Mitch Lowe (@mitch__lowe) is a co-founding executive of Netflix, the former CEO of MoviePass, the former president of Redbox, and the author of Watch and Learn: How I Turned Hollywood Upside Down with Netflix, Redbox, and MoviePass ― Lessons in Disruption. [This is part two of a two-part episode. You can find part one here!]
What We Discuss with Mitch Lowe:
- How Netflix tested, marketed, and made its DVD-by-mail service work at a time when the profit margins were low and its brick-and-mortar competition was high.
- How Redbox DVD rentals filled a consumer niche between Netflix and Blockbuster — and was so successful that one machine was being installed per hour for every hour of the day, three years in a row!
- Redbox’s loss-prevention and cost-capturing strategies for what were essentially unstaffed video vending machines in operation 24/7.
- Obstacles Netflix and Redbox faced from business interests entrenched in the status quo (and how they were overcome).
- Why Mitch once faked a heart attack to get out of a meeting with Walmart executives.
- And much more…
Like this show? Please leave us a review here — even one sentence helps! Consider including your Twitter handle so we can thank you personally!
Please Scroll Down for Featured Resources and Transcript!
Please note that some of the links on this page (books, movies, music, etc.) lead to affiliate programs for which The Jordan Harbinger Show receives compensation. It’s just one of the ways we keep the lights on around here. Thank you for your support!
Sign up for Six-Minute Networking — our free networking and relationship development mini course — at jordanharbinger.com/course!
This Episode Is Sponsored By:
- Peloton: Learn more at onepeloton.com/row
- TextExpander: Get 20% off your first year
- HVMN: Go to HVMN.com promo code JORDAN for 20% off Ketone-IQ
- TurboTax: Visit turbotax.com for more information
- Hyundai: Find out how Hyundai can positively charge your life at hyundai.com
- The Hustle Daily Show: Listen here or wherever you find fine podcasts!
Miss our conversation with Google’s Eric Schmidt? Catch up by listening to episode 201: Eric Schmidt | How a Coach Can Bring out the Best in You here!
Thanks, Mitch Lowe!
If you enjoyed this session with Mitch Lowe, let him know by clicking on the link below and sending him a quick shout out at Twitter:
Click here to thank Mitch Lowe at Twitter!
Click here to let Jordan know about your number one takeaway from this episode!
And if you want us to answer your questions on one of our upcoming weekly Feedback Friday episodes, drop us a line at email@example.com.
Resources from This Episode:
- Watch and Learn: How I Turned Hollywood Upside Down with Netflix, Redbox, and MoviePass ― Lessons in Disruption by Mitch Lowe | Amazon
- Mitch Lowe | Website
- Mitch Lowe | Twitter
- Mitch Lowe | Instagram
- Reed Hastings | Twitter
- Marc Randolph | Twitter
- Watch TV Shows Online, Watch Movies Online | Netflix
- Rent or Own on DVD, Blu-Ray, 4K, OnDemand, Free Live TV | Redbox
- Movie Theater Subscription | MoviePass
- 8 Reasons Why Blockbuster Failed & Filed for Bankruptcy | Indigo Digital
- The History of Netflix: The DVD Rental Company That Changed the World | Android Authority
- Conditions That Affect CDs and DVDs | CLIR
- ‘A Living Museum’: What It’s Like Using Netflix’s Dvd-By-Mail in 2022 | The Guardian
- Netflix’s First Hit Show Was Bill Clinton’s Impeachment Testimony | Vice
- When Netflix Sent Adult Videos Instead of Bill Clinton DVD | ScreenSlam
- L.A. Confidential | Prime Video
- Boogie Nights | Prime Video
- The History of Redbox | History-Computer
- First Sale Doctrine | American Library Association
787: Mitch Lowe | Lessons in Disruption Part Two
[00:00:00] Jordan Harbinger: Special thanks to Peloton for sponsoring this episode of The Jordan Harbinger Show.
[00:00:04] Coming up next on The Jordan Harbinger Show.
[00:00:06] Mitch Lowe: They not only made our DVD, but they were one of the big porn DVD manufacturers in the San Francisco Bay area. And I happened to have grabbed a batch, a stack, which typically is a hundred disks per stack. So I must have grabbed a couple of those and mixed them in.
[00:00:28] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger. On The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people. We have in-depth conversations with scientists, entrepreneurs, spies, and psychologists, even the occasional former jihadi, neuroscientist, hostage negotiator, or astronaut. And each episode turns our guest's wisdom into practical advice that you can use to build a deeper understanding of how the world works and become a better thinker. If you're new to the show or you're looking for a handy way to tell your friends about the show, I suggest our episode starter packed as a place to begin. These are collections of our favorite episodes organized by topic. They will help new listeners get a taste of everything that we do here on this show — topics like negotiation and communication, disinformation, persuasion, technology and futurism, crime and cults, and more. Just visit jordanharbinger.com or search for us in your Spotify app to get started.
[00:01:20] Another way you can search for episodes is using the ChatGPT AI chatbot on the website at jordanharbinger.com/ai. You can search for any promo code on the show. Any questions we might have answered on Feedback Friday, any episode topics, they should all be there. jordanharbinger.com/ai. And if you find a weird bug or something is not working right, please email me. We'd love to work out the kinks. Really, really cool little search upgrade here. The future of AI really is here, and I'm telling you this is making the podcast and the website so much more usable. So go check it out and let me know what you think. jordanharbinger.com/ai.
[00:01:54] All right, part two here with Mitch Lowe. If you haven't heard part one, go back and check it out. He was the founder of Netflix and Redbox, also smuggled clothing through the Iron Curtain, just a really fascinating guy. Again, part one came out a couple of days ago. Here we go, part two with Mitch Lowe.
[00:02:15] Okay, so once you figure out I can mail DVDs, they're not going to crack, scratch — well, they're going to get lost, but there's nothing you can do about that. I assume at some point there's just a certain amount of this never made it, this got destroyed, you're just building that in. Like 10 percent of DVDs are going to just never arrive and/or arrive in five pieces.
[00:02:35] Mitch Lowe: Yeah. You know, there was those kind of three or four big buckets of problems in mailing DVDs, you know, cracking, scratching. In the early days, all DVDs did not play well on every DVD player.
[00:02:51] Jordan Harbinger: Mm-hmm.
[00:02:51] Mitch Lowe: There was still a lot of the technology being worked on and different companies were using different scripting languages for chapters and so on. It wasn't like we got to a certain point and everything was solved. It was in every one of these kind of negative factors, whether it was hurting the profits or hurting the customer experience. There was constant testing and solving that went on and all at different paces.
[00:03:24] Jordan Harbinger: Some of the solving you did with not only Netflix, but with Redbox, which I'll get to in a second, is really detailed. One genius idea, this is the genius of the idea, is it's so obvious after you do it, but when you did it, nobody else was doing it. You put a coupon in almost every DVD player — I mean, you contacted these manufacturers and said, "Hey, people are going to buy this and then not have any DVDs."
[00:03:45] Mitch Lowe: Mm-hmm.
[00:03:46] Jordan Harbinger: So you need to make your product useful. We need people to sign up for Netflix. Here's a coupon for what a free rental or a free month of rentals, or whatever it was. I mean, did this strategy seem obvious at the time, or was this just one of those things you, that just happened to pop off?
[00:04:01] Mitch Lowe: Well, it was, you know, really Marc was a marketing genius. He recognized that there was this issue in that people getting DVD players wanted something to put in. Otherwise, it was a waste of time. And my connections with the DVD studios and with the manufacturers told me they also had a big problem. They were getting a lot of pushback from their retail accounts saying, "Hey, Blockbuster only has a small selection in very few locations and people just don't want to shell out $20 to buy a movie to watch one time." Yeah. So it ended up being like that classic, easy, easy deal to make happen as long as we were subsidizing all the costs of the rentals and there was a lot of competition between the DVD manufacturers because we started this before subscriptions. So typically we would give eight free rentals on this coupon.
[00:05:04] So you got codes that gave you eight free one-week rentals, and then you had companies like Sony saying, "Hey, but we're the big kahuna in the business. We want 10." And then you had Toshiba, which was backed by Warner saying, "Yeah, but our partner Warner is supplying all the movies, so we want 10." So there was a lot of back and forth. And it was easy to get these inserted. We shipped them all to Japan where all the players were being manufactured in those days before they shipped to China, and these guys would just slide them into the manual bag, that little plastic bag, or put them right on top. But then the retailers also wanted a piece of the action, and this actually ended up being the most effective, they wanted their salespeople on the floor to have as a bonus, as a plus.
[00:05:59] Jordan Harbinger: Uh-huh.
[00:05:59] Mitch Lowe: So, you know, we had everybody from Best Buy to Circuit City to Target, every retailer and every manufacturer was giving away these first free rentals and then eventually a free month of Netflix.
[00:06:16] Jordan Harbinger: There's somebody somewhere who worked at Best Buy, who stole a stack of those and is still getting free Netflix 10 years later from all of the scratch-off codes or whatever that he's got sitting in his office because that's a lot of free DVDs. I mean, you're giving away free DVD rentals with the player and then the person bought it at the store so they get another five or whatever. And it's just like, that adds up fast, but I guess if you get a customer, you get a customer.
[00:06:40] Mitch Lowe: Yeah. And that's the whole thing is that there is a real science to this. The science is what is your ROI on all these costs because you might get — first of all, you're not going to have everybody redeem it, but then of those who redeem it and get the free rentals, and this was our big challenge when it was a la carte, everybody would take the free rentals and then never come back. You know, they would go, "Okay, now I've gotten my fill. Now, I'll go to the video stores, which were at that time starting to put more inventory in into their stores. So then, once we switch to subscription, you know, should it be a one month, should it be a two week, at what point does the customer decide, this is for me and it's worth paying for? And then what are they willing to pay and for what? And so we started out, you get four movies at a time for $19.95, and you get a free month to try it out. And it turned out that four at a time, you could have watched 30 or more movies in the month, and we were paying not only a dollar and 10 cents roughly to ship it and get it back. But in addition, we were paying revshare on subtitles. We had to pay the cost of the DVD initially, which was between 15 and $18.
[00:08:03] Jordan Harbinger: Oh wow.
[00:08:04] Mitch Lowe: You know, if people kept it two, three weeks, by the end of the second or third rental, everybody moved on to the next big hit title.
[00:08:12] Jordan Harbinger: Oh man.
[00:08:13] Mitch Lowe: You know, so there was so many moving parts trying to figure out how exactly do you get people to want to come back and pay and how much does it cost us to per converted, as we used to call them, customer.
[00:08:28] Jordan Harbinger: Well, you ended up with a lucky break. I'm putting this in radio air quotes here because you had the Monica Lewinsky scandal generate this massive email list for the company. Tell me this story because this is so ridiculous. It's shocking that it worked the way that it did.
[00:08:43] Mitch Lowe: It was a crazy idea. And one of the things I always enjoyed doing is putting together ideas from one person totally unrelated to our business with a need in our business. And a guy who was a friend, he was a distributor of Polish content in the United States to video stores, had this hair-brained idea that we could prove that you could make a DVD in record time. And in those days, it actually took three, four months to actually make a DVD to get to the point where you could manufacture that. The master was called a silver disk. Part of this was because different players used different technologies, as I was saying earlier.
[00:09:31] Jordan Harbinger: Mm-hmm.
[00:09:31] Mitch Lowe: And so he had this idea because he was friends with a company in Sunnyvale that said they had figured out a kind of a universal language to create that master DVD with chapters and so on, and they thought they could do it in 24 hours.
[00:09:49] Jordan Harbinger: So this is like a standardized format that would work on any DVD player as opposed to like the gymnastics you had to do before?
[00:09:55] Mitch Lowe: Yeah. This was their theory. It actually wasn't exactly true.
[00:09:59] Jordan Harbinger: Okay.
[00:10:00] Mitch Lowe: So right at the same time I was thinking, okay, what can we test this on and what good does it do us at Netflix just to prove you can make a DVD that would be more relevant to the studios and the manufacturers. Right, at that same time, I was reading that President Clinton was going to give testimony before Congress on the Monica Lewinsky issues, you know, that he lied, et cetera. Then Marc said, "Isn't that public domain? Can't we just record that content or get it from a TV news station and make it into a DVD?" And I checked all the different constituents involved and yes, we could do that. So that's exactly what we did.
[00:10:45] And, you know, this whole thing was happening so fast. We didn't know what we were going to do. Were we going to sell it? Were we going to put it in our rental library? It could really be considered our first exclusive content from that respect, which, you know, today soaks up 18 to 20 billion a year. So the whole idea evolved to, "Well, let's give it away, let's give it away to build up this subscription list or a list of potential future customers." And that's end ended up being this huge campaign that had all kinds of problems involved in making it work.
[00:11:24] Jordan Harbinger: At one point you thought you were sending the Monica Lewinsky thing, but you ended up sending something quite different to a bunch of your customers.
[00:11:31] Mitch Lowe: Well, you know, the first issue we came across is you can't actually give something away for free and get someone's credit card information, which we wanted because the idea is get this DVD for free and become a member but to become a member you needed a credit card. So we came up with this idea of just charging two cents. That was enough to be able to process the credit card and it worked really cleverly into this statement, which was, "Give us your two cents."
[00:12:04] Jordan Harbinger: Mm-hmm. Oh.
[00:12:04] Mitch Lowe: And you know, which is a classic, "Give me your thoughts on this idea." And in the whole process, this was like, I think, a 96-hour, 72 hours of non-sleep going back and forth between this company in Sunnyvale and then back to the office in Los Gatos. In fact, no, it was in Scotts Valley. So over Highway 17 towards the beach, lots of driving back and forth. Meanwhile, we had not identified a manufacturer who was going to take this silver platter and turn it into DVDs and do it quickly. So we called around and called around and we found a company in Fremont, California that said, "Yep, bring us the silver platter and we'll start pressing them right away." Well, we brought it over. They said, "Come back in a couple of hours later." And we were racing because by this time, Marc had gotten a huge story on this in the Wall Street Journal and we were getting flooded with orders. I think it ended up being tens of thousands of orders for the title.
[00:13:11] And so we're racing back and forth and I grabbed the first batch of the DVDs and get them back to the office so they could put them in the envelopes. The first thing someone noticed was instead of it saying Clinton on the hub where they would etch in the title, it said Cliton without the N, C-L-I-T-O-N. And okay, I thought nothing of it. About three, four days later, we started getting, someone sent us email or something, they said, "Okay, now I get why the hub said Cliton and not Clinton, this has porn on it." And we go, "Oh my God." And I went back to the manufacturer and sure enough, they not only made our DVD, but they were one of the big porn DVD manufacturers in the San Francisco Bay area. And I happened to have grabbed a batch, a stack, which typically is a hundred disks per stack. So I must have grabbed a couple of those and mixed them in.
[00:14:14] Jordan Harbinger: Oh man, this isn't a typo. It really is just Cliton. So that you grabbed a hundred copies of Cliton or whatever. Oh my gosh.
[00:14:23] Mitch Lowe: Like all good retailers that make a mistake, you know, we reached out to all our customers. We didn't know who got what. One of the big challenges with DVDs, which later we solved at Redbox, was how do you put an identifier on the disk itself to identify that actual unit. And in those days, this was prior to being able to do that. So we didn't know which 200 people got the porn disks. So we reached out to everybody who we sent it to, saying, "We'll send you the right one. Just send us that back." And I think we never got, in fact, I'm sure we never got one returned to us. They are in the market as collector's items now.
[00:15:09] Jordan Harbinger: It is kind of funny that the first Netflix exclusive or Netflix original was a BJ speech by President Clinton and/or some hardcore porn depending on what you accidentally got in the mail.
[00:15:19] Mitch Lowe: It's somehow, it's like the connections are too good to be completely accidental.
[00:15:25] Jordan Harbinger: The iconic red envelope at some point is then born. And I remember seeing these all through college and maybe even through law school or both. And eventually, I started to wonder what the heck is that I see my friends have these laying around everywhere. That had to have been some of your best advertising early on because I just remember seeing those ubiquitously all over campus and everybody had it. And I remember going, "What's Netflix?"
[00:15:49] Mitch Lowe: Yeah.
[00:15:50] Jordan Harbinger: What is this? And everyone had a DVD player on their computer at that point, kind of, well, kind of on their laptop or there was one in the lounge for the students and you could get DVDs from the library. So I just thought like, this is a really such a brilliant idea because everybody knows this color. It's like this crimson or whatever that the movies come in.
[00:16:08] Mitch Lowe: Yeah. People would go into friend's house and see these stacked on their TV or somewhere in the house and ask, you know, what is that? It's almost the same as seeing a long line in front of a restaurant or—
[00:16:23] Jordan Harbinger: Yeah.
[00:16:23] Mitch Lowe: —a place and going, "You know, I better check that out." A lot of people think it's a great idea. You know what was really, I think one of the interesting things was I ran into one day my postman, who was delivering mail. I happened to go out, you know, remember we used to all have those boxes, you know those doors, you open up?
[00:16:43] Jordan Harbinger: I do.
[00:16:44] Mitch Lowe: And I went out there just as he was delivering and he said, "Boy, have you seen all these red envelopes?" And I go, "Yeah. You know, I work for that company." And he said, "You know, a bunch of us at the post office are going to invest because we're seeing them everywhere." And so they, the postmen and women, were some of the first people to recognize that there was this movement, this wave of a fantastic new product. Remember this is prior to social media. This isn't something that got talked about a lot, but the postmen and women really recognized a flood of envelopes.
[00:17:24] Jordan Harbinger: That's funny. They're on the front lines and they're going, "You know, whoever, whatever this company is they're selling a lot of these or rent—" They probably didn't know exactly what was going on. There's so many of these, they're delivering thousands of these every week. This is an idea that's caught on and besides you guys, they were probably some of the first people to actually see that your business was successful, which is pretty funny to think about it.
[00:17:44] Mitch Lowe: Yeah.
[00:17:45] Jordan Harbinger: Yeah.
[00:17:45] Mitch Lowe: More aware than a lot of people in the finance industry or the entertainment business.
[00:17:51] Jordan Harbinger: Even, I guess you're sort of finance people. They've got to wait for the monthly numbers of the quarterly numbers. The postal service people are like, "Nope, I've seen 10,000 of these in my truck—"
[00:18:00] Mitch Lowe: Right.
[00:18:00] Jordan Harbinger: Every single week for the last three months, two months. Like, they're really kind of on the day to day. You got to focus on faster and faster delivery at some point eventually back then. It seems like waiting for the postal service to deliver your product is pretty fraught. You know, we talked about breakage.
[00:18:16] Mitch Lowe: Yeah.
[00:18:16] Jordan Harbinger: But it's also something you don't control. You could never control. Anything can go wrong. Best case scenario is one to three days and you don't even know, how do they know if I'm renting this movie and keeping it or if it just never reaches me? Because of course, I'm not going to say, "Hey, I'm stealing your product. I'm going to say I never got this thing." At some point, you got to be thinking, "Ah, we're going to wait for the Internet to catch up so we can stream movies," right? Was that kind of the solution?
[00:18:41] Mitch Lowe: No. At that time, so we're talking like, 2002, let's say.
[00:18:47] Jordan Harbinger: Mm-hmm.
[00:18:47] Mitch Lowe: The ability to stream or download seemed way too far in the future.
[00:18:52] Jordan Harbinger: Okay.
[00:18:52] Mitch Lowe: The studios were being pretty adamant that they were never going to let their valuable content be open to that kind of piracy, which they all believe that streaming or download would cause. And so we took very seriously this idea of faster delivery. And the way it came to light initially was that when you looked at the market share, we were able to identify how many DVD households there were by markets, so San Francisco, New York, et cetera. And it was based on sales data that we got from an organization that represented DVD player manufacturers.
[00:19:34] So when we compared the number of our subscribers to the installed base, one thing stuck out like huge, and that was. We had roughly a five percent market share in the San Francisco Bay area, and it was like a quarter percent, you know, a half a percent at best in other major markets. And in our mind, we weren't sure what the cause of that was. We had three big ideas. One of them was how long it took to ship.
[00:20:07] Jordan Harbinger: Mm-hmm.
[00:20:07] Mitch Lowe: You know, those markets that were lower were two and three-day ship markets in San Francisco. We had a warehouse in San Jose. You could probably get your DVD the next day.
[00:20:18] Jordan Harbinger: Oh yeah.
[00:20:18] Mitch Lowe: Whereas the rest of the market was two. So we thought, "Okay, maybe it's the one-day ship." But the argument was, yeah, the Bay Area is a high-tech community. You know, they catch on to these things. They're early adopters, et cetera. Of course, third was we all had lots of friends that we had told about it.
[00:20:38] Jordan Harbinger: Yeah.
[00:20:38] Mitch Lowe: We had a full-page ad in April of 2018 in the San Francisco Chronicle. It was all funded by Warner Brothers, promoting our first two titles, which were LA Confidential and Boogie Nights.
[00:20:51] Jordan Harbinger: Oh yeah.
[00:20:52] Mitch Lowe: Those were our firsts. So we had all these different ideas. Eventually, through more research, we did find that it was how long it took to get it. There was this change in what you wanted to watch from the time you ordered it, to the time you got it.
[00:21:07] Jordan Harbinger: Yeah.
[00:21:08] Mitch Lowe: You know, you ordered a comedy. "Actually, I'm not in the mood. I want a drama." You know, we had different ideas. One of them was to put kiosks in grocery stores all over the country so you could return your DVDs and pick up new ones just at your regular shopping. And the average American goes to the grocery store 2.6 times a week. So that was like, you know, an easy idea. And we started a project, a stealth project called Netflix Express. And we tested it in Las Vegas and was enormously successful. But you know, other problems.
[00:21:44] Jordan Harbinger: This actually makes a lot of sense because I was going to ask about Redbox, which is, they're the boxes, vending machines, essentially, that people see outside, let's say a 7-Eleven.
[00:21:52] Mitch Lowe: Mm-hmm.
[00:21:52] Jordan Harbinger: And I thought, why would you do Redbox when you're already doing Netflix? Because a lot of people I think, don't realize that these are two separate markets—
[00:21:59] Mitch Lowe: Mm-hmm.
[00:22:00] Jordan Harbinger: That exists at the same time. But also since Netflix was mailing things, Redbox actually made even more sense because it was at least instant, more or less. Whereas now—
[00:22:09] Mitch Lowe: Right.
[00:22:09] Jordan Harbinger: —if you're streaming everything, it's like, "Who goes to rent a DVD? Who's doing this?" And the answer is well before everyone.
[00:22:15] Mitch Lowe: Right.
[00:22:15] Jordan Harbinger: And now there's still a market for that, which we'll talk about in a bit.
[00:22:18] Mitch Lowe: Yeah. So we had these three ideas. One of them is to put kiosks called Netflix Express, all over the place. So it was convenient. The second one, which was a very clever idea. Remember when you put a movie in your queue, we would prioritize that list based on what was in inventory. So when we got a disk back, you'd get the next highest-ranked one. You know what? For those people in New York, it would take two days for that disk to get back to us. And then if someone else in New York wanted it, it would take another two days to get to them.
[00:22:56] Jordan Harbinger: Oh.
[00:22:56] Mitch Lowe: So we thought, what if we preprint the return part of the envelope with the name and address of the person who's got it in their queue after you, in other words, cut out the return to our warehouse and ship it directly from Joe who lives in Manhattan—
[00:23:15] Jordan Harbinger: Oh, wow.
[00:23:16] Mitch Lowe: —to Steve that lives in Brooklyn instead of back and forth. And we devised an envelope that now had three mailings, you know, had three envelopes associated with it. So after Steve was done with it, it would come back to the warehouse. What we didn't realize after a test was now we're telling people private information about what someone else rented.
[00:23:41] Jordan Harbinger: Oh geez.
[00:23:42] Mitch Lowe: So we had to kill that idea.
[00:23:44] Jordan Harbinger: Well, I don't want my address on Steve's envelope. And it's like—
[00:23:49] Mitch Lowe: Right.
[00:23:49] Jordan Harbinger: Oh, I know Jordan Harbinger. Wow, he's renting the same Monica Lewinsky porn tapes as I am from Netflix. That's interesting. No, I know you don't send that on purpose, but still I don't want somebody to know No. What if there's a celebrity that has their address on there? And I'm like, whoa.
[00:24:04] Mitch Lowe: Yeah.
[00:24:05] Jordan Harbinger: Megan Fox is getting this after me. I'm just going to walk over there.
[00:24:08] Mitch Lowe: Exactly. So that idea failed.
[00:24:10] Jordan Harbinger: Mm-hmm.
[00:24:11] Mitch Lowe: The Netflix Express idea, we ended up shutting down, even though we were signing up thousands of customers at grocery stores in Las Vegas. The problem is, without the delay of the post office and the whole kind of process, you went about picking your movies, people were watching 15, 16 movies a month on average, you know, from grocery store subscribers. So that was killing us financially.
[00:24:40] Jordan Harbinger: Oh.
[00:24:40] Mitch Lowe: When you're charging $19.95 and you know, you're giving away $19 worth of postage stamps. So the third idea, which was kind of the no-brainer and still exists today for Netflix, is build many warehouses all over the country to get most of the country in a one-day ship. But the challenge was, and I learned a lot about this challenge that took me to Redbox because each kiosk for Redbox is kind of a mini-warehouse repeated many, many times. But the trick was, how do you allocate, especially the new releases, which were like fresh fruit in that—
[00:25:20] Jordan Harbinger: Mm-hmm.
[00:25:21] Mitch Lowe: —no one wants them after three or four weeks. How do you position just the right number? So that ended up being the—
[00:25:27] Jordan Harbinger: Yeah.
[00:25:28] Mitch Lowe: —solution and it got everybody one day, it got 90 percent or so of the customers within a one-day ship.
[00:25:37] Jordan Harbinger: You're listening to The Jordan Harbinger Show with our guest, Mitch Lowe. We'll be right back.
[00:25:41] This episode is sponsored in part by TextExpander. Do you want to be more productive and save literally hours each month? We use a tool every single day called TextExpander. I've been using it for years. Save time typing out repetitive things such as the current date, email addresses, phone numbers, commonly used phrases, those little inside joke words that you've made up with your family, that you're always texting and spelling wrong. TextExpander is basically keyboard shortcuts but way, way more powerful. You can create dropdown menus and fill in the blanks to customize the shortcuts. A few of you have had your whole team implement this, and your boss is all stoked. I did that with my company. I got it, and I was like, "Jen, you got to see this." Everybody in the company now uses this. Again, I use it all the time, especially if you need to send out mass messages that are customized, like responding to LinkedIn or social media or other business. TextExpander is really smart. It'll actually suggest snippets. You should create based on things you type all the time. So it'll be like, hey, I notice you type different all the time. Why don't you just type "di" and it'll finish the word for you or differential, because you're writing about mechanics. Just type "colon D" and it'll write the whole word for you. So don't waste time typing out things you've already worded perfectly, whether it's a word or a whole email. Capture the important pieces of your emails, directions, messages, and data. You never have to retype them again. I've got shortcuts from my address, my email address, common phrases I use at work on Slack. Like, "This is done. It's in the uploads folder." I mean, I just typed two characters and that just posts right in there. It also works on desktop and mobile.
[00:27:03] Jen Harbinger: It's totally free to try TextExpander. Just go to textexpander.com/jordan and get 20 percent off when you're ready to sign up, textexpander.com/jordan.
[00:27:13] Jordan Harbinger: This episode is also sponsored by HVMN. You've heard the buzz about keto supplements and now they can boost your workouts by helping your body use fatty acids for fuel. I use HVMN's Ketone-IQ supplement before my morning workout. It's not just a bunch of caffeine or stimulants, it's more like focused energy. It's not a bunch of heart racy type stuff. It's that feeling of being in the zone without the anxiety or jitters of coffee, because it's not just making you run faster. It's actually fuel, right? It's ketones. And Ketone-IQ comes in portable, convenient shots. A lot of my elite athlete friends are using them on cycle rides, long runs, long days at work. The taste is terrible. I've covered that before. They try to keep it, let's just say pure by not adding a bunch of sugar. I just really love this. It curbs your appetite a little bit. You don't have the crash at the end of the workout. You don't have your crash at the end of the. Let me know what you think if you end up trying Ketone-IQ. I would love to hear from you. A lot of you have been using it. I want to find out how late in the day I can use it. Does it impact sleep? I don't even know. I only take it in the morning.
[00:28:08] Jen Harbinger: For 20 percent off your order of Ketone-IQ, go to hvmn.com and use promo code JORDAN. Again, that's HVMN.com promo code JORDAN for 20 percent off Ketone-IQ.
[00:28:21] Jordan Harbinger: If you're wondering how I managed to book all these great authors, thinkers, creators, and founders every single week, it's because of my network and I'm teaching you how to build your network for free over at jordanharbinger.com/course. The course is all about improving your relationship-building skills, and inspiring other people to want to develop a relationship with you. The course does all of that in a super easy, non-cringe, down-to-earth way. No awkward strategies or cheesy tactics, just practical exercises that'll make you a better connector, a better colleague, a better friend, and a better peer. Just six minutes a day, that's all it takes. Again, the course is free, and many of the guests on our show subscribe and contribute to the course. So come join us, you'll be in smart company. You can find the course again free at jordanharbinger.com/course.
[00:29:04] Now back to Mitch Lowe.
[00:29:07] This kind of business is so complicated. I was thinking about this because one of the big hangups with Redbox was the fact that, okay, the transaction takes a long time. You got people waiting in line to get movies from the box at the grocery store, but they've got bags of food. Then, people who want to return a movie have to wait in the same line, and it's like, I just want to put this stupid thing back and I got to wait behind this guy who's looking at 17 different selections.
[00:29:29] Mitch Lowe: Awful.
[00:29:29] Jordan Harbinger: And then, it's like, let's put a return slot on the side so the returns go on one side and the people getting the other one. But then it's like some, I'm choosing a movie and someone's like right here—
[00:29:37] Mitch Lowe: Right.
[00:29:38] Jordan Harbinger: —three inches away from me trying to put the thing in. And you've got a test for all that stuff at great expense. You're manufacturing different versions of this machine that can accept the movies, and you got to get data on what's working. And like you said, this store in Santa Clara, California. How many additions of John Wick Two do we need to have in there before people are like, "This never has anything," versus, "Now, we have too many in there and we can't fit the other movies people want," or "We don't have enough to put in at the one down the road." I mean, it's just the amount of data you have to crunch to get that, it seems like an impossible calculus problem.
[00:30:13] Mitch Lowe: Oh, it was, and the most fascinating challenge I've ever — and of course, you know, I wasn't the math scientist on this, but I had 17 analysts focus solely on this, who were just amazing. All of them have gone on to great careers in the analyst world. But yeah, just to give you one crazy metric is first we were opening a new kiosk every single hour, 24 hours a day, seven days a week for three years in a row. It was about 8,200 or so per year.
[00:30:49] Jordan Harbinger: Oh God, that's so many.
[00:30:50] Mitch Lowe: We were manufacturing them, we were shipping them, installing, and then manning them, you know, operating them all internally. So what that meant is after the first year or so, we were generally opening a new kiosk that competed with an existing one.
[00:31:07] Jordan Harbinger: Right.
[00:31:07] Mitch Lowe: And siphoned off part of the customer base. And so this calculation of how many copies to put in the 7-Eleven on the right side of the road in Denver, and then how many to put in the Smith store on the left side of the road, you know, when the Smiths didn't exist up until today became a huge, incredible calculation. But what was crazier is 43 percent of all the movies were rented in one location and returned to another. So we not only had to deal with how many you'd put in there initially, but you had to calculate how many were going to go to another location and where, and if these movies just kept renting and renting and renting, it wouldn't be an issue. But generally, new releases were, you know, there was typically three or four big hit titles every week that came out.
[00:32:05] Jordan Harbinger: Mm-hmm.
[00:32:05] Mitch Lowe: And three weeks after they came out, hardly anyone, you know, 90 percent demand drop. And so if you didn't get it right, you basically were out of luck. You know, you couldn't generate any revenue.
[00:32:18] Jordan Harbinger: I mean, that's crazy. I didn't even think about that. If they can return the movie to a different location, now you have to kind of have some sort of model that predicts the future use and adjust like an algorithm based on return data. It's almost—
[00:32:29] Mitch Lowe: Right.
[00:32:29] Jordan Harbinger: That seems even more difficult than the stuff we just talked about. I mean, that's crazy. And then, of course, if there's one common return location because it's convenient somehow, now you've got, and this is a 30,000 7-Eleven parking lot, do you have somebody who goes, "Okay, this machine is full of returns."
[00:32:46] Mitch Lowe: Mm-hmm.
[00:32:47] Jordan Harbinger: "We got to drive someone over there and spread them out through the area. Because now that machine has a bunch of returns that can't service and the other ones are empty."
[00:32:54] Mitch Lowe: You know, we had a working theory to do that, but the cost of sending someone to a location—
[00:33:01] Jordan Harbinger: Yeah.
[00:33:01] Mitch Lowe: You know, having it clear which ones to take out, where to put them was way too costly. So we had to do this all with the kind of the foresight of analytics. And several really interesting themes took place. First of all, there was what type of spot is it located in? Is it a grocery store? Is it a convenience store? Is it like a Walgreens? Is it a Walmart? That had specific demographics with specific tastes in mind and specific patterns of behavior of how often they would shop at that location. What were the other types of locations they would go to? And then we also knew this kind of what was UPS rule, which was, you might have heard this, "No, left turns."
[00:33:52] Jordan Harbinger: Ah, yeah.
[00:33:53] Mitch Lowe: So what we also saw is that every time we add a location on the way to work that was on the right, that would get the morning returns. You're on your way to work, you're going to drop it off. You want your next movie to come, you'd pull into a 7-Eleven, drop it off. Whereas on the other side of the road, in the right hand turn, you'd go to pick up your next one on the way home from work.
[00:34:18] Jordan Harbinger: Oh, that's so interesting. God, I would never think of this.
[00:34:21] Mitch Lowe: So the algorithms were impacted by demographics type of location. Was it on the right hand side of the road on a traffic lane? And then, also, of course, there's new releases all the time. And how do you determine if the movie studios could predict demand accurately? You know, they would be rolling in dough but—
[00:34:44] Jordan Harbinger: Right.
[00:34:44] Mitch Lowe: —you know, as you can see over the last couple of months, there's been some huge duds that there's been a lot of money invested in. So we had that same problem and at the same time it was different titles impact other titles. So we were able to develop an understanding of how an action title that does over 50 million dollars, either drags along a drama that did 10 are negatively impacts another action film. It was a very complicated formula, but 50 percent of the inventory in the kiosks were rented every day, if you can imagine going into a blockbuster and 50 percent of that inventory being rented out, earning money, that was really our secret sauce is instead of charging four dollars for a three-night rental, we were charging a dollar a night. But by doing so, increasing the ROI on the inventory versus kind of the traditional model.
[00:35:50] Jordan Harbinger: And how many movies does that Redbox machine hold? Is there a few hundred in there?
[00:35:53] Mitch Lowe: Yeah, there's like 325. We also were always working on increasing capacity.
[00:36:00] Jordan Harbinger: Mm-hmm.
[00:36:01] Mitch Lowe: We used to sell DVDs out of the machines as well, and those were taking up two slots. So eventually, we had a huge success in one sale, and then everything flopped after that. We sold, I think it was 18,000 copies in the St. Louis market of a commemorative DVD about Bush Stadium and—
[00:36:23] Jordan Harbinger: Okay.
[00:36:23] Mitch Lowe: Then, after that everything failed.
[00:36:26] Jordan Harbinger: That is super weird. That's so random. It's just like noisy data. Tell me about some of the fraud scams you encountered with Redbox because look, I assume just having been a crappy jerk teenager. I assume if you need a credit card to go rent something, I can go get — and I don't want to give anybody any ideas here, but I can go get a Visa gift card from a CVS. I can rent 10 DVDs for 99 cents each and I'm not going to ever return those if I'm a piece of crap.
[00:36:55] Mitch Lowe: Yeah.
[00:36:55] Jordan Harbinger: Or I could probably rent a bunch of video games because I know at some point you had either tested or you have video games.
[00:37:01] Mitch Lowe: Yeah.
[00:37:01] Jordan Harbinger: I could get those and I could sell them on eBay for 50 percent off after essentially buying them from you illegally, you know, stealing them for 99 cents each. And you can't find me because it's a gift card. I bought it with cash from the drugstore. Surely, this must have been a thing.
[00:37:17] Mitch Lowe: Huge, huge problem at a by 2009. This was well over a hundred million of loss each year.
[00:37:25] Jordan Harbinger: Oh my God. That's way bigger than I thought.
[00:37:27] Mitch Lowe: I think it was 150 million. We had two major fraud categories. The first one was what you described where people would go to their local grocery store, buy a Visa gift card, usually a $20, $25 gift card. They would rent a game and two movies, or three movies. And you know, one of our big attributes was there was no membership. You didn't have to put in where you lived or your phone number or anything unless you wanted a receipt, you would put in your email, but—
[00:37:57] Jordan Harbinger: Mm-hmm.
[00:37:57] Mitch Lowe: —you know, you can create emails and people would do exactly as you described. They would rent a game and a couple of movies. They'd spend what the balance was on that card and never return. And then, when we tried to charge it, of course, we don't know who it is or what it. And when we went to Visa and to MasterCard and American Express, because there's a bin number on a Visa gift card that identifies that it's a gift card.
[00:38:24] Jordan Harbinger: Mm-hmm.
[00:38:25] Mitch Lowe: And so we knew that. And so we went to Visa and said, "You know, we're getting so much theft we don't want to rent to these people." And their response was, "Look at your contract with Visa. If you deny treating them equal to other, that's our whole premise is it's just like a Visa card.
[00:38:44] Jordan Harbinger: Mm-hmm.
[00:38:45] Mitch Lowe: If you deny them service, you're violating your contract.
[00:38:49] Jordan Harbinger: Oh man.
[00:38:49] Mitch Lowe: And we won't let you take any visas. Now, you might know that when you go to a gas station, when you put in the card, they authorize typically a $50 charge on your card. So we said, "Well, can't we do that?" Because apparently, the Petroleum Association that represents gas stations had the same problem. You would put your card in, fill up with $50 worth of gas, and then your card was no good and you'd walk away and they couldn't collect. So they went to Visa and got approval to do a $50 advanced charge before they would start pumping gas. But Visa said, okay, we'll consider it. But the process is a two, three-year process.
[00:39:33] Jordan Harbinger: Yeah.
[00:39:34] Mitch Lowe: So what we ended up doing, first of all, I hired a couple of former Visa execs—
[00:39:39] Jordan Harbinger: Yeah. Step one.
[00:39:40] Mitch Lowe: —who had experience with this. And together we worked out essentially what became a credit assessment because what I learned is the minute we send the card for approval to Visa, if they say yes, we have to accept it, but we don't have to send it to them. So what we did is we identified not looking at the bin number, but what are the characteristics of a customer that has a high likelihood of ripping us off. It turned out it was between renting between midnight and 4:00 a.m.
[00:40:17] Jordan Harbinger: Hmm.
[00:40:17] Mitch Lowe: Renting certain types of movies, primarily horror movies or scary movies, and there was three or four other characteristics. And every time from that point on, every time someone would put their card in before we dispensed the movies and before we sent the card to Visa, for example, in a split second, not even a second, a quarter of a second, we would run a risk assessment against that card. Not the card itself, but the characteristics. And then either not be able to dispense the movie or say, "Hey, come back another time."
[00:40:54] Jordan Harbinger: Huh.
[00:40:55] Mitch Lowe: Or accept it. Unfortunately, that caught some good customers—
[00:40:58] Jordan Harbinger: Sure.
[00:40:59] Mitch Lowe: —you know, in that analysis because good customers also rent after midnight and before 4:00 a.m. and rent horror films.
[00:41:06] Jordan Harbinger: Yeah.
[00:41:07] Mitch Lowe: It did cut the loss in half.
[00:41:09] Jordan Harbinger: So do you remember what the other characteristics are? Because when I hear fraudster profile of a fraudster, is somebody running a horror movie after midnight, before 6:00 a.m. That's just funny somehow. Do you remember what the other bullets on here were?
[00:41:23] Mitch Lowe: Well, there it was outdoor locations.
[00:41:26] Jordan Harbinger: Okay.
[00:41:26] Mitch Lowe: You know, so it wasn't like going into the store. Almost always, there was a game involved in the transaction and we were doing, you know, 60, 70 million a year in rentals for games at this point. So it was a big business. So anytime there was a game, a horror movie, and after midnight, you know, it was high likelihood but if it was outdoor, even higher, a brand new customer, higher. So each of these, we allocated points against it. So this was worth 10 points. This was worth five points, and if they added up to be above a certain amount of points, Then we denied the transaction.
[00:42:08] Jordan Harbinger: That is so interesting, man. That's fascinating. I don't know why I'm so interested in that. It's just so interesting that you figured out, okay, what do all these frauds have in common? Okay, they're all at these locations. What do those locations have in common? Okay, they're all outside. All right, they're running a game and they're running a movie. What kind of movie? Oh, horror movies. These people tend to be more, I don't know, sketchy or something. Or maybe those, maybe horror movies—
[00:42:28] Mitch Lowe: Yeah.
[00:42:28] Jordan Harbinger: —resell for more if they're just selling him. Who knows?
[00:42:31] Mitch Lowe: Maybe.
[00:42:32] Jordan Harbinger: That's so strange.
[00:42:33] Mitch Lowe: This was what was so fascinating and so enjoyable about, you know, these companies that I've worked at is that there was hundreds and hundreds of things that could be improved and it just needed really good people working on it and enough resources to be able to, you know, do AB testing and evaluate and of course, not every idea works. Like you mentioned, we saw these huge lines in front of machines and when it got over seven people, we saw people abandoning the line, just saying—
[00:43:08] Jordan Harbinger: Yeah.
[00:43:08] Mitch Lowe: —you know, I'm just trying to return. I'm not going to stand here. And we identified a number of things that were causing that amount of time. The first one was, is browsing. Trying to select which movie you want to rent was taking just for one movie was typically taking a couple of minutes. Over time, we tested different ways and different quantities of titles to have in the machine, and we found that when we reduced the selection down to around 66 or so, films, that amount of time decreased by about 30, 40 seconds.
[00:43:46] Jordan Harbinger: Ah, so paradox of choice, like, "Oh, but what if she wants this one?"
[00:43:49] Mitch Lowe: Mm-hmm.
[00:43:49] Jordan Harbinger: It's like, okay, here's one in each genre or two.
[00:43:52] Mitch Lowe: Right.
[00:43:53] Jordan Harbinger: Go away.
[00:43:53] Mitch Lowe: Too much.
[00:43:54] Jordan Harbinger: Yeah.
[00:43:54] Mitch Lowe: Too much. Then we also saw that in the lightbox, and we tested by putting these eye trackers that looked at how you look at that lightbox. And we found that people go in a Z pattern.
[00:44:08] Jordan Harbinger: Huh.
[00:44:08] Mitch Lowe: So they start along the top and then angle down to the bottom and then along the bottom. And only after that they start looking in the spaces in between. So we knew that if we put the obvious choices, the biggest hit titles in that Z and also we would include highly profitable titles, you know, the higher profit, the more obvious, we could reduce the transaction as well. So these were just examples, but of course one of them was the notorious side slot for returning and like you said, people were not comfortable with other people in their personal space.
[00:44:47] Jordan Harbinger: Right.
[00:44:47] Mitch Lowe: Kind of like building those shipping centers all over the country for Netflix, we realized, "You know what? At a certain point, why don't we just put a second machine right next to it?"
[00:44:57] Jordan Harbinger: Yeah.
[00:44:58] Mitch Lowe: And we had 8,000 of those, several thousand with three and four kiosks side by side. We did many other things, but those were the kind of two big ones.
[00:45:08] Jordan Harbinger: What's this about studios and Walmart kind of refusing to sell you DVDs at some point?
[00:45:14] Mitch Lowe: Yeah, it all started in the summer of 2010. Three of the big six studios that represented roughly 40 percent of all the movies was Warner, Fox, and Universal had done some studies, some surveys at Walmart and other locations, asking customers who were renting at Redbox. They would ask them if this movie had not been available to rent at Redbox for a dollar a night, would you have considered purchasing this? And eight percent of the customers said, "Yeah, I would've considered purchasing." You know, it wouldn't be a number I would operate on, but the studios calculated that they were losing 400 million in sales just at Walmart alone because of this. Because Walmart was selling—
[00:46:05] Jordan Harbinger: Wow.
[00:46:05] Mitch Lowe: —five billion dollars worth of DVDs a year. The studios were making roughly $12 to $13 profit per disk. You know, we had a kiosk in every single Walmart.
[00:46:18] Jordan Harbinger: Mm-hmm.
[00:46:18] Mitch Lowe: So based on that, they contacted us one day and said, "You know what? We're not going to sell to you anymore." We were direct with each of those studios.
[00:46:26] Jordan Harbinger: Wow.
[00:46:27] Mitch Lowe: And they said, "We'll sell to you, but you've got to wait a month," so that Blockbuster and Walmart, blockbuster can rent them for four dollars. And this kind of goes back to this utilization number—
[00:46:39] Jordan Harbinger: Mm-hmm.
[00:46:39] Mitch Lowe: —I described. I'd say almost on an every-other-week basis, I was showing studio execs the math, that we were generating more revenue at a dollar a night than Blockbuster was at four dollars for three or four nights.
[00:46:59] Jordan Harbinger: This is The Jordan Harbinger Show with our guest Mitch Lowe. We'll be right back.
[00:47:03] A lot of people ask me how I'm able to stick to my fitness routine, especially since I have such a bananas schedule. For me, it's really creating a routine that is sustainable and can be duplicated on an ongoing basis. Consistency is the key, right? And Peloton helps me have a sustainable fitness routine because there are thousands of classes to choose from. It's also 24/7. I've always got time for it. I might only have 15 minutes in between calls, but I can still fit in a Peloton class. Peloton is really famous for their bikes, but they also make a top-notch rowing machine that stores upright, which you think no big deal. But when you try to have a rower on the floor, you'll be so glad this thing goes upright. If you're a newbie to rowing, the Peloton Row has sensors that can track your movements, that shows you how your form is doing, and it warns you if you're doing something wrong that could injure you or whatever. And right now is the perfect time to get rowing. With Peloton Row, we can promise you've never rowed like this before. Peloton Row offers a variety of classes for all levels and game-changing features that help you get rowing or advance what you can already do. Explore Peloton Row and financing options at onepeloton.com/row.
[00:48:04] This episode is also sponsored by TurboTax. Go to TurboTax and don't do your taxes. Meet with an expert who will do them for you. TurboTax experts can relieve you from the stress of taxes and file for you so you can do not taxes. Show your eyes things that are not taxes. Unpack a moving box of not taxes. Taste not taxes, sing not taxes a lullaby. Hope not taxes sleeps through the night. Grab a saddle and ride not taxes into the sunset. With TurboTax, an expert will do your taxes from start to finish, ensuring your taxes are done right, guaranteed so you can relax. Feels good to be done with your taxes, doesn't it? Come to TurboTax and don't do your taxes. Visit turbotax.com to learn more. Intuit TurboTax, full service products only. Video meeting while expert does your taxes required. See guaranteed details at turbotax.com/guarantees.
[00:48:50] This episode is sponsored in part by Hyundai. Still on the fence about which SUV to get, waiting to hear the reviews. Well, I got some news. The Hyundai Ioniq 5 beat out 32 other SUVs to win Motor Trend's 2023 SUV of the year. 32, they picked Hyundai and it's the first time they've ever chosen an all-electric vehicle for this award. So not only does it deliver on utility, it also has all the benefits of being electric. I'd say that's a win-win. And there's more to quote MotorTrend directly, they said the Ioniq 5 is a game-changing rethink of what an SUV can be and that in this year's incredibly competitive crop of SUV of the year contenders, this Hyundai was well ahead of the pack. Their words, not Hyundai's. There you have it, ladies and gentlemen, the reviews are in and they are spectacular. The Hyundai Ioniq 5 Motor Trend's 2023 SUV of the Year. When it comes to award-winning driving, Hyundai is thinking of every mile. Hyundai, it's your journey. Available in limited quantities and select states only.
[00:49:43] Hey, if you like this episode of the show, I would love it if you would do what other smart and considerate listeners do, which is take a moment and support our amazing sponsors. To learn more and get links to all the discounts and deals on the show, just visit jordanharbinger.com/deals. You can also search for a sponsor using the search box or the AI chatbot on the website at jordanharbinger.com. Thanks so much for supporting those who support the show. It really does keep us going, and it makes it possible to continue creating these episodes week after week.
[00:50:10] Now for the rest of my conversation with Mitch.
[00:50:14] It's crazy how protective these businesses are. I mean, you're proving these are antiquated ideas on how these things should be distributed, and some of them must have seen that and gone, "Okay, this mass checks out, but I don't want to be the one that says this is okay. And then everybody else thinks I'm an idiot who's running the industry." So it's like, it's almost like — is it collective action problem? Like nobody wants to stick their neck out because the other execs are going to go, "Hey, Jordan okayed this. You got to ax that guy."
[00:50:39] Mitch Lowe: Yeah.
[00:50:39] Jordan Harbinger: He's going to ruin the whole company. So everyone's like, "Well, this seems like a good idea, but I don't really want to lose my job, so I'm just going to say no.
[00:50:46] Mitch Lowe: Right. Yeah. There was so much of that, so much fear in being the first one or supporting a new idea. There was also lots of kind of trends going on and general beliefs about the future. You know, people were always talking about, "Well, what do we do in 10 years? What do we do when you can stream?" and all those kinds of things. And each studio had their own kind of cultural concept of today and the future. And so basically, they thought, you know what? Even though we're generating tens of millions, you know, by this time we're spending 300, 400 million a year on movies. The next year we spent 800 million on movies. So in the summer of 2010, these three studios contacted me all within a few days and said, "We'll sell to you, but you got to wait a month, you know, let Blockbuster—" and a lot of this, when I'd asked them why, one of the comments I heard, "We just spent 20 million making this movie, and you're demeaning the value of our content by renting it for a dollar." And I'd say, "Well, four dollars isn't that much better."
[00:51:59] Jordan Harbinger: Yeah.
[00:51:59] Mitch Lowe: But it was an accepted kind of model. And of course, I said, "Well, I'll just go to do a distributor that resells your product." And they said, "No, no, we've already contacted them. If they resell to you, we will cut them off as well. So they'll never be able to buy." You know, Ingram, VPD companies that were major distributors would've been cut off had they sold a DVD to us. Our choices were this. We provide our customers with only 60 percent of the hit titles and say, "Go somewhere else and pay more." Or is there a way around this kind of going way back to my video store days, one of the big challenges we faced was what is called first sale. And that is if you sell, you know, with exceptions like books and music and computer software, if you sell something at a retailer or wholesale price, you're building in the rights to do with it, whatever that buyer wants. You go and buy a Hertz car, you can go and rent it, and you don't owe Hertz any money. You know you paid for it.
[00:53:08] Jordan Harbinger: Do you mean like a Ford car rented at Hertz?
[00:53:10] Mitch Lowe: Yeah, I'm sorry. Yes, a Ford car was rented at Hertz.
[00:53:14] Jordan Harbinger: Oh, I see.
[00:53:14] Mitch Lowe: So yeah, you could go to a Walgreens and buy a bunch of brooms in the back cleaning area, and then you could go down the street and set up a shop and rent those brooms and all the revenue comes to you. None of it goes to Walgreens, none of it goes to the manufacturer and it's essentially called first sale. There are exceptions where some industries have gone to Congress and said, "Wait a minute, this is going to destroy our industry," ala books, music, and computer software. There might be a few more exceptions. And the movie industry tried to get Congress to pass that in the famous Betamax case that happened in the early '80s and failed because Congress said, "Wait a minute. My customers really love the idea of renting movies." So what we knew we could do is we could go to Target and Best Buy and Walmart and buy DVD. Take them out of the shrink wrap, put our label on it and put it in the machine and rent it totally legally. But at that point, we were buying on average a hundred thousand plus copies of the latest releases. You know, your big hit titles.
[00:54:28] Jordan Harbinger: They must have noticed this, right? Like hey, this guy came in and bought 400 DVDs. Many of them the exact same copy. Yeah, that happened at our location here too.
[00:54:37] Mitch Lowe: Yeah.
[00:54:37] Jordan Harbinger: At some point, Walmart is looking at the same data as you guys and going, "Yeah, every time we get a new shipment of DVDs, some dude walks in, fills the entire cart and leaves. What's going on here?"
[00:54:47] Mitch Lowe: And you know, of course, we had a Redbox machine in most of those locations.
[00:54:51] Jordan Harbinger: He opens up the back and shoves them in and walks out. I mean, that's got to be obvious, right?
[00:54:55] Mitch Lowe: No. In fact, that's what the field team that ran the Redbox operations created relationships with the Walmart managers. And so these guys would put, instead of putting them on the shelf and having to take them off, they would put boxes of them back in the back office. So when our guys would come in, they would just scan the box and we provided a credit card to everyone, about 500 of our employees. And so, not all of them had to do that. And of course, we would always tell them, don't wear your Redbox shirt. And one day, I did get an email from — actually these were the old flip phones. So I got a message with a picture from a guy who was the president of Universal, which was one of these three studios. And he said, "Look what I saw at the Walmart?"
[00:55:47] Jordan Harbinger: Oh no.
[00:55:47] Mitch Lowe: And it's one of our guys in a Redbox shirt. And there was this big display of Planet of the Apes. And he was sweeping all the disks right off the shelf, into his basket, into his car.
[00:56:02] Jordan Harbinger: So obvious.
[00:56:03] Mitch Lowe: Yeah. So shortly after that, the studios, got the retailers to enforce a five maximum. There was signage at every single cash register and Target and Walmart and Best Buy saying five copies at the most. So very few of those locations enforced that and still many of the managers would put them in the back, but sometimes you'd get to the front desk and they'd have to go back and forth and back and forth for five at a time.
[00:56:33] Jordan Harbinger: Yeah. Same guy comes out, shirt is inside out, goes back to his car, shirt is tied around the waist with an undershirt on. I mean, it's just like such a charade here.
[00:56:42] Mitch Lowe: Yeah.
[00:56:43] Jordan Harbinger: It just shows you that these studios, like they're just swimming against the stream. And now, of course, It's just such a foregone conclusion that streaming was going to happen, that renting movies was going to happen. I remember they fought Blockbuster in like the '80s or whatever when they found it.
[00:56:58] Mitch Lowe: Yeah.
[00:56:58] Jordan Harbinger: I mean, it was just always, always, always these entrenched interests going against innovation. Speaking of Walmart, you took a pretty extreme measure to get out of a meeting with them at one point. You want to tell us about that?
[00:57:09] Mitch Lowe: Yeah, I'd love to, but before I do, let me just say one thing about this effort to get movies at Target and Walmart.
[00:57:16] Jordan Harbinger: Sure.
[00:57:17] Mitch Lowe: We weren't the only ones. The studios also cut off Netflix because they knew that if you have a subscription, there's no need to buy a piece of content.
[00:57:28] Jordan Harbinger: Mm-hmm.
[00:57:28] Mitch Lowe: You know, I think in our society now, our shared services economy, you know, where, you know, you don't need a car, you've got Uber. You don't need to buy a movie, you've got Netflix. I think this was like one of the early recognitions of this impact of subscription and rental that affects people's mindsets about owning, which, you know, for the studios was a hugely profitable part of their business. You know, I think it's a real interesting trend to keep on top of because it's impacting lots of industries.
[00:58:01] Jordan Harbinger: That's true. Right. Because the studio really is profiting from you buying that movie and not using it 99.99 percent of the time.
[00:58:08] Mitch Lowe: Right.
[00:58:08] Jordan Harbinger: Because they're charging you to own that thing that you watch every year, once on Christmas or twice maybe if your kids love it. And now, that we're figuring out ways to make this more efficient, like I don't need a car because I only go somewhere four times a week and I work from home. Well, I can just Uber and it's cheaper—
[00:58:24] Mitch Lowe: Mm-hmm.
[00:58:24] Jordan Harbinger: —than insurance, which is now making less money. It's cheaper than me buying the car, which is a lost sale for Ford. And I'm able to just sort of rent it for each trip using Uber.
[00:58:32] Mitch Lowe: Yeah.
[00:58:32] Jordan Harbinger: The efficiency is picking up, which means that these companies that essentially had profited to the tune of billions of dollars, hundreds of billions across industries of dollars through in efficiency. Now, they are not going to make that money because the whole market is becoming more efficient in terms of ownership and things being used at all times like a taxi cab. Really interesting.
[00:58:52] Mitch Lowe: Yeah, it's a really fascinating part. Um, you know, Walmart as a customer is always kind of a tricky relationship.
[00:59:00] Jordan Harbinger: Yeah.
[00:59:00] Mitch Lowe: I admire them greatly. I mean, they do a lot of good things and they help you as a vendor, as a provider of services to get better and smarter and so on. So they were one of the first to start to work on their vendors being more energy efficient, you know, put in different lighting, reduce the year amount of trips, and so on, And we were doing just a hair under 300 million a year in revenue with them, which was our number one client. You know, so they were always really tricky and we would kind of make the pilgrimage down to Bentonville on a fairly regular basis. We had people living in Bentonville who were kind of in constant interaction with the buying team and the relationship team on the Walmart side. But then, a number of us as executives would go down there and bring everybody up to date, talk about what was new, talk about things like this return slot or increasing the quantity of kiosks, et cetera, et cetera.
[01:00:07] And there was this one meeting that we were ill prepared for to begin with. There was a lot of things going on. Walmart wanted us to paint our machines blue. They wanted us to switch to LED lighting. They wanted to move our machines from one place to another. There was this internal battle at Walmart where the team that ran entertainment wanted our revenue. You know, we were paying them, you know, eight to 12 percent of our gross. At the time, they had settled us with the real estate group that managed the front of the store, and all our revenue went to them. But the entertainment group is saying, no, no, the revenue should go to us. So we knew we were going into this meeting with a lot of kind of factions.
[01:00:58] Jordan Harbinger: Mm-hmm.
[01:00:58] Mitch Lowe: You know, fighting over us and I knew it wasn't going to end up good. It was an early morning meeting. We had been out the night before. It was always fun going out to dinner with Walmart folks because you couldn't buy them dinner or drinks. They had to have a separate bill. I've never really been a salesperson, but I noticed this little trick going on where my guys, when they couldn't buy dinner for a Walmart person who was at the dinner, they would order something and then go, you know, I actually don't want this knowing that the Walmart person wanted that—
[01:01:34] Jordan Harbinger: Right.
[01:01:34] Mitch Lowe: —entree and just, you know, move it over to them.
[01:01:38] Jordan Harbinger: Why'd you order three entrees? Well, I went out with two Walmart guys and I wanted my own.
[01:01:42] Mitch Lowe: Yeah, yeah. There's always innovation out there. So we got to this meeting, it was about 8:00, 8:30 in the morning, and it was in a space that we had rented. We had a permanent office and little storage room and setup room in Bentonville. A big long conference table, maybe, I don't know, 12, 13 people there. People from Anderson Distributing, which was their big distribution for entertainment group, a bunch of Walmart folks and my team. And I'm supposed to start the meeting. I'm at the end of the table. Yeah, I'm already feeling nervous. I pull up the slides and it is an earlier version that had a lot of comments that I knew were, you know, I don't think Walmart is going to get this or that kind of overlay. These were shared comments.
[01:02:35] Jordan Harbinger: Yeah.
[01:02:35] Mitch Lowe: So I saw that first slide, recognized it was the wrong deck. I'm already feeling nervous. And I suddenly, part of this is real and part of it is exaggerated, I suddenly felt a pain and made it into like, I can't go on. And Tim Hale who was our VP of client relations. So this was kind of his responsibility and he was great friend, always an amazing person, kind of walked me into a side room to relax and the meeting essentially got canceled as a result.
[01:03:10] Jordan Harbinger: So basically, you kind of faked a heart attack to get out of the meeting.
[01:03:14] Mitch Lowe: Yeah. Believe me, had that meeting gone on and those slides had proceeded, it would've been a disastrous day.
[01:03:23] Jordan Harbinger: Yeah, you might have had a real heart attack instead of a fake heart attack. So I feel like it was a kind of a fair trade, but that's real commitment, man.
[01:03:30] Mitch Lowe: Yeah.
[01:03:31] Jordan Harbinger: It's happening. I'm going to have a fake heart attack now. I've been keeping this one up my sleeve for a while for emergencies. I'm surprised you admitted that in the book though. I may have taken that one to the grave with me, just out of sheer, like, I don't know, embarrassment, like, "Hey, yes—" Because right now some guy's, like, "I was at this meeting and he got the guy from Netflix, Redbox, he had a heart attack right there."
[01:03:53] Mitch Lowe: Right.
[01:03:54] Jordan Harbinger: And it's like, well, actually he just didn't have the right slides and he pulled the emergency rip cord.
[01:03:59] Mitch Lowe: Yeah. Well, you know, in this book, there's a lot of stories. What I'm really hoping is that people can see that it's not always straight up to the right. All these experiences are learning experiences. Believe me, I now, today check every single slide three or four times—
[01:04:20] Jordan Harbinger: Sure.
[01:04:20] Mitch Lowe: —in advance and keep it on my laptop. So there's not any accidental, wrong sets of slides. What I'm really hoping is that people maybe get a little laugh out of it, but more importantly, they get more comfortable with their own mistakes. One of the most important lessons I've learned is that sharing your mistakes with other people is the best way for other people not to make those same mistakes. And companies that grow fast are likely to make lots of mistakes because you're adding people every day. You're trying new things. You know, the corporate culture typically is people hiding mistake, and therefore, no one learns from it and someone's bound to make the same mistake. So I'm hoping that, people get more out of the mistake or the thing I did, but more importantly, understand it's okay. And in fact, it's incredibly beneficial to a corporate culture to share what you did that you know, you had this theory, you tried it, here's what you tried, here's what didn't work. It becomes incredibly important for really good growth of a company.
[01:05:38] Jordan Harbinger: I really appreciate that. I think this has been such a fun interview, lot of insight into Netflix and Redbox. Just a lot of really good business lessons and some really fun stories in here. Thank you so much for coming on the show. The book, of course, has a lots more about MoviePass, which we didn't even get to talk about, more at Netflix, more at a Redbox. I really appreciate your time and your expertise. I just think it's really been a fun and insightful conversation. So thank you so much.
[01:06:03] Mitch Lowe: Thank you, Jordan. Yeah, it's been really great talking with you.
[01:06:08] Jordan Harbinger: If you're looking for another episode of The Jordan Harbinger Show to sink your teeth into, here's a trailer for another episode that I think you might enjoy.
[01:06:15] I've heard that you actually got to Google and, and didn't think the company was up too much, but it was the argument that you got into with Larry and Sergey that really won you over.
[01:06:24] Eric Schmidt: Uh, you know, I heard about a search engine. Search engines don't matter too much, but fine. You know, it's always try to say yes.
[01:06:30] Jordan Harbinger: Mm-hmm.
[01:06:31] Eric Schmidt: So I walked into a building down the street and here's Larry and Sergey in an office. And they have my bio projected on the wall. And they proceed to grill me on what I'm doing at Novell which they thought were a terrible idea. And I remember as I left that I hadn't had that good an argument in years. And that's the thing that started the process.
[01:06:54] Jordan Harbinger: In a meeting, once someone asked you about the dress code at Google, and I think your response was, "Well, you have to wear something.
[01:07:00] Eric Schmidt: That rule is still in place.
[01:07:02] Jordan Harbinger: Yes.
[01:07:02] Still, you have to actually wear something here at work.
[01:07:05] They hired super capable people and they always wanted people who did something interesting. So if you were a salesperson, it was really good if you were also an Olympian. We hired a couple of rocket scientists now, we weren't doing rocketry. We had a series of medical doctors who we were just impressed with, even though they weren't doing medicine. The conversations at the table were very interesting, but there really wasn't a lot of structure. And I knew I was in the right place because the potential was enormous. And I said, "Well, aren't there any schedules? No. It just sort of happens."
[01:07:40] Jordan Harbinger: If you want to hear more from Eric Schmidt and learn what role AI will take in our lives and how ideas are fostered inside a corporate beast, like Google, check out episode 201 of The Jordan Harbinger Show.
[01:07:54] Told you all, fascinating dude, great business mind, and as I said in the intro to part one, just a gem of a guy to boot. Really enjoyed this conversation. Big thank you to Mitch. All things Mitch will be linked up in the show firstname.lastname@example.org. Remember to go check out the ChatGPT, AI chatbot jordanharbinger.com/ai. Transcripts for this show are in the show notes. Videos are up on YouTube, advertisers deals, discount codes, ways to support the show, all at jordanharbinger.com/deals. Please consider supporting those who support us. I'm at Jordan Harbinger on both Twitter and Instagram. You can also connect with me on LinkedIn.
[01:08:30] I'm teaching you how to connect with great people and manage relationships using systems, software, and tiny habits. That's our Six-Minute Networking course. That course is free. Over at jordanharbinger.com/course. Teaching you how to build relationships before you need them. Dig the well before you get thirsty. Had a lot of college university professors be implementing this in their classes. I really appreciate that. If you're a teacher and you want to give this to your class and you need something special from me to do that, or you have questions, let me know. I know some profs were saying, "Hey, I need to make sure darn sure that you're not going to start selling my students stuff. There are no upsells for this. You won't get any sales emails. Your students won't get any sales emails if you're worried about that. I can show you the emails if you want. I would love it if you would share it with your class if you're an educator. It works for teenagers, it works for young adults, it works for older folks, and it doesn't require awkward cringey in-person stuff either. Almost everything in this course can be done online. That's the whole idea. Also, many of the guests on the show subscribe and contribute to the course. So, hey, come join us, you'll be in smart company.
[01:09:30] This show is created in association with PodcastOne. My team is Jen Harbinger, Jase Sanderson, Robert Fogerty, Millie Ocampo, Ian Baird, Josh Ballard, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is to share it with friends when you find something useful or interesting. If you know somebody who's interested in founder stories, strange businesses, smuggling of clothing through the Iron Curtain, whatever it might be, share this episode with them. The greatest compliment you can give us is to share the show with those you care about. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.
[01:10:06] This episode is sponsored in part by The Hustle Daily Show. The Hustle Daily has more than two million young professionals subscribe to its daily email for its great, unbiased daily business and tech news. I've been a subscriber for years now, probably like five, six years. I remember when it was really small, my friend Sam founded it, just really crushed it with this. Well, they now have a new daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines in 10 minutes or less and explain why you should care about them. Get your daily dose of valuable knowledge delivered as funny, but true insights. It'll start your day with a smile and keep you on board with what's happening around you. They got the some snark going on in the newsletter, and I assume in the podcast as well. The best part is they break down stories that are actually relevant, like why eggs have gotten so dang expensive at the supermarket, but they also touch on topics you didn't know you would care about at all. Like the strange history of how Ouija boards came about. Whether you want to stay informed on all things business and tech, or just have an interesting story to share at the dinner table, make sure to check out The Hustle Daily Show. It's offbeat, informative, and best of all, it's daily. If you want to give it a listen, you can search for The Hustle Daily Show in your podcast app like the one you're using right now.
Sign up to receive email updates
Enter your name and email address below and I'll send you periodic updates about the podcast.