Sarandos was born in Phoenix, Arizona. His father was Ted Sarandos Sr, an electrician, and his mother was a stay-at-home mom. He is the fourth of five children, with three older sisters and a younger brother. Sarandos' paternal grandfather came from the Greek island of Samos to the United States as a young boy. His grandfather's family name was originally Kariotakis but he changed it to Sarandos.
As a child, Sarandos spent hours watching TV shows like I Love Lucy, The Jack Benny Program and The Andy Griffith Show. He stated that his family did not travel much "so the way to see the world was through books and movies and television." In his teens, he developed a knowledge of film and TV, and strong instincts for what people liked while working at a video store. While writing for his high school newspaper, Sarandos met and interviewed the actor Ed Asner, who was in Phoenix for a local Screen Actors Guild meeting. Asner, then in the height of his Lou Grant period, introduced Sarandos to others in the entertainment industry, for further interviews and connected his interests in entertainment, politics, and journalism. Sarandos attended Glendale Community College in Glendale, Arizona.
He was promoted to store manager of the Arizona Video Cassettes West chain in 1983 and managed eight retail video stores until 1988. In 1988, Sarandos became Western Regional Director of Sales and Operations for one of the largest video distributors in the United States, East Texas Distributors (ETD). Until March 2000, Sarandos was Vice President of Product and Merchandising for the almost 500 store chain, Video City/West Coast Video. While at West Coast Video, he was responsible for negotiating revenue deals to migrate the company from the VHS format into the DVD format.

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