Dropout CEO Sam Reich on the business of subscription comedy

28:33I think it'd be very hard for Dropout to work if we hadn't imploded the advertiser-supported part of our business. Yeah, you just kicked it off. You were like, I don't need this. Yeah, it was basically like, I can't run an ad business. I'd be no good at it. I'm, in a lot of ways, like a terrible salesperson. Sure. So that just wasn't in the cards. You can sell things. I just don't think that you want to sell that particular thing. Sure. Hey, thanks, man. We know this is there. Yeah. You are, on the other hand, a very good salesman. I have so many socks because of you and I love them all. Ah, I love that.

29:18So what you're saying is the vast majority or, you know, the biggest hunk of the people who are subscribed to Dropout came in because they saw clips and then they saw another clip and then they saw another clip and they're like, fine, I got to watch this. And where is this? I'll find it. The vast majority of people. So I think 10 % of our subscribers right now come in through paid. Oh, okay. So you do, you just sort of like run the best clips? Yeah, we do. We do. We sort of use the organic social performance to like clue us into what clips we should amplify. And I think that's helped us out through low periods.

29:56even that is is you're using the clip you're just like you're going you're moving from organic to paid yes so that's that's really the thing and and i do you ever like i know that you did like dungeons and drag queens where there were some new there was like new talent bring to the platform these people have fans maybe those fans are going to sign up has that also been effective Oh, for sure. For sure. I mean, you could argue that we are certainly like using the content to market itself, but there's all sorts of ways that we're doing that. So casting and stunt casting is certainly one of them.

30:35And Dungeons and Drag Queens was huge for us. Great. Interesting. Are the shows that have the most audience the most responsible for signups? I would say so. Yeah, a bit of a self-fulfilling prophecy there where it's like the most popular shows, the most watched on the platform tend to have the biggest social channels tend also to drive the most viewers. Yeah. So what are those? I mean, no show that's currently on the platform doesn't have its own hardcore dedicated audience. You know, if a show isn't collecting audience. That's a problem because you can't cancel anything, Sam. Yeah, I mean, we have not exactly formally canceled, but we have sort of paused production, sideline, put on the back burner shows that didn't collect audience as well.

31:28The most popular shows on the platform are Dimension 20 and Game Changer. And then the second most popular shows on the platform are some combination of Smarty Pants, Very Important People, and Make Some Noise. That makes sense to me. We have to take another short break here. We'll be back in just a minute.

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34:37Welcome back. This is Hank Green talking with my friend and Dropout CEO, Sam Reich. We were just talking about what's popular on Dropout and how it got that way. And that gave me a chance to ask how they make it and what else might go on the platform. Have you ever considered putting stuff on that you didn't produce? So right now, everything on the platform is CollegeHumor or Dropout produced. For sure. For sure. We have. We are. I think the reason why it's tricky is because we consider social marketing to be a big differentiator in terms of how we do things. And if we were to go license a mainstream show, there's no way that they would allow us to power their social channels.

35:23Yes. So there is no point to us doing that unless we get to do that. Weird. That's such a specific reason to not do that that I would not have imagined. I mean, okay, the other reasons are out there too, right? Like, if we just license anything under the sun, does it dilute the brand? We're not trying to be a utility. We're trying to be more of a brand play. But I would say that we are interested in potentially hosting content on the platform that we could power at social content. And so we are having some of those conversations because we think it'll be an interesting experiment. But we're being very, very, very choosy about it, obviously.

36:07Gotcha. How many people are at Dropout right now? we are 40 ish uh-huh uh on a full-time basis but that really doesn't account for so many people who are such major contributors to what we do right yeah uh because there are so many contract players involved the crew side on the talent side yeah and you and and like you know those people do feel a lot like part of the team especially because like in terms of like dropout kind of cast members those people are mostly not employees they are kind of the the folk that people imagine when they imagine what dropout is like there's just for sure sort of a bunch of recurring comedians who come in and and are seen as dropout the dropout family by the audience for sure people like are contractors but are also something more it feels like definitely and which is why by the way, profit share, which is why, by the way, like so many of the things that we do, we bend over backwards to make working at Dropout a positive experience for folks.

37:12I think that, you know, Hollywood is a system where people are used to this and expect this to a degree. There are all sorts of inherent sort of benefits and drawbacks to the full-time equation. Like, we did have full-time talent for a long time. The benefit there is security for both of us, right? Like we know that we have people that we can turn to and they know that they have that amount of job security. And then the downsides are that we have to make use of those people and only those people because we have to derive that amount of value from them. So it means that the pool gets smaller. And then the downside for them is that they can't explore other opportunities that might pop up as a result of their employment with us.

38:01you know there's also like i mean this is a big this has been a weakness of a lot of youtube companies uh buzzfeed is the best example where you have employees and then they get a really popular show and then they're being paid as an employee but their show is making the the company a bunch of money and they're not being paid as talent and so like you know if seinfeld gets popular jerry seinfeld gets paid more but if uh you know the try guys get popular how do the try guys like get to negotiate like a three times higher salary this year it's sort of not how business works and so the try guys start to feel pretty uncomfortable being part of buzzfeed and maybe want to go do their own thing and this this from the very beginning of youtube a big problem and i feel like this model of just like listening to how hollywood has worked in the past actually makes sense in this case where it's like okay well you're gonna come and you're gonna do this show this season and the next season if the show did really well like your agent's gonna have a conversation with us and we're going to be figuring out like and you're not going to like you're gonna be able to do a bunch of other stuff but like this is going to be a big part of your yearly income now because that show is popular because people really like it and you're creating a lot of value i don't know how much people know about exclusivity but i think this stuff is so interesting where it's like if you are signing up to participate in a project let's say apple tv comes and wants for you to be in their show you will sign a contract with apple tv that's like you are committed to x number of episodes over a wide period of time.

39:30You're usually signing up for multiple seasons. But as a part of that contract is like, you can't do other things, usually in that category, which is to say like, you can't do other streamers shows, for instance, without Apple's permission. But then imagine for a moment that Apple takes a long time to pick up a second season of your show. And then those times are built into your contract. So maybe it takes them like nine months to pick up another season of your show. For that nine months, you are not allowed to do other streaming things, which is a huge... You just gotta learn to juggle or something.

40:07What are you doing? What do you do? What do you do? You just gotta stay in shape too, because they need you to look the same. You know? And it's like, nine months went by, man. I'm a different guy. Yeah, for sure. Keep your hair the same length. Keep your nails the same length, you know? Yeah. Don't... I mean, it's... So that's tough. Exclusivity is really tough for folks who are grateful to be working with this business in this business at all. And so very little negotiating room. So like our attitude about it is if we were not accommodating of people's other work, we would simply be forcing them to make a choice between us and the other work, whatever it is.

40:49So the fact that we don't ask for exclusivity of any kind means that Lou Wilson can work with us because otherwise he is full time at Jimmy Kimmel Live. Right. You know? Oh, yeah. Interesting. We are trying to position ourselves as everyone's favorite second job, unless they don't have a first job, in which case, you know, they are very, you know, happy to be working with. We want for them to be very happy to be working with us, even so. I mean, you're getting a reputation for this, for being like pioneering the more creative ways of doing things, being more worker friendly to everybody from PAs to talent and everything in between.

41:34And, you know, profit sharing for contractors is like for talent. It's not usually how things work, though. Like there's like residual systems, like various ways of doing this. But like I've never heard of anybody doing like a straight profit share. it uh why do that i guess why and also like why is it hard like is it is it hard is the reason that other people don't do it because it's hard or is the reason because like they don't have to i don't think it's hard i don't think what we're doing is that hard say nothing about our brilliant finance team who does it but like specifically the reason we're doing profit share and like not i don't mean like it's logistically hard to cut the checks i mean it's hard to make the business model work.

42:17I think it is kind of hard to cut the checks. Yeah. I feel like Paramount can figure that out. I think royalties are harder. Yeah. For sure, royalties are harder. Which is why we do profit share, because it's like a much simpler for us from an admin standpoint. I think that other companies don't do this because it is not standard and because they can get away with not, but the big one is probably this, which is that they have people that they need to satisfy a whole category of people. They need to satisfy who we don't have because they broke the company. They ascended twa. They made that critical error going up from twa.

43:08And right there, number four, number five, number six, depending on the company is the shareholders and that means yeah like there are people like basically by hoarding money you are satisfying someone yeah right which like we don't have there's no one to satisfy well i mean iac theoretically are they theoretically they never come knocking and say like man you could turn this into a big a big boy now come come and show us the success iac theoretically uh me theoretically right yeah yeah brennan is also a partner in the company brennan theoretically i've tried to invest but you will not take my money maybe i someday will hang um let me know and don't get me wrong like we're all making money right no one like when we say profit share we're not even talking about the whole profit yeah right some of that profit goes to me and to IAC.

44:04And of course, there's also operational funds. You're not going to zero out the bank account every year. Of course, of course. There's operational funds. There's play money. You know, we want to try new things. Yeah, try new things. So all that money is going all sorts of different places, but there are no shareholders to satisfy, which means us being more and more and more profitable every year is not necessarily our first priority. What is your first priority then what are you trying to do? What are you trying to do, Sam Reich? I don't know, man.

44:38I don't know, Hank. What do you think I should do? I don't know. That's a good point.

44:46You're in this same boat, more or less. I could really easily turn this around on you. I can tell you why I do it. Oh, please, give me one. Give me one. Oh, I mean, I feel a strong sense of obligation to the things that I have made and the people who I work with. I feel a strong sense of obligation to the audience. And I also am very rewarded by making things sometimes. Like, obviously, there are some parts of my job that I do purely because of the obligation. There are some parts of my job that I do because I get paid to do it. And there are some parts of my job that I do that, and this is like, you know, different amounts in every column and different activities.

45:26But sometimes I'm doing it because I just freaking love doing it. It's so fun. Yeah. That's interesting. I don't feel – I feel a little bit of a sense of obligation. I wouldn't say that's my primary driver. I think that I feel very aware and very grateful for the ability to create things under a unique set of circumstances where I don't have – I feel uniquely under the twa. uniquely lower than twa uh-huh and i think that's a very you got to hold on to that we're what we're learning yeah it's like a really the twa it's a really unique ecosystem to be a part of and i think it means that we can create some uniquely cool stuff and i love that like like Like giving birth to the stuff is my favorite part.

46:26I'm an art snob at the end of the day. I mean, I've been to the Edinburgh Fringe now like three years in a row. And this year. That's a nice thing to have be part of your job. Oh, totally. I mean, barely. You know what I mean? Yeah, I used to. You pulled some acts out of there. Yeah, yeah, yeah, for sure. Fringe, by the way, is like a very weird comedy festival that happens in Edinburgh. It's like weeks long and it's tiny rooms and it's just weird art happens. And I'm very jealous. I've never gotten to go. Oh, Hank, we got to go some year and I'll show you around. I'm waiting for my son to be old enough.

47:04Yeah, that's fair. They've got great kid stuff, too. They've got a whole kids programming component. All right. I know that. We're going. But I just love, you know, weird and unusual stuff. And when I think about like what I want to leave behind in the world, it's more of it. Okay. Love that. How do you make decisions? That's a decoder question. We got to ask that one. Yeah, I. There's a there's a terrific TED talk on decision making, which talks about how when you're faced with a difficult decision, it's usually because there's like pros and cons that feel roughly equivalent. to each other. And so it kind of doesn't matter.

47:49So like, just pick one. Just pick one. Ruth Chang, how to make hard choices. A lot of the important decisions, it's pretty clear what direction to go. And then with the difficult ones, you sort of have to decide what you're voting for, like what you're optimizing for. And so if you have your priorities in order, oftentimes the right decision will emerge. Meaning, again, hopefully our business is pretty simple. There are a lot of factors that we have to incorporate, and those factors are something in between the content itself, the experience of the audience, the welfare of the cast and crew, our financials, what's personally, creatively exciting to me.

48:34And if I have those roughly in the – they're not in that order. I don't exactly know what order they fall into off the top of my head. But if I have those in the right order, I can usually make the right decision. How do you imagine dropout in the media world right now? Do you even feel like you're a part of this industry? Or do you feel like you're kind of hanging off to the side? Do you feel like you worry about the industry broadly or are you just sort of like, that's not me? It's more that's not me. I mean, I do feel like I'm on a little bit of an island where I get to be sort of like, you know, the mad trickster king of my domain.

49:19Yeah. And I mean, like, it's very weird to be like, you know, for most streaming platforms like that have been launched by big companies to have a million subscribers would be a tremendous failure. and showing that that... It seems like a little bit, in terms of macro media ecosystem things, it seems like this is a totally inevitable thing and that it should have happened more already. Yeah, I completely agree. Where everything keeps fracturing, right? So, like, you know, more and more nichification of everything. And why wouldn't this happen to streaming platforms? And we haven't even talked about the fact that Vimeo enables this with a pretty low lift.

49:57So you use... I think a product called Vimeo OTT. That's correct, yeah. And so Vimeo basically lets you build a streaming platform and they have a version of it that all integrates with itself and it can be in the app stores and it can be on Roku and all the PS5 or wherever, you know? For sure. And that simplifies this process. And I think that what Vimeo is betting on there is that this nichification will occur. But I think when you look at the people who use that, it's a lot of like individual creators or people who have like a workout, like a thing, you know, they're like lifestyle influence type things.

50:40I think that maybe the RuPaul stream runs on it. Yeah. I think so. Criterion Collection. Oh, okay. Yeah. Mm-hmm. And it, yeah, it just feels like it would head in that direction and that the different, you know, segments would each get their own little world, which will, of course, continue to alienate us from each other because no one's watching the same things. It feels symptomatic of this world of content that we're living in. And so it's a fair question. Like, well, why not more? Yeah. And that's a good question. I kind of expected it. Like when Dropout first hit for me, I was like, oh, two years from now, everybody's going to have one of these things.

51:26And like that has not really happened. And people have tried to launch some that have been less successful. Yeah, sure, sure, sure. I mean, I do think that like, as is the case in the Internet, when you're browsing TikTok and you learn about someone with nine million subscribers or followers who you've never heard of before. there are plenty of examples in our industry of businesses that are just running a little bit under the radar that are doing very, very well. I think Nebula, for instance, is one of those businesses. And in the last couple of years, maybe a little bit inspired by us, maybe not, depending on the specific example.

52:05But Try Guys have launched their answer to this. Critical Role have launched their answer to this. But my hope is that there are more people that follow in our footsteps, because I think it's only better for Dropout if there are more examples that people can point to to say, I subscribe to this, you know, small collection of indie streamers. And I think it behooves us to have that group be larger because it means better resources for our business as well. You know, we depend on third-party technology in order to power Dropout. And, you know, if there aren't enough streamers to use Vimeo OTT or, you know.

52:51They're not going to keep supporting the product. Yeah, exactly. Do you ever regret using Vimeo OTT or like not building your own thing? No, we tried. People don't realize this. The first rendition of Dropout was built on Vimeo OTT's API, but it was our own product. And we employed something like eight sophisticated engineers at IAC to build our own product around it. And it was brutal, which is to say it's just very hard to do very well. And these were great engineers. um yeah what you're doing is in part running a company being a business person managing your direct reports i should ask how this is all structured how many direct reports do you have um technically i think i have like two or three oh something like that i i the what we decided pretty recently, like within the last year, is that I should have almost no direct reports, like basically just the C-suite, and then everyone else should fall under someone else.

54:06Okay. But that's pretty new. What are your departments? There is creative, burgeoning department. There is marketing. They make a lot of YouTube shorts at the marketing department? Uh-huh. There is, yes, and paid and email and everything else that falls into the world of marketing. There is tech, which is pretty small but does exist. There is production. There is programming, as it is independent from production, which are the folks who not only handle our content as it's related to, like, metadata, data, but also are responsible for maintaining our programming schedule and putting stuff up into the platform.

54:54Also, QC is a part of that department, meaning quality control. We have, for instance, one very talented person whose job it is simply to, this is not all they do, but it's a big part of what they do, to watch every episode to make sure that there are no glaring issues with it before it posts to the website, to the platform. I think that's about it with like one or two straggling design with with one or two straggling departments that like features like one person or two people. Yeah. There's the person who keeps the Dimension 20 lore book to make sure. Yes. Well, interestingly, Dimension 20 is kind of like its own department.

55:35OK. Yeah. Because it's such a big operation. And lately, Game Changer makes some noise have sort of become its own department as well. so so you you've got you're partially uh running this business trying to make all the all the things work and i i assume mediating when when people disagree with each other and doing all of that hr is new hr is new as of like the last like uh seven heads and then you you're also on-screen talent but i think there's another thing that uh and and creative and writing and all this, but there's another thing that you are that I think that this is not that unusual. Like there's always like a public facing role to a CEO, but beyond that, you really like, not only do you have a public facing role as the CEO and on screen talent and kind of founder, depending on how you want to count that, that, you know, you kind of embody what Dropout is trying to be and and and a strength and i think a potential problem is that you're trying to be a good guy while you do it like you're not carl icon uh you're not you know uh like ruthless businessman sure right you're like trying to do this the right way and one of the things my brother and i call this the perfect person problem that if you uh if you tell people you're trying to do do things well and you're trying to do things right then people will expect you to do it perfect and there's no such thing as perfect and and there's always things that you're balancing and how do you imagine and like uh and manage your own like public perception where you're where you want people to know that you really are trying to do things better but you also are not trying you also need to convey to people that you you will not be perfect i think like this is definitely a work in progress so i think that like the dropout audience speak in part because of i I mean, there's like a demographic thing here, but there's also, you know, they're responding to and signing up in part because of a halo here that you're helping to create by like doing things well.

57:41Their expectations are going to be high. Like you've got, you've got some like a high expectation crowd. And I've seen some examples where, you know, they feel as if you're not maybe living up to your values or something like that. Is that management, that reputational management, is that, do you see that as a big part of your job? And where do you, how do you imagine that? Yes and no. I mean, I think that like, when I say work in progress, I guess that applies not only to like this meta question, but also sort of like the way I look at Dropout in general, which is like perfect isn't impossible to achieve standard.

58:19And I try, at least when I'm out in the world, to really as much as possible convey that I am like a comedy person who inherited this thing, who is trying to do things novelly and experimentally, but that I don't even know as much about this kind of stuff as like Adam Conover does, as like part of my peers do. So when I say work in progress, I really mean that we are trying things and we will make mistakes. And what I'm specifically not doing on social media or anywhere else for that matter in conversations like this on panels is to portend as if Dropout or I have it all figured out that we are an exceptionally moral company or that we are an exceptionally idealistic company.

59:16Because I think that that tension between like running a company and being good to people inherently exists. So we are – what I've claimed to be the case, and I really do still think is the case, is like I consider myself a highly creative person. I'm trying to make content that's as like innovative and interesting and funny as possible. And I hope people hold us to that standard. And otherwise, I'm trying to like set maybe some new standards for decency. But I would underline that word. I am also, as you have coached me through a lot over the months and years, Hank, becoming quickly used to the fact that you can't please everybody and that, you know, you will have to make decisions that are unpopular sometimes.

1:00:05And that's okay. I actually, you know, some people, particularly entertainers, need to be liked by everybody. And I think some people worry about me in that way because they think that my affable nature means that I would really dislike being unpopular. And I am actually like totally okay if some people don't like me. is this part of growing up in a household where a lot of nasty things might have been said about your dad i honestly like you know uh nepotism i'm sure served me even ways that i'm not fully conscious of and like all sorts of ways but but one thing that is really useful is that my dad modeled fame for me so i do have someone like very close to me out there in the world who's also a public person who, by virtue of his job, deals with controversy at least three times a year, which does, it probably thickens my skin a little bit.

1:01:08Interesting. Is there on the list of reasons that you like this or want to do this? We talked about those before, but let's end here with this. Is on that list just that people aren't doing things weird enough and you want to do things weird? You want to like show that like. A hundred percent. You, you and I have connected a lot on the topic of Homestar Runner over the years. Homestar Runner may be like, like hugely responsible for my career taking the direction it has. Like it was incredibly influential on me. And something I loved about it was like, it felt like a walled garden of weird that existed at a URL.

1:01:50Like I could, and I think about how sometimes like. That resonates. I wish that I could plant a forest full of weird trees on the internet. I wish that the internet was still a place where just like there was really fun, mysterious, hopeful stuff that existed a URL away. I would hope that Dropout can just be one of those things. All right. Well, that feels right to me. And I hope that you keep doing it and I hope that people keep finding it and loving that weird. Being in a little place where a lot of strange things happen. Hank, you are also hugely responsible for and inspiring in the creation of weird stuff for the internet.

1:02:38You're also inspiring insofar as you just like are so prolific in terms of the amount that you do. Yeah, I do. If nothing else. But and also a lot else. so thank you for being there certainly is quantity

1:03:03but a sincere thank you for being both the friend and the inspiration that you are thanks a lot I appreciate coming on and chatting with me and getting into the weeds and the details here and someday we will find another podcast where we will just do bits I look forward to that day All right. Thanks, Sam. Thank you, man.

1:03:52wherever you get your podcasts. Decoder is a production of The Verge and is part of the Vox Media Podcast Network. The show is produced by Kate Cox and Nick Stat and edited by Ursa Wright. The Decoder music is by Breakmaster Cylinder. See you next time.