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So What Do You Do, Mitch Lowe, Co-founder of Netflix and CEO of Quarterly.Co?

'When [people] read about someone they admire, they actually crave a stronger connection.'

- October 9, 2013
After co-founding Netflix and serving as president of Redbox, Mitch Lowe has turned his experience building companies into his latest role as an adviser to startups. "What I really love is working with young entrepreneurs starting new businesses," he told Mediabistro in a recent interview.

So when one startup he was advising, Quarterly.Co, asked him to help out as CEO, "I [couldn't] say no," Lowe explained. Former GOOD magazine editor Zach Frechette started the company because "the experience of getting good mail is unparalleled -- emails, text messages and tweets don't even come close," he wrote. Fans and followers subscribe to contributors who include journalists and authors; style experts and musicians; entrepreneurs and venture capitalists; and food and fitness connoisseurs. The service's most recent contributors are Marie Claire creative director and Project Runway judge Nina Garcia and Bill Nye the Science Guy, a Season 17 contestant on Dancing With the Stars.

At a time when the subscription business is dwindling in the media industry, it's notable that blogs are building their influence through mailing services. Below, Lowe discusses everything from DVDs and Netflix to how Quarterly.Co's contributors benefit from sending out packages. He also offers his advice to budding entrepreneurs.

Name: Mitch Lowe
Position: CEO, Quarterly.Co
Resume: Started Video Droid, an early movie rental machine, in the 80s. After selling it to a Japanese ATM company, he started opening video rental stores. After becoming fascinated by the Internet, he founded a business that built websites for video stores. While exhibiting at a tradeshow in '97, he met with Marc Randolph, and the two came up with the idea for Netflix. After some time as VP of purchasing and business development, he was recruited by McDonald's to work on a video-rental service that eventually became Redbox. After serving as COO and then-president of the company, he left to advise entrepreneurs and startups. Now is the CEO of Quarterly.Co and continues as a startup consultant.
Birthday: September 10, 1952
Hometown: Mill Valley, Calif.
Education: "I actually didn't graduate from high school. I left halfway through my senior year to go to Europe and never finished."
Marital status: Married 38 years
Media Mentors: Reed Hastings, CEO of Netflix; and Gregg Kaplan, former president and COO of Coinstar
Favorite TV show: Before, Get Smart. Today, Homeland.
Guilty pleasure: Listening to Barry Manilow and watching Judge Judy. "Those are kind of embarrassing."
Last book read: The Thirty Years War by C. V. Wedgwood
What was your strategy for Netflix and Redbox?
Well, the strategy always centered around the business plan. Almost every 90 days we fine-tuned [our product]. It was only until we actually walked into our warehouse one day and saw about a million disks, and Reed [Hastings] said, "What are they doing here? They should be at our customers' homes." And that led to figuring out how to do a subscription.

The problem with Netflix was it took two or three days at that time to get the movies to people's homes. By that time, you'd changed your mood. What I saw at Netflix was there are really two types of entertainment consumers. There's the consumer that has enough disposable income to value getting the right movie at the right time on the right device and is willing to pay for it. But then there's this whole other segment, which is 40 to 45 million households, that is economically constrained [and] is more interested in filling time and [getting] a deal.

Redbox was really not so competitive. It appealed to people who were economically challenged, just wanted to get a bunch of hours filled. I had all these different models that I tried out, and when I did 99 cents a night, it just took off.

"I think Netflix will continue to gain users -- and Redbox, if they don't adjust, will see a dwindling share."

And how do you see them as evolving now?
The business is changing in the favor of Netflix. There's still the segment of the population that'll own a DVD player for the next three to five years, but it's shrinking. Also, they're shrinking the number of hours they're using a DVD for. It's mostly because their children are streaming and watching things on their iPads and not renting the disks as much as their parents are. Netflix, on the other hand, is right at the forefront of the streaming and the original content kind of trend. I think Netflix will continue to gain users -- and Redbox, if they don't adjust, will see a dwindling share.

Quarterly describes itself as "a magazine, but instead of receiving words on a page, our subscribers receive actual items that tell a compelling story crafted by the contributor." Is this accurate?
I'm not sure that's really a good description any longer. You know, it started because Zach [Frechette] came out of the magazine world, and so this concept of contributors and being like a magazine was right in the beginning. But now, this is really more about people who admire someone getting a closer connection with them and people with large followings having an additional way to generate revenue and to connect with their fans.

Everything is digital these days -- most things you consume, entertainment and books and so on. And people have this craving for something tactile. They love receiving things in the mail. When they read about someone that they admire, they don't know it so much, but they actually crave a stronger connection. That's why when you see a celebrity, you immediately take a picture and Facebook it or send it to your friends.

For the fans, this is a way to feel like you understand that person better, and for the celebrity, it's a way for them to express themselves a little bit differently than they might in a story or in a movie.

NEXT >> So What Do You Do, Jim Bankoff, CEO of Vox Media?

In some ways the subscription service can cut out the media. For example, someone can subscribe to Nina Garcia, creative director of Marie Claire, and instead of reading about the products in the magazine and then going out and buying them, they just get the products delivered right to their door. What do you think is the relationship between Quarterly and the media?
It's an interesting question, because I really don't know the answer. People are counting on the contributor designing and then us delivering a package that is worth buying, but it's not just a box of stuff; it tells a story. And so we started out by wanting it to be a complete surprise, but what we're finding is people want a little tidbit of information. I think it's evolving away from being completely a surprise and a secret to using media to kind of give the consumer a little bit more about it.

How do you think the journalists, authors, bloggers or the media outlets themselves benefit from participating?
In a couple ways. The revenue is one. Right now they get a substantial percentage of the profits. And in addition, they are able to build their fan base and their brand in a whole new way, in a way that's not currently possible to do.

In addition, many of them participate in some of the products -- they might own or they might be a sponsor of some of the products that they put in there -- so they benefit because our subscribers are highly influential people. I can't tell you the names of people, but they are people who anybody would love to have their products in the hands of.

How do you decide which blogs/journalists/writers/authors get to be contributors?
To be honest, we haven't figured it out exactly yet. We're still in that testing phase, where we're trying to figure out what are the metrics that would indicate someone's going to be successful.

What we look at primarily is Twitter followers and, if you have a blog, how many followers, or Facebook friends that you have or Facebook likes. And we look at those three metrics because they're publicly available. From that, we start to (in more of a subjective way) try to figure out: How influential are you on your followers? Do they just follow you or do they actually care about what you say? Tim Ferriss has huge command over his followers. People love that guy and they want to know what he thinks is cool and they want to buy it. He just has so much influence.

"My advice to someone in a startup is to spend all the time before you launch to figure out how to make a product that your customers love and will tell their friends about."

Media companies are struggling with subscriptions so much -- what's your business model, and are you guys profitable?
We're not profitable. Our model is that, essentially, after paying for the cost of the content -- the shipping, the credit card fees, the fee to the contributor -- we have a margin, and so that margin is our profit. And like in anything, some are more profitable than others. With greater volume we have more profit to pay for corporate overhead. So sometime in the near future, that margin will offset our corporate overhead and we'll start to be profitable.

But it's a pretty simple model. There may be other revenue streams down the line. About 15 percent of our subscribers are outside the U.S., and we hear all the time that everywhere in the world there are people who admire someone else. So the business model I think translates to many other countries.

What would be your advice to entrepreneurs who think they have the next great idea?
I truly believe that almost any idea can succeed if you just identify the one or two things that are the most important to do at a time… There's something I've used both at Netflix and at Redbox, which is just an amazing way to identify what your customer thinks about your product, and it's called the net promoter score. You probably have been surveyed many times where they say, "On a scale of 0 to 10, how likely would you recommend our product to a friend?"

My advice to someone in a startup is to spend all the time before you launch to figure out how to make a product that your customers love and will tell their friends about. So you do that survey, but the more important part of that is the second question, which is, "What's the number one thing we should do to improve Quarterly?"

I think any entrepreneur should do the same thing, [which] is [not to] use their own intuition to determine what to focus on. Actually, really dig in deep with their customer. At Redbox, every single month, every one of my executives, from director and on, had to spend at least one day at a kiosk all day long talking to people who were using the machine and really getting to understand what the customer wanted. And then, you know, we did 40,000 surveys every other week. So I think that's what any entrepreneur/startup person should spend all their time on.

Mona Zhang is Mediabistro's associate editor and social media coordinator.

NEXT >> So What Do You Do, Jim Bankoff, CEO of Vox Media?

© Mediabistro Inc. 2013. All Rights Reserved.

This interview has been edited for length and clarity. The foregoing is the sole property of Mediabistro Inc. The opinions and views expressed in the interviews and/or commentaries are solely those of the participants and are not necessarily the views of Mediabistro Inc., its affiliates or subsidiary companies.

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