*** Thanks for all the submissions, our Call for Projects now closed as all student teams have picked projects to work with. Even if your organization didn’t get picked this time, please rest assured your kind offer of a project opportunity is warmly appreciated. Please be on the lookout here in early September if you wish to try again in the Fall, thanks again for your support! ***

Does your business need help with social media and digital marketing? Right now my students in my Digital & Social Media Marketing classes are selecting businesses or organizations to help in terms of their online presence and need to find an interesting business to help.

We’re looking for opportunities for student teams to work with real businesses or organizations. Non-profit organizations are also encouraged to participate as we wish to reach out more to the broader community. Also, your business or organization can be located anywhere in the world as long as you can collaborate virtually with my students during mutually agreeable time slots.

Your willingness to facilitate a student project is much appreciated as this project will provide the students with a valuable opportunity to learn what it takes to collaborate effectively with team members and deliver results to an external stakeholder. Will that be you?

For priority consideration, please complete the brief survey [NOW CLOSED] below as soon as possible as it will close when we have matched up teams with businesses for this semester. So, if you still see the survey below, it is not too late but don’t delay!

Chapman students were in for a treat this week with a masterclass by Netflix Co-CEO & Chief Content Officer Ted Sarandos. Mr. Sarandos, also a parent of a Chapman alumni, spoke on his career path and the growth of Netflix to become the dominant provider of streaming entertainment. Ted Sarandos was an early recruit of founder Reed Hastings in year 2000, and as such, he has been a part of the Netflix journey almost from its very beginning (Netflix was founded in 1997).

At Chapman University, Ted Sarandos generously offered reflections, observations, and stories from his rich career with a fully engaged audience. Some of what he shared was “off-the-record” but there were still plenty of nuggets of wisdom some of which I share with you in the following.

Ted Sarandos Learns the Video Rental Business

Ted Sarandos shared how he got a lucky early career break when he was asked to manage an eight-store video rental chain. It was during this time, he learned the ins-and-outs of the business. It was also a dream job for him as he simply loved movies and during slow day-time hours at his stores, he would basically watch every movie that he could get his hands on. It was during this time, he learned the power of recommendations as he could see the value in helping guide customers to just the right movie for them given what they were interested in and what they had liked before.

Netflix vs Blockbuster

The legend has it that Reed Hastings started Netflix after he got a late fee for not returning his Blockbuster movie rental on time. He found it frustrating that he had to go to a store not just to rent a film, but also to return it. Reed Hastings considered testing a concept of mailing VHS video cassettes but deemed them too bulky. Then he looked into the mailing of DVDs and tested the idea by mailing himself a handful of compact discs to see if they came through unscathed. They all came through undamaged.

Meanwhile, Ted Sarandos had transitioned into a sales executive position for the pioneering video-rental wholesaler ETD (East Texas Distribution). One day, ETD’s biggest client Blockbuster, then headed by a former Walmart executive (Bill Fields), decided to stop using wholesalers and buy films directly from the studios instead.

I don’t know much about movies, but I know supply chains. I don’t need you anymore.

Blockbuster’s Bill Fields delivers harsh words to Ted Sarandos

At the time, Blockbuster represented two thirds of ETD’s revenues and Mr. Sarandos made it clear it to our group that it was a pretty crappy day when Blockbuster disrupted the video-rental supply chain. The irony is, of course, that Mr. Sarandos, after quite some insistence by Reed Hastings, eventually would move on and become the Chief Content Officer at Netflix, the company that in turn disrupted Blockbuster. As Netflix further streamlined the video rental distribution business, Blockbuster was hurt as Netflix obviated the need for bricks-and-mortar video rental stores.

Moore’s Law and Streaming vs DVDs

According to Ted Sarandos, Reed Hastings saw very early on that it was inevitable that entertainment ultimately would be streamed via the Internet. However, in the early days, it was still a very costly thing to do and also inconvenient and time-consuming to download movies via slow Internet connections. For the first decade, it simply made much more sense to just ship a DVD-by-mail to effectively deliver all those Gigabytes.

Yet, Mr Hastings had plotted out the expenses of delivering Gigabytes via the Internet vs regular mail and predicted that while the postage rate would increase only nominally, the cost to deliver data online would follow Moore’s Law and be halved every two years. Around year 2000 when Ted Sarandos joined Netflix, Mr Hastings predicted that by year 2011, the postal vs streaming economics would tilt in favor of transitioning over to streaming entertainment.

With a smile, Ted confirmed that he knew my friends Yury and Kate. My former colleague Kate Karniouchina taught marketing at the Argyros School and also joined me in 2012 as my faculty companion during our Chapman Argyros MBA/MS travel course Business in Scandinavia. When I met Kate’s husband Yury, he was very busy working at Netflix with its migration from their own data centers to the cloud provided by Amazon Web Services (AWS).

Apparently, it took them a full seven years of hard work to finally be able to shut down the last Netflix data center in 2016 as they had completed the transition to a cloud-native streaming service rebuilt from the ground up. Read more about that project here in case you wonder how Yury Izrailevsky as the Netflix VP of Cloud Computing and Platform Engineering helped build a global entertainment giant so that a quarter billion people worldwide can be entertained without hiccups. Impressive work but at least I beat him in tennis… I also shared with Ted Sarandos how Yury in 2012 asked about the top DVD streaming services in Sweden. Therefore, it was no big surprise to me when Netflix a few months later entered the Nordic countries with an almost immediate impact.

The Quickster Fiasco

In 2011, Netflix found that Reed Hastings had been on the mark and that it was time to invest all their energy into streaming entertainment. At the same time, they decided to separate the film mailing business into its separate brand called Quickster.

Ted Sarandos still holds onto the belief that it was the right move to go all in on streaming at that time as they also predicted that competitors would move in that direction before long. Still, he admitted that the transition had been poorly communicated. They faced a rebellion of upset customers who had developed a close emotional connection to the brand and learned to love the red envelopes being mailed to them. It was simply still a good customer experience that we enjoyed ourselves at home, it was quite a happy feeling to get those red envelopes in the mail! Not saying that I would like to go back to DVD-by-mail but there is something to be said for the delayed gratification and the anticipation that builds up over a few days as a film is on its way to you. And Ted said that the DVD-by-mail service is still available. Anyway, at the time, people really hated the new name of Quickster and it even got mocked on Saturday Night Live.

The Netflix Algorithm and Diversity of Selection

Ted Sarandos also discussed the impressive algorithm Netflix uses to recommend films and shows to watch. Specifically, he suggested that the primary value of the algorithm would be to predict the value people would get out of watching different films from the vast and diverse selection of Netflix.

The algorithm can help diversify our consumption to discover things that we wouldn’t otherwise have found because we are led based on our preferences and previous behavior. Specifically, Ted Sarandos emphasized how valuable and revolutionary the algorithm was in helping people find more narrow films that suits them well, something that was very difficult to achieve in earlier eras.

He reflected on his years growing up in Phoenix, for example, that in spite of being a relatively large city, still would have only one minor movie theatre that would bring in more odd materials such as “best foreign films”. All the others would only show some mainstream “blockbusters” that represented the safer bets by movie studios and for which they would invest their promotional budgets.

In spite of the power of the algorithm, Ted Sarandos didn’t expect that you could go the other way around and use the algorithm to reverse-engineer to develop new successful, creative concepts. In his book, the creative side will remain the domain of creative human beings such as scriptwriters and directors.

HBO Triggers Original Content Move by Netflix’

HBO was another story. Ted Sarandos shared that Netflix tried to license the rights to popular series Six Feet Under from HBO. The price that HBO set was so shockingly high so they started scratching their heads at Netflix. It seemed as if HBO simply didn’t want anyone else to show this series at all as they were so fiercely protective of their exclusive intellectual property.

Netflix started wondering if this was only a precursor of what was to come in licensing materials from others as well. Maybe it was a smart business move to own your content? And maybe Netflix should do the same?

We should have our own original content.

• Ted Sarandos shares how HBO spurred them in original content direction

The prediction was also that more and more studios would start their own streaming service sooner or later as they would also see that it made more and more economic sense year by year. And without its own original content, HBO may not be the only showstopper. Maybe Disney will do the same. Maybe others will follow.

So with this high price tag by HBO in its offer to Netflix, they didn’t manage to bury Netflix with Six Feet Under. By contrast, that very move seems to have expedited the sense of urgency at Netflix in going all-in on original programming. The move that now is heralded as a key reason behind the stratospheric success of Netflix to make them into the dominant streaming entertainment juggernaut that they are today.

No NFL Football on Netflix

Ted Sarandos addressed the option of live entertainment on Netflix and he pointed out that they have an upcoming live comedy show with Chris Rock. However, it was unlikely that Netflix would move into live sports. The rights to popular live sporting events have simply reached unreasonable heights. The reason for this is that networks bidding for these events consider live sports as a loss leader to have viewers discover their other programming. With 250 million paying subscribers, Netflix doesn’t see the need to invest heavily in awareness creation and discoverability. That’s why you are unlikely to see live NFL football on Netflix anytime soon.

Chapman Minor in The Business of Entertainment

Obviously fantastic for Chapman to have supporters such as Mr. Sarandos which can help create new opportunities down the road. Chapman University is also launching a minor in The Business of Entertainment. This is one manifestation of the increased collaboration with between top-ranked film school Dodge College of Film & Media Arts headed by Dean Stephen Galloway and the Argyros School of Business and Economics with Dean Henrik Cronqvist.