00:00welcome to the a 16z podcast I'm Michael
00:02Copeland and I'm here today with
00:04Benedict Evans Benedict hello and
00:06andreessen horowitz partners now Bella
00:09Moorea hi how are you doing good so
00:11we're gonna talk today about the future
00:13of television and I know you guys are
00:15gonna disagree from the get-go on what
00:17television actually is or if that's the
00:20right way to describe this so Benedict
00:23yeah eyebrows raised well I always like
00:26to disagree with everything on principle
00:27I think there's a I wrote a blog post of
00:31a week or two ago called sort of notes
00:33on TV and part of the reason I gave it
00:36that title was because you've got two or
00:38three or four different blocks here that
00:41are all kind of almost independent of
00:43each other so in the USA there's a
00:46question around the control of content
00:50and the willingness of cable operators
00:51and channel operators and content owners
00:53to allow a different offer what
00:55consumption model and there's a lot of
00:58industry dynamics and make them very
01:00reluctant to do that because as I said
01:01everybody hates the way US TV works we
01:03set the u.s. TV industry and there's a
01:05lot of very strong incentives and very
01:07strong power relationships I mean you
01:08can't just turn up with a new device and
01:10somehow get a completely different
01:11experience and then there's a second
01:13question around the availability of
01:17devices and what kind of device it would
01:19be and what the experience would be
01:20presuming for the sake of argument
01:22anything you wanted to watch was
01:23available on that device for what would
01:24that be would it be touch would it be on
01:25the TV would it be a tablet what would
01:27that actually mean and then there's a
01:29third question which is well water
01:30people like you want to do presuming
01:32that you had that Nirvana of every
01:33device of the right content on the right
01:35device would people switch all of their
01:37viewing over to appear on demand
01:39experience or will that make up you know
01:4110 20 % of your viewing and you'd still
01:43watch scheduled TV and there's a final
01:45one which is you know when we say TV
01:48what do we even mean when we say that
01:49and they kind of flow through and so
01:52there are all these kind of separate
01:53moving parts around this this puzzle of
01:56you know we've had this communal
01:58experience for the last 50 60 70 years
02:01and every piece of that is now getting
02:05attacked and this is very brittle thing
02:08around the US TV market structure and
02:09then there's a bunch of problems around
02:10what the devices but presume you solve
02:12it's still really kind of open-ended as
02:15to what that would actually mean zal you
02:18know I want to bring you in and I don't
02:19want to brand you as the attacker but
02:21you did run mobile at Netflix so you
02:23grappled with all these questions that
02:25that Benedict is laid out and is he
02:28heading off in the wrong direction
02:30already or where do you see the common
02:32ground well you know I think the
02:33definition of television you know you
02:35know we're calling we're talking about
02:36future of television here it's it's
02:37really interesting because television is
02:39essentially just video on a screen and
02:41like you said you know it's what devices
02:43it on what content are you viewing and
02:45is it linear or is it time shifted or
02:47whatever the case might be and you know
02:49I think I Netflix we saw that growing
02:51shift to to mobile we saw that growing
02:53shift to not only from TV linear
02:56programming model but you know I think
02:58more than 60% of screaming hours on
03:00Netflix are coming from the major game
03:02consoles so even the game consoles are
03:04getting in the you know getting into it
03:05with ps3 Xbox Wii etc so it's not even
03:07the native software on TVs that are
03:09driving this but actually the hook in so
03:12you know I think television is an
03:14interesting term but it's whether we
03:16talk about the future of video or the
03:17future of television I think we're
03:18talking about video entertainment on any
03:20device yeah I mean I think there's a
03:22there's a kind of a principle point
03:24which is you're going to move towards
03:25more of a curve that is to say the
03:27economics of broadcast TV led you to
03:29certain types of content certain types
03:31of schedules just as the economics of
03:32the printing press led you just books
03:34had to be over certain lengths and
03:35magazines had to be able to a certain
03:36size and you had and so on and so you
03:39have some different things around well
03:41you have long tail content but you also
03:43have I mean if you look at for example
03:46the BBC does stats for iPlayer
03:48consumption and you look at the viewing
03:50and it's all you know the top so pop was
03:53the top TV shows and it's all catch up
03:55for what was on in the last seven days
03:57so there's this sort of fantasy that and
04:00in in you know getting you the same
04:02thing you see for Netflix actually most
04:04of what people want to watch is
04:05concentrated in quite a small segment
04:07where the economics get concentrated
04:08it's almost like it's l-shaped rather
04:10than a curve that's right that's right I
04:12think you know the the hits are really
04:14starting to drive I think Netflix is
04:15business which is why they realized that
04:17they can spend 100 million dollars to
04:19actually fund a total of 26 episodes
04:21across two seasons for house of cards
04:23actually it's probably much more than
04:25heard I heard from Kevin Spacey in an
04:27interview that it was much more than
04:28five million dollars an episode to even
04:30fund that thing so I think you know
04:32Netflix has moved from a movie you know
04:34streaming company into a TV streaming
04:37company and that's just happened in the
04:38last few years and I think people want
04:40that short form content they want to be
04:42able to watch that anywhere anytime and
04:44and they want to be able to do that
04:46either in you know one at a time or you
04:49know back to back to back and you know I
04:51think many people including myself did a
04:53marathon weekend when season two came
04:55out of house of cards yeah it's kind of
04:56funny the Netflix went from posting new
04:58ten year old content to streaming stuff
05:01live so kind of they moved all the way
05:03along a release cycle up to you know
05:05it's up today and you watch it all at
05:07I mean there's a there's a sort of set
05:10of questions around you know how that
05:13stuff gets made because Netflix
05:15obviously have data and Amazon has data
05:18and the TV companies traditionally
05:20didn't have data and used a sort of
05:22pilot system to work out well what are
05:25we going to make and so there's
05:26arguments about how you can make
05:27programming more efficiently but at the
05:29same time it still as you said hundreds
05:33of millions of dollars to make this
05:34stuff I mean somebody I remember
05:36somebody coming up to me and said well
05:37what would it take to completely disrupt
05:38the u.s. TV market how much would you
05:40have to spend and I'm like um I don't
05:42know ten billion dollars twenty dollars
05:45is the same as well how much would it
05:46cost me to build a nationwide cellular
05:48network with Wireless with Wi-Fi it's
05:50like ah twenty thirty billion dollars
05:52yeah so that so the money the Kazi
05:55and there's always a sort of
05:56misperception that you can turn up with
05:58technology and disrupt it but actually
05:59the point of Netflix and the reason why
06:01the existing model is so strong is
06:03actually notice it's the content that's
06:05that's the lock on all of this stuff and
06:07having the business model to make the
06:09most amount of money possible out of
06:11that content is the crucial thing which
06:13incidentally is why I don't think it
06:15makes any sense for um well come at it
06:19so differently you have Apple and Google
06:20and various other people talking about
06:22commissioning content Yahoo Yahoo and
06:26the question is well or is what you're
06:28talking about seeding your platform so
06:30that it will be a bit more attractive
06:32from consumers or are you actually
06:34saying you know what we're going to be a
06:37company and spend billions and billions
06:39of dollars to really go in and play in
06:41that space so so let's talk about that
06:43how is the relationship between the
06:45likes of Netflix HBO Comcast and other
06:49cable providers satellite for that
06:51matter changed so there's the content
06:54creators there's the pipes there's these
06:56technology companies ostensibly who are
06:59now getting into original content has
07:02anything changed and in that sort of
07:04dynamic I think I think people are
07:06realizing that original content
07:07programming is the way to go I mean
07:09Yahoo just did I think today or
07:11yesterday announced that they are
07:11looking at purchasing the rights of for
07:13television shows and you know as you
07:16know Yahoo and Marissa Mayer are trying
07:17to figure out how to become you know a
07:18world leading content and media company
07:21once again you know it may be the
07:23direction to go but it's gonna be costly
07:25it's not gonna be cheap now you know
07:27house of cards is a very very well
07:29produced program at five to six million
07:31dollars in episode you might be able to
07:33get away with it at $700,000 in episode
07:35but what does that actually lead to in
07:37terms of quality for the for the viewer
07:38and you know I think I think these large
07:41companies realize in order to you know
07:42you know obtain that audience that they
07:45need to be able to put put out great
07:47content obviously and so you know there
07:49are there are certain even though let's
07:51talk about YouTube for a second actually
07:52so maker studios was just recently
07:55purchased by Disney for 500 million
07:56dollars but another 450 million dollars
07:59if they meet the aggressive goals and
08:01you know they've got whatever it was
08:02like over 50,000 channels on YouTube
08:05across you know all those 400 million
08:07subscribers across that content and so
08:09they've aggregated content and the very
08:11best of the content to create a platform
08:13that that is actually quite monetizable
08:15on YouTube and other platforms and so
08:17you could do it the subscriber where you
08:19could do it that add model the way the
08:20point is you know you need to be able to
08:22attract the best and brightest well the
08:24point is I think I mean there's there's
08:26kind of a virtuous circle in the TV
08:27business in that you have audience and
08:29therefore you have revenue and therefore
08:31you have great content and therefore you
08:32have audience and you need to make a
08:34decision as to how much money you want
08:36to inject you into that cycle I mean the
08:38analogy that I use is a bit like orbital
08:40mechanics if you want to get into orbit
08:42you need to burn in an enormous pile of
08:43kerosene and how you want to go the more
08:45kerosene you have to burn and it doesn't
08:48what engine you're using basically
08:50doesn't blow up on the pad is
08:52fundamentally it's all about with the
08:53weight of kerosene you burn and the
08:55energy and you know the chemistry and
08:56the physics of that and you want to go
08:58to a high orbit yeah it won't burn more
08:59kerosene you can't design a better
09:01rocket and TV industry is kind of like
09:04that you can't turn up with a better
09:05rocket you just have you actually we
09:07have to do is turn up with an enormous
09:08tank for the kerosene you have to turn
09:09up with an awful lot of money right and
09:11the the puzzle for me in these
09:15technology companies getting into this
09:16is to ask well what are you actually
09:17trying to achieve so again I'm sort of
09:20at the risk of overloading this with
09:23more metaphors I wrote a blog post about
09:25telecoms in which I said that you know
09:27this is old story that somebody decides
09:29that the train service between London
09:31and Cambridge is terrible so they're
09:33going to build a bus service and then
09:35they decide that actually to make the
09:37economics work they need to get eight
09:38buses linked together and then they need
09:40to raise a bunch of money and build a
09:42dedicated road from Milan to Cambridge
09:43and the point of the joke is that you
09:50need to decide what it is you try to do
09:51like buses are better than trains
09:52because they're more flexible and you
09:54know you can you know or hop all up and
09:56much what refuses but I see if you want
09:57to compete with the train service you
09:59kind of you know end up building a train
10:00service and you might as well face up to
10:02that the beginning and say what are we
10:03actually planning to invest what you
10:05would cost to become NBCUniversal
10:07because the only way you're gonna become
10:08NBCUniversal is by spending that much
10:11money and so then you say well actually
10:13if you want to do that maybe you should
10:15just by NBCUniversal and then you say
10:18well why would you do that though why
10:21would yo who by NBCUniversal why would
10:24they buy CBS what would be the point of
10:27Yahoo or Apple or Google owning that
10:29business why would a why would CBS be
10:32worth more if Google owned it I think so
10:37then the question is well is it and how
10:39far down that line do you want to go and
10:41so this is my question about what you
10:42are and sort of Netflix I think is
10:45slightly different cuz Netflix is kind
10:46of cable channel now this is in the
10:47content business that happens to use
10:48technology to do interesting and new and
10:50disruptive ways to things whereas for
10:52Google or Yahoo or for Apple the
10:54question is what are you actually trying
10:56to do you try to build content business
10:57here or are you trying to sell devices
11:01people engage in your ecosystem and if
11:04the it's a latter then well you're going
11:07to put a few interesting pieces of
11:08content in there to make your device a
11:10bit more appealing relative to the ps3
11:12or to make your Apple TV more appealing
11:16relative to the Amazon fire or you're
11:20going Amazon you're going to buy a bit
11:21more content so people the Amazon fire
11:23device will seem a bit more appealing
11:25relative to the Apple TV and that will
11:27get you more customers for Amazon fresh
11:29and so what is it you're trying to
11:31achieve here you try to build a train
11:32system or do you want to have a London 2
11:35or do we just want to have a simple nice
11:36little local bus service that has a
11:38whole bunch of other objectives because
11:39as I said actually if you want to be NBC
11:42Universal you're gonna you there's no
11:44what Google isn't going to do that any
11:45better than NBC no I think I mean with
11:49Netflix and some of these other large
11:51providers I think as far as technology
11:52companies go you know they're using data
11:55- to figure out what the right yeah
11:56exactly but that great cold they're
11:58building a great content company that's
11:59right that's right they're focused on
12:00that that is their debtors their goal
12:02absolutely so the future of television
12:04sounds like the present and the past
12:06well I mean there's a there's a question
12:10here we haven't really talked about
12:10which is and this is the thing I chose
12:13to be looking at the the fire TV thing
12:15is if you look at what happened to the
12:16music business music was an ecosystem
12:21battleground and it's turned into a
12:23check box commodity feature that you
12:26throw into any new product as like
12:28something you have to have you know
12:29you're launching a phone you're
12:31launching this you launch any whatever
12:32phone in music service but nobody really
12:34cares anymore because it's all gone
12:35streaming there's no switching cost so
12:37it's become a generic commodity and now
12:40that feels like maybe the ecosystem
12:42battleground is move on to TV and so
12:45it's Apple or Google or Amazon Facebook
12:48doesn't have a TV product for some
12:50reason presumably I don't know what the
12:51next 10 billion dollar deal Sark will do
12:54we've gotten by Netflix but you look at
12:58the fire TV and how many different TV
13:00services on that was like 10 15 but that
13:03was the kind of the funny thing in the
13:05UK Amazon is fighting and battle to the
13:07death with Netflix and you know really
13:10super aggressive pricing trying to
13:12squeeze netflix out of the UK market in
13:15that's not really the point all you know
13:16it's just it was an Amazon video Netflix
13:18video whatever get them on the device
13:20and get them to buy groceries for them
13:22as getand buy diapers farmers get them
13:23to buy headphones from us and the TV is
13:26a loss leader so there's this question
13:28around as I said what is the purpose of
13:30this and what is the end game for how
13:33valuable the TV yeah distribution
13:35platform becomes yeah I think you know I
13:38think there's gonna be a monumental
13:40Supreme Court case that's gonna start in
13:41two weeks with Ariel alright so if you
13:43don't know in Aereo's that's like
13:44basically they lease you an individual
13:46antenna and you can actually stream that
13:48content from any device from anywhere
13:50based on that and they're going up
13:52against the big dogs the NFL MLB the ABC
13:55all these guys are thinking this is
13:57gonna be you know over-the-top
13:58retransmission and so they're they're
13:59trying to fight against it but yeah it's
14:01a lovely haxed you know for lovely hack
14:03it's a regulatory hack it's like Nextel
14:05that's right that's right but aren't
14:06some of the best software business is
14:08based on regulatory hacks yeah but the
14:10question about regulatory hacks is
14:11whether you can actually whether you're
14:13cutting through some sort of fake
14:15pricing structure to get to the real
14:17underlying lying economics or whether
14:19you're just hacking the pricing scheme
14:20yeah I mean long-distance is a great
14:22example of that where there was no
14:24reason why long distance was expensive
14:25in wars anymore but there's other things
14:27where you know people can just change
14:29the rules you know you're dependent on
14:31you're basically exploiting a piece of
14:33marketing that other people have done
14:34and they can just change that and you
14:36can cut you off so there's a puzzle
14:37there around how all of that u.s.
14:41content gets unlocked but then the the
14:43broader question as we say is well
14:44supposing it does all get unlocked well
14:46what is the device experience like is it
14:48fire is it Apple TV and the puzzle I
14:51have around all of these devices is all
14:52sort of pre iPod you know it feels like
14:55they're all sort of you know it's like
14:57the DJ I'm playing all the right notes
14:59not necessarily in the right order
15:00you've got although kind of the pieces
15:03are there but the usage is still really
15:05low relative to TV and particularly you
15:10can have you know all the stuff we've
15:11been talking about the availability of
15:12content that issue doesn't apply at all
15:14in the UK so all the all the
15:16broadcasters that you would want to
15:17watch all your stuff is there on any
15:19device at any time in any way there's no
15:21kind of no screwing around and yet the
15:23viewing is you know peak viewing for
15:25which is basically all the BBC's content
15:28750,000 streams and P TV viewing it's
15:31like 25 million and the PP the TV
15:33viewing isn't going down and the I play
15:34viewing is kind of going up a bit but
15:36there ain't no hockey stick
15:37so are we waiting for the right device
15:40are we waiting for that experience
15:42always there like a consumer demand
15:44desire problem in here well I think and
15:46you spoke about it I know others have as
15:48well as far as like you know dumb glass
15:49Internet machines essentially and that's
15:51kind of what Google and and Netflix did
15:54together in the just in that kind of the
15:56formation of dial which is that
15:57discovery and launched open-source
15:59protocol that says take anything whether
16:01it's a smartphone a laptop or a tablet
16:04etc and be able to stream that into any
16:07any other device right and so chromecast
16:09is based off of the dial standards
16:11Netflix is MDX multi device experience
16:14is based off of the dial standards and
16:16you know obviously that the rival is
16:17Apple AirPlay right and so but these
16:20kinds of scenarios where I could take
16:21anything that's kind of you know that
16:23you use regularly whether it's my phone
16:24my tablet or my computer and be able to
16:26port that and show that content on any
16:28you know on any screen including you can
16:31say watch television you can squirt it
16:33to the TV yes Steve Ballmer's wonderful
16:35phrase well the future of television you
16:42know better you're still waiting for the
16:44right device the right experience and
16:45until then we get more of the same in
16:48some sense well we do but then is that
16:51you know this is kind of again it's so
16:53kind of the music industry question is
16:55you know we're kind of fixated on I've
16:58got to pay for all these channels that I
17:00don't want but the more interesting
17:02thing is well if you can pick
17:04arbitrarily which shows you want then
17:08what does that do to all the other shows
17:09so it's not really the unbundling which
17:11of course is Netflix is a puzzle for
17:13Netflix as well but it's not really the
17:16unbundling of ESPN from AMC it's the
17:18unbundling of madmen from AMC that's the
17:21question if you go to all everything's
17:23out there on demand and it's all ad
17:25supported and a lot of this stuff is
17:27free ad-supported then
17:31what happens to all the other stuff and
17:33when the TV channel can see in a really
17:37really detailed way nobody's watching
17:39that show then a lot of those purchasing
17:43decisions start to change and
17:44commissioning decisions starts change
17:46and you can see it obviously went that
17:47way Netflix is using data now but you
17:49have a question well how much TV get
17:51will get made and how much TV will get
17:53more watched and how much of the TV that
17:55you watch now because it's on at 8
17:57o'clock on a Saturday night but you'd
18:00never actually go in no matter what the
18:01interface was you'd never have chosen to
18:03watch that you know you'd never watch
18:05you know celebrity backside wiping with
18:08Ryan Seacrest yes you know but it's
18:10there she watch it so how did it you
18:12know send again there's an analog with
18:13the de-seed CD business you know the two
18:16tracks you want and the ten you don't
18:17how does that whole business change when
18:20you can choose anything you want that's
18:22right I mean there's there was two
18:23metrics at Netflix that every product
18:24manager was geared toward its subscriber
18:27attention and streaming hours the most
18:29highly correlated variable to subscriber
18:31attention with streaming hours right
18:32yeah so our job was as soon as you open
18:34up the app diving straight into content
18:36alright and so that's why we introduced
18:38the new continue watching row because we
18:39realized that people are in the middle
18:41of watching something they may not be
18:43you know extremely excited about the
18:45content but listen they're in the middle
18:46of it it's on there it's at the top of
18:48the home screen let me click on it and
18:49let me just start playing it because
18:50I've had a long day and I just want to
18:52continue watching it at 8 o'clock at
18:53night which is very similar to kind of
18:54the linear program on programming model
18:57that we then we see in traditional
18:58television well it's like the you know
19:00the left him an argument that you didn't
19:01get the ratings of lennier because of
19:03like there was a different lead-in
19:04before Leno versus before Letterman you
19:06know that all of a sudden those people
19:08are going to be saying all those guys at
19:09Netflix they're screwing me because I'm
19:11not in the right place in the algorithm
19:13well gentlemen we will continue watching
19:17this surahs all for a bad pun and I
19:20think you guys for coming
19:22Benedict ends all thank you thank you
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