Ryan Knudson (2:56)

Sarandos rose through the ranks and worked his way up from store clerk to regional distributor.

Joe Flint (3:01)

He's getting to know people and doing deals with studios to acquire content to put on the shelves. So in the course of doing that, he starts to get a little bit of a reputation as a sharp guy when it comes to doing these sorts of deals.

Ryan Knudson (3:17)

Sarandos eventually got on the radar of Reed Hastings, who was just a couple years into launching a mail order DVD company called Netflix. In 2000, Hastings hired Sarandos to oversee content acquisition. But soon Sarandos was thinking bigger as.

Joe Flint (3:33)

Netflix kind of began to move its business from mail DVDs to online. TED was a very early advocate that, hey, we will need to do original programming of our own. Basically, it will help us control our own destiny. The more content we can own, the better for the future of this business.

Ryan Knudson (3:54)

Here he is talking about this in a podcast a few months ago.

Ted Sarandos (3:57)

Because I said, in this world where we're going to be a digital channel, and I don't know of any network or that that is exists that doesn't have some form of original differentiating program from each other.

Ryan Knudson (4:13)

So Sarando set out to make some new TV shows. And the way he and Netflix approached Hollywood was totally different than the way things used to work. Historically, traditional studios paid directors, actors and movie producers less up front. And then if the show was popular, there was the promise of more money later on from reruns. Netflix flipped that on its head.

Joe Flint (4:35)

They would pay more up front. They'd say, joe, we love your show and we're gonna buy out whatever we think the back end, the rerun money will be. So we're gonna give you all this money up front. And in return, of course, the show's ours now. You know, we're going to keep it for ourselves. It's going to live on our system. We're never going to take it out anywhere else. You just got to trust us that we're giving you the value it is. And at first this was like. The town was like, ooh, this is awesome. This is awesome. I don't have to wait around for this money. I don't have to wait 20 years for reruns.

Ryan Knudson (5:03)

And here's a big fat check.

Joe Flint (5:04)

Here's a big fat check.

Ryan Knudson (5:07)

This is how Sarandos and Netflix were able to land their first big hit, the political drama House of Cards.

Joe Flint (5:12)

He chose money over power in this town. A mistake nearly everyone makes. So Netflix went out, you know, and famously went to David Fincher, who was shopping a American version of the TV show House of Cards with Kevin Spacey. Went to him and said, hey, we'll give you a two year commitment. We will guarantee You? Two years, you know, two seasons. No, you know, no pilot, no nothing. Here's the money. Make your show. Netflix became very creator friendly and part of it was out of necessity to get deals, and I think part of it was to give themselves a little bit of an edge over their competitors. And the town reacted to that. They liked that.

Ryan Knudson (6:02)

Netflix continued growing its original programming catalog with hit show after hit show. There was the gritty, character driven women's prison dramedy, Orange is the New Black.

Sponsor/Announcer (6:12)

Tell her he said thanks.

Joe Flint (6:13)

Don't say nothing.

Ryan Knudson (6:14)

I'm just working. Next, and the revival of the cult favorite sitcom, Arrested Development. Now the story of a family whose future was abruptly canceled. The supernatural, nostalgic coming of age drama Stranger Things.

Joe Flint (6:28)

Stop it. You're freaking her out. She's freaking me out. I bet she's deaf. So we talk about House of Cards, we talk about Orange is the New Black, we talk about Stranger Things, all these very expensive, high end dramas. But Netflix has to expand, of course, and Sarandos, one of the areas he really leaned into and is still leaning into, is stand up comedy, which of course had been HBO's bread and butter. And Netflix went out, they signed Chris Rock and Dave Chappelle and all these other big standups to huge deals. At a time when HBO was reassessing how much this genre was actually worth, Netflix thought, no, these specials are good. They build attention and publicity for us and we want to be in the comedy business.

Ryan Knudson (7:13)

After leading the charge on multiple hits, which helped bring in tons of subscribers to the platform, Sarandos was promoted to Co CEO in July 2020. And not long after taking the job, Sarandos faced one of his first controversies involving one of those comedians, Dave Chappelle.

Joe Flint (7:29)

One thing I think people respect Ted for, at least on the talent side of the business, is that he has shown a willingness to stand up for his talent. We saw that with Dave Chappelle a few years back. He did a standup special. He had jokes and commentary that upset the gender community. There was some upset at Netflix as well. There were protests outside Netflix. Netflix employees were upset. And Ted stood by. He didn't take the special off. He didn't issue any statements condemning what Chappelle said, but I think that sent a message.

Ryan Knudson (8:15)

So Netflix in its early days was wooing Hollywood, AKA the town. And you said that at first people there liked it. So how did they become a company that people started to fear?

Joe Flint (8:25)

Well, anytime you get big, you start to toss your muscle around. So Netflix grew, had tremendous success, grew a Lot of subscribers. And with that comes, you know, power. Because they were growing so fast and spending so much, they became kind of the one place you could come to do business. But at the same time, once you've sort of taken over the landscape, well, you don't spend as much. You know, you, you spend a ton of money to woo the, get the talent in there. But once you've got that, well, you don't have to spend as much money anymore.

Ryan Knudson (9:04)

Netflix also doesn't release much data about how many people are watching its shows, so it's hard to know what a show's market value actually is.

Joe Flint (9:12)

Some creators begin to wonder, but am I getting paid enough? Is this really fair? How do I really know how popular it is if we don't test the waters to sell the rerun somewhere? And Netflix is very cautious about the information they release in terms of who's viewing it? So I don't really know. Everyone's like, oh, wait a minute, maybe this wasn't so good for us after all.

Ryan Knudson (9:36)

The other thing that zerked Hollywood is how Sarandos has approached releasing new movies.

Joe Flint (9:41)

When Netflix got into movies, they made a big deal of not embracing the theatrical model. So that became a concern to a lot of sort of Hollywood purists, we'll call them, as well as the movie theater industry, of course. Oh, my God. You can't not put a movie in the theaters. Are you insane, man? Yes, they do release some movies theatrically, usually for award consideration or a big enough director has the clout to persuade Netflix to drop it in a theater for a couple weeks. But yeah, Ted's belief was, hey, people want to watch stuff at home, and we're about the customer first, okay? And the movie going experience. Yes, maybe it's great for some things, but most people would just as soon sit at home. So you know, that that was kind of a turnoff to a lot of old Hollywood.

Ryan Knudson (10:33)

All of this is why Hollywood was shaking in its boots when Netflix announced the deal to acquire Warner Brothers. Netflix has already transformed the industry, and by buying another major player, things are probably only going to change more. How has Ted Sarandos responded to all of these concerns in Hollywood?

Joe Flint (10:52)

Ted has said when he's asked that, are you guys ruining Hollywood? He will say, no, we're saving it.

Ryan Knudson (10:58)

The box office is down, the LA film business is shaky, people are out of work, your competitors market share is sinking, but Netflix business is thriving. Have you destroyed Hollywood?

Ted Sarandos (11:11)

No, we're saving Hollywood.

Ryan Knudson (11:12)

You're saving Hollywood.

Joe Flint (11:14)

They would tell you that they're spending a ton on content. How can we be ruining Hollywood? Look at how much money we invest in movies and TV shows. And we have a global system that reaches everyone. We believe in all this. We're not, you know, we're not here to ruin it. We're here to build it out and persevere and find even more of an audience and a new way to reach them.

Ryan Knudson (11:38)

But to actually get Warner, Sarandos has a couple fights ahead of him. That's next. Before Netflix can seal the deal for Warner Brothers, it has to do two things. First, it has to fend off a rival bidder, Paramount. Then it'll need to persuade regulators to approve the deal. Let's start with Paramount. The company has deep pockets behind it, those of Larry Ellison, one of the richest men in the world.

Joe Flint (12:18)

Paramount is still aggressively pursuing Warner. They are not taking no for an answer.

Sponsor/Announcer (12:25)

David Ellison, Paramount's CEO, says they are, quote, finishing what they started after making six total offers.

Joe Flint (12:31)

Paramount Skydance amending its $30 per share all cash offer for Warner Brothers discovery.

Sponsor/Announcer (12:38)

The Oracle co founder and father of Paramount Skydance CEO David Ellison on Monday said he will personally guarantee more than $40 billion for the deal.

Ryan Knudson (12:50)

So far, Paramount's pursuit of Warner hasn't been successful. In a letter to shareholders made public earlier this week, Warner said the amended Paramount offer wasn't superior or even comparable to the $72 billion Netflix deal.

Joe Flint (13:05)

The question becomes is Paramount gonna come back now with a sweeter offer? And if they do, does Netflix come back with a sweeter offer too? Or does Netflix say, eh, no, we're out.

Ryan Knudson (13:17)

Paramount has said its offer is superior to Warner Brothers agreement with Netflix and quote, represents the best path forward. If Netflix is able to fend off Paramount, it will then face its second challenge, getting the deal past government regulators who will get to weigh in on whether the merger creates anti competitive issues.

Joe Flint (13:38)

Clearly, President Trump has expressed a lot of interest in this deal. Typically, normally a president doesn't necessarily weigh in on deals that are going to go before independent agencies, whether it was the fcc, the doj, the ftc. President Trump, he's expressed some concern about Netflix. He's praised Netflix and Ted Sarandos, but also said their size is a concern.

Ryan Knudson (14:05)

At a congressional oversight hearing yesterday, Cinema United, a trade organization representing movie theater owners, argued that this merger would be disastrous for movie theaters, local economies and consumer choice. Sarandos has said that Netflix is confident the deal will win approval because it's, quote, pro consumer and pro innovation. He spoke about it last month.

Ted Sarandos (14:25)

So we think it's gonna be great for consumers, really great for creators. You know, we invest heavily in production and then we intend to run those businesses exactly like they run today.

Ryan Knudson (14:35)

So what is Netflix doing in dc?

Joe Flint (14:38)

Netflix kind of went on a PR offensive, if you will. They've got a website set up and it has all these, you know, details on the deal. Why Netflix and Warner means even more choice and value for fans, why it will define the next century of storytelling, why these are complementary businesses to deliver more choice and value for consumers. So they're doing that right now.

Ryan Knudson (15:07)

Sarandos has also had a couple meetings with President Trump.

Joe Flint (15:10)

He visited Mar a Lago In December of 2024 after Trump won, but before Trump took office. Ted was one of the many CEOs who went to give effects, I'll say, and dine down there. And he did go to the White House before this deal with Warner was officially announced. Netflix has been hiring lobbyists as well who have close Republican and Trump ties. Their head of their DC office was in Trump's first administration. So there's a lot of that sort of road paving going on, if you will. So not a surprise, but nonetheless for Netflix, something new. Because this is the other part of the game they've kind of stayed out of.

Ryan Knudson (16:05)

They produced House of Cards, but they haven't really had to play House of Cards, right?

Joe Flint (16:09)

They haven't had to play House of Cards. So, yeah, this is a new sort of thing for them to have to go there and really grease the wheels, if you will.

Ryan Knudson (16:24)

Late last year, Sarandos and his co CEO Greg Peters had a photo shoot on the Warner Brothers studio lot. Alongside the head of Warner Brothers, they.

Joe Flint (16:33)

Toured soundstages, they met with some other execs and people there. It was almost a victory lap, even though the deal hasn't closed. You know, walking around the lot and seeing all that history and look, Ted Sarandos is, you know, a lover of old Hollywood. He loves creatives. He loves the quote, unquote, Hollywood magic.

Ryan Knudson (17:04)

For Sarandos, acquiring Warner Bros. Would mark the culmination of his rise from just a guy who loved movies working in a video store to one of the most powerful people in Hollywood.

Joe Flint (17:15)

If this deal goes through and is successful, I mean, you just, you'd pitch it as a movie. The guy in a video store ends up running all of Hollywood. But, yeah, it'll have been an amazing and incredible run for him.

Ryan Knudson (17:44)

That's all for today. Thursday, January 8th. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Lauren Thomas and Jessica Tunkel. Thanks for listening. See you tomorrow.