't seemed to do much of anything. In fact, right now, they seem to have a bit of a freeloader problem. Because if you go to an Apple store, get an iPhone or an iPad, you automatically get a free year of Apple TV Plus. But reports say that they're having trouble converting those users into paid subscribers. So what can they do better here?

MARC RANDOLPH: You know, it is such a mystery to me. I think if Apple spent 1/4 as much time on content as they do on giveaways, they really could play. And they really have no excuse. I mean, listen, they have, what, a $2 trillion market cap? They have $200 billion in cash. But they are still not in it with both feet. You know, they have really got to do the entrepreneurial thing, and they've got to walk up to the edge of the cliff, and they've got to jump.

Right now, they have the highest churn rate. You can't keep replacing people. You've got to give them a reason to stay. This is absolutely a game of, what have you done for me lately? And "Mandalorian" is not going to hold people forever.

ZACK GUZMAN: Well, what's interesting is that you-- you know, in our earlier discussions on this, you raised that Netflix had a secret weapon in this, right? And that it was that they were squarely focused on streaming. And we raised that when we were talking about what Disney could do. If there was one area that maybe they've proven a lot of people wrong, it's that apparently they can focus on streaming, especially maybe it's because their parks are closed.

But they have really focused in on it. They've delivered some pretty serious results. To Ali's point on the Apple side, maybe there is some truth to that point where, you know, if the attention isn't there, it's not going to work to take on a Netflix. What's your take on that?

MARC RANDOLPH: No, I completely have the deepest respect right now for Disney. Because when we began speaking about this, which was almost prior to the Disney launch, I said that Netflix's advantage was that they were focused on streaming, whereas Disney was distracted by theme parks and cruise ships. But they have really demonstrated they're in.

I mean, if you look at their investor day from a few months ago, they have really said from now on, content is going to be targeted first and foremost towards streaming. They've restructured their company to focus in on streaming. They've said they're going to defer dividends to be able to focus more on streaming.

But, you know, this is really, in my opinion, a pretty clever move because what they're, in some ways, doing is emulating the Netflix playbook. We have the earnings announcement, of course, tomorrow. And I think what's wonderful for Disney is, people aren't necessarily going to hammer them on what their earnings are this quarter.

Because Disney has said very much that they are just basically trying to put themselves in a position to ride this buildout of the streaming business. They're saying that we're going to be in this recurring revenue business. And both of those are very strong statements. I think-- I mean, Disney has said that they're going to be at, what, 300 plus million by 2024, when you take all their services combined. I mean, those are pretty significant numbers.

ALEXANDRA CANAL: And Marc, how strong do you think the pricing power is at Disney Plus? We've seen more premium VOD options, like "Mulan" and "Soul" come to the platform for that $30 fee. But is that sustainable in the long run?

MARC RANDOLPH: You know, I'm really not sure. I think eventually, you're going to have to fall in line and have a standard monthly fee, which is in line with what you're seeing from Netflix and the other services. You're going to have to have some sort of bundle-- pardon that term-- where does it bring it all together. I'm really not sure how this excess fee for, you know, their big tentpole content is going to play out. It seems like a strange thing. But hey, that's what makes this fun, the opacity of it all.

AKIKO FUJITA: Marc, let's talk about your latest podcast here launch, "This Will Never Work." I mean, this is a really crowded space increasingly. It feels like-- I consume a lot of podcasts, but it feels like we've sort of reached a saturation point here. Where do you think this is all going at a time where you've got sort of the conversational podcast, the news podcast, and then you've got the scripted podcasts that seem to really be gaining momentum? How do you see this industry as a whole and its potential to grow even beyond where it is right now?

MARC RANDOLPH: Well, the first thing I have to say is, I am the first person who is saying, why on Earth does the world need another podcast? And certainly, why do they need one from me? But what's happened is, I've been doing what I've been doing for 15, 20 years, which is mentoring early stage entrepreneurs, helping them get their business off the ground, turn their side hustle into a real gig, turn their real gig into a sustainable company. And I do this with phone calls, I do this with Skype sessions, I do it on Zoom.

And what's different is about a year ago, I began recording those calls. And I realized that not only am I helping these people, I'm actually creating something interesting. And what I wanted to do is have something that people could listen in as to how a small entrepreneur can make progress. These aren't interviews with people who have tamed the world. I'm talking to everyday people. I'm talking to people who are-- I have their feet on the ground starting out.

And I think as far as I can tell, there's not a lot of that. And certainly based on the response I've gotten so far, I think I have tapped into something which is pretty interesting. I'm not looking to be the number one or two podcast in the world. I just want to create something which actually helps some people. And I think what I've done is going to work.

ZACK GUZMAN: As I said in the past, I love the book, too. We see it in the background by the same name, "That Will Never Work." And it's, you know, along the same lines of a lot of good tips in there for entrepreneurs.

I'd be curious to get your take, too, on, you know, as a man who turned down, right, in the Netflix buyout opportunity or investment from Amazon, Jeff Bezos, kind of your take on maybe your advice to entrepreneurs who are maybe weighing the SPAC route-- we've seen a bunch of those here to start the year-- over IPOs. What would maybe be your advice to people weighing that decision? Because there are some legitimacy questions around going the SPAC route versus the IPO. What's your take?

MARC RANDOLPH: I think a lot of people are going into these big liquidity events. And whether it's an IPO or a SPAC, it's the same. You really have to know what you want, and you have to be doing it extremely consciously. Just last night, I was advising an entrepreneur who was trying to judge that. And I said, if you have a very, very concrete reason for doing this, if you really need the currency, if you really need the capital, and those are the only ways to do it and you can't get out with an IPO, then sure, that SPAC does give you some advantages in terms of being able to get the liquidity you're looking for.

But quite frankly, going public, being a public company restricts your ability to be versatile. It restricts your ability to take a few quarters to figure things out. It changes your ability to do what Netflix did multiple times in its past, which is walk away from a current business because you knew that was not the future in order to bet on something else. And I think that is the advice I'd give, is, be careful what you wish for. These are dangerous things to buy into. When someone gives you money, they're not doing it because they like you. They're doing it because they want that money back, and ideally, times 100.

ALEXANDRA CANAL: And Marc, keeping up with the theme of you being told that will never work, once you've actually started a business, what is the worst advice that you've ever received?

MARC RANDOLPH: [LAUGHS] Stay the course. One of the things people get stuck on is, I've got to keep going on-- hammer on this idea until I make it work. And certainly what I've learned over and over and over again is, there's no such thing as a good idea, and that if you take that first swing at it, if you try something and it doesn't work, you have to try something else. And it's all about falling in love with the problem, not falling in love with your idea.

And over and over, certainly the people that I advise on the podcast, so much of it is, number one, get started. Figure out a way to take your idea and get it out colliding with the real world. But then the second one is, as soon as you learn something about why your idea's bad, move on.

AKIKO FUJITA: Well, Marc, I'm going to take that advice to heart, go listen to your podcast, and then potentially think about launching my own podcast, right? Because the space is not saturated enough. Marc Randolph, the co-founder of Netflix, it's always good to talk to you. Thanks so much for your time today.

MARC RANDOLPH: A pleasure being with you. Thanks a lot.