Tyler Perry and Netflix's Ted Sarandos: Amplify the untapped audience

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1:46My father was a subcontractor and he built houses. He would come home every week and he'd make$800. But I'd watch the man who owned the house sell it for$80 ,000. I always wanted to be the man who owned the house.

2:03If this doesn't work, we will have terribly overpaid for one title on Netflix. But if it does work, we could fundamentally change the direction of the business.

2:19Those are the voices of entertainment giant Tyler Perry and Netflix co-CEO Ted Sarandos. I'm Reid Hoffman, partner at Greylock, co-founder of LinkedIn and host of Masters of Scale. And we have a very special episode for you today, all about cultural impact. I had the pleasure not long ago of sitting down and speaking with Tyler and Ted, both of whom are extraordinary scale leaders. Each has helped create enormously successful businesses and in the process redefined our culture. For Ted Sarandos, the journey to on-demand movie streaming began as a video store clerk, where his recommendation algorithm came from his own movie watching.

2:58As he said, Tyler Perry's quest to tell stories to people who look like him now includes the largest film production studio in the United States. Our conversation, which took place live at the Masters of Scale Summit in San Francisco, illuminates key lessons of scale and the broad impact that entrepreneurship can have. It's also about seeing beyond conventional wisdom, learning from your team, and expanding your customer base. Tyler and Ted have done more than tap into culture. They have each, in their own way, helped create new trends that have redefined it. Stay tuned for my conversation with Ted Sarandos and Tyler Perry.

3:49Please welcome to the Masters of Scale stage, Netflix co-CEO and Chief Content Officer Ted Sarandos, actor, director, and producer Tyler Perry, and our own pioneer in residence, Reid Hoffman.

4:13So thank you so much for joining us. One of the things that both of you have done in building amazing institutions, amazing products, influenced and made cultural zeitgeists. Say a little bit about why it is that cultural impact, that cultural creation, that cultural participation is part of what motivates you and your teams. And Tyler, why don't we start with you? Well, for me, I didn't enter the business thinking zeitgeist. What I wanted to do was establish, just tell stories that people who came from where I came from, who looked like me and felt like me wanted to see. And I found myself on stage performing live performances, 300 plus a year to 30 ,000 people from the beginning of my career where there were 30 people in the audience to 30 ,000 every week.

5:04And realizing that as I'm doing this, there's such a hunger and a need and I'm exhausting myself and trying to go from city to city all across the country to meet so many people. So there comes the pivot to television and film. But for me, it was about recognizing the need that the hunger for the story. And I think that with a lot of audiences and a lot of businesses, if you could recognize the need, if you could recognize the hunger for what your audience or customers are looking for, that heads it straight on the right direction. Yeah, and I was just saying, I don't think you can do Zeitgeist on purpose.

5:39I think it's one of those things that comes from great storytelling that's authentic and true and real to the folks you're trying to talk to. It could be an enormous population or it could be a rather small population. It's just getting into what people love starts with doing it well and doing it authentic and doing it real. Maybe I would be corrected by TikTok, but I don't think you can make a viral video on purpose. You get set out to make a viral video and make it connect. People can see right through it. So I do think that the storytelling has to be real and authentic. And this has always been true of mass media.

6:06People want to talk about it. I remember hearing Ron Howard talk about the drive home test when you see a movie. And then even if you really enjoy it, all the plot holes have got to be fixed so that when you're driving home, you don't go, hey, that doesn't make any sense. And if you do it all well, people not only want to see it over and over again, they take great pride in helping you discover it too. It's a quality test more than anything else. Both of you saw the original, the Hollywood system that existed and realized there were huge gaps, huge needs. The game could be played so much differently.

6:35What was that gap that you saw and then how did you build, evolve, pivot into it? For me, just being on stage, my audience was to research. There were no formal algorithms. I didn't have a TikTok brain. You know, I was just trying to gauge it. But if I told a joke and the audience laughed, I'm like, okay, great, that works. If I told the joke and it went too far, I'd hear a rumble in the audience. So they were all educating me all along the way on everything that I was learning on stage. So as I moved into television and film and understanding that there was such a need for not only representation of people of color, just so that people could see themselves on television, It's so important that our children would see black faces.

7:17I grew up seeing very few black people on television. And the exposure and the amount of seeing people do well and having a clear understanding of what that meant to me, I wanted to be able to do that for other people. So as I was going into film and television and growing my business in that sense, I was keeping all of that in mind, that it wasn't just about the stories that people were resonating and relating to. You know, I was talking about faith, family and tragedy and things that they're universal things, but in very specific ways to my audience. So it was about that, but it was also about the understanding of all of us being one, one unit, one system, one culture dealing with very common issues.

7:58and it was also just the most educational thing for me in the understanding of, I didn't go to college, but I could pay for everybody's college in this room 10 times and the mistakes that, hold on, hold on. Let me finish my thought, let me finish my thought. In the mistakes that I made. They thought it was an offer. That's right, that's right, that's right, that's right. That's right, yeah. Yeah, for me, I've learned everything that I use today at Netflix working in a video store. You got to tell that. Working in a video store, how working, something like a blockbuster, right? So you work in a video store.

8:37Pre-blockbuster, 83 or something, 84. You had a mullet and you smoked a lot of pop. I told you, I have beautiful feathered hair. Beautiful feathered hair. Long feathered hair. Okay, great.

8:51New TikTok, feathered hair. Let's do it. But this store, there was some serendipity in my life, which is that we grew up pretty poor. We barely kept the lights, the water, and the gas on at the same time, and never the phone. So it was weird that my mom, who was never very good with money, bought a VCR before anyone I knew had a VCR. We had no use for a VCR. Like I said, half the time the power was off. But my mom, whatever it was, she saw something in me that I didn't yet. And again, by complete luck, the second video store in the state of Arizona opened up a block from my house. So I would walk over, and we'd talk to the owner all the time, and he was this fascinating guy.

9:26was an ex-air traffic controller in Chicago Air Airport who hated his job for obvious reasons, a very high-pressure job, and he's a very mellow dude. And he had read in a magazine somewhere that the big business opportunities of the 80s would be yogurt shops and video stores. And he said, I hate yogurt and I love movies. So he cashed in all of his money, moved to Phoenix, opened a little video store, had about 900 tapes on the shelf. And I was born. I walked in there. I would spend all my free time back and forth in there. It became my part-time job was working in this store. It could just be you just accept everything as the status quo.

9:57But I was curious about why it was things did and didn't work. I was getting into this situation where I had obscure taste for a kid from Phoenix. So I knew that there was a John Sayles. I knew there was a Spike Lee. And those movies did not exist in Arizona. If they did at all, it was for one week at one theater called the Valley Art Theater that I would have to take a bus, you know, an hour to go see this movie. And it was there for four or five days and gone. And then literally gone from the culture. I thought, wow, this is the calling of the video store, is to put these art film and documentary and foreign language film and smaller films to a broad public.

10:29And I struggled to understand why they didn't work everywhere. These movies were great. For me, I saw Spike Lee's She's Gotta Have It the first time. And I remember thinking, what is this? It's in black and white, and sometimes the music's louder than the dialogue, and they walk, but their feet don't touch the ground. But it was really an awakening of what cinema could be. I was confused when I saw it, but go ahead. You know. It's part of the zeitgeist. It's part of the zeitgeist. That's right. That's right. And so I thought, well, why doesn't this work? And it turns out that those movies are great.

10:56And there are plenty of people who like them, just not enough in the five-mile radius that our store served. So the trade radius of that video store, there just wasn't enough people who were open to that kind of entertainment. So the stuff that works was pretty mainstream. So basically, if you had back then, a video to rent cost about$100 to put on the shelf. And we always had more movies than budget. so you had to pick what to program, and those movies got pushed by the side because it was easy not to put them on the shelf. But I figured out the bigger the trade rate is, the more likely you can make that stuff work.

11:23So little niches can be big businesses if there's enough people to serve. So the reason why these art films and foreign language films, and they work well in New York and L.A., is just the population density. But I joined Netflix back in the early, 1999, when I first met Reed Hastings, and I joined in the early 2000s, so 22 years ago. We were just mailing DVDs around, but it solved the trade radius. problem. We had one inventory that we mailed all over the country. So you could serve every taste. There was a real business in these movies and people, if they had the opportunity to choose them and find them, they want them.

11:54They just were never served to them because they maybe didn't live in a dense enough neighborhood. So I worked behind the counter and I had a weird sense of memory, but now my memory is almost shot. But when people come in and say, I like this, or I didn't like this, I would kind of tick, tick, tick. And I figured out, okay, well, if you like movies like this, you're going to like this one. Cause I remember these and the stores are empty all day, so you watch everything. So I really did have a good database, I guess. But it was more nuanced than algorithms are now in a way, because you could say easily that if you like Pulp Fiction, you probably would like Rashomon.

12:23But everyone who likes Rashomon doesn't like Pulp Fiction and vice versa. But you get a sense of people like this, don't like this, but that doesn't scale much of me behind the counter. So to me, like all those things all started behind that video store. We still today, it's all about consumer science and taste-based algorithm and scaling. How do you budget? How much to spend on a product? Because understanding what the potential size of the audience is, all those things I learned in the video stores. We kind of perfected in the old national DVD business, which prepared us for where we are today.

12:51So Tyler, when you started seeing this massive trade radius from Netflix, what did that make you think and see for what kinds of projects that there was such a gap in the culture that you could start doing and you could start partnering? And then how did you guys start working together? Well, the first thing is, as I was always told by other companies that movies with black stars are black people don't trade internationally. They don't travel internationally. They don't do very well. I remember Will Smith invited me to tour with him when he was doing Seven Pounds. And I went over with him and went to all these different countries.

13:28He's like, Tyler, these countries are small. They're smaller than Texas. You've just got to go in and work every market. I was like, OK, great. I'm going to do that. Go back. And I'm excited. They're like, well, we can go here. We go to Italy and I'll work it. And they're like, no, no, black people, meh. So immediately upon the release of my first film with Netflix was Fall From Grace. And then the Madea one that we did, watching it be number one in so many countries blew my mind. I'm like, wow. So all of this information that had been told to me to all of these years had been wrong. And it was just nobody would invest in it or scale up to it.

14:00So to have Netflix as the wind in my back for that, And even for a Jazzman movie that we just released, which was a total pivot for me, it was really exciting to have a company that gets it and understands it. Also has all the information and the data that can tell you, hey, this is where you over-index here. Look at this country. Look at that country. Look at that country. Like, oh, I've got to get some visiting going on. So it's really been amazing to have that wind at my back for sure. Let's stop a minute at Jazzman Blues because this is a very special project. Thank you. Thank you. This has been an idea for a while.

14:33This has been in a long birth process. Say a little bit about it. Yeah, I wrote it in 1995 after I couldn't afford to go to theater. So I would always sneak in at intermission. That's why people would tell me all my movies all seem like one act because I would only see the second act. But I got a chance to meet August Wilson after one of his plays. I think it was Two Trains Running. And I was telling him about the show that I had done and how people were saying it's Chitlin Circuit, which is a circuit where black people traveled when they couldn't get into white establishments during Jim Crow.

15:02and it wasn't as highbrow or sophisticated as other things. So I was telling him that and he encouraged me to just go home and write what's in my heart. And I went home and I started writing Jazzman that very night. And that was in 1995. Took 27 years to get made and wouldn't have gotten made without this guy and everybody Netflix. So that was a full dream come true for me because it's a period piece. It's set in the forties. It's a departure from the way I shot it to the whole story. And I needed the support of someone like a Netflix who has all of those algorithms to say, this is where we think this is a work, this is how it's going to do, and this is what we know the audience will love about it.

15:39So having a company with all of that information at the touch of a button is really great because I got my information from grandma on the street. I was like, what'd you think of the movie? Oh, baby, you need to work on that a little bit. But to have all that information is very helpful. Very helpful. I think it just goes to the conventional wisdom is often wrong, but it is incredibly powerful. And it usually comes down to somebody said it a long time ago and nobody challenged it. I had a funny unrelated story, but Tony Bennett, I'm a big fan and friend of Tony's. And 10 years ago, he did a show in Paris and my wife and I went to the show.

16:17And after the show, I said, oh, I'm surprised that I thought that Tony Bennett would be a huge draw in France. And I talked to him after the show and he said, this is the first time I've ever performed in Paris. And I said, what? And he goes, yeah, in the sixties, the record label told me I was an American act. So they never booked me and sold me or promoted me outside of the U.S. and I never saw them. It was 10 years ago. Yeah, just 10 years ago, which even speaks to theaters. There are a lot of theaters in certain different parts of the country that when you talk about those movies, like Spike Lee movies that go there for five days and gone, and you had to take a bus to see it.

16:45Like a lot of my movies wouldn't play in certain theaters because they didn't want to attract the audience that I attract to those neighborhoods. So it was always a challenge and I was dealing with so many things. So again, to have Netflix and streaming, It's, oh yeah, oh yeah. Because trade radius and it's direct to the people. Yes, exactly, yeah. This is Mike Nicholas, Capital One business customer and co-founder of Ansett Uncles, a plant-based restaurant and community space in Brooklyn, New York. And he's telling us how they started a product line. We already had a space in the community. The food was an extension of our lifestyle and our values.

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19:00Their podcast brings you inside the pivotal decisions that defined some of today's most influential companies, like Stripe, Klarna, Zipline, and Supercell. Tune into Sequoia's new season of Crucible Moments to discover how some of the most transformational companies of the modern era were built. Crucible Moments is available everywhere you get your podcasts and at cruciblemoments.com. Go listen to Crucible Moments today. Before the break, we heard Netflix's Ted Sarandos and Tyler Perry talk about defying conventional wisdom as they each remade the entertainment industry zeitgeist in different ways.

19:40Now, Ted shares two crossover moments in Netflix's growth, and Tyler talks about how he used a non-Hollywood approach to jumpstart more diverse talent. Together, they provide inspiration for what's possible when you build a new ecosystem with deep cultural impact. Note, the Reid we're talking about in this next clip is Reid Hastings, co-founder of Netflix and a previous guest on Masters of Scale. One of the other things that Ted, you and Netflix and Reid all really surprised, I think, Silicon Valley with was, oh, we're going to do original content. And we're like, oh, we're tech. Parash, you're tech people.

20:16That's the original content thing. That's not going to work. So say a little bit about the genesis of it. And then what are the insights bringing to it that allow such amazing things as Jasmine's Blue? My son would get a big kick out of me being called the tech person, by the way. I hate to break it to you. Exactly. But I will tell you, back then we had built a business. I met Reed in 1999 and he had this audacious statement, which was someday the internet's going to get so fast and so cheap that all filmed entertainment is going to come into the home on the internet. This was in October of 1999.

20:47And at that time, zero entertainment was being put into the home on the internet. And it seemed pretty implausible at the time. Because of dial-up. Yeah, exactly. Someone emailed me a video clip, took me a week to open it up. That's right. But that was it. That was it. But that was the vision from the beginning. We used to keep this graph of the cost of postage to mail the DVDs around and the cost the bandwidth and they were going like this. And we said, as soon as they get right there, as soon as they cross, that's when we're going to start streaming. And if we stream any sooner, we'll waste money because no one will be able to watch it.

21:16And if we wait too long, someone's going to beat us to it. So that was the big crossover point that we had. And we had to license content to stream. It was just junk that the studios hadn't otherwise sold. No one understood what the digital right was yet at that time. So we started little by little getting better and better. We gave it away for free if you got the DVD service. And we figured someday the streaming will be good enough that we'll be able to break it out. And we did this deal with Starz where we got Disney and Sony movies in and we got this weird loophole in the pay TV licensing where you could get foreign language film, documentaries, they were all exempt from the pay TV deals.

21:49So if you had HBO had the Warner Brothers deal and Warner put out a foreign film, I could buy it. So the first time we did it, it was La Vie en Rose, amazing movie. Pan's Labyrinth from Guillermo del Toro. All these movies were passed on otherwise by the studios. I'm seeing the video clerk. You feel it? You feel it? So for us, it kept getting better and better. And everyone's talking about it, saying, look, the more people watch, the longer they stay. They tell a friend. So we need a lot of content. And I said to Reed, at some point, if we're right about this thesis, all these places that are selling us their content will not sell us their content anymore because they're going to compete with us.