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[Violet Mcdow]

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Welcome to season three, episode nine of acquired the show about technology acquisitions. And IPOs. I'm Ben Gilbert. I'm David Rosenthal and we are your hosts. Today we are back with the acquired version of Terminator two, the second part of our Netflix episode. You're like that, David. It's just for you. Oh man, that's great.

That's great. I love it. Listeners. Now, if you remember it, the last episode, we did cover the DVD saga of Netflix and where we left our heroes in 2009 shortly before the Epic launch of Quickster. So today we're going to dive in on the era of streaming and later original content. So David, I wanted to have a, a, a fun fact to start us off on, on Netflix.

So as you remember, they were once a plucky startup mailing DVDs to customers and, and, uh, you know, a remnant of the pre.com bubbles starting in 97. And they were doing this, you know, even before most people had DVD players, they were waiting for the DVD wave to crest. This company now accounts for 15% of all internet traffic.

Oh, no, that's in my show notes. I, well, sorry to blow your cover early, but you know, streaming movies and TV as a category actually now makes up 58% of downstream internet traffic and no single service accounts for more of that, that bandwidth then, uh, that Netflix does, and at peak times it can even account for 40% of the U S as concurrent internet traffic.

So you could imagine maybe like 8:00 PM Eastern or something like that. Absolutely incredible. Yeah. And this is with some of the best compression and optimization technology that like humans as a species have figured out how to do it. The last episode was about a company fighting to get its first 500,000 customers, and this episode is very much about sort of global domination.

All right. Listeners, we announced on the last episode that we had formally launched the acquired limited partner program and we've been just totally floored by how many of you have have joined our LP community and are listening to the bonus show and are sending us really great questions for, um, doing Q and a on the show.

David last week's episode was like very fun, so I'm pumped. I got to meet Dan and thanks for bringing them on. Yeah, it was super fun. We had Dan Hill, uh, who in addition to being the CEO of waves, first portfolio company, Alma co, founder and CEO. He was Airbnb's head of growth for a long time and had just great stories about growing Airbnb from, you know, series B days to $30 billion plus.

And. There's so much to learn from him. Um, so really fun to have him on the LP show. Anyway, listeners, if you want to hear Dan talk about why Airbnb was successful sort of in this space and how they chose their metrics and a bunch of other great stuff, you can click the link in the show notes to support the show or go to glow.fm/acquired.

dot. FM slash acquired. I feel like we really need a jingle for that. Did you do, we could just play that every time. Yeah, that's, yeah. Acquire needs, better jingles, period. That might be one of my holiday, a holiday projects back to the show. Now, before we dive in, as always, listeners, I want to thank our sponsors for all of season three Silicon Valley bank.

We have with us today, Al Guerrero, a managing director in the Santa Monica office. So Al focuses on digital media, e-sports, gaming, and other interactive frontiers. Perfect for this episode. Al, thank you for joining us. One question for you. What opportunities do you see for startups in digital media today?

Yeah, there's a lot of people know it's been a. A tricky year for a lot of digital media companies, and we're seeing a lot of them look at expanding their business model by doing live events, launching subscription models. But the one that I really want to focus in on is the companies that are selling product.

And so what's happening is a lot of these digital media companies are leveraging their audience and their engagement with the audience to sell authentically, sell a product. As an example, there's a company here in LA called click brands that creates female fashion related and beauty related content.

They're leveraging the insights they get from their audience to then launch and develop clothing lines, which they've actually partnered with target to successfully sell clothing line. All leveraging the data and the insight circuit they're getting from their audience. And again, it's a very authentic, natural extension of the content that they're creating on a daily basis.

Awesome. Super interesting. Thank you, Alan and listeners. Al just published a great piece on medium called what's next for digital media startups. That kind of goes deeper into this product idea as well as sort of all the other newer revenue models that digital media startups are trying to use today. So if you're into this topic, you should check it out.

You can click the link in the show notes to get access, and we will also have a link in the Slack. Alright. Now onto the show, onto the show. Indeed. David, I texted you before this. We have a little bit of follow up from, uh, from the last episode. We have some awesome listeners that wrote us in, uh, about Netflix part one.

And since this is a two parter and we do get to actually go back and, uh, and make a few corrections. The first one is actually on my carve out from last week, where I mentioned that the good place, uh, was a Netflix show. That is a classic millennial mistake. It is completely not a Netflix show. It's an NBC show that just got syndicated on Netflix, but my cord cutting had blinded me from that.

I know the other one we a is that we discussed that blockbuster had an incredible business model where they only had to. Pay rack rate for DVDs, and then they could rent them as many times as they would like. Thanks to uh, on Twitter. Jim underscore Brown. Uh, we have a correction. It's difficult actually to track down the exact number.

It's sort of buried in some academic papers, and I think it came out in some court case filings that I gave up on trying to actually find it out, but it's, it's somewhere between 50 and a hundred dollars that they actually had to pay for every DVD rather than just. Getting to sort of buy them at, at store price in sort of a special deal that, that they'd orchestrated so that they could generate the sort of high rental revenues that they, they got from each one of those DVDs.

So good to know there and thank you to Jim for, for correcting us. And the third one is we had an anonymous listener send us some amazing facts about red box, uh, after we briefly touched on it in the last episode. So red box, um, as you know from the last episode was actually. Originally a project at Netflix that, uh, an executive quit to go and, uh, and, and work on full time.

So outer wall, which was red boxes once parent company, uh, was acquired for over a billion dollars in 2016 by the private equity firm, Apollo global management, and a Redbox is now a standalone company inside of Apollo. Turns out it's wildly profitable. They're actually working on starting a streaming service of their own as.

Standing up a a second attempt of that, but looking at their core business like it's not hard to figure out why they're wildly profitable. It turns out running a retail footprint of six feet, eight feet by six feet, um, that rarely requires human intervention, can be wildly profitable. No surprise there.

They have like the, you know, if you think about sort of like the dollars per square foot per month at, at retail establishments, like one way people always focus on improving the numerator there, but you could also lower the denominator. Yeah, they've sort of gamed the system on that metric. But here's another crazy thing about Redbox right now.

So in Disney's attempt to build their own relationship with customers through the, uh, uh, in my opinion, very dumbly named Disney, plus, they do not have a distribution agreement with Redbox. So what does Redbox do to get the Disney titles on their, their machines? Well, we heard a great story. It is official company policy to send employees store to store when new Disney movies come out to buy retail copies of the DVDs or I guess Blu-rays and bring them back to stock the machines.

This is, this is actually how Redbox acquire his Disney movies to put onto their, their platform. Wow. Which I kind of imagine are some of the most popular titles on Redbox machines. I just think in general, I think we sold the company short last episode. Um, they deserve some of that credit also for destroying blockbuster because while Netflix was hard at work, hammering them on the online front, Redbox was also doing for $1 what they used to do for $3.

And in many ways easier because they sort of had more endpoints at more stores. Blockbuster, his main business was sort of under, under attack there as well. So lots of kudos to, to red box for, um, being a major player in this industry. All right. So, David, can you take us in to what your 2007 rewind a little bit and start with, uh, with streaming or are you gonna like find some way to go to like early thirties?

Not that far back this time, but, uh, we will pick up the story in part two as listeners. Remember in part one. We covered the story of Quickster, I mean, Netflix from founding to 2009 and once again, also in part to want to shout out the really excellent book Netflixed by Gina Keating, um, which provides a lot of the history and facts and really for anyone who's more deeply interested in this company, um, and this history, uh, can't recommend enough that you go read it.

So we ended last time in 2009 Netflix. Not yet. Quickster had basically, you know, snatched victory from the. The jaws of blockbuster to keep calling it Quickster because like their whole business basically was quite space was quick. Everything we discussed in the last episode was Quickster. They just reached 10 million subscribers.

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