TYLER PERRY: My 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.

TED SARANDOS: If 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.

REID HOFFMAN: Those 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 re-defined 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.

As 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.

[THEME MUSIC]

LORI HOFFMAN: Please 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.

Focus on the craft, and the audience will find you

REID HOFFMAN: So, 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.

PERRY: 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, felt like me, wanted to see. And I found myself on stage performing live performances 300+ 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 and realizing that as I’m doing this, there’s such a hunger and a need and I’m exhausting myself in 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. I think that with a lot of audiences and a lot of businesses, if you can recognize the need, if you can recognize the hunger for what your audience or customers are looking for, that heads it straight on in the right direction, yeah.

SARANDOS: Yeah, and I was just going to say I don’t think you can do zeitgeist on purpose. I 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, and it 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 can’t set out to make a viral video and then 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. People want to talk about it. I remember hearing Ron Howard talk about the drive home test when you go 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.

Tyler Perry on creating for under-represented audiences

HOFFMAN: 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. 

What was that gap that you saw, and then how did you build, evolve, pivot into it?

PERRY: For me, just being on stage, my audience was the research. There were no formal algorithms. I didn’t have a TikTok brain. I was just trying to gauge it by if I told a joke and the audience laughed, I’m like, okay, great, that works. If I told a joke and it went too far, I’d hear a rumble in the audience. So they were all educating me all along the way in 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. I 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. I was talking about faith, family, and tragedy and things that are universal themes, 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 and 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 in the mistakes…Hold on. Hold on. Let me finish my thought. Let me finish my thought. In the mistakes that I made. In the mistakes that I made.

SARANDOS: They thought there was an offer.

PERRY: That’s right. That’s right. That’s right. That’s right. Yeah.

What Ted Sarandos learned from working at a video store

SARANDOS: Yeah, for me, I’ve learned everything that I use today at Netflix working in a video store.

PERRY: You got to tell that…working in a video store, how working at something like a Blockbuster, right? So you work at a video store-

SARANDOS: Pre-Blockbuster.

PERRY: Pre-Blockbuster.

SARANDOS: ’83 or something, ’84.

PERRY: You had a mullet, and you smoked a lot of pot.

SARANDOS: I told you I had beautiful feathered hair. Beautiful feathered hair—

PERRY: Feathered hair. Okay.

SARANDOS: Long, feathered hair.

PERRY: Okay, great. Feathered. New TikTok, feathered hair. Let’s do it.

SARANDOS: But this store…there was some serendipity in my life, which was 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 out, 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, who was an ex-air traffic controller at Chicago O’Hare Airport who hated his job, for obvious reasons. It was a very high pressure job and he’s a very mellow dude. 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, and 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 there. It became my part-time job working in this store. And it could just be you just accept everything as the status quo, but I was curious about why it was, things did and didn’t work. I was getting into this situation where I had obscure tastes for a kid from Phoenix. 

So I knew that there was a John Sayles, and I knew that 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 an hour to go see this movie. 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. I struggled to understand why they didn’t work everywhere. These movies were great. For me, when I saw Spike Lee’s She’s Got To 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 dialog and they walk, but their feet don’t touch the ground. It was really an awakening of what cinema could be.

PERRY: I was confused when I saw it, but go ahead. Go ahead.

HOFFMAN: It’s part of the zeitgeist.

PERRY: That’s right, zeitgeist. That’s right. That’s right. That’s right.

SARANDOS: So if I thought, well why doesn’t this work, and it turns out that those movies are great and 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 bucks 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. So 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 LA, is just the population density. When I joined Netflix back in early 1999 when I first met Reed Hastings, and I joined in early 2000. So 22 years ago, we were just mailing DVDs around, but it solved the trade radius problem.

HOFFMAN: Yes.

SARANDOS: 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. They 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’s almost shot, but when people come in and say, oh I liked 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 because I remember this. And the stores were empty all day, so you watch everything. So I really did have a good database I guess.

But there was more nuance than algorithms are now, in a way, because you could say easily that if you like Pulp Fiction, you probably would like Rashomon. But 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, a bunch of me behind the counter. So to me, 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 net national DVD business, which prepared us for where we are today.

“Conventional wisdom is often wrong”

HOFFMAN: So 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?

PERRY: Well, the first thing is as I… I was always told by other companies that movies with Black stars or 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. I went over with him and went to all these different countries. He said, “Tyler, these countries are small. They’re smaller than Texas. You’ve just got to go in and work every market.” I was like, “Okay great, I’m going to do that.” Go back and I’m excited like, “Well we could go here to, we’ll go to Italy and I’ll work it,” and they’re like, “No, no, Black people, eh.”

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 through all of these years had been wrong, and it was just, nobody would invest in it or scale up to it. So to have Netflix as the wind in my back for that, and even for a Jazzman, the 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 could tell you, hey, this is where you over index. Here, look at this country, look at that country, look at that country. I’m 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.

HOFFMAN: Let’s stop a minute at A Jazzman’s Blues because this is a very special project.

PERRY: Yeah, thank you. Thank you.

HOFFMAN: This has been an idea for a while. This has been a long birth process. Say a little bit about it.

How Tyler Perry created A Jazzman’s Blues

PERRY: Yeah, I wrote it in 1995 after I couldn’t afford to go to the 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 always 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, and it wasn’t as high brow 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. It took 27 years to get made and wouldn’t have gotten made without this guy and everybody at Netflix.

So that was a full dream come true for me because it’s a period piece. It’s set in the ’40s. It’s a departure just from the way I shot it to the whole story, and I needed the support of someone like a Netflix who has that…all of those algorithms to say this is where we think this will work, this is how it’s going to do, and this is what we know the audience will love about it. So having a company with all of that information at the touch of a button is really great because I got my information from, like, grandma on the street. I’m just like, “What you think of the movie?” “Oh baby, you need to work on that a little bit, you know?” But to have all that information is very helpful. Very helpful.

SARANDOS: 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.

PERRY: Yeah.

SARANDOS: I had a funny, unrelated story, but, Tony Bennett… I’m a big fan and friend of Tony’s. 10 years ago, he did a show in Paris, and my wife and I went to the show, and after the show I said, “Oh, I was surprised that I thought that Tony Bennett would be a huge draw in France.” I talked to him after the show and he said, “This is the first time I’ve ever performed in Paris.”

PERRY: Wow.

SARANDOS: I said, “What?” And he goes, “Yeah, in the ’60s, the record label told me I was an American act. So they never booked me or sold me or promoted me outside of the U.S. and I never…” So it was 10 years ago.

PERRY: Yeah, just 10 years ago, which even speaks to theaters. There are lot of theaters in certain different parts of the country that when you talk about those movies like Spike Lee movies that go out there for five days and gone, and you had to take a bus to see it, like 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.

HOFFMAN: Yeah, because trade radius, and it’s direct to the people.

PERRY: Yes. Yes.

SARANDOS: Yeah. Exactly, yeah.

[AD BREAK]

HOFFMAN: 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.

Now 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 Reed we’re talking about in this next clip is Reed Hastings, co-founder of Netflix, and a previous guest on Masters of Scale. 

Why Netflix leaned into being a “tech company”

HOFFMAN: One of the other things that, Ted, you and Netflix and Reed 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. You’re part of us. You’re tech people. This 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 allows such amazing things as Jazzman Blues?

SARANDOS: My son would get a big kick out of me being called the tech person, by the way. But the—

HOFFMAN: I hate to break it to you.

SARANDOS: Exactly. But I will tell you back then we had built the 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. And at that time, zero entertainment was being put into the home on the Internet, and it seemed pretty implausible at the time.

PERRY: Because of dial-up.

SARANDOS: Yeah, exactly. Yeah. Someone emailed me a video clip, took me a week to open it up.

PERRY: That’s right. That’s right.

SARANDOS: Then you watch it, 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 of bandwidth and they were going like this. 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. And 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 better. We got this weird loophole in the paid TV licensing where you could get foreign language film, documentaries, because they were all exempt from the paid TV deals. So 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.

HOFFMAN: I’m seeing the video clerk.

SARANDOS: You feel it? You feel it?

HOFFMAN: Yeah. Yeah. Yes.

Ted Sarandos on Netflix’s pivot toward original content

SARANDOS: 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 of these places that are selling us their content will not sell us their content anymore, because they’re going to compete with us.

And at the time, we were doing great. The business was running fine. And then we said, “We’ll do original content eventually.” And I said, “Look, this is something we’re going to have to get good at. And I don’t know exactly what the entry point is.” But we knew we had to do it — that if we waited too long, that we’d get beat.

HOFFMAN: And what were the very first things you did to start?

SARANDOS: Total opportunistic. The very first deal we did for an original show on Netflix was House of Cards. I thought if we’re going to do this, let’s not do it in a way that after it doesn’t work, we’d say, “Oh, we didn’t try hard enough. It wasn’t big enough, it wasn’t ambitious enough.” Let’s go all in on something that everybody wanted. So at that time, it was one of the more competitive pieces that was out there.

How do we compete with HBO and AMC and FX and everyone who was going after that show? We’d never created or released an original anything. Give them what for me was a bad deal and for them was a great deal.

So, we just went in and said, “I’ll give you two seasons. No notes. And the only thing we say is that you have to put your name on it.”

HOFFMAN: Uh-huh. Yep.

SARANDOS: And by the way, those names were David Fincher, who had never directed television before, Beau Willimon, who was nominated for an Oscar at that time. So the big risk for us was, I looked at the business. I looked at what would happen if it didn’t work. The risk reward analysis was if this doesn’t work, we will have terribly overpaid for one title on Netflix. We’re kind of at risk all the time of that. But if it does work, we could fundamentally change the direction of the business.

HOFFMAN: Yep.

SARANDOS: So that felt like a good switch.

PERRY: That’s really great. Can I just give an example of not pivoting?

HOFFMAN: Yes, of course.

PERRY: Blockbuster.

HOFFMAN: Yes, exactly.

PERRY: This is happening, and Blockbuster’s not pivoting. Can you imagine the CEO going, “Oh, we’re good. We don’t have to worry about that. Oh the Internet, streaming, it’s never going to happen.”? So yeah. Yeah.

SARANDOS: And then all that unconventional wisdom. The biggest show in the history of the world and the history of Netflix, is Squid Game, a Korean drama that caught fire around the world, mostly it’s because … how do you scale? Scale, scale. That’s the thing that keeps me up at night. How do you scale? For me, it’s a lot about distributed decision making. If we didn’t have an unbelievable team, led by Minyoung in Korea, who’s deep in the creative culture in Korea, knows those storytellers and knows that market, they would not have recognized what everyone else missed in Korea, which was that it was being pitched for about 12 years as a movie. Turned down by everybody in Korea. And our team recognized, “Oh, it’s just not a movie; it’s a TV show. And why don’t you take some time and go out and redevelop those scripts?” And he did, and came back. And it was an incredible phenomenon.

And this was in the world of, “People in America don’t want to watch subtitles and dubs.” And, “Nobody knows a Korean actor,” and all these things. And just defied everything, if the storytelling is true, and authentic, and great, and has some source of connection.

Why Tyler Perry focused on ownership

HOFFMAN: One of the things I love about the global trade radius, the bringing entrepreneurs from everywhere, is that then you can have this undiscovered gem. And this is one of the things that, for example, you in Atlanta go, “Well, I understand that Hollywood has all this network advantage. I am going to build this company here, and I’m going to take a different approach to ownership.” Describe that, because I think it’s a particularly important thing for people to understand how that plays.

PERRY: Well, my father was a subcontractor and he built houses. And he would come home every week, and he’d make $800. And everybody would be so happy he made $800. But I’d watch the man who owned the house sell it for $80,000, and I always wanted to be the man who owned the house. That ownership was always key to me. And in watching Oprah owning her talk show, I thought, “What does that mean to own it?” So as I started in the business, I knew ownership was going to be very, very important. Because everybody at one point was talking about, “Oscar’s so white. Oscar’s so white.” And while people were talking about, “Oscar’s so white” and trying to fight for a seat at the table, I was down in Atlanta building my own, because I didn’t want to be in a position of feeling like I have to fight when I have a huge audience that’s following me that love what I do. They’ll be my focus. And if I can make this strong enough and I can build the studio strong enough, and introduce as much diversity as I can, coming up through this portal in Atlanta, everybody will have to pay attention.

And to see so much diversity happening in Hollywood right now, and to see all these mandates of people getting opportunities and chances, I’m really, really excited. And I think a lot of that started with having to show and teach people how to do these jobs and know them well enough so that when it got into these Hollywood systems and onto these shows, they were ready to go and ready to build. So those things are very, very important to me — the ownership, the building this ecosystem, the giving people opportunities who never had chances to be in this business. And to watch them thrive has been really, really exciting for me.

HOFFMAN: Amen. Tyler and Ted. Thank you so much for joining us.

PERRY: My pleasure, thank you. Thank you Reid.

SARANDOS: Thank you. Thank you so much. Thanks Reid, it was great.

HOFFMAN: We hope you enjoyed this special episode about impacting culture and that you apply the lessons and mindset that Tyler Perry and Ted Sarandos express as you pursue your own entrepreneurial journey. Remember that when you see a gap in needs, in the marketplace, and when you can see a different way to play the game, that the change you can deliver can truly be transformational.

I’m Reid Hoffman. Thanks for listening.