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- Would you rather own Spotify or Netflix?
I'm gonna give you my opinion.
On our little entreprenuer lesson here.
Um, here's why I'd rather own Netflix.
Now, they're both great businesses, okay.
It'd be great to own either one.
But here's why I like Netflix better.
Spotify has a business model that they pay a percentage
of their profits to the artists,
which is actually great 'cause it's helping out artists.
But from a business standpoint,
the larger they grow, their costs go with them.
Let's say they give seventy percent in cost.
The bigger they get, the more their costs grow.
Netflix on the other hand,
they buy, from what I understand, their movies outright.
So they pay a million bucks once for the right
to play 'em, replay a movie over and over and over.
So, as they grow,
and they just grew to a hundred million people
paying them 10 dollars a month,
that's a billion dollars.
Their costs shrink as their revenue goes up.
So be careful when you start a business,
of a business where your costs grow with your revenue.
You want it to be the opposite.
So like I said, this would be a little controversial
because you know, artists getting paid
with Spotify is important
and I'm not saying it's not a good business model.
Like I said up front, I'd love to own Spotify.
I'm just saying, in general, if you have the choice
between owning two types of businesses,
be careful of ones that your variable costs
or your fixed costs grow as your revenue grows.
One of my friends, he started a business
in the last seven years,
I think they've done a billion dollars in gross revenue.
And one of the things he told me that I loved,
he said, Tai, the ideal business is one where you sell
ever increasing units,
eh golf balls almost hit you Craig.
(laughing)
Uh, where you sell ever increasing units
at ever decreasing costs.
You want your costs to drop over time.
And Netflix has that model.
So, the lesson here is go out,
when you start a business,
be careful of signing royalty agreements,
licensing agreements, where as you grow the business,
you have to continually pay out a percentage.
If you do have that type of agreement,
try to get it where the costs come down,
where you negotiate some kind of a deal where it comes down.
Spotify is in a little bit tougher of a place.
And it's still a very profitable business.
Don't get me wrong.
I'm not talking any crap about Spotify, I'm just saying.
If I had my choice,
I'm going for a business where I got my fixed costs
and they stay fixed and they stay relatively low.
I got some golfers out here.
They dudes don't know how to golf.
They're gonna kill us out here.
(background chatter)
(laughing)
Anyway, so you know, these are one of the things
I'm a college dropout but these are the types of things
you learn in business school
but you don't have to go to business school to learn 'em.
We talking about 'em right here.
That guys a better golfer.
Um, and you know, if you could start a Spotify,
hats off, amazing business.
Like I said, it helps artists
but if you got a choice,
you know, still have a Spotify
but try to own a Netflix.
(laughing)
Yeah, we saw, you know what,
we stayed under the trees so that--
- [Man] You thought you were safe.
- Yeah, we thought we were safe.
Eh, that's alright.
I'm not a good golfer.
I probably would have killed somebody too.
(laughing) These guys thought we were gonna sue 'em.
(laughing)
(upbeat music)