Gibson Biddle: uncertainty

Transcript context

…Okay. So the possible delight is it might only cost you five bucks or who knows, it might be free. I don't know. But for a set of customers who are ad tolerant, that might be a reasonable trade-off, right? You don't have to pay 10 or 15 or 20 bucks. You could pay maybe five or two. I don't really know what the right price is. Okay. So the next one is, would Netflix be building hard to copy advantage if they did this? I guess the hard to copy pieces, if there's a network effect, they just accelerate that further and that gives them some advantage. I don't know. Maybe. So if they pick up a new set of people, a new set of profiles, the technical term as you get big is you build economies of scale. So if they are able to grow, Netflix, they'll spend about $18 billion on content this year, whereas poor Amazon will only spend... $8 billion. I just love saying poor Amazon because Netflix can amortize it across 220 million members. So more growth, more customers, hopefully a different segment of customers that they haven't gotten yet. So it's not just cannibalistic. Could build more hard copy advantage. My argument, I'm just going to skip ahead. If you cross fingers, you are picking up a new customer profile, new customer type. So you're going to have incremental revenues, which is really what Netflix is looking for. For me, I just want to tell you why Netflix hasn't done advertising yet. We actually did do it. Five, six, seven, eight, 2005 through 2008. We put big ass ad banners on every page on the site, even for the members. We did a retention test and it actually did not hurt retention. A big surprise. And that was like the first year that we generated like an operating income of 20 million bucks. It was like the first profitable year. We also did this other business. We were selling used discs, previously viewed discs. That's how we first made money. And Reed Hastings, the CEO, came to me in 2008 and said, Give, I need you to kill advertising and previously viewed because I think we can deliver a profit in our core business. And he wanted to keep things simple, create this simple experience that's part of subscription. You have had this. We have a lot of pride in ownership. He didn't involve me in the decision, all of these things, right? He's just sort of sticking a gun to my head. He only asked me two questions. He said, Gib, who's going to be the best in the world at advertising? And I said, Google. And then his second question is, who needs to be the best in the world at personalization? I said, we do. And his argument was to kill previously viewed and advertising to create a simple experience for the customers and so that we could stay maniacally focused on personalization. Now, fast forward. So on the earnings call, for him, the debate is really between simplicity, which he's a huge fan of. But during the earnings call, he said, actually, there's something I believe in even more, and that's customer choice. And he was saying, you know what, I think for this new set of customers, giving them the choice to have a $5 a month plan with advertising. He did not say the five bucks. I'm just plugging that in. In this case, customer choice may be more important than delight. And in this case, rather, customer choice may be more important than the complexity of advertising or maybe the stinky experience. There's something important. What he said is today it's relatively straightforward to execute an advertising-based business doing this. There's a zillion partners who could do it.…

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