Netflix, Shein and MrBeast

Published on
March 30, 2023
Benedict Evans
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Netflix, Shein and MrBeast

A couple of years ago, I wrote an essay arguing that Netflix is a ‘TV company’, not a ‘tech company’, simply on the basis that all the questions that matter for it are TV questions. What rights, what kinds of shows, what commissioning models, what stars on what basis... all the questions that matter are LA questions. Netflix goes to LA and hires LA people to buy LA things from other LA people. It used technology as a new channel to enter the market, and that technology has to be good, but if it was only showing Friends and Cheers, no-one would care if the compression ratio was 20% better.

Part of this argument is that the technology of streaming itself is mostly a commodity - a hard commodity, and one that you have to get right, but still a commodity - and the key point of leverage is somewhere else. Five years ago a lot of people in Silicon Valley would have laughed at the idea that ‘legacy media companies’ could ever write good software, but Disney has done OK. It might be no more than ‘OK’, but what matters is the TV.

I think you could make a similar point about Shein - both Netflix and Shein realised that you can make far more SKUs if you’re not constrained by physical inventory - the time slots on linear TV and the store rooms of physical retail. So Netflix makes far more TV shows than anyone else, and indeed more than the entire US TV industry in 2006, the year before it started streaming. Shein adds 5-10k new products to the site every day where Zara adds 20-25k in a year. For Shein as for Netflix, the Internet is a new channel that works differently. If you don’t need thousands of physical stores, then you can turn over the product range much faster and reach new customers much more quickly - and so Shein is now bigger than H&M and on track to pass Inditex. But in the end it’s still all about the clothes, and all the questions for Shein are fast fashion questions.

Of course, the fundamental TV question is ‘what’s your budget?’ There’s a circular relationship: a given budget means a given quality and quantity of content, which, combined with your CAC, means a given audience, which means a given level of revenue and a given budget. There is no network effect in TV, and going to Hollywood with the world’s best software and $5 will get you a latte. So, Netflix now spends as much on making TV shows as any of the legacy US TV companies - after all, it IS a TV company. But I think that comparison is missing something - a business where the questions are not really ‘TV’ questions in quite the same way.

YouTube doesn’t break out creator payouts, but one can make some pretty reasonable estimates that put it right in the middle of that  ‘TV company’ group. It also seems to have roughly equivalent viewing (though this is a huge hairball of definitions and measurement).

YouTube doesn’t buy LA stuff from LA people - it runs a network, and the questions are Silicon Valley questions. YouTube, in both the network and the kinds of content, is a much bigger change to ‘TV’ than Netflix. It’s ‘video’, but it’s also ‘time spent’ and it competes with Netflix and TV but also with Instagram and TikTok (it does puzzle me that people focus on competition between Instagram and TikTok when the form overlaps at least as much with YouTube). And YouTube doesn’t really buy shows or buy users - it pays a revenue share.

What is MrBeast and his hundred million subscribers in this - is he a star, a show, a showrunner or a network? ‘Yes’. He’s certainly a company, with a ten-person thumbnail team. And a few back-of-an-envelope calculations suggest that his output gets at least as much viewing as a top-tier Netflix show.

This is why he’s doing so well, for now.

For people like this, YouTube or TikTok are a channel, a platform, a discovery mechanism and a revenue model. He is not hoping to get picked up by a legacy media company and given a TV show or a production deal - this is the business. A showrunner might move from Netflix to HBO because they don’t like being canceled half-way through a series or down-ranked in the carousel - MrBeast is testing YouTube Shorts against TikTok and priming his chocolate business (celebrity brands are a fascinating topic for another post).

This is also context for my tweet here, from a whole other era in tech. Netflix can indeed make TV shows as well as any legacy TV company, but did Disney make software that’s as good as Netflix? It didn’t have to. It just had to make software that’s good enough, because ‘software’ questions are not the point of leverage. But I don’t see any media companies competing with YouTube or TikTok, where software is the point of leverage - at least, not recently.

Benedict Evans is a Venture Partner at Mosaic Ventures and previously a partner at a16z. You can read more from Benedict here, or subscribe to his newsletter.