Ted Audio Collective Hi everyone, you're listening to After Hours.
Tonight I'm here with Felix and Mehere.
I'm Youngmi. Felix, you were gone last week.
We missed you. I was, yes.
It was heartbreaking to be away.
I said, oh no, now they're taping.
I'm missing all the fun.
Well we had Ryan Buol here and he was great, but where were you?
I was back in Switzerland.
Actually it's a really interesting event once a year.
Swiss railways, as you know, super famous for being punctual.
Their key management team meets to think about the future of transportation.
Are they the most uptight human beings you've ever met?
I think we can forget about the Swiss audience.
You'd be surprised.
You'd be so surprised if you met them.
Really? They're thinking about mobility chains against the backdrop of just insane product cycles.
Imagine you order a locomotive today.
That thing has a lifespan of 25, 30 years.
So what they're trying to do in these meetings is think about what's mobility going to look like?
I don't even know what mobility is tomorrow.
So it's really fun, really interesting.
That's great. Wow. That is so interesting.
OK. Well we missed you.
Oh, before we do anything, we should thank our listeners for listening and invite you, if you like the show, to...
To maybe write a review, tell other people about it, all kinds of things.
Recommend it to your friends.
Recommend it to your friends.
And we have an email.
Make your kids listen to it.
And you can send us comments and feedback.
Which would be great.
We would love that.
Actually we would. Last year we got a bunch of email and we kept promising to bring some of them in.
We never did. But we did read every email.
And so this year you can send us email at harvardafterhours at gmail .com.
Also, you can follow Mehear at Mehear Desai on Twitter.
It's kind of Desai Mehear A.
You can tell I was late to the game.
Yeah, it's only about a year and a half old.
And I have no idea what I'm doing on Twitter, but that's a different problem.
But for amusement they should follow you.
Yeah, exactly. For how not to do Twitter.
So I was on Twitter for a while and then I got off Twitter.
But I just got on, back on.
So I have zero followers.
But I'm at Young Meemoon.
Because I'm starting completely fresh.
Yes, I know, I'm going to start tweeting.
And are you, Felix?
No, I'm not. You're not?
No, I'm busy. I don't have time.
I'm busy. Scusez moi.
Wow, okay. So I guess Mehear, you and I, we have lots of time to just be on Twitter.
Yeah, exactly. I'm going to sit around.
Okay. And then both of you brought topics to talk about.
Yes. I was hoping we could talk about Netflix.
And so really iconic company.
What's going on there?
How is it going to evolve?
I think it's really rich.
Fantastic. And Felix?
In our opening show, we very briefly talked about crime in Latin America.
And it's such an important topic.
So I thought we would talk about crime in Latin America.
This is so timely. Okay, great.
Okay, Mehear, you want to get started?
So I thought we should talk about Netflix.
It's clearly one of the most iconic companies today.
It's had this incredible run.
There are 130 million subscribers I think now.
And I wanted to get your sense about the sustainability of what they're doing.
So first, I think there's a hugely interesting strategy issue, right, which is they're buying content.
How do they ensure their position in between the content and the users?
And then there's this analogous kind of financial issue, which is the really striking thing about Netflix from a financial perspective is they are burning through cash.
They're my canonical example of profitable companies who'd never generate cash.
And they are spending so much on content now.
It's almost hard to fathom, right?
So it's about $4 billion a quarter they're spending on content.
They wrote a check to Jerry Seinfeld.
It was like $100 million check just for comedians getting coffee.
Dave Chappelle got $60 million for 2 Series.
And they're levering up.
They're just issuing another $2 billion of junk debt.
And, you know, on the one hand, they only have $11 billion of debt relative to a market cap of $140 billion or whatever.
That's right. That's the argument, right?
At the same time, their stock has lost about 30 % of its value from the peak, which is far more than the other indices.
And there have always been these people who have said, this company cannot survive.
So I want your take on the strategic issues and also the sustainability of Netflix.
The issue I have is the amount that they're spending is outpacing the rate at which they're growing.
So number one, just the math.
The math doesn't feel sustainable.
The second thing is the content arms race is accelerating so dramatically.
And we're looking at sort of a two or three year horizon where it's going to get so much worse.
So Disney is going to come out with their streaming service next year.
And think about Disney.
So Disney has pulled all of its content from Netflix and is sitting on franchises like Star Wars, Marvel, Pixar, and it's just about 21st Century Fox.
So it's sitting on all of that content.
Amazon, of course, is in its game.
Apple is preparing to launch its TV streaming service.
So if you think about just the amount of content that we are now going to get confronted with.
And then the flip side of that is how much content can we consume?
No, I'm really serious.
As much good stuff as there is now, there's going to be 10 times more good stuff in a few years.
There's just no room for us to keep consuming all this.
So let me try to paint the optimistic picture.
If you look at the number of subscribers that they add, it's now roughly 7 to 1 international versus domestic.
If you look at the Netflix story, even in countries that are going through some economic difficulty like Brazil, a third of Brazilian households that have broadband internet access now have subscriptions to Netflix.
That's crazy. And they have rapid growth in Europe now where France, Germany, all these really rich economies is taking off.
And they're growing gangbusters in Asia.
Asia, in fact, is probably their biggest growth.
So I don't know if you watch the Terrace House?
It's like a beautiful Terrace House.
The Japanese reality show?
Yeah, co -produced with Japanese TV, brought to the United States a big hit.
How many companies have deep relationships with television producers in Japan?
Netflix just opened its studio in Spain to build cooperative agreements with television production companies in Europe.
And I think what we will see is the company that creates a truly global market for television.
Disney will do the exact opposite.
They make everyone watch the Jedi's irrespective.
But they could open up.
If they thought a little more smartly about this and they opened up, they could do it.
Time Warner Entertainment could do it.
Apple could do it. Apple, Amazon.
And more importantly, none of these companies have any history of paying attention to consumers outside their core market.
But what do the economics look in each one of these regions, right?
So number one, I cannot imagine that customer lifetime value looks the same because I imagine the price sensitivity's got to be different.
But then number two, I also imagine that the startup costs associated with building a new library in Brazil and building a library in India and then building a library of content in Japan, these have got to be huge.
So I happened to be in Japan when Netflix became first available in Japan.
It was exactly your Apple experience where some crazy person sleeps in front of the store just to make sure that you get it first.
There's like incredible excitement about their entry.
Well, this is to me what's exciting, which is that the media market is fragmented globally, right?
Has been fragmented globally.
So like people in India want US content, they want UK content and they can't get it.
And so this is really like a unification of a global market.
And Netflix is really good at that and no one else is good.
I think that's why people are so excited because they can't get the US shows easily.
Yeah, but you're also saying a second thing, which is that they're better at localizing what they do.
That's right. So one of the things that they do, which of course is the US playbook, they look at which Japanese shows did really well and for some bizarre reason where this continued.
And guess what? Let's bring it to Brazil.
Let's bring it to the United States.
Let's bring it to Germany.
There's still a remaining question, Felix, even in that wonderful world you described.
Okay. And the underlying economics still are about the pricing of the content.
They've got to be able to buy the content.
So my sense is that there are enormous differences in the cost of content acquisition.
Remember, there are what is it like they're adding 700 shows this year, something like this, right?
And we read about the dozen shows that end up being like super, super expensive.
But I think what's interesting about the Netflix portfolio as a whole is that there's some flexibility built into it because they have so many touch points.
It's essentially, yes, we have great data, but it's a portfolio play on do we find for the many, many niches that we want to serve?
Do we find some people all the time where they're really captivated by the content we have?
And in the beginning, it needs to be high profile because you want additional subscribers.
But eventually, it's going to be your experience.
Every now and then, you find a nugget, but it's not that many nuggets.
I find what you're saying to be fascinating.
So one example of what you just described is Hollywood doesn't make romantic comedies anymore.
Remember Harry Met Sally with these big ones?
I love Harry Met Sally.
Netflix has discovered that there's some niche and it's not high profile.
They're not spending a lot of money, but they are just cranking them out.
If you go on Netflix, and the only reason I know this is I watched one.
And then they fed it to you.
And if you watch one, then suddenly you're just being fed one after another after another.
And they're all like, you know, B minus, they're not great, but they're just fine.
And there's no competition?
And there's no competition for it.
But having said all that, I have one important question for you, and that is, so fast forward, say, five years from now.
Okay, the U .S., still the largest market.
So now, Apple is in the mix, Disney is in the mix, HBO has dramatically ramped up its content.
Are we subscribing to multiple providers now?
We're holding all these subscriptions.
And then I have the same question for globally.
How does it play out when we're exposed to these multiple bundles?
We only have a limited amount of time to watch content.
And just to sharpen that a little, let's all make some predictions.
Where do we see Netflix, in the next 10 or 20 years?
So, the way I think about it is, Netflix is the ABC, NBC type large broadcaster of our times.
And the large broadcasters were largely vertically integrated.
And because they have high production costs, they needed scale.
And they got scale by producing the kinds of shows that everybody wanted to watch.
So, you had a large domestic audience.
The internet comes along, and essentially, now, all of a sudden, the markets fracture, and you have small niches that need to be served.
And the question is, how does the economics work if these are all these small niches?
And to my thinking, the economics only work if you're global.
And so, I would say, Netflix is going to be one of very few limited companies, because only a few companies can have the global scale.
What about Disney? I think Disney is so American.
It's such an American company.
Here's the thing about Disney, though, that none of these other companies know how to do.
They brand their content, and they're able to monetize those brands better than any company in the history of entertainment.
And they create vehicles, like really big vehicles.
But what is it that you admire about Disney?
Disney comes out with these movies, and you can go with your entire family.
And it's a fabulous experience for the kids and the adults get to laugh.
And it's really, they're creating the type of content that has broad appeal.
I think there's room for that.
Oh, I see. I see what you're saying.
I think Disney can be Disney, but that's not Netflix's game.
So, they will coexist, is what you're saying?
I get your point about the 5 ,000 Itches.
I mean, I get served cooking shows and British copper, British mystery shows.
You're the mystery Briton.
So, I have a prediction, if we're talking a 10 -year horizon.
I don't actually know if I believe this, but okay.
So, Apple launches its TV streaming product and pours a ton of money into it and discovers that it's so much harder than they realized.
So, they finally bite the bullet and they buy Netflix.
Oh, interesting. I mean, it's expensive.
But you know, Apple has...
But just to be clear, by comparison, I mean, it's a trillion dollar market cap versus 130 billion dollar market cap.
That's exactly right.
So, it's not big by most perspectives, but it's not big by theirs.
Yeah. That's interesting.
That's really interesting.
But I mean, Apple, I do think this is going to be harder than...
I mean, Apple had trouble with music.
Yes. Maybe the lesson for music is you want to buy.
Oh, yeah. They'll have already bought Spotify by then as well.
So, I think we saw Netflix.
All right. Can I just...
I think what we should do...
I had an idea though.
I think since Netflix is spending so much money on content, I think we should pitch a show.
Three business school professors and like their lives.
I'm sure it'll be like a huge hit.
Thank you. OK, we're going to do a hard left turn now.
So, we briefly alluded to it earlier in the show.
There is an incredible wave of crime in almost any Latin American country that you can think of with I think the big and notable exception of Chile.
And I thought I'd just give you some numbers to get this into perspective.
So, in El Salvador, it's ten times more likely than in the U .S.
that you will be murdered.
It is 40 times more likely in El Salvador that you will be murdered compared to living your life in Africa.
Oh, my God. So, it is really dramatic.
And I think as a result, two things happen.
One is all the economic difficulties in these countries where everything from raising revenue to just having order and having a sense of security that is really missing, but also people are leaving.
43 % of Brazilians say today, if only they could, they would leave tomorrow.
And what's particularly troubling is that the better educated people are, the more they want to leave, OK?
And some of this, obviously, Central America, we see the consequences here in the U .S.
Brazilians move to Portugal because they speak the language.
So, it's a global phenomenon, personal tragedy after personal tragedy.
You probably saw some of these articles in the Wall Street Journal just detailing what it's like to live in these areas, but then also really big global consequences.
Felix, why has this become so acute?
What has happened in the last ten years?
Because it's not just that it's bad, it's so much worse than ever before and the pace at which it's getting worse is accelerating as well.
So, what's happened in the last ten years?
So, crime, obviously, was an issue for a very long time, often very closely tied to drug trade.
And as a result, it was relatively centralized.
So, in some counterintuitive way, Mexico, I think, is a good example, where you destroy some of the centralized organizations.
And then what happens is that you get lots of things, and they're fighting for control, and gangs fighting for control is really dangerous for everybody else.
So, I think that's one difference.
The second difference is that gangs have moved away from the drug trade to basically local kinds of issues, where they demand payments from businesses, they demand payments from individuals.
So, it's a business model that just sucks everyone dry, and the threat is violence.
And young people, in particular, in that environment where you don't see — say, who would start a store, even, in a place where you know the gang is going to come around and basically take away all your profits?
Of course, you don't.
In that situation, it's much better to join the gang than to open that store.
So, you're saying the drug trade used to be relatively siloed, and now they have essentially infiltrated all of commercial activity — Every day life.
And siloed or centralized, right?
Which is that the idea is that they have a vested interest, a very powerful one -party crime system has a vested interest in maintaining order.
I found this so depressing to think about, but the thing that struck me is, it is literally the breakdown of order, and it is so fundamental when you think about it.
Because when you can't protect yourself from violence, the state is failing, right?
And once you go down that path, I don't know how you come back.
And by the way, obviously, in Brazil, we're seeing one possibility, which is authoritarianism, or some version of authoritarianism, which is another global spillover of these actions, which is the rise of authoritarianism.
So, when you look at these countries in Latin America, what's the approach we should be taking?
So, one of the things that I've been thinking about — and I don't really know what it would look like — what's the IMF for crime?
Don't we need something like an IMF for crime, where there's some global institution that can step in from the outside?
And I think both help on the ground, in a really tactical sense, but also help with resources.
The problem is, is there's no way to intervene without actually having a physical presence when it comes to violence.
I mean, the IMF makes a loan, and they still get in trouble for their structural adjustment plans as being too interventionist.
That's right. This would require a physical presence in the country, which is — Yeah.
I have to say, part of this makes me think young me about the lack of American leadership on some of these things, and how the years we grew up in were a period of, relatively speaking, peace and benevolence, because there was a policeman and there was order, especially in Central America, right?
And we should be — But isn't Nicaragua — didn't we play the worst role you can — American intervention in Latin America, I don't think is a happy part of history.
Well, certainly, that's true.
Certainly, the history is not terribly good on this.
But what is the alternative?
I don't see other solutions.
Do you think this qualifies for asylum?
So one of the debates right now, of course, with the migrant caravan is, should these migrants be allowed to apply for asylum?
And the requirements for asylum are, when you are persecuted on the basis of your race or your religion, your nationality, your political beliefs, usually that persecution is coming from the state.
This is a little different, because a persecution is coming from gangs and from violence.
And so Jeff Sessions, I think, recently said this does not qualify for asylum, which puts them in a different sort of migrant population, which is folks that are experiencing economic hardship, right?
Which has a lot fewer protections than are our law, anyway.
So how, when they come to our borders, how should we be treating these people?
As refugees seeking asylum from persecution, or as migrants in search of a better life?
Because depending on what we decide, it changes what our obligation is.
So I think your point is a very good one.
The traditional asylum process is meant for people who suffered from political persecution.
And so you have to be able to show that it's personal and that it's you, and typically the government is after you.
So that's not an avenue that I think is open to us.
But we have other means.
Look how we respond to natural catastrophes.
When Haiti being an example, like big earthquakes...
That's the best animal, okay.
Yeah, that's interesting.
And then we say, okay, so we're going to do two things.
We take in a lot of people and we also make it clear that this may not be permanent.
Because in a way, for the person having to live in these areas, it is like a natural disaster.
It's no different. I mean, the issue of course is that in the natural disaster setting, things are thought to get better.
Meaning we're removing you from a circumstance because it's so horrific.
Yes. But it will return to normal and then you will go back.
Yes. This is not that same thing.
Meaning there isn't the prospect of that happening.
If anything, it's conceivable that it leads to it getting worse as more and more...
That's a really interesting...
So what's your sense?
If we make migration out of say Central America easier, is your sense that crime gets worse for those who stay behind or is there no influence?
Because that really matters, right?
If we make things worse by accepting large numbers of people, that will not be the appropriate policy response.
I don't have a strong intuition on that.
But even what we know in some of the migration literatures, there are significant fixed costs to migration.
And a lot of that is in typical settings most easily borne by high income types.
Yes. And that makes the country worse off in the long run.
Because as in the Brazilian example, the best qualified people...
Everybody will leave.
... we have... Everybody will leave.
I mean, on your question, young me, not to dodge it, I think, because it's like a hard question.
I mean, first, of course, I should just say, I think all these fears of the caravan are just dramatically overblown.
These people are not coming swarming over the border.
But I confess, I don't think it's asylum.
I think it's a more traditional kind of migration seeking a better life, which is the less generous treatment.
I can't get to asylum.
Yeah. I think the thing that I am so frustrated by is I consider myself pro -immigration, for sure.
The problem I have is I'm unable to have a conversation about what does it mean to welcome people to our country.
What does it mean for what happens to the country they leave behind?
If we have to make choices about who we let in and who we don't, how do we make those choices?
And what numbers can we accommodate?
We can't have that conversation right now in this country without...
Oh, yeah, that's impossible.
It's really hard to have it.
Not just in this country.
I mean, think about what happened to Merkel.
Exactly. Or think about it in the UK.
This is becoming the most destabilizing question.
So I know you both really disliked my IMF for crime idea.
But since you're fresh out of ideas yourself, can I come back to it?
Yes, okay. So in the history of fighting crime in the United States, we sometimes give real credit to the people who led police forces in the big cities.
The big crime story in the States that has changed is really like cities have become so much safer over time, and it's disputed why this is.
But I think you'd be hard pressed to say that the tactics that police showed, the resources that were employed, that they played no role in the fact that America is much, much safer today than it was just a little while ago.
Why not build a force that can do similar things?
So I wasn't actually thinking...
An international police force.
But at least an international force that can serve as consultants, that can actually bring in money, bring in reward systems, if you do it right, if you follow particular steps that we know.
It's interesting. That we would support that, because we can't have the rest of the world move to Europe and Asia.
Just to be clear, I think it's interesting.
And it happens sometimes informally, right?
So the NYPD will send missions to London on terrorism or...
An international police force, and when countries are consumed with violence, we're going to send this force in to restore order to a city?
That's our answer. I think that's Felix's answer.
But it also, I don't know if it addresses the underlying problems.
Do you think the underlying problem is police capabilities?
The scale of the problem is so much bigger than that, right?
Don't you think? I mean, are we going to get this solved by NYPD going down to Rio de Janeiro and talking about tactics?
Is that going to make this that much better?
I mean, if you think about it...
So I'm still waiting to hear the much better idea.
I don't have an idea.
Well, maybe it's self -correcting.
How about this? Do we just shift to an equilibrium where we see the return of centralization?
Where it becomes so brutal...
Legalize the drug trade.
I mean, that would be one, right?
I mean, drugs is still an issue.
It's still a source of revenue.
But the core of the problem has shifted away.
Hard. I just want to go back because I just do want to say, I agree, the U .S.
experience in Latin America was terrible.
But I do think there's something about not having a large power invested in the welfare of these kinds of countries.
Because that ultimately is what's going to happen.
And it's going to either be the U .S.
or it's going to be China or it's going to be somewhere else.
And I'd rather it be...
You know, my instinct is I'd rather it be the U .S.
relative to this world.
I have a pick for you guys.
All right. Good. An uplifting one, we hope.
Well, yeah, you know what it kind of is.
Okay. Good. I just read this book called Educated, A Memoir.
This is the Tara, whatever you're...
The Tara Westover book.
This is a story about a girl that was raised in a survivalist family in the mountains of Idaho.
So she grew up with no formal education, no professional medical care.
They just lived by their own means.
Really tough upbringing in many ways.
Abusive older brother.
But at some point she gets it in her head, in part as a result of the influence of another older brother.
But she gets it in her head that she wants to go to college.
And she learns that at BYU, they will take you if you haven't gone to high school, as long as you score a certain score on your ACT.
So she decides she's going to take this ACT, but she's got to learn the material.
She knows how to read.
Her mother's taught her how to read.
She knows how to add and subtract, but that's essentially it.
So she has to teach herself all this stuff.
She has to learn how to learn.
It's this phenomenal story of resilience.
She ends up going to BYU.
She ends up getting her PhD at Cambridge University.
Harvard for a postdoc for a while.
It's really amazing, but there are just so many little anecdotes in this story that give you a sense of this young woman's incredible wisdom, but also these huge gaps.
So there's this scene where she's sitting in a history class in college, and they start talking about the Holocaust.
And she raises her hand and she says, what's the Holocaust?
And in that class, she lost any hope of any friend, because they all thought she was being a jokester or something, and they thought she was this horrible person.
And she was completely confused.
There are just so many little anecdotes about how she overcame every little bit.
It's a phenomenal story.
I think I've heard an interview with her too, and she's just remarkably placid and well -spoken and thoughtful.
It's an amazing story.
So what's the title in the author?
It's called Educated Colon a Memoir.
And her name is Tara Westover.
She'll check it out.
Since we talked about Netflix, I thought I would make a Netflix recommendation.
And one of the things that I enjoy about Netflix is, obviously their selection of movies is not great.
And so my sense is they sort of cycle movies, older movies in particular, in and out of their catalog.
And every now and then when that happens, a movie that I really, really enjoyed watching when I first saw it, all of a sudden it pops up on my radar screen.
And this happened to me.
Do you remember Burn After Reading?
No. It's with Brad Pitt and Frances McDurman.
It's these two not super smart people working in a fitness club, and by accident they come across highly secret CIA information.
Oh my God, I love it.
I'm not going to say anymore.
I'm not going to give it away.
But it's like one of these moments where you, oh, yeah, I don't know about you, but maybe this is age.
Like, I watch movies and I have a good time watching the movies, and then somehow I don't really think about them or don't remember them.
And Netflix is like this bag of treasure troats.
Oh, I haven't seen this thing in a long time.
And so... And Frances McDurman.
She's so good. She is.
She's good in everything.
She is good in everything.
She is good in everything.
What about Yuma here?
So I've been wanting to make music recommendations, but I can't decide on ones.
I want to go for two.
So the first is... We hear his new thing is he's decided he's going to give us two every week.
Is that right? Did I do last week too?
I think you did. That's all right though.
Because you know what?
We'll take it. It's good.
Okay, so I'll be quick.
So the first is Janelle Monae is a singer, and she is spectacular.
And I've just discovered her.
And as somebody who doesn't pay that much attention to new music, once in a while somebody strikes you as being so good, she is that good.
She is, yeah. I like her too.
She's the future, I think.
But don't you listen to polka music, Felix, when you say you like her?
Turkish pop. Oh, sorry, Turkish.
Close enough. Cold kill music.
All right, all right.
And the other one was I've gotten in this habit of when I travel, especially to London, at the last minute I'll decide to go to a show and I saw Company, which is the Stephen Sondheim musical, which was so good.
It was like the best thing I've seen in like a decade.
I don't do musicals.
You don't do musicals?
I am sorry. Go to this musical.
You don't like any musical.
You can't think of one.
Like when you grew up?
See, I knew you guys would immediately turn this into an attack on me because I don't like musicals.
It's not an attack, it's like a...
I don't like musicals.
We feel bad that you're missing out.
I can't get into them because the minute it gets interesting, they break out into a song.
Okay, so I want you to see Company, Youngmi.
I really want you to see Company.
Everyone say, oh, I need you to see Cats.
No, no, no, that's garbage.
Oh, you must see Book of Mormon.
That stuff is garbage.
Oh, you have to see Hamilton.
Oh, this is the one that everyone says, oh, this is the one.
So did you see Hamilton and not like it?
Give us your recommendation.
Oh my God. Just give us your recommendation.
Everything I thought about Youngmi is upside down now.
No, just give us your recommendation.
So Company is a Stephen Sondheim musical.
It's playing in London and they switched it from a male lead to a female lead, so it's actually a really nice new version of the musical.
In part because it was serendipitous, I decided at 6 p .m.
to go. It was just fantastic.
And it was like one of those nights which is just so surprisingly great.
So I recommend it completely.
I'm sure it'll end up in New York.
It was that good. So good.
This might be the one that changes.
It's going to change your life.
No one. Well, thanks everyone for listening.
We'll see you next week.
This is After Hours.
Bye. Bye.
