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(film reel spinning)

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Downloaded from
YTS.MX

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(fire crackling)

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Official YIFY movies site:
YTS.MX

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- When you're starting a company,

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you labor in obscurity
for what feels like years.

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You tell your friends
what you're working on

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00:00:25,300 --> 00:00:28,610
and they kind of glaze
over or don't understand.

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No one recognizes the name.

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And you wonder, "Who am I doing this for?"

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- I think I remember writing
30 different bullet points

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about why it wouldn't work.

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- At that point, DVDs
were a rich man's game.

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- Well, the worst thing that can happen

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is you divvy up the
DVDs and you come home.

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- Are we actually gonna make it?

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- And he said, "I don't know
why you're taking this job.

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"They're only shipping 2,000 a day

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"and they need to ship
100,000 just to break even.

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"That'll never happen."

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- At that time, the studios thought,

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"Oh, there's gonna be a
huge amount of piracy."

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- We all believed in it
early on, and maybe blindly.

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- Your parents and your spouse

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are looking at you like, "What the--

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"Why are you doing this?!"

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- He'd say, "Ah, because I believe."

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(slow electronic music)

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- Netflix began mailing DVDs

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in those red envelopes back in 1997.

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Today, it brags about being

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the world's leading
internet television network.

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- The company better known for
renting and streaming movies

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is offering TV viewers a whole new way

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to enjoy first-run shows.

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- And the Oscar goes
to (pausing) "Icarus",

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Bryan Fogel and Dan Cogan.
(audience applauding)

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- Thanks to Ted Sarandos, Lisa
Nishimura, and Adam Del Deo,

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our incredible partners at Netflix.

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- And the Oscar goes to--

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- [Both] "Roma"!

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(audience applauding)

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- Streaming giant Netflix won
big at the Oscars last night,

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with its film "Roma"

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taking home three of the golden trophies.

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- Well, and it's changing Hollywood.

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I mean, look what
happened, Disney and Fox.

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Their studios won a lot
of awards last night.

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They're merging because
Disney's about to launch

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their own streaming service

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that they're hoping is
gonna compete with Netflix.

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And Apple, in the next few weeks,

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they're gonna launch their
own streaming service.

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("Money" by Adi Levi)

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♪ The money on my mind ♪

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♪ A great deal of it will fix me ♪

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♪ All I've ever desired ♪

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♪ The money on my mind ♪

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♪ The money got my mind ♪

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♪ The money got my mind ♪

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(quirky synthesizer music)

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- [Narrator] As we
approach the 21st century,

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a new means of communication is emerging.

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One day, we will all be
connected to the internet.

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- When I was at Berkeley in the '80s,

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I had a roommate who was a
computer science guy and he said,

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"Okay, hey, Corey, you've got
a Mac, you've got a modem.

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"Let me show you this
thing called the internet.

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"Whatever your weird-ass little
hobby or favorite things is,

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"you're gonna find 2,000 other people

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"who love that same thing,"
and that was hugely powerful.

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- In 1981, only 213 computers
were hooked to the internet.

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As the new year begins, an
estimated 2.5 million computers

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will be on the network,

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serving as many as 20 million people.

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- Back in the olden
days before the internet

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and technology companies
created instant millionaires,

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companies, publicly traded companies,

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were judged on old-fashioned metrics

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of profitability and reliable returns.

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And Netscape really sort of
reset investor expectations

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and really marked the beginning
of the dot-com boom era.

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- Has the 1990s boom
shattered old assumptions

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about how the economy works?

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- [Reporter] The internet evolved

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into a commercial phenomenon.

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Since 1991, the economy has expanded

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in what's about to break the record

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as America's longest boom.

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- And it really did mark the beginning

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of Silicon Valley's first wave
of investment speculation.

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Investors were drawn to the market,

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not necessarily by underlying
market fundamentals,

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but rather by the promise or
the promise of a technology.

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- At least at the time, it was
so nuts working at Netscape

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00:05:05,250 --> 00:05:07,827
that we had financial advisors
sending out alerts saying,

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"Listen, if you've got a
Netscape bumper sticker

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"on your car, take that off

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"because people are jumping
in front of vehicles

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"because they assume that
it's billionaires driving 'em

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"and people are looking for payouts."

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- Some of these celebrities
of the tech industry

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sort of distilled what American
culture loves the most:

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youth and brashness.

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Nerdy dudes who might have struggled

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to get a date in high school
were suddenly rock stars

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in the eyes of the media world.

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Jeff Bezos was finding himself

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on the front page of
the Wall Street Journal.

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- Was that initial excitement
all just a fictitious,

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if thrilling, children's story?

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Or is the next chapter for Steve Jobs

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likely to be his gaudiest?

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- He was in disgrace in Silicon Valley.

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He'd been booted from his own company

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and he had received a call
from an old friend of his,

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George Lucas at Pixar.

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George was going through a divorce

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and needed to raise some
money pretty quickly,

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so he actually went and met with Lucas

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and saw some promise in the technology

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that Pixar was cultivating.

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At the time, it was just
animating commercials,

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but he saw that there was the
opportunity for storytelling

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and for him to make his mark in Hollywood.

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- When Toy Story came out,

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Toy Story was treated
like a foreign object

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more than a precious
here's-a-precursor-to-the-future.

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- I think it is fair to say
that Hollywood was blindsided

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by the success that was Toy Story,

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its enormous box office performance.

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- Well, you know, Toy Story

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has really exceeded our expectations.

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It's about $180 million right now,

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I think, in domestic box office.

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It's being released
internationally as we speak.

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- Yeah, well, if you hadn't shown up

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in your stupid little cardboard spaceship

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and taken away everything
that was important to me--

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- Don't talk to me about importance.

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Because of you, the security
of this entire universe

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is in jeopardy.
- What?!

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- I would argue that Woody, the cowboy,

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and Buzz, the brash space explorer,

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they were sort of emblematic

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of Silicon Valley and Hollywood,
which needed one another,

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but were apprehensive about one another.

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- So, the Netflix story actually,

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as most of these stories do,

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begins quite a distance in the past.

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- Back in the early days,

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Marc actually worked for Reed Hastings

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at a company called Pure Atria.

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- Reed also lived where I
lived, lived in Santa Cruz.

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And a bunch of us every
day would carpool to work.

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So, not only was I working for Reed,

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but also I was getting to
know him reasonably well

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in this one-hour commute each direction

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from Santa Cruz over to Sunnyvale.

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- Marc called me one night and
he said, "Listen, Christina,

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"I have found this great company.

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"We're gonna do corporate marketing.

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"It's gonna be 9-to-5.

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"Come have fun."

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And I right away said yes.

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Five days later, he
said, "I have some news."

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- Our big software company was acquired

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by an even bigger company.

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I didn't get a job with the new company.

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I was fired.

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And a smile here because I was fired

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in that wonderful kinda Silicon Valley

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golden handcuff-sy kinda way.

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And what happens in that case
is they come to you and say,

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"Marc, we're no longer
gonna need your service,

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"but you need to stick
around for maybe six months

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"helping us figure this out
in case we have a question."

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And I go, "That sounds
actually pretty good to me."

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And I said, "I am delighted.

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"I'm gonna actually use this opportunity

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"to start my next company."

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And Reed, he was being made redundant.

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But unlike me, Reed said,

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"I don't think I wanna
start another company."

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Reed, I believed, really
wanted to try and change

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the world of education.

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But once an entrepreneur,
always an entrepreneur.

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Reed said he wanted to keep
his hand in, so to speak.

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- So, Reed called me in to Marc's office

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and Reed looked and said,
I'm gonna be your angel.

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I'm giving you $2 million
to start a company.

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- This is back in 1996-97.

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The internet was still
in its infancy then,

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but people were starting to experiment

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with selling things over the internet.

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- At that point in time, the
only thing on the internet

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was entertainment, finances, shopping.

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Amazon was not even two years old.

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And so, we started looking at big markets,

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and Marc was particularly interested

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in what was going to shift.

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And so, we started looking at

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all the brick-and-mortar businesses.

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The day-to-day reality of
actually how this ideation

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and then validation happened
is it would happen in the car.

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Reed and I had an hour
ride to Sunnyvale every day

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and then we had an hour ride back.

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And so, he'd pick me up at
my house up in Scotts Valley,

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which is just north of Santa Cruz,

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and I'd hop in and we'd get in the car.

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And almost immediately, we'd
jump in to talking about ideas.

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And eventually we kinda stumbled on video.

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We said, "But what about rental?"

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That's an $8-billion business.

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And even better, people hate it.

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(soft electronic music)

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00:10:00,090 --> 00:10:03,070
- [Narrator] According to
Consumer Electronics magazine,

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00:10:03,070 --> 00:10:06,133
video is clearly on the verge
of a mass market breakthrough.

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00:10:07,620 --> 00:10:10,390
By the end of 1982,
there were five million

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00:10:10,390 --> 00:10:13,083
video cassette recorders
in the United States.

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00:10:13,940 --> 00:10:15,580
Sony Corporation is projecting

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00:10:15,580 --> 00:10:18,290
a total of 40 million
video cassette recorders

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00:10:18,290 --> 00:10:23,290
in the US by 1990, an increase
of 800% in only eight years.

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As this growth takes place,

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it will create a demand for
convenience video stores,

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stores that'll provide video
equipment, accessories,

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software, and rental movies to
a neighborhood customer base

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much the same way that
convenience food stores

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00:10:42,250 --> 00:10:44,490
provide groceries and other items today.

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- My dad was a serial entrepreneur.

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00:10:47,820 --> 00:10:49,710
And in around 1980,

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00:10:49,710 --> 00:10:53,030
he opened the first video
rental store in Louisiana,

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00:10:53,030 --> 00:10:54,980
in a town called Lafayette, Louisiana.

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And it started as a wall in a pharmacy

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and bought 70 movies and
put 'em up on the wall

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and had the pharmacist kind
of rent 'em out to people.

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And it took off so much

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00:11:04,400 --> 00:11:06,367
that eventually the pharmacy
became a video store

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00:11:06,367 --> 00:11:09,470
and that video store became
five more video stores

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00:11:09,470 --> 00:11:11,010
and eventually became a franchise.

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00:11:11,010 --> 00:11:13,830
- Independent stores popped
up all over the country.

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00:11:13,830 --> 00:11:16,070
And not only were they renting VHS tapes,

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00:11:16,070 --> 00:11:18,530
but a lot of 'em were renting the VCRs.

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00:11:18,530 --> 00:11:20,720
Because it was so expensive to buy one,

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a lotta people couldn't afford them.

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00:11:22,172 --> 00:11:24,060
- You have to remember, in the early-'80s,

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most people didn't know
what video rental was.

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This was a new concept to everybody.

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People didn't know that you
could actually own a VCR

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00:11:31,730 --> 00:11:33,230
or a device that could play movies

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and there's a place where
you could go and rent them.

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So, one of the things my
parents would do at the stores

253
00:11:37,210 --> 00:11:40,950
is create events to draw
people into the store

254
00:11:40,950 --> 00:11:43,480
and then kind of expose
them to all the options

255
00:11:43,480 --> 00:11:45,850
and kinda the movie consumption
that could happen there.

256
00:11:45,850 --> 00:11:48,630
So, they would do things like, for kids,

257
00:11:48,630 --> 00:11:50,550
have a Strawberry Shortcake day

258
00:11:50,550 --> 00:11:52,230
and have somebody dressed
as Strawberry Shortcake

259
00:11:52,230 --> 00:11:54,550
who could come in and kids
could come and take pictures

260
00:11:54,550 --> 00:11:56,600
and sign autographs and
they could highlight

261
00:11:56,600 --> 00:11:59,480
all the different kid-friendly
movies that the store had.

262
00:11:59,480 --> 00:12:01,240
Or when a new title came out,

263
00:12:01,240 --> 00:12:03,910
they could have a theme around
that title, like M*A*S*H.

264
00:12:03,910 --> 00:12:07,780
- Your options at that
time were supermarkets,

265
00:12:07,780 --> 00:12:09,580
some convenience stores rented them.

266
00:12:09,580 --> 00:12:11,340
There was a lot of independents,

267
00:12:11,340 --> 00:12:15,040
and the independents typically
were small operations

268
00:12:15,040 --> 00:12:16,840
and not great real estate,

269
00:12:16,840 --> 00:12:19,160
which really provided the opportunity

270
00:12:19,160 --> 00:12:21,230
for the superstore concept later on.

271
00:12:21,230 --> 00:12:23,880
- Pre-Blockbuster, most video stores

272
00:12:23,880 --> 00:12:28,000
were small mom-and-pop
operations in bad strip centers.

273
00:12:28,000 --> 00:12:30,330
The interiors were nothing fancy.

274
00:12:30,330 --> 00:12:32,830
The movie selections
often were really bad.

275
00:12:32,830 --> 00:12:34,640
You were lucky if they
had one or two copies

276
00:12:34,640 --> 00:12:36,270
of the top new release.

277
00:12:36,270 --> 00:12:38,280
You would see huge Playboy displays

278
00:12:38,280 --> 00:12:39,447
in the middle of a store, which,

279
00:12:39,447 --> 00:12:42,730
for a store that would kids
movies and family movies,

280
00:12:42,730 --> 00:12:44,990
to then suddenly have a
giant Playboy display,

281
00:12:44,990 --> 00:12:47,620
now, looking back, doesn't
seem to make a lotta sense,

282
00:12:47,620 --> 00:12:48,860
which is one of the really smart things

283
00:12:48,860 --> 00:12:50,230
that Blockbuster did when they launched

284
00:12:50,230 --> 00:12:51,910
was taking that element out of the stores

285
00:12:51,910 --> 00:12:55,455
and really focusing being a
family-friendly environment.

286
00:12:55,455 --> 00:12:58,160
(bright fanfare music)

287
00:12:58,160 --> 00:13:00,210
- [Narrator] Welcome to Blockbuster Video.

288
00:13:00,210 --> 00:13:03,860
Blockbuster Video gives you
over 10,000 videos to chose from

289
00:13:03,860 --> 00:13:06,060
in over 30 different categories.

290
00:13:06,060 --> 00:13:09,570
- The story is kind of
legendary in the video industry

291
00:13:09,570 --> 00:13:12,850
is that David Cook had
opened one of the first

292
00:13:12,850 --> 00:13:14,240
true video superstores.

293
00:13:14,240 --> 00:13:15,550
There were others in the country,

294
00:13:15,550 --> 00:13:18,510
but he opened one in Dallas.

295
00:13:18,510 --> 00:13:19,470
- And then Blockbuster came along

296
00:13:19,470 --> 00:13:21,150
and literally decided they were gonna be

297
00:13:21,150 --> 00:13:23,490
the superstore of video stores.

298
00:13:23,490 --> 00:13:25,880
And they did it through
having more titles,

299
00:13:25,880 --> 00:13:27,570
more copies of the new releases.

300
00:13:27,570 --> 00:13:29,757
- The great thing about Wayne Huizenga

301
00:13:29,757 --> 00:13:31,410
and the start of Blockbuster

302
00:13:31,410 --> 00:13:35,720
is that he knew how to ramp up
a business unbelievably fast.

303
00:13:35,720 --> 00:13:38,200
When Huizenga bought the Blockbuster chain

304
00:13:38,200 --> 00:13:39,830
from David Cook in Dallas,

305
00:13:39,830 --> 00:13:42,850
the first thing he did is
he started buying chains

306
00:13:42,850 --> 00:13:46,110
because he knew that he couldn't
open stores fast enough.

307
00:13:46,110 --> 00:13:47,640
He had to open corporate stores,

308
00:13:47,640 --> 00:13:49,150
he had to open franchise stores,

309
00:13:49,150 --> 00:13:50,620
and he had to acquire stores,

310
00:13:50,620 --> 00:13:53,540
and that's how he was gonna
take over the business.

311
00:13:53,540 --> 00:13:56,350
And his whole plan from day
one was to take it national

312
00:13:56,350 --> 00:13:58,620
and do it faster than anybody else.

313
00:13:58,620 --> 00:14:01,170
- [Announcer] Imagine
the perfect video store.

314
00:14:01,170 --> 00:14:03,200
It would have a great selection, right?

315
00:14:03,200 --> 00:14:04,033
Right!

316
00:14:04,033 --> 00:14:05,790
Over 10,000 videos!

317
00:14:05,790 --> 00:14:08,450
Three-evening rentals,
so no rush, no hassle.

318
00:14:08,450 --> 00:14:09,480
Fast checking.

319
00:14:09,480 --> 00:14:11,280
24-hour quick drop return.

320
00:14:11,280 --> 00:14:13,040
Open late every night.

321
00:14:13,040 --> 00:14:15,770
Well, the perfect video store--

322
00:14:15,770 --> 00:14:17,300
- Welcome to Blockbuster Video!

323
00:14:17,300 --> 00:14:19,833
- [Narrator] Is popping
up all over the country.

324
00:14:21,360 --> 00:14:22,853
There's one near you.

325
00:14:24,232 --> 00:14:25,970
♪ Blockbuster Video ♪

326
00:14:25,970 --> 00:14:28,488
♪ Wow, what a difference ♪

327
00:14:28,488 --> 00:14:30,880
(pensive music)

328
00:14:30,880 --> 00:14:33,560
- There was a business
model in place at the time

329
00:14:33,560 --> 00:14:36,760
that I later called manage to satisfaction

330
00:14:36,760 --> 00:14:40,710
because the popular wisdom
in the video business

331
00:14:40,710 --> 00:14:43,240
was people come to a video store.

332
00:14:43,240 --> 00:14:47,360
They don't expect to get
the movie that they want.

333
00:14:47,360 --> 00:14:49,850
They'll trade off to a different movie.

334
00:14:49,850 --> 00:14:50,990
They'll rent that.

335
00:14:50,990 --> 00:14:53,090
And they'll come back two weeks later

336
00:14:53,090 --> 00:14:54,340
and rent the movie that they want

337
00:14:54,340 --> 00:14:57,430
because they now can get it
'cause demand is lessened.

338
00:14:57,430 --> 00:14:58,263
- Hi.

339
00:14:58,263 --> 00:14:59,096
How's it going today.

340
00:14:59,096 --> 00:15:00,940
- It started okay.

341
00:15:00,940 --> 00:15:03,870
- Well, when you got a good
video, it's bound to get better.

342
00:15:03,870 --> 00:15:04,703
Take care!

343
00:15:05,570 --> 00:15:07,990
- My day'll get better when
this line starts moving.

344
00:15:07,990 --> 00:15:09,860
- Yeah, I mean, one of the
things we were disrupting

345
00:15:09,860 --> 00:15:12,710
was waiting in line,
walking up to a 17-year-old

346
00:15:12,710 --> 00:15:14,900
who had no customer service experience

347
00:15:14,900 --> 00:15:17,560
who was trying to sell you
popcorn when all you wanted to do

348
00:15:17,560 --> 00:15:19,270
was rent a movie that wasn't there.

349
00:15:19,270 --> 00:15:22,730
- Being mad when the five
movies were already gone

350
00:15:23,870 --> 00:15:25,350
and then having to pay your late fees.

351
00:15:25,350 --> 00:15:26,620
- So, we started looking at

352
00:15:26,620 --> 00:15:28,350
who was renting movies at that time.

353
00:15:28,350 --> 00:15:29,437
The biggest was Blockbuster.

354
00:15:29,437 --> 00:15:31,480
- And it turns out there's
probably a pretty good reason

355
00:15:31,480 --> 00:15:34,790
why you didn't wanna do video
rental as an e-commerce play,

356
00:15:34,790 --> 00:15:37,610
and the reason is the VHS cassette.

357
00:15:37,610 --> 00:15:40,530
They are big and they are heavy

358
00:15:40,530 --> 00:15:42,030
and they're not very durable.

359
00:15:42,030 --> 00:15:44,527
- The movie studios, their concept was,

360
00:15:44,527 --> 00:15:47,067
"Okay, we'll put movies out on a VHS tape,

361
00:15:47,067 --> 00:15:50,220
"but it's gonna cost the
consumer up to $100,"

362
00:15:50,220 --> 00:15:52,360
because from their perspective,

363
00:15:52,360 --> 00:15:54,660
if a whole lotta people can watch it,

364
00:15:54,660 --> 00:15:56,410
we're gonna get a lot for it.

365
00:15:56,410 --> 00:15:58,960
- And you can make back $100 on a rental

366
00:15:58,960 --> 00:16:01,100
when you're turning it every day,

367
00:16:01,100 --> 00:16:02,970
but we wanted to try mailing things.

368
00:16:02,970 --> 00:16:05,090
So, we knew we had two or
three days mailing it out

369
00:16:05,090 --> 00:16:07,150
and they keep it for a week or whatever

370
00:16:07,150 --> 00:16:08,220
and then they mail it back.

371
00:16:08,220 --> 00:16:09,260
That wasn't gonna work.

372
00:16:09,260 --> 00:16:12,030
And video rental by mail went the way

373
00:16:12,030 --> 00:16:15,003
of all of our other
ideas, which is discarded.

374
00:16:16,380 --> 00:16:20,000
- The innovations that come
in different technologies

375
00:16:20,000 --> 00:16:22,620
usually come from some entrepreneur,

376
00:16:22,620 --> 00:16:24,363
somebody who sees an opening.

377
00:16:25,320 --> 00:16:27,900
The question is only are the studios run

378
00:16:27,900 --> 00:16:31,620
with enough sophistication
to spot the trends

379
00:16:31,620 --> 00:16:33,543
and jump into them early?

380
00:16:33,543 --> 00:16:35,720
(static crackling)

381
00:16:35,720 --> 00:16:38,880
- One day, Reed read about a technology

382
00:16:38,880 --> 00:16:40,980
that was being test-marketed
in San Francisco

383
00:16:40,980 --> 00:16:42,770
and some other cities called the DVD.

384
00:16:42,770 --> 00:16:47,770
And the DVD was this small,
light, thin medium for movies.

385
00:16:48,817 --> 00:16:51,140
And we were going, "That's
really kinda interesting."

386
00:16:51,140 --> 00:16:54,347
- When DVD launched, the studios realized,

387
00:16:54,347 --> 00:16:55,727
"Hey, there is a market

388
00:16:55,727 --> 00:16:57,987
"for us to sell these direct to consumers

389
00:16:57,987 --> 00:17:01,717
"and in some ways take the
power away from the video stores

390
00:17:01,717 --> 00:17:03,477
"and have our own
relationship with consumers

391
00:17:03,477 --> 00:17:05,230
"and just sell direct."

392
00:17:05,230 --> 00:17:09,350
- I really remember it
completely like it was yesterday

393
00:17:09,350 --> 00:17:12,480
that Reed and I were probably halfway up

394
00:17:12,480 --> 00:17:14,320
over the mountains to Sunnyvale

395
00:17:14,320 --> 00:17:16,377
as we were talking about this and we said,

396
00:17:16,377 --> 00:17:17,937
"There's an easy way to figure out

397
00:17:17,937 --> 00:17:19,160
"whether this is gonna work or not,"

398
00:17:19,160 --> 00:17:20,360
and we turned the car around

399
00:17:20,360 --> 00:17:23,520
and we drove back down into
Santa Cruz and parked downtown

400
00:17:23,520 --> 00:17:27,250
and went to one of the used record stores

401
00:17:27,250 --> 00:17:28,370
in downtown Santa Cruz

402
00:17:28,370 --> 00:17:30,770
and went in and bought a used music CD

403
00:17:30,770 --> 00:17:33,250
and then went two doors
down to a stationery store

404
00:17:33,250 --> 00:17:34,650
and bought a little envelope,

405
00:17:34,650 --> 00:17:36,330
the kind of envelope that you would use

406
00:17:36,330 --> 00:17:40,930
to mail a greeting card in,
and put the CD in the envelope,

407
00:17:40,930 --> 00:17:43,740
addressed it to Reed's
house in Santa Cruz,

408
00:17:43,740 --> 00:17:46,450
and then we walked to
the other end of the mall

409
00:17:46,450 --> 00:17:48,170
and went to the Santa Cruz Post Office

410
00:17:48,170 --> 00:17:49,360
and went up and bought a stamp

411
00:17:49,360 --> 00:17:50,620
and then dropped it in the slot

412
00:17:50,620 --> 00:17:51,800
and then drove to the office

413
00:17:51,800 --> 00:17:53,710
and didn't think too much more about it.

414
00:17:53,710 --> 00:17:55,740
But I think it was the very next morning

415
00:17:55,740 --> 00:17:57,110
and Reed comes to pick me up,

416
00:17:57,110 --> 00:17:59,190
and he didn't even need to say anything.

417
00:17:59,190 --> 00:18:03,300
He just kind of handed me this envelope

418
00:18:03,300 --> 00:18:05,630
with an unbroken CD in it

419
00:18:05,630 --> 00:18:07,490
that had gotten from the
Santa Cruz Post Office

420
00:18:07,490 --> 00:18:10,050
to his house in just one day.

421
00:18:10,050 --> 00:18:12,610
And I think that was the very moment

422
00:18:12,610 --> 00:18:16,757
when Reed and I said, "Huh,
this just might work."

423
00:18:18,590 --> 00:18:22,180
So, it got to this point
in about September of 1997

424
00:18:22,180 --> 00:18:24,090
where it was put up or shut up.

425
00:18:24,090 --> 00:18:25,920
Reed wrote us a big check,

426
00:18:25,920 --> 00:18:27,180
my mother actually wrote a check,

427
00:18:27,180 --> 00:18:29,410
some other friends wrote small checks,

428
00:18:29,410 --> 00:18:31,090
and that was the start.

429
00:18:31,090 --> 00:18:33,860
Now, where you start from
is a different question.

430
00:18:33,860 --> 00:18:36,820
After all those years
of me having to drive

431
00:18:36,820 --> 00:18:40,460
from Santa Cruz up over the
mountains to Silicon Valley,

432
00:18:40,460 --> 00:18:42,540
dammit, I was gonna try and have a company

433
00:18:42,540 --> 00:18:45,860
actually that I could get
to in less than 50 minutes.

434
00:18:45,860 --> 00:18:48,800
So, Scotts Valley it is.

435
00:18:48,800 --> 00:18:52,430
But our very first office was
not actually an office at all.

436
00:18:52,430 --> 00:18:54,517
There's a Best Western in Scotts Valley.

437
00:18:54,517 --> 00:18:58,310
And we made an arrangement
with the Best Western manager,

438
00:18:58,310 --> 00:19:01,260
considering he didn't
have many conferences,

439
00:19:01,260 --> 00:19:03,050
that we could use his conference room

440
00:19:03,050 --> 00:19:05,830
as our very first Netflix office

441
00:19:05,830 --> 00:19:09,870
and eventually decided we
need a little bit more space.

442
00:19:09,870 --> 00:19:11,890
- When we set up our
offices in Scotts Valley,

443
00:19:11,890 --> 00:19:13,870
we were in a small office park.

444
00:19:13,870 --> 00:19:17,170
We brought in folding tables,
we brought in beach chairs.

445
00:19:17,170 --> 00:19:20,210
We did go and buy computers
and bring those in.

446
00:19:20,210 --> 00:19:22,940
We had green carpeting,
which we thought was lucky

447
00:19:22,940 --> 00:19:24,659
because it was the color of money.

448
00:19:24,659 --> 00:19:26,470
- It was about the size
of an average house.

449
00:19:26,470 --> 00:19:28,550
- It was messy with papers everywhere

450
00:19:28,550 --> 00:19:30,680
and drawings of the system

451
00:19:30,680 --> 00:19:32,770
and how it all's supposed to look like.

452
00:19:32,770 --> 00:19:34,060
- Yeah; in fact, we were so cheap,

453
00:19:34,060 --> 00:19:37,200
we actually kept the DVDs
wrapped in their cellophane

454
00:19:37,200 --> 00:19:39,440
in case we ordered too many
and had to return them,

455
00:19:39,440 --> 00:19:41,490
because we were just
making it up as we went.

456
00:19:41,490 --> 00:19:44,720
- So, we had this old, I
guess it musta been a bank

457
00:19:44,720 --> 00:19:46,800
'cause we had this old
bank vault in there,

458
00:19:46,800 --> 00:19:49,233
like a big steel round door.

459
00:19:50,360 --> 00:19:52,180
That's where we put all the DVDs.

460
00:19:52,180 --> 00:19:54,810
- The funny thing is that
we copied Blockbuster

461
00:19:54,810 --> 00:19:55,643
in every step of the way

462
00:19:55,643 --> 00:19:59,640
and we actually used Blockbuster
shelves in our bank vault.

463
00:19:59,640 --> 00:20:01,410
At the time, when we launched Netflix,

464
00:20:01,410 --> 00:20:04,030
there were only 3,000 DVDs in circulation,

465
00:20:04,030 --> 00:20:07,763
so we had to have at least one
copy of 3,000 different DVDs.

466
00:20:08,620 --> 00:20:11,850
Well, when you put one
copy and more of 3,000 DVDs

467
00:20:11,850 --> 00:20:15,270
in a thousand-square-foot
space, that's a problem.

468
00:20:15,270 --> 00:20:17,740
- But I did realize it would be helpful

469
00:20:17,740 --> 00:20:20,410
to have someone had
had at least an inkling

470
00:20:20,410 --> 00:20:22,360
what the video business was all about.

471
00:20:22,360 --> 00:20:26,801
Then began this six-month
courtship of Mitch Lowe.

472
00:20:26,801 --> 00:20:28,690
- [Announcer] And now,
here's a special announcement

473
00:20:28,690 --> 00:20:31,120
from the Video Software
Dealers Association.

474
00:20:31,120 --> 00:20:34,490
From every major studio and
independent video supplier

475
00:20:34,490 --> 00:20:36,864
to distributors, accessory companies,

476
00:20:36,864 --> 00:20:38,840
and thousands of video retailers.

477
00:20:38,840 --> 00:20:40,950
- The industry association

478
00:20:40,950 --> 00:20:43,720
that was the Video Software
Dealers Association,

479
00:20:43,720 --> 00:20:46,080
it had a board and
Mitch was on that board.

480
00:20:46,080 --> 00:20:49,457
- I was going, "I've gotta
get this guy involved.

481
00:20:49,457 --> 00:20:51,600
"I've gotta get him to help us."

482
00:20:51,600 --> 00:20:56,143
- I was just totally
fascinated by Marc and Reed.

483
00:20:57,830 --> 00:21:00,840
I had been working behind
the counter in a video store

484
00:21:00,840 --> 00:21:05,370
for, I think, by that
time, 13-14,000 hours

485
00:21:05,370 --> 00:21:07,440
talking movies with people.

486
00:21:07,440 --> 00:21:10,830
And here were two guys who knew technology

487
00:21:10,830 --> 00:21:12,420
and knew marketing.

488
00:21:12,420 --> 00:21:15,830
And so, all I wanted to
do was to work with them.

489
00:21:15,830 --> 00:21:17,957
- Our introduction to
Mitch and Mitch coming on

490
00:21:17,957 --> 00:21:20,580
and teaching us the video rental business

491
00:21:20,580 --> 00:21:23,400
was the key to us feeling confident

492
00:21:23,400 --> 00:21:25,330
that we could go into that space.

493
00:21:25,330 --> 00:21:27,330
He introduced us to studios.

494
00:21:27,330 --> 00:21:29,890
He brought us to events.

495
00:21:29,890 --> 00:21:33,070
Mitch gave us all of that
background information

496
00:21:33,070 --> 00:21:37,161
so that we could create a web store

497
00:21:37,161 --> 00:21:41,243
that matched their experience
going into a physical store.

498
00:21:42,140 --> 00:21:43,630
- The intellectual stimulation

499
00:21:43,630 --> 00:21:46,230
of just interfacing with Marc
and Christina were great.

500
00:21:46,230 --> 00:21:49,957
We were battling it out,
and I was the naysayer.

501
00:21:49,957 --> 00:21:51,767
"Hey, let's just start
with the number one thing:

502
00:21:51,767 --> 00:21:53,630
"this thing's gonna break in the mail."

503
00:21:53,630 --> 00:21:54,990
- As with any of these things,

504
00:21:54,990 --> 00:21:57,480
we were incredibly lucky in our ignorance,

505
00:21:57,480 --> 00:21:59,217
because it turns out that the post office

506
00:21:59,217 --> 00:22:02,470
has a totally different
mail flow for local mail.

507
00:22:02,470 --> 00:22:04,820
So, local mail gets pulled outta the stack

508
00:22:04,820 --> 00:22:06,597
and they go, "Oh, it's in
the Santa Cruz Post Office,

509
00:22:06,597 --> 00:22:08,767
"it's for Santa Cruz, so
we're just gonna put it

510
00:22:08,767 --> 00:22:10,560
"right into the mail carrier's route,"

511
00:22:10,560 --> 00:22:12,700
and off it goes to the person's house.

512
00:22:12,700 --> 00:22:14,150
What we didn't realize

513
00:22:14,150 --> 00:22:17,810
is that once we began
trying this at scale,

514
00:22:17,810 --> 00:22:19,560
that mail was no longer working that way.

515
00:22:19,560 --> 00:22:21,620
It was now going to a central post office.

516
00:22:21,620 --> 00:22:23,880
- We put our first disc test in the mail

517
00:22:23,880 --> 00:22:25,240
and through the machines,

518
00:22:25,240 --> 00:22:28,610
but the envelope machine is
a 40,000-letter-per-minute

519
00:22:28,610 --> 00:22:30,340
steel drum roll separator.

520
00:22:30,340 --> 00:22:31,970
You can imagine all these envelopes

521
00:22:31,970 --> 00:22:34,320
from all over the world sticking together.

522
00:22:34,320 --> 00:22:35,990
They had a machine that would make sure

523
00:22:35,990 --> 00:22:37,480
you separated the envelopes together

524
00:22:37,480 --> 00:22:40,030
so the sticky parts of
the envelope didn't stick.

525
00:22:40,030 --> 00:22:41,640
Imagine your disc going through there.

526
00:22:41,640 --> 00:22:42,473
It was crushed.

527
00:22:42,473 --> 00:22:44,010
I actually thought we had failed

528
00:22:44,010 --> 00:22:45,750
when I found out that all envelope mail

529
00:22:45,750 --> 00:22:46,583
went through that machine.

530
00:22:46,583 --> 00:22:47,830
- But it just goes to show

531
00:22:47,830 --> 00:22:50,830
that sometimes you're
lucky in your ignorance.

532
00:22:50,830 --> 00:22:53,730
If that first disc had
been mailed in Sunnyvale,

533
00:22:53,730 --> 00:22:56,680
then it might've gone through
the mail, it might've cracked,

534
00:22:56,680 --> 00:22:59,220
and Reed might've come
in the morning and said,

535
00:22:59,220 --> 00:23:01,227
"Oop, there's another one.

536
00:23:01,227 --> 00:23:02,410
"Let's think of something new."

537
00:23:02,410 --> 00:23:03,270
- So, what we discovered

538
00:23:03,270 --> 00:23:06,020
was if we could package the DVD properly

539
00:23:06,020 --> 00:23:07,620
and we could barcode it properly,

540
00:23:07,620 --> 00:23:10,770
we would know with certainty
that that DVD was going through

541
00:23:10,770 --> 00:23:12,760
the machine that we
wanted it to go through

542
00:23:12,760 --> 00:23:15,020
and it would not get broken
at the US Post Office.

543
00:23:15,020 --> 00:23:17,170
- One of the first things
that we needed to do

544
00:23:17,170 --> 00:23:20,610
when we started setting up
offices out in Scotts Valley

545
00:23:20,610 --> 00:23:22,610
was we needed to incorporate the company,

546
00:23:22,610 --> 00:23:24,920
and so we had to come up with a name.

547
00:23:24,920 --> 00:23:27,850
And so, Marc named us Kibble

548
00:23:27,850 --> 00:23:31,110
because he always said
that we needed to make sure

549
00:23:31,110 --> 00:23:32,290
that we were building something

550
00:23:32,290 --> 00:23:34,380
where the dogs would eat the dog food.

551
00:23:34,380 --> 00:23:35,563
- One day in one of our
whiteboarding sessions,

552
00:23:35,563 --> 00:23:37,920
we decided we needed a
better name for the company.

553
00:23:37,920 --> 00:23:39,750
- To start, you've gotta
come up with something

554
00:23:39,750 --> 00:23:42,610
which is evocative and creates emotion

555
00:23:42,610 --> 00:23:44,830
and communicates what it
is you're trying to do

556
00:23:44,830 --> 00:23:47,330
and signals what market you're playing in.

557
00:23:47,330 --> 00:23:50,760
But there's some other
more mundane requirements.

558
00:23:50,760 --> 00:23:52,820
It's gotta be a name
that you can actually get

559
00:23:52,820 --> 00:23:55,950
the domain name, you
know, the dot-com, for.

560
00:23:55,950 --> 00:23:58,130
It's gotta be a name that
ideally you can trademark.

561
00:23:58,130 --> 00:24:00,810
It's gotta be a name that's
not being used someplace.

562
00:24:00,810 --> 00:24:03,060
It's gotta be a name that
doesn't mean something

563
00:24:03,060 --> 00:24:05,010
deeply offensive in some other language.

564
00:24:05,010 --> 00:24:09,220
- And so, it had to say internet
and it had to say movies,

565
00:24:09,220 --> 00:24:12,360
and so we spent a very
short amount of time

566
00:24:12,360 --> 00:24:16,390
going into Marc's office, and
on one side of the whiteboard

567
00:24:16,390 --> 00:24:19,250
we'd list all the things
you would call the internet.

568
00:24:19,250 --> 00:24:21,250
And then, on the other
side of the whiteboard

569
00:24:21,250 --> 00:24:26,250
we'd list how do you refer to
entertainment, movies, video?

570
00:24:26,340 --> 00:24:27,567
- There were several names.

571
00:24:27,567 --> 00:24:28,610
There were 30 names on the board

572
00:24:28,610 --> 00:24:31,190
and we did the classic
exercise of who likes what,

573
00:24:31,190 --> 00:24:34,450
and eventually we stumbled on Netflix.

574
00:24:34,450 --> 00:24:38,070
- Netflix actually had a
yes in all the columns,

575
00:24:38,070 --> 00:24:41,800
except someone else had Netflicks, C-K-S.

576
00:24:41,800 --> 00:24:43,300
And the other problem, of course,

577
00:24:43,300 --> 00:24:45,237
is people always find
problems and they were saying,

578
00:24:45,237 --> 00:24:48,640
"Now, 'flix,' doesn't that
kinda remind you of skinflicks?

579
00:24:48,640 --> 00:24:50,820
- I actually thought Netflix at first

580
00:24:50,820 --> 00:24:54,470
was a bit too almost porn-related,
the 'flix' part of it.

581
00:24:54,470 --> 00:24:55,870
I didn't like it because of that.

582
00:24:55,870 --> 00:24:59,670
- We came to a day where we
had to make up our minds.

583
00:24:59,670 --> 00:25:01,150
We just had to name it.

584
00:25:01,150 --> 00:25:03,910
- And so, Netflix it was.

585
00:25:03,910 --> 00:25:06,143
And it's kinda grown on me.

586
00:25:07,900 --> 00:25:10,750
- It was a very interesting proposition

587
00:25:10,750 --> 00:25:12,500
launching this new service.

588
00:25:12,500 --> 00:25:15,010
- Before we launched, Marc actually sent

589
00:25:15,010 --> 00:25:17,950
the very first Netflix DVD to himself

590
00:25:17,950 --> 00:25:19,160
just to test the process.

591
00:25:19,160 --> 00:25:20,610
He sent himself "Casino".

592
00:25:20,610 --> 00:25:23,717
- [Ace] Everybody's gotta
watch everybody else.

593
00:25:23,717 --> 00:25:26,810
And the eye in the sky is watching us all.

594
00:25:26,810 --> 00:25:28,060
- [Corey] No one was watching us.

595
00:25:28,060 --> 00:25:30,820
That let us fly under the
radar before we launched.

596
00:25:30,820 --> 00:25:31,960
- I mean, I think it's fair to say

597
00:25:31,960 --> 00:25:35,320
that when Netflix launched in the '90s,

598
00:25:35,320 --> 00:25:37,240
Hollywood was really fat and happy

599
00:25:37,240 --> 00:25:40,640
and no one really thought
much about this little threat

600
00:25:40,640 --> 00:25:42,450
coming from Northern California.

601
00:25:42,450 --> 00:25:43,737
- Launch day comes.

602
00:25:43,737 --> 00:25:46,820
And for us, it was on April 14th, 1998,

603
00:25:46,820 --> 00:25:50,390
and we all had gathered
in my conference room.

604
00:25:50,390 --> 00:25:53,890
And we had a table set up at
one end with a computer on it.

605
00:25:53,890 --> 00:25:56,800
And Eric Meyer, CTO, had set it up

606
00:25:56,800 --> 00:25:59,760
so every time an order
came in, a bell would ring.

607
00:25:59,760 --> 00:26:03,280
And at the other end of the
room, we had set up a big table

608
00:26:03,280 --> 00:26:06,160
and we had champagne and champagne glasses

609
00:26:06,160 --> 00:26:08,250
and we were all set to
kinda toast our success.

610
00:26:08,250 --> 00:26:10,500
- That challenge of launching the company,

611
00:26:10,500 --> 00:26:12,310
introducing something to the world

612
00:26:12,310 --> 00:26:14,820
that nobody had ever
known that they wanted,

613
00:26:14,820 --> 00:26:15,840
that was exciting.

614
00:26:15,840 --> 00:26:18,400
That was exactly why I do startups.

615
00:26:18,400 --> 00:26:20,580
I knew where to go to find

616
00:26:20,580 --> 00:26:22,650
the first set of customers for Netflix.

617
00:26:22,650 --> 00:26:25,760
I knew what the online
groups, the forums were.

618
00:26:25,760 --> 00:26:28,320
I knew who the influencers
were in each of those.

619
00:26:28,320 --> 00:26:30,890
And if I could get them on our side,

620
00:26:30,890 --> 00:26:31,940
I knew that we could launch

621
00:26:31,940 --> 00:26:34,670
with just an unprecedented goodwill

622
00:26:34,670 --> 00:26:36,600
and enthusiasm and excitement.

623
00:26:36,600 --> 00:26:38,900
- And as we were kinda
getting ready for the launch,

624
00:26:38,900 --> 00:26:40,800
which was at 9 a.m. sharp,

625
00:26:40,800 --> 00:26:44,500
we were all kind of placing
bets on what was gonna happen.

626
00:26:44,500 --> 00:26:47,950
And so, 9 o'clock came
around and Eric leans over

627
00:26:47,950 --> 00:26:50,220
and hits a few keys on the
keyboard and we're live.

628
00:26:50,220 --> 00:26:52,230
And then we're all kinda
looking around expectantly.

629
00:26:52,230 --> 00:26:54,170
And all of a sudden, ding!

630
00:26:54,170 --> 00:26:56,880
Our first order, and everyone cheers

631
00:26:56,880 --> 00:26:59,240
and we all go over and begin
breaking open the champagne.

632
00:26:59,240 --> 00:27:01,950
And mid-pour, ding-ding!

633
00:27:01,950 --> 00:27:04,260
Two more orders, and we all cheer again.

634
00:27:04,260 --> 00:27:07,340
- The entire Netflix website
is just engulfed in people.

635
00:27:07,340 --> 00:27:11,330
I mean, just orders of magnitude
greater numbers of visitors

636
00:27:11,330 --> 00:27:13,120
than the team had predicted.

637
00:27:13,120 --> 00:27:15,252
- And then, ding-ding-ding-ding!

638
00:27:15,252 --> 00:27:16,370
And we'd cheer again.

639
00:27:16,370 --> 00:27:18,940
And then we're all waiting...

640
00:27:18,940 --> 00:27:20,770
And waiting...

641
00:27:20,770 --> 00:27:22,040
And waiting...

642
00:27:22,040 --> 00:27:23,800
- We were watching what's happening

643
00:27:23,800 --> 00:27:25,810
and then the server started going down,

644
00:27:25,810 --> 00:27:29,480
so it was kinda short-lived for
excitement of the first day.

645
00:27:29,480 --> 00:27:31,670
- We didn't have enough capacity.

646
00:27:31,670 --> 00:27:34,360
We were sending people
to Fry's Electronics

647
00:27:34,360 --> 00:27:35,640
to buy more computers.

648
00:27:35,640 --> 00:27:38,308
- We bought about 10 machines, I remember.

649
00:27:38,308 --> 00:27:40,385
- In addition to the
two that you only have.

650
00:27:40,385 --> 00:27:42,140
- (laughing) Addition to the only two

651
00:27:42,140 --> 00:27:43,604
that we have already in the office.

652
00:27:43,604 --> 00:27:47,100
- And, boom, melts down again,
and it just keeps happening,

653
00:27:47,100 --> 00:27:50,160
these cascading failures,
'cause it's such a huge success

654
00:27:50,160 --> 00:27:54,340
because it was just exactly
what that community wanted.

655
00:27:54,340 --> 00:27:56,910
- You had people ripping
open cellophane packages

656
00:27:56,910 --> 00:27:58,690
and just throwing boxes
all over the place,

657
00:27:58,690 --> 00:28:00,950
'cause you didn't need the
box once you opened it.

658
00:28:00,950 --> 00:28:02,740
We weren't shipping the
box to the customers.

659
00:28:02,740 --> 00:28:03,700
We were just shipping the discs.

660
00:28:03,700 --> 00:28:04,980
It was that kind of chaos.

661
00:28:04,980 --> 00:28:07,680
- We were trying to figure out how you put

662
00:28:07,680 --> 00:28:12,680
a "Sorry, we're closed"
sign on an internet store.

663
00:28:13,000 --> 00:28:14,940
We did not know what to do.

664
00:28:14,940 --> 00:28:18,770
We were wildly successful on launch day.

665
00:28:18,770 --> 00:28:22,970
- And we closed that
first day with 108 orders.

666
00:28:22,970 --> 00:28:25,680
I mean, that was my budget
for the whole first month.

667
00:28:25,680 --> 00:28:30,220
I couldn't believe that a hundred people

668
00:28:30,220 --> 00:28:31,373
had ordered from us.

669
00:28:32,800 --> 00:28:35,540
- I first heard about Netflix
from my partner, Sam Bloom,

670
00:28:35,540 --> 00:28:37,640
who was running business
development at the time.

671
00:28:37,640 --> 00:28:38,917
He came in my office and said,

672
00:28:38,917 --> 00:28:41,107
"There's a new startup called Netflix

673
00:28:41,107 --> 00:28:42,980
"and they're delivering
DVDs through the mail."

674
00:28:42,980 --> 00:28:45,407
And truth be told, at the
time I was like, "Eh, okay.

675
00:28:45,407 --> 00:28:46,357
"Interesting.

676
00:28:46,357 --> 00:28:47,640
"We'll start keeping an eye on it."

677
00:28:47,640 --> 00:28:49,340
'Cause at the time, I
ran competitive analysis

678
00:28:49,340 --> 00:28:50,330
across our competitors,

679
00:28:50,330 --> 00:28:52,060
so we started to track
Netflix at that point.

680
00:28:52,060 --> 00:28:57,060
- So, that first summer
was actually pretty good.

681
00:28:57,910 --> 00:28:59,440
We were actually starting to get business,

682
00:28:59,440 --> 00:29:01,250
we were starting to get traction.

683
00:29:01,250 --> 00:29:04,430
And I think it was sometime at
the end of that first summer

684
00:29:04,430 --> 00:29:08,660
that we had our first $100,000 month,

685
00:29:08,660 --> 00:29:10,167
and that was a big accomplishment

686
00:29:10,167 --> 00:29:14,750
'cause a $100,000 month is a
million-dollar annual run rate.

687
00:29:14,750 --> 00:29:19,750
The bad news was that
almost all of that $100,000

688
00:29:20,157 --> 00:29:22,300
was selling DVDs.

689
00:29:22,300 --> 00:29:25,330
- It was about that
time that Reed Hastings,

690
00:29:25,330 --> 00:29:28,450
while he was on our board
and our angel funder,

691
00:29:28,450 --> 00:29:31,050
he also came in and was
spending a little bit more time

692
00:29:31,050 --> 00:29:32,370
with us in the offices.

693
00:29:32,370 --> 00:29:36,350
His biggest concern
was that selling movies

694
00:29:36,350 --> 00:29:38,570
was going to be a problem.

695
00:29:38,570 --> 00:29:41,780
- That was bad because we knew
it was just a matter of time

696
00:29:41,780 --> 00:29:46,330
before Amazon sold DVDs and
then Walmart would sell DVDs,

697
00:29:46,330 --> 00:29:49,000
then your local gas
station would sell DVDs.

698
00:29:49,000 --> 00:29:51,010
And this nice, healthy business

699
00:29:51,010 --> 00:29:53,267
would have its margins
taken out from underneath it

700
00:29:53,267 --> 00:29:56,550
and it would go to nothing
and we'd be outta business.

701
00:29:56,550 --> 00:29:59,620
So, now, rental, that was a great business

702
00:29:59,620 --> 00:30:02,910
in that it had potentially high
margins, really defensible.

703
00:30:02,910 --> 00:30:05,010
But nobody wanted to do it.

704
00:30:05,010 --> 00:30:07,480
We could barely get someone to rent once,

705
00:30:07,480 --> 00:30:09,020
so we'd never hear from them again.

706
00:30:09,020 --> 00:30:12,080
And even worse was doing
both of them at the same time

707
00:30:12,080 --> 00:30:13,460
was brutally difficult.

708
00:30:13,460 --> 00:30:16,160
I mean, if you think about
it, you'd come to our website

709
00:30:16,160 --> 00:30:17,977
and you'd be instantly confused.

710
00:30:17,977 --> 00:30:20,580
"Well, we rent movies and we sell movies."

711
00:30:20,580 --> 00:30:23,310
And then, some of the
titles could be only sold,

712
00:30:23,310 --> 00:30:25,220
some of the movies could be only rented,

713
00:30:25,220 --> 00:30:26,640
and some could be both.

714
00:30:26,640 --> 00:30:28,200
I mean, think of the checking out.

715
00:30:28,200 --> 00:30:30,200
We had to set up a system
that allowed someone

716
00:30:30,200 --> 00:30:32,750
to buy a movie, but also to rent a movie.

717
00:30:32,750 --> 00:30:34,750
And then the warehouse had to be able

718
00:30:34,750 --> 00:30:37,700
to package some of them in
packaging to go out and stay out

719
00:30:37,700 --> 00:30:40,140
and some when in packaging
to go out and come back.

720
00:30:40,140 --> 00:30:41,990
And we kinda came to this realization

721
00:30:41,990 --> 00:30:44,750
that if we were gonna be
successful, we had to focus.

722
00:30:44,750 --> 00:30:47,360
We had to pick one thing and do it well.

723
00:30:47,360 --> 00:30:50,200
But of course, that then
begs the question, which one?

724
00:30:50,200 --> 00:30:53,410
Do you bet everything on selling,

725
00:30:53,410 --> 00:30:56,823
which is paying 99% of salaries,

726
00:30:58,150 --> 00:31:01,810
but over a matter of time
is gonna go down to zero?

727
00:31:01,810 --> 00:31:03,690
Or do you bet everything on rental,

728
00:31:03,690 --> 00:31:05,980
which, if you can make it work,
could be a great business,

729
00:31:05,980 --> 00:31:09,320
but there is no indication whatsoever

730
00:31:09,320 --> 00:31:10,760
that that's gonna happen?

731
00:31:10,760 --> 00:31:13,190
When you decide overnight

732
00:31:13,190 --> 00:31:17,720
to walk away from 99% of
your revenue, it has a way

733
00:31:17,720 --> 00:31:21,240
of focusing your mind
(laughing) on the problem.

734
00:31:21,240 --> 00:31:25,150
There comes a point, even when
you're testing exhaustively,

735
00:31:25,150 --> 00:31:27,860
that you begin to run outta time

736
00:31:27,860 --> 00:31:29,890
and you begin to run outta money.

737
00:31:29,890 --> 00:31:32,470
And we were getting to the end of the rope

738
00:31:32,470 --> 00:31:36,390
and we still had three big
things that we wanted to try.

739
00:31:36,390 --> 00:31:38,950
So, one thing we had noticed

740
00:31:38,950 --> 00:31:43,950
was we have this huge warehouse
and it's full of DVDs.

741
00:31:44,210 --> 00:31:47,140
Maybe we could store them
at the customers' houses.

742
00:31:47,140 --> 00:31:48,680
Maybe they just keep them

743
00:31:48,680 --> 00:31:50,438
and when they're ready for another one,

744
00:31:50,438 --> 00:31:53,190
they mail it back and
we'll give 'em another one.

745
00:31:53,190 --> 00:31:54,900
That could be kinda interesting.

746
00:31:54,900 --> 00:31:55,950
And we have another idea.

747
00:31:55,950 --> 00:31:58,720
Right now, when someone mails one back,

748
00:31:58,720 --> 00:32:00,220
they've gotta come back to the website

749
00:32:00,220 --> 00:32:01,570
and pick their next movie.

750
00:32:01,570 --> 00:32:03,360
Well, that's pretty
awkward; no one does that.

751
00:32:03,360 --> 00:32:05,700
So, how about if we have them make a list

752
00:32:05,700 --> 00:32:08,270
of all the movies they
want and then we know,

753
00:32:08,270 --> 00:32:09,150
when a movie comes back,

754
00:32:09,150 --> 00:32:10,960
we'll just send the top one on the list.

755
00:32:10,960 --> 00:32:11,900
We'll call that the queue.

756
00:32:11,900 --> 00:32:15,810
And we say, "But why does
it have to be a la carte?"

757
00:32:15,810 --> 00:32:17,590
Maybe we just set up some program

758
00:32:17,590 --> 00:32:20,870
where you can do it as often
as you want, these exchanges,

759
00:32:20,870 --> 00:32:23,360
and we'll charge you a
monthly subscription fee.

760
00:32:23,360 --> 00:32:26,587
And Reed, in his impatience, goes,

761
00:32:26,587 --> 00:32:28,127
"We're not gonna test these sequentially.

762
00:32:28,127 --> 00:32:28,960
"We're outta time.

763
00:32:28,960 --> 00:32:29,857
"Come on, chop-chop.

764
00:32:29,857 --> 00:32:32,690
"We're gonna test all three
of these at the same time."

765
00:32:32,690 --> 00:32:37,290
So, we launched this
three programs at once.

766
00:32:37,290 --> 00:32:39,570
And amazingly, it worked.

767
00:32:39,570 --> 00:32:42,020
All of a sudden, people are renting.

768
00:32:42,020 --> 00:32:45,050
And not only are they
renting, they're coming back

769
00:32:45,050 --> 00:32:48,140
and they let us hit their
credit card the next month

770
00:32:48,140 --> 00:32:50,620
and the next month and
they're sticking around.

771
00:32:50,620 --> 00:32:52,870
And that was the moment

772
00:32:52,870 --> 00:32:55,440
where we kinda stopped being a startup

773
00:32:55,440 --> 00:32:59,560
and kind of realized we've
figured something out.

774
00:32:59,560 --> 00:33:00,850
- [Announcer] If you don't
watch a lotta movies,

775
00:33:00,850 --> 00:33:02,860
you may never learn
certain valuable things,

776
00:33:02,860 --> 00:33:04,990
like what to do when
an animal talks to you.

777
00:33:04,990 --> 00:33:07,514
- Hey, kids, Jimmy needs
your help down by the lake!

778
00:33:07,514 --> 00:33:08,347
- It talks!

779
00:33:08,347 --> 00:33:10,350
- Kill it!
- No, no, no, wait!

780
00:33:10,350 --> 00:33:12,076
Jimmy--
- Let's make a hat out of it!

781
00:33:12,076 --> 00:33:13,700
- Hold on, hold on,
everybody take a deep breath.

782
00:33:13,700 --> 00:33:15,322
- Let's cook it and eat it!

783
00:33:15,322 --> 00:33:16,931
(shrieking)

784
00:33:16,931 --> 00:33:18,660
- [Announcer] But if you
watched a lot of movies,

785
00:33:18,660 --> 00:33:19,493
you'd know.

786
00:33:19,493 --> 00:33:21,702
- Hey, kids, Jimmy needs
your help down by the lake!

787
00:33:21,702 --> 00:33:23,730
- Let's go help Jimmy!

788
00:33:23,730 --> 00:33:24,563
Thanks, prairie dog!

789
00:33:24,563 --> 00:33:26,940
- [Announcer] Netflix:
all the DVDs you want,

790
00:33:26,940 --> 00:33:29,413
20 bucks a month, and no late fees.

791
00:33:29,413 --> 00:33:31,730
- I was the home video industry
and I learned about Netflix

792
00:33:31,730 --> 00:33:34,200
the way most people in the world did,

793
00:33:34,200 --> 00:33:36,840
I bought a DVD player and
I opened up a DVD player

794
00:33:36,840 --> 00:33:38,100
and there's an offer for Netflix,

795
00:33:38,100 --> 00:33:39,480
which I had never heard of at the time.

796
00:33:39,480 --> 00:33:42,230
But I was intrigued by what
they were doing professionally,

797
00:33:42,230 --> 00:33:44,770
so signed up and was blown away

798
00:33:44,770 --> 00:33:46,500
by the DVD-through-the-mail service.

799
00:33:46,500 --> 00:33:48,530
- One of the biggest things that we did

800
00:33:48,530 --> 00:33:53,290
which triggered this
recognition at this early days

801
00:33:53,290 --> 00:33:57,180
was trying to jump on
top of current events.

802
00:33:57,180 --> 00:34:00,010
And there was one particular current event

803
00:34:00,010 --> 00:34:04,150
that we thought would be a
great thing to latch onto.

804
00:34:04,150 --> 00:34:05,530
- I'm not going to answer that question

805
00:34:05,530 --> 00:34:07,740
because I believe it's a
question about conduct that,

806
00:34:07,740 --> 00:34:11,220
whatever the answer to it is,
does not bear on the perjury

807
00:34:11,220 --> 00:34:13,940
because oral sex performed on the deponent

808
00:34:13,940 --> 00:34:18,110
under this definition
is not sexual relations.

809
00:34:18,110 --> 00:34:21,660
- We found out one afternoon
that, lo and behold,

810
00:34:21,660 --> 00:34:24,870
all the testimony was
actually gonna be released

811
00:34:24,870 --> 00:34:27,780
of President Bill Clinton's testimony

812
00:34:27,780 --> 00:34:29,630
in the Monica Lewinsky case.

813
00:34:29,630 --> 00:34:31,867
And we said, "This is fantastic.

814
00:34:31,867 --> 00:34:33,100
"Let's do a DVD."

815
00:34:33,100 --> 00:34:34,780
- So, we actually made that DVD

816
00:34:34,780 --> 00:34:36,440
as an exclusive for our customers

817
00:34:36,440 --> 00:34:38,050
to see if anybody wanted it.

818
00:34:38,050 --> 00:34:40,230
- I had never seen any title

819
00:34:40,230 --> 00:34:42,350
fly off the shelf like that before.

820
00:34:42,350 --> 00:34:45,930
Every single order had a
Clinton/Lewinsky DVD in it.

821
00:34:45,930 --> 00:34:48,270
And we were the only ones who had it

822
00:34:48,270 --> 00:34:52,980
and it was great for PR because
suddenly we were on the map

823
00:34:52,980 --> 00:34:54,570
and a lotta people were signing up,

824
00:34:54,570 --> 00:34:56,720
'cause you couldn't order
unless you signed up.

825
00:34:56,720 --> 00:34:59,150
- But first, we had to
actually get the DVD.

826
00:34:59,150 --> 00:35:02,870
And now, Mitch was like
pulling his hair out

827
00:35:02,870 --> 00:35:05,060
trying to figure out
how to make this happen,

828
00:35:05,060 --> 00:35:07,640
how to download the actual material,

829
00:35:07,640 --> 00:35:12,050
how to get that material
to a DVD mastering company,

830
00:35:12,050 --> 00:35:13,440
how to get the master made,

831
00:35:13,440 --> 00:35:15,370
and then how to have it all duplicated.

832
00:35:15,370 --> 00:35:17,600
And he was under so much time pressure

833
00:35:17,600 --> 00:35:19,870
that we decided to cut some corners.

834
00:35:19,870 --> 00:35:21,940
And so, one of the
corners we decided to cut

835
00:35:21,940 --> 00:35:23,450
was we're gonna go without a label.

836
00:35:23,450 --> 00:35:27,800
- Unfortunately, the manufacturer
who printed those discs

837
00:35:28,870 --> 00:35:32,130
got 'em mixed up with some Chinese porn

838
00:35:32,130 --> 00:35:36,540
that they were printing for
presumably a different customer

839
00:35:36,540 --> 00:35:39,590
and we ended up mailing those out.

840
00:35:39,590 --> 00:35:44,400
- Then we begin getting
these very curious emails.

841
00:35:44,400 --> 00:35:46,347
They're saying, "I'm not sure

842
00:35:46,347 --> 00:35:49,430
"this is what you meant to send me."

843
00:35:49,430 --> 00:35:50,330
We're going, "Huh?"

844
00:35:50,330 --> 00:35:51,957
- We thought, "Surely that can't be right.

845
00:35:51,957 --> 00:35:53,660
"Here, give me one of
this discs, let's try."

846
00:35:53,660 --> 00:35:55,217
And then, "Oh my god!

847
00:35:55,217 --> 00:35:56,887
"What is going on?!"

848
00:35:56,887 --> 00:35:58,600
- (laughing) And so we sent out

849
00:36:00,480 --> 00:36:05,460
a full spindle of Chinese pornography

850
00:36:05,460 --> 00:36:07,040
to people who were requesting

851
00:36:07,040 --> 00:36:09,690
President Clinton's
Monica Lewinsky testimony.

852
00:36:09,690 --> 00:36:12,400
And in some ways, that
wasn't that far off.

853
00:36:12,400 --> 00:36:14,730
- The openhandedness, the openheartedness,

854
00:36:14,730 --> 00:36:18,057
just saying, "Well,
that was a big mistake.

855
00:36:18,057 --> 00:36:19,130
"We're super sorry."

856
00:36:19,130 --> 00:36:24,050
And the recovery was quick
and honest and sincere,

857
00:36:24,050 --> 00:36:29,050
which then led to another
sort of brand expansion

858
00:36:30,070 --> 00:36:32,977
where people said, "Oh, these
Netflix kids, you know what?

859
00:36:32,977 --> 00:36:33,887
"When they make a mistake,

860
00:36:33,887 --> 00:36:36,390
"they own up to it and
they rectify it quick."

861
00:36:36,390 --> 00:36:39,563
And that remains an attribute
in place to this day.

862
00:36:43,200 --> 00:36:45,300
- So, when the dot-com boom happened,

863
00:36:45,300 --> 00:36:48,300
it was also boom times
for advertising agencies

864
00:36:48,300 --> 00:36:50,550
because all of those
brands all of a sudden

865
00:36:50,550 --> 00:36:52,970
really needed agency partners

866
00:36:52,970 --> 00:36:55,500
to help 'em develop their campaign.

867
00:36:55,500 --> 00:36:56,800
They had huge budgets,

868
00:36:56,800 --> 00:37:00,120
and many of 'em actually had
their eye on the Super Bowl.

869
00:37:00,120 --> 00:37:02,890
- Being a cat herder's probably
about the toughest thing

870
00:37:02,890 --> 00:37:04,833
I think I've ever done.

871
00:37:04,833 --> 00:37:08,489
- [Announcer] EDS, managing
the complexities of e-business.

872
00:37:08,489 --> 00:37:10,563
♪ Ooh, girl ♪

873
00:37:10,563 --> 00:37:14,063
♪ I just want you to stay ♪

874
00:37:16,280 --> 00:37:20,190
- Early on, I think we didn't invest

875
00:37:20,190 --> 00:37:21,710
in marketing and branding

876
00:37:21,710 --> 00:37:23,880
like most early internet companies did.

877
00:37:23,880 --> 00:37:26,290
We invested everything in
the customer experience.

878
00:37:26,290 --> 00:37:27,970
- And it's sort of ironic

879
00:37:27,970 --> 00:37:29,920
that the more successful a company gets,

880
00:37:29,920 --> 00:37:31,400
the more money it needs.

881
00:37:31,400 --> 00:37:34,300
If you're adding customers like crazy,

882
00:37:34,300 --> 00:37:36,480
you lose money on customers
in the first few months.

883
00:37:36,480 --> 00:37:38,030
It takes a while to recover that.

884
00:37:38,030 --> 00:37:40,040
And so, as you're successful,

885
00:37:40,040 --> 00:37:44,950
the needs for financing are
dramatically emphasized.

886
00:37:44,950 --> 00:37:47,690
Unfortunately, that was
accelerating into a time

887
00:37:47,690 --> 00:37:50,500
when it was a very bad time
to try and raise money.

888
00:37:50,500 --> 00:37:51,380
- [Reporter] It's described

889
00:37:51,380 --> 00:37:53,040
as nothing short of breathtaking,

890
00:37:53,040 --> 00:37:56,088
a points drop never before
seen on the US markets.

891
00:37:56,088 --> 00:37:59,400
(bell ringing)

892
00:37:59,400 --> 00:38:02,200
This closing bell might as
well have been an alarm,

893
00:38:02,200 --> 00:38:03,730
so savage was the selling.

894
00:38:03,730 --> 00:38:06,160
Technology stocks even harder hit.

895
00:38:06,160 --> 00:38:10,380
The Nasdaq Index in
free-fall, down nearly 10%.

896
00:38:10,380 --> 00:38:13,600
It lost a quarter of its
value in just one week.

897
00:38:13,600 --> 00:38:16,600
- Well, advertising has played a big role

898
00:38:16,600 --> 00:38:19,280
in the growth of most brands,

899
00:38:19,280 --> 00:38:22,700
including all of these tech brands.

900
00:38:22,700 --> 00:38:27,670
So, interestingly, advertising
probably sped the death

901
00:38:27,670 --> 00:38:30,400
of a lot of bad dot-com products.

902
00:38:30,400 --> 00:38:31,950
Nothing kills a bad idea

903
00:38:31,950 --> 00:38:33,710
more than getting 100 million people

904
00:38:33,710 --> 00:38:35,090
to take a look at it right away

905
00:38:35,090 --> 00:38:39,003
and decide that it really
doesn't do anything of value.

906
00:38:39,003 --> 00:38:44,003
- When the tech-com bubble
burst and all of a sudden,

907
00:38:44,390 --> 00:38:46,560
oh, the mad money that had been spent

908
00:38:46,560 --> 00:38:48,040
on Super Bowl commercials,

909
00:38:48,040 --> 00:38:50,570
the 17 commercials went down to three,

910
00:38:50,570 --> 00:38:53,610
and E*TRADE had a little bit of fun

911
00:38:53,610 --> 00:38:55,580
at its own industry's expense

912
00:38:55,580 --> 00:39:00,580
in a spot that captured the
detritus of the dot-com era.

913
00:39:01,129 --> 00:39:04,379
(somber Western music)

914
00:39:05,539 --> 00:39:08,956
(wrecking ball crashing)

915
00:39:19,540 --> 00:39:23,990
- One of the concepts in
investment in the Valley

916
00:39:23,990 --> 00:39:28,100
is the critical importance
of who's running the company.

917
00:39:28,100 --> 00:39:31,410
It was obvious to Reed and myself

918
00:39:31,410 --> 00:39:32,970
and our board and other people

919
00:39:32,970 --> 00:39:36,460
that Reed had a very,
very different profile

920
00:39:36,460 --> 00:39:39,150
amongst the investment
community than I did.

921
00:39:39,150 --> 00:39:41,130
- Reed Hastings sort of recognized

922
00:39:41,130 --> 00:39:44,900
this kind of frothy
environment in Silicon Valley

923
00:39:44,900 --> 00:39:45,910
of the late-'90s.

924
00:39:45,910 --> 00:39:48,590
He used to joke that you could
walk around with a tin can

925
00:39:48,590 --> 00:39:52,090
and have people drop $50 million on you.

926
00:39:52,090 --> 00:39:54,640
And after the bottom fell out in 2000,

927
00:39:54,640 --> 00:39:56,020
that was not the case.

928
00:39:56,020 --> 00:39:57,820
- And it was clear

929
00:39:57,820 --> 00:40:00,240
that if we were gonna
successfully raise the money

930
00:40:00,240 --> 00:40:03,266
we needed to get to the next level

931
00:40:03,266 --> 00:40:05,260
that it probably was gonna
take someone like Reed.

932
00:40:05,260 --> 00:40:07,600
- I just remember when Reed started

933
00:40:07,600 --> 00:40:09,700
and a lot of buzz in the office

934
00:40:09,700 --> 00:40:12,430
and a lot of people trying to
understand what was going on.

935
00:40:12,430 --> 00:40:13,520
Was Marc being outed?

936
00:40:13,520 --> 00:40:15,330
Was this disrespect in some way?

937
00:40:15,330 --> 00:40:16,163
What was happening?

938
00:40:16,163 --> 00:40:17,670
Why were we shifting?

939
00:40:17,670 --> 00:40:22,670
- It was difficult when we
started transitioning the team

940
00:40:23,060 --> 00:40:24,770
over to Reed's team.

941
00:40:24,770 --> 00:40:27,610
I felt bad for Marc
because we didn't get to do

942
00:40:27,610 --> 00:40:29,843
everything we set out to do.

943
00:40:29,843 --> 00:40:32,330
- It's such a common
story in Silicon Valley

944
00:40:32,330 --> 00:40:35,930
is the notion of you have the
early-stage entrepreneurs,

945
00:40:35,930 --> 00:40:40,230
people who have the vision,
the drive, the madness

946
00:40:40,230 --> 00:40:43,640
to think they can actually
change the world in whatever way.

947
00:40:43,640 --> 00:40:46,740
And then, money people send
in the designated grownups

948
00:40:46,740 --> 00:40:49,360
who can scale a business better.

949
00:40:49,360 --> 00:40:51,760
- And that ended up being, in retrospect,

950
00:40:51,760 --> 00:40:53,790
a smart thing for us to do,

951
00:40:53,790 --> 00:40:55,800
because in fact that was a time

952
00:40:55,800 --> 00:40:59,230
when if we had not raised
that money, we would be gone.

953
00:40:59,230 --> 00:41:02,220
And we raised that money almost entirely

954
00:41:02,220 --> 00:41:04,360
on an interpersonal,

955
00:41:04,360 --> 00:41:07,310
one person saying, "I'm willing
to bet on another person,"

956
00:41:07,310 --> 00:41:09,823
and that was certainly
one of our close calls.

957
00:41:11,060 --> 00:41:14,010
- [Reporter] Almost 2001, and
the technologies that bring us

958
00:41:14,010 --> 00:41:17,020
telephones, TV, and computers are merging.

959
00:41:17,020 --> 00:41:18,610
- Five years from now,
we're not gonna have

960
00:41:18,610 --> 00:41:21,710
distinct cable and telephone industries.

961
00:41:21,710 --> 00:41:23,430
It's going to be one industry

962
00:41:23,430 --> 00:41:25,600
and they'll be companies carrying bits,

963
00:41:25,600 --> 00:41:28,410
little pieces of information
from point A to point B.

964
00:41:28,410 --> 00:41:30,620
- [Reporter] There are also
interactive TV channels

965
00:41:30,620 --> 00:41:32,670
where people order movies on demand

966
00:41:32,670 --> 00:41:34,920
instead of driving to
the local video store.

967
00:41:34,920 --> 00:41:37,180
- Even though the video rental business

968
00:41:37,180 --> 00:41:40,110
was going pretty strong in 2000,

969
00:41:40,110 --> 00:41:43,600
we were really looking at other ways

970
00:41:43,600 --> 00:41:47,270
of delivering movies
and content to people.

971
00:41:47,270 --> 00:41:48,690
- [Man] This is a demonstration

972
00:41:48,690 --> 00:41:50,720
of the graphic user interface

973
00:41:51,960 --> 00:41:55,680
for the Blockbuster Enron
video-on-demand service.

974
00:41:55,680 --> 00:42:00,680
Along about 2000, a company
called Enron came to visit us.

975
00:42:02,060 --> 00:42:04,800
And they basically said,
very simple proposition,

976
00:42:04,800 --> 00:42:06,320
we'll provide all the technology.

977
00:42:06,320 --> 00:42:09,520
All you have to do is
get the content for us.

978
00:42:09,520 --> 00:42:10,910
- [Man] On the right-hand
side of the screen,

979
00:42:10,910 --> 00:42:12,390
again, there's several categories.

980
00:42:12,390 --> 00:42:15,560
'Just In' is basically, as we click on it,

981
00:42:15,560 --> 00:42:19,920
it is a listing of the most
recent additions to the service.

982
00:42:19,920 --> 00:42:22,930
Enron had these set-top boxes invented

983
00:42:22,930 --> 00:42:25,570
and we actually installed
them in people's homes

984
00:42:25,570 --> 00:42:27,420
in the San Francisco Bay Area.

985
00:42:27,420 --> 00:42:30,500
Well, some of the boxes
actually caught on fire

986
00:42:30,500 --> 00:42:31,490
in people's homes.

987
00:42:31,490 --> 00:42:33,540
And not long after that--

988
00:42:33,540 --> 00:42:35,620
- Congressional hearings
begin this morning

989
00:42:35,620 --> 00:42:37,380
in the Enron investigation.

990
00:42:37,380 --> 00:42:40,340
- Enron's fired Arthur
Andersen auditor David Duncan

991
00:42:40,340 --> 00:42:42,410
will take the Fifth Amendment today.

992
00:42:42,410 --> 00:42:44,720
Members want to question
him about his role

993
00:42:44,720 --> 00:42:46,824
in the destruction of financial documents.

994
00:42:46,824 --> 00:42:47,990
- And that was the beginning of it.

995
00:42:47,990 --> 00:42:51,970
In a matter of days, it all blew up.

996
00:42:51,970 --> 00:42:53,760
- [Reporter] Guilty
verdicts in the biggest case

997
00:42:53,760 --> 00:42:55,610
of corporate fraud in history.

998
00:42:55,610 --> 00:42:58,280
38 counts of fraud and conspiracy.

999
00:42:58,280 --> 00:43:00,700
- [Reporter] Lawyers for
Jeffrey Skilling and Kenneth Lay

1000
00:43:00,700 --> 00:43:02,360
threw around complicated notions

1001
00:43:02,360 --> 00:43:04,470
about margin calls and short-selling.

1002
00:43:04,470 --> 00:43:06,070
- So, in the fall of 2000,

1003
00:43:06,070 --> 00:43:08,730
Netflix was about
two-and-a-half years old.

1004
00:43:08,730 --> 00:43:11,260
And by some measures, we
were doing pretty good.

1005
00:43:11,260 --> 00:43:12,870
We had just finished a year

1006
00:43:12,870 --> 00:43:15,380
approaching $5 million in revenue.

1007
00:43:15,380 --> 00:43:18,500
And in fact, 2000 looked
like it could be a year

1008
00:43:18,500 --> 00:43:20,590
north of $30 million in revenue.

1009
00:43:20,590 --> 00:43:24,590
Now, the bad news was we
had accumulated losses

1010
00:43:24,590 --> 00:43:26,530
exceeding $50 million.

1011
00:43:26,530 --> 00:43:30,220
And if you can remember
what 2000 was like,

1012
00:43:30,220 --> 00:43:34,630
that was not a good climate
to have lost $50 million.

1013
00:43:34,630 --> 00:43:36,930
And so, being prudent
entrepreneurs like we are,

1014
00:43:36,930 --> 00:43:38,950
we decided this was the time to pursue

1015
00:43:38,950 --> 00:43:40,810
some strategic alternatives.

1016
00:43:40,810 --> 00:43:43,000
In other words, how do we
get the hell outta this one?

1017
00:43:43,000 --> 00:43:46,990
And the obvious strategic
alternative was Blockbuster.

1018
00:43:46,990 --> 00:43:50,940
And now, Blockbuster was in
a very, very different place.

1019
00:43:50,940 --> 00:43:53,480
We were about to do $30 million.

1020
00:43:53,480 --> 00:43:55,690
They were about to do $6 billion.

1021
00:43:55,690 --> 00:43:59,170
- Blockbuster, circa
2000, we had just overcome

1022
00:43:59,170 --> 00:44:01,860
some difficulties, got the
business back on track.

1023
00:44:01,860 --> 00:44:04,090
Rental business was growing again.

1024
00:44:04,090 --> 00:44:06,300
We were opening stores and, at that point,

1025
00:44:06,300 --> 00:44:09,440
had about 8,000 stores internationally.

1026
00:44:09,440 --> 00:44:11,220
- We were nothing to them.

1027
00:44:11,220 --> 00:44:15,280
And so, when we called Blockbuster
trying to get a meeting

1028
00:44:15,280 --> 00:44:16,810
or when we called Blockbuster

1029
00:44:16,810 --> 00:44:19,490
trying to explore this, nothing.

1030
00:44:19,490 --> 00:44:20,910
Crickets, for months.

1031
00:44:20,910 --> 00:44:24,310
Until finally, about two months later,

1032
00:44:24,310 --> 00:44:27,640
we were on a retreat at a little ranch

1033
00:44:27,640 --> 00:44:29,340
in the hills outside of Santa Barbara,

1034
00:44:29,340 --> 00:44:31,050
and we took the whole company away.

1035
00:44:31,050 --> 00:44:34,720
And, you know, in Silicon
Valley, people are pretty casual.

1036
00:44:34,720 --> 00:44:36,410
But on retreat, even more so.

1037
00:44:36,410 --> 00:44:38,050
And I think all that I really had with me

1038
00:44:38,050 --> 00:44:41,740
was a couple of tank-tops
and I had flip-flops

1039
00:44:41,740 --> 00:44:46,350
and I had shorts, and everyone
else was dressed similarly.

1040
00:44:46,350 --> 00:44:49,880
And of course, this is the moment

1041
00:44:49,880 --> 00:44:54,120
when Ed Stead from Blockbuster
calls Barry McCarthy

1042
00:44:54,120 --> 00:44:57,483
and says, "We'd love to see you.

1043
00:44:58,497 --> 00:45:00,097
"Tomorrow.

1044
00:45:00,097 --> 00:45:01,260
"In Dallas."

1045
00:45:01,260 --> 00:45:02,840
And we were not a rich company,

1046
00:45:02,840 --> 00:45:05,060
but we chartered a private jet.

1047
00:45:05,060 --> 00:45:07,360
And to paint this
picture, I'm in a tank-top

1048
00:45:07,360 --> 00:45:11,670
and shorts and flip-flops, and
Reed is in a Hawaiian shirt.

1049
00:45:11,670 --> 00:45:16,140
So, him and Barry McCarthy
and I, we arrive in Dallas

1050
00:45:16,140 --> 00:45:19,350
and we take a car over
to the Renaissance Tower.

1051
00:45:19,350 --> 00:45:23,690
And for years, that was the
biggest building in Dallas.

1052
00:45:23,690 --> 00:45:24,770
And we get in the elevator,

1053
00:45:24,770 --> 00:45:27,630
go up to the, I don't
know, 36th-37th floor,

1054
00:45:27,630 --> 00:45:31,190
and we come into this room
and it's a football field

1055
00:45:31,190 --> 00:45:36,130
and one of those huge endangered
hardwood board tables.

1056
00:45:36,130 --> 00:45:39,630
I mean, everything short
of having rhinoceros heads

1057
00:45:39,630 --> 00:45:40,463
on the wall.

1058
00:45:40,463 --> 00:45:42,170
- So, Blockbuster's
headquarters were, I think,

1059
00:45:42,170 --> 00:45:45,400
fairly typical for a company that size.

1060
00:45:45,400 --> 00:45:48,510
I wouldn't say palatial,
but not Spartan either.

1061
00:45:48,510 --> 00:45:50,960
- And the Blockbuster guys come in.

1062
00:45:50,960 --> 00:45:52,600
It's John Antioco and Ed Stead.

1063
00:45:52,600 --> 00:45:57,600
And he's wearing like a
$73,000 suit, so stereotypical.

1064
00:45:57,900 --> 00:46:01,140
- I can tell you quite categorically

1065
00:46:01,140 --> 00:46:03,880
I've never worn a suit to
the Blockbuster office.

1066
00:46:03,880 --> 00:46:08,840
So, I have a feeling that
whoever the guy was in the suit

1067
00:46:08,840 --> 00:46:10,260
wasn't John Antioco.

1068
00:46:10,260 --> 00:46:12,220
- And we all get around the table

1069
00:46:12,220 --> 00:46:14,160
and we talk and we kinda
make our pitch to them.

1070
00:46:14,160 --> 00:46:17,777
We go, "We think there
is great synergy here.

1071
00:46:17,777 --> 00:46:21,457
"We could run your online
business, you'd run the stores.

1072
00:46:21,457 --> 00:46:23,720
"This would be a great combination."

1073
00:46:23,720 --> 00:46:24,553
But they finally said,

1074
00:46:24,553 --> 00:46:26,350
"So, what do you think
we should pay for you?"

1075
00:46:26,350 --> 00:46:30,770
And I remember Reed kind
of screwing up his courage

1076
00:46:30,770 --> 00:46:34,670
and doing the swallows,
but he goes, "$50 million."

1077
00:46:34,670 --> 00:46:36,230
I'm sure my memory's playing tricks,

1078
00:46:36,230 --> 00:46:38,060
but I swear they were all kinda doing

1079
00:46:38,060 --> 00:46:41,433
that little holding a laugh in. (laughing)

1080
00:46:41,433 --> 00:46:43,970
And if they weren't, they
may as well have been

1081
00:46:43,970 --> 00:46:46,280
'cause they found that so ridiculous.

1082
00:46:46,280 --> 00:46:48,830
- I could see why someone like Ed

1083
00:46:48,830 --> 00:46:51,200
would take a look at
a business of Netflix,

1084
00:46:51,200 --> 00:46:54,110
which was, I think,
losing money at the time

1085
00:46:54,110 --> 00:46:59,110
in the midst of the dot-com
bubble explosion, if you will,

1086
00:46:59,300 --> 00:47:00,877
and say, "Eh, I don't
think that's something

1087
00:47:00,877 --> 00:47:01,830
"we wanna mess with."

1088
00:47:01,830 --> 00:47:06,450
- So, we slunk out quietly
outta the building,

1089
00:47:06,450 --> 00:47:08,980
tail between our legs,
got back on the plane,

1090
00:47:08,980 --> 00:47:12,600
like this totally quiet
ride back to Santa Barbara.

1091
00:47:12,600 --> 00:47:15,247
And I swear to god I
remember sitting there going,

1092
00:47:15,247 --> 00:47:18,565
"Ugh, god, now we're gonna
have to kick their ass."

1093
00:47:18,565 --> 00:47:20,815
(laughing)

1094
00:47:23,710 --> 00:47:25,021
You know what the best part is?

1095
00:47:25,021 --> 00:47:26,217
(laughing)

1096
00:47:26,217 --> 00:47:27,903
You know what the best part is.

1097
00:47:29,310 --> 00:47:31,163
- When Netflix came on the scene,

1098
00:47:32,030 --> 00:47:34,800
we felt vulnerable because of
the messaging they were giving

1099
00:47:34,800 --> 00:47:39,130
because it was emphasizing the
poor pieces of Blockbuster.

1100
00:47:39,130 --> 00:47:40,910
But we couldn't work out economically

1101
00:47:40,910 --> 00:47:42,370
how they were gonna make it work.

1102
00:47:42,370 --> 00:47:44,440
And we certainly didn't
understand the subscription model.

1103
00:47:44,440 --> 00:47:46,027
I mean, "Subscriptions?

1104
00:47:46,027 --> 00:47:46,860
"What are you talking about?"

1105
00:47:46,860 --> 00:47:48,270
- So, I started to get
concerned about Netflix

1106
00:47:48,270 --> 00:47:50,920
when we took a trip to San Francisco.

1107
00:47:50,920 --> 00:47:52,310
So, we went up there to understand

1108
00:47:52,310 --> 00:47:54,730
what was driving the subscription business

1109
00:47:54,730 --> 00:47:56,400
and the movie industry itself.

1110
00:47:56,400 --> 00:47:58,600
And so, we took 50 Netflix customers

1111
00:47:58,600 --> 00:48:00,190
and we interviewed them in focus groups.

1112
00:48:00,190 --> 00:48:04,010
And what we heard was
fantastic customer loyalty,

1113
00:48:04,010 --> 00:48:07,070
even on product they had to
wait three, four, five days for.

1114
00:48:07,070 --> 00:48:09,770
What's interesting for us is
our executive team at the time

1115
00:48:09,770 --> 00:48:10,920
couldn't get their head around the fact

1116
00:48:10,920 --> 00:48:13,150
that it wasn't sort of an
immediate gratification.

1117
00:48:13,150 --> 00:48:15,337
But what we heard from
Netflix customers was,

1118
00:48:15,337 --> 00:48:17,037
"It is immediate gratification.

1119
00:48:17,037 --> 00:48:18,380
"It's in my house."

1120
00:48:18,380 --> 00:48:20,580
And that for me was a sorta aha moment

1121
00:48:20,580 --> 00:48:23,327
that said, "No, this is
actually instantaneous.

1122
00:48:23,327 --> 00:48:25,527
"It just takes a little bit of planning."

1123
00:48:25,527 --> 00:48:28,610
(soft pensive music)

1124
00:48:29,600 --> 00:48:31,210
- There was this wonderful young woman

1125
00:48:31,210 --> 00:48:34,810
working in our fledgling sort of PR group

1126
00:48:34,810 --> 00:48:36,090
and I said, "How are you doing today?"

1127
00:48:36,090 --> 00:48:37,317
And she started crying and she said,

1128
00:48:37,317 --> 00:48:39,977
"If this company folds,
it'll be the fifth one

1129
00:48:39,977 --> 00:48:41,787
"that's folded that I've worked with,

1130
00:48:41,787 --> 00:48:43,810
"and I don't know if I can do this again."

1131
00:48:43,810 --> 00:48:45,550
And that's when it kind of hit me

1132
00:48:45,550 --> 00:48:48,840
that this is really real and
personal for a lotta people.

1133
00:48:48,840 --> 00:48:50,430
- We started running out of money

1134
00:48:50,430 --> 00:48:53,940
and we did I don't know how
many rounds of financing,

1135
00:48:53,940 --> 00:48:55,000
three, four.

1136
00:48:55,000 --> 00:48:58,130
- When companies go through rough patches

1137
00:48:58,130 --> 00:49:00,080
where all of a sudden you hit a point

1138
00:49:00,080 --> 00:49:02,640
where what you expected to happen doesn't,

1139
00:49:02,640 --> 00:49:04,640
the revenues don't come in,

1140
00:49:04,640 --> 00:49:09,640
the new customers aren't
acquired, and you have to adjust.

1141
00:49:09,760 --> 00:49:13,670
- At some point, we had to let
go of about 40% of employees.

1142
00:49:13,670 --> 00:49:14,710
That was pretty tough.

1143
00:49:14,710 --> 00:49:16,450
- The management framed that very well,

1144
00:49:16,450 --> 00:49:20,480
that this is a rough time,
every company needs to do this,

1145
00:49:20,480 --> 00:49:23,550
and what we're doing is gonna
make us survive the long-term.

1146
00:49:23,550 --> 00:49:24,460
The week leading up to the layoffs,

1147
00:49:24,460 --> 00:49:27,530
there were a lot of closed-door meetings,

1148
00:49:27,530 --> 00:49:31,450
but all our rooms are glass,
so there were a lotta suits.

1149
00:49:31,450 --> 00:49:33,980
And Netflix at that time was very casual.

1150
00:49:33,980 --> 00:49:36,280
I think a lot of us thought
Blockbuster was gonna buy us

1151
00:49:36,280 --> 00:49:38,010
or Microsoft was gonna buy us.

1152
00:49:38,010 --> 00:49:39,920
And people were like,
"Oh, do we go to Seattle?"

1153
00:49:39,920 --> 00:49:41,820
And we are all trying to speculate.

1154
00:49:41,820 --> 00:49:43,790
And then, the morning of,

1155
00:49:43,790 --> 00:49:46,670
I noticed there were Kleenex
boxes in the glass rooms.

1156
00:49:46,670 --> 00:49:50,040
- It was a necessity at that time

1157
00:49:50,040 --> 00:49:52,990
to survive that full-frontal attack.

1158
00:49:52,990 --> 00:49:55,350
Every department had to cut
a certain number of people

1159
00:49:55,350 --> 00:49:56,930
to protect our cashflow.

1160
00:49:56,930 --> 00:49:59,100
- [Tracy] It shocked people to their core.

1161
00:49:59,100 --> 00:50:01,640
- And what makes it especially tough

1162
00:50:01,640 --> 00:50:05,580
is that the people that
you have to fire sometimes

1163
00:50:05,580 --> 00:50:06,810
didn't do anything wrong

1164
00:50:06,810 --> 00:50:09,440
'cause these are people
who quit their jobs

1165
00:50:09,440 --> 00:50:13,073
to come and take on something
(pausing) unsurmountable.

1166
00:50:15,390 --> 00:50:17,700
- I didn't think it was
gonna be me, but it was.

1167
00:50:17,700 --> 00:50:21,760
And Reed talked to us and
we went in and had a meeting

1168
00:50:21,760 --> 00:50:24,310
and it was sad because you love your job

1169
00:50:24,310 --> 00:50:26,610
and you wanna be there
to see how it turns out.

1170
00:50:26,610 --> 00:50:28,550
- I think a lot of us
felt really dysfunctional

1171
00:50:28,550 --> 00:50:30,560
for days afterward, you know?

1172
00:50:30,560 --> 00:50:32,280
Just a massive amount of survivor guilt,

1173
00:50:32,280 --> 00:50:33,840
because we were so tight-knit.

1174
00:50:33,840 --> 00:50:36,230
- And going around that room

1175
00:50:36,230 --> 00:50:39,400
and asking people one after
another into your office

1176
00:50:39,400 --> 00:50:42,410
and they know what's coming
just breaks your heart.

1177
00:50:42,410 --> 00:50:45,840
But all I can do is to the
people that I've brought in

1178
00:50:45,840 --> 00:50:48,420
and said, "Thank you and I'm sorry,"

1179
00:50:48,420 --> 00:50:52,830
is to have them feel
the same pride that I do

1180
00:50:52,830 --> 00:50:56,280
in what we all built together.

1181
00:50:56,280 --> 00:50:57,840
- There's a better way to rent movies,

1182
00:50:57,840 --> 00:51:00,140
as many as you want for
just 20 bucks a month

1183
00:51:00,140 --> 00:51:01,600
and no late fees.

1184
00:51:01,600 --> 00:51:03,360
Go to Netflix.com.

1185
00:51:03,360 --> 00:51:05,520
Make a list of the movies you wanna see.

1186
00:51:05,520 --> 00:51:08,980
And in about one business
day, you'll get three DVDs.

1187
00:51:08,980 --> 00:51:11,530
Keep them as long as you
want without late fees.

1188
00:51:11,530 --> 00:51:14,870
Then, when you're done,
look: prepaid envelopes.

1189
00:51:14,870 --> 00:51:16,880
Return one and they'll
send you another movie

1190
00:51:16,880 --> 00:51:17,880
from your list.

1191
00:51:17,880 --> 00:51:18,833
It's easy.

1192
00:51:21,420 --> 00:51:23,590
- [Announcer] Netflix:
All the movies you want,

1193
00:51:23,590 --> 00:51:25,470
20 bucks a month, and no late fees.

1194
00:51:25,470 --> 00:51:28,540
- The thing about late
fees, two-edged sword.

1195
00:51:28,540 --> 00:51:30,670
Late fees were great
as a source of profit,

1196
00:51:30,670 --> 00:51:33,310
but they were the single
biggest irritation to a guest.

1197
00:51:33,310 --> 00:51:36,540
- Forever, late fees
are the most hated thing

1198
00:51:36,540 --> 00:51:38,310
about video rental.

1199
00:51:38,310 --> 00:51:40,750
And Blockbuster being the big player

1200
00:51:40,750 --> 00:51:42,020
in the video rental business,

1201
00:51:42,020 --> 00:51:43,400
we got the blame for late fees.

1202
00:51:43,400 --> 00:51:45,950
- So, we were now building
up all of this horror

1203
00:51:45,950 --> 00:51:48,297
of guests saying, "I know
I've gotta go to Blockbuster

1204
00:51:48,297 --> 00:51:51,240
"'cause I've got nowhere
else, but I don't like it."

1205
00:51:51,240 --> 00:51:53,230
And then in comes Reed
on his white Charger

1206
00:51:53,230 --> 00:51:55,257
and he says, "These guys
charge you late fees.

1207
00:51:55,257 --> 00:51:56,297
"We're gonna figure that out.

1208
00:51:56,297 --> 00:51:59,132
"You're gonna pay a subscription,
have as much as you like."

1209
00:51:59,132 --> 00:52:01,100
And to most people who
didn't bother doing the math,

1210
00:52:01,100 --> 00:52:02,167
they go, "Well, that's easy.

1211
00:52:02,167 --> 00:52:03,867
"I don't have to get outta my armchair,

1212
00:52:03,867 --> 00:52:06,317
"I don't pay late fees, and
all this stuff gets delivered.

1213
00:52:06,317 --> 00:52:07,247
"And those guys down there

1214
00:52:07,247 --> 00:52:09,937
"who've been charging
me a fortune forever,

1215
00:52:09,937 --> 00:52:12,110
"I don't wanna do business
with them anymore."

1216
00:52:12,110 --> 00:52:13,860
And so, we had to deal with that.

1217
00:52:13,860 --> 00:52:15,240
- The most important thing we could do

1218
00:52:15,240 --> 00:52:17,640
is enhance the brand image

1219
00:52:17,640 --> 00:52:20,060
because it was that brand
that was going to launch us

1220
00:52:20,060 --> 00:52:23,340
into the next level of this business,

1221
00:52:23,340 --> 00:52:25,420
which was gonna be digital delivery.

1222
00:52:25,420 --> 00:52:28,430
So, one of the rationales
behind getting rid of late fees,

1223
00:52:28,430 --> 00:52:30,790
it would be very popular with customers,

1224
00:52:30,790 --> 00:52:34,690
it would eliminate the thing
most dreaded about Blockbuster,

1225
00:52:34,690 --> 00:52:36,614
but it was a major decision.

1226
00:52:36,614 --> 00:52:38,404
- [Crowd] No more late fees!

1227
00:52:38,404 --> 00:52:40,289
No more late fees!

1228
00:52:40,289 --> 00:52:42,287
No more late fees!

1229
00:52:42,287 --> 00:52:44,342
No more late fees!

1230
00:52:44,342 --> 00:52:48,423
No more (pausing) late fees?

1231
00:52:48,423 --> 00:52:50,510
- What I remember most vividly

1232
00:52:50,510 --> 00:52:54,670
is Nick Shepherd and I walking
outta the Blockbuster office

1233
00:52:54,670 --> 00:52:58,070
after just seeing the
rough cut of the commercial

1234
00:52:58,070 --> 00:53:01,640
that we were going to
announce the end of late fees.

1235
00:53:01,640 --> 00:53:03,982
And all of a sudden, they broke into song.

1236
00:53:03,982 --> 00:53:06,337
♪ It's over ♪

1237
00:53:06,337 --> 00:53:08,356
(cheering)

1238
00:53:08,356 --> 00:53:12,348
♪ It's over ♪

1239
00:53:12,348 --> 00:53:14,940
♪ It's over ♪

1240
00:53:14,940 --> 00:53:18,360
- [Announcer] Someday, you'll
remember where you were

1241
00:53:18,360 --> 00:53:19,870
when you first heard

1242
00:53:19,870 --> 00:53:23,160
that there are no more
late fees at Blockbuster.

1243
00:53:23,160 --> 00:53:26,650
If you need an extra day or
two with your movies or games,

1244
00:53:26,650 --> 00:53:28,080
you go right ahead.

1245
00:53:28,080 --> 00:53:28,913
Take 'em.

1246
00:53:28,913 --> 00:53:29,746
Relax.

1247
00:53:29,746 --> 00:53:32,222
Enjoy more time and less stress.

1248
00:53:32,222 --> 00:53:35,843
♪ It's over, it's over, it's over ♪

1249
00:53:35,843 --> 00:53:37,423
- It's so beautiful.

1250
00:53:38,850 --> 00:53:40,080
- Thank you.

1251
00:53:40,080 --> 00:53:41,080
♪ It's over ♪

1252
00:53:41,080 --> 00:53:43,160
- [Announcer] The end of late fees.

1253
00:53:43,160 --> 00:53:44,890
The start of more.

1254
00:53:44,890 --> 00:53:46,643
The new Blockbuster.

1255
00:53:48,260 --> 00:53:50,467
- But as we were going out
the door, I said to Nick,

1256
00:53:50,467 --> 00:53:52,067
"You know, it's over stuff,

1257
00:53:52,067 --> 00:53:54,687
"I'm not sure if we're
talking about late fees

1258
00:53:54,687 --> 00:53:59,687
"or our careers, but I guess
we'll find out." (laughing)

1259
00:53:59,980 --> 00:54:04,650
- You don't do this job for the money.

1260
00:54:04,650 --> 00:54:06,070
It's a long haul.

1261
00:54:06,070 --> 00:54:08,870
The odds are extremely low

1262
00:54:08,870 --> 00:54:13,030
that your company's gonna
survive, no less be a big success.

1263
00:54:13,030 --> 00:54:15,100
But when everything goes right,

1264
00:54:15,100 --> 00:54:18,300
it ends up aligning everybody in success.

1265
00:54:18,300 --> 00:54:20,920
- I was even too young to
really know what it was.

1266
00:54:20,920 --> 00:54:23,088
I had never been in an IPO before.

1267
00:54:23,088 --> 00:54:24,950
- But I think everyone
recognizes that an IPO

1268
00:54:24,950 --> 00:54:26,633
is like high school graduation.

1269
00:54:26,633 --> 00:54:28,250
It's big at the time.

1270
00:54:28,250 --> 00:54:29,640
But with hindsight,

1271
00:54:29,640 --> 00:54:32,030
it's only really a
beginning of something else.

1272
00:54:32,030 --> 00:54:34,320
- [Reporter] The celebrations
might someday return

1273
00:54:34,320 --> 00:54:37,090
to other Silicon Valley
technology companies,

1274
00:54:37,090 --> 00:54:40,030
but Netflix represents
one of the few successes

1275
00:54:40,030 --> 00:54:43,370
in an otherwise desolate
technology sector.

1276
00:54:43,370 --> 00:54:46,063
- [Marc] Oh my gosh,
these numbers are just,

1277
00:54:47,070 --> 00:54:50,570
not type of numbers you
let yourself think about.

1278
00:54:50,570 --> 00:54:52,460
- It's commonly the case
when companies go public

1279
00:54:52,460 --> 00:54:55,070
in Silicon Valley that a bunch
of people make a lotta money

1280
00:54:55,070 --> 00:54:57,330
and you start seeing fancy
cars in the parking lot.

1281
00:54:57,330 --> 00:54:58,810
That never happened at Netflix

1282
00:54:58,810 --> 00:55:01,880
because we never felt that
sort of success and prominence.

1283
00:55:01,880 --> 00:55:04,670
We were under attack almost
immediately by Walmart,

1284
00:55:04,670 --> 00:55:06,557
and then, of course,
Amazon and Blockbuster.

1285
00:55:06,557 --> 00:55:07,840
- And from an online perspective,

1286
00:55:07,840 --> 00:55:10,260
we were just looking at this small company

1287
00:55:10,260 --> 00:55:14,580
growing double digits,
almost triple-digit growth.

1288
00:55:14,580 --> 00:55:17,050
And Netflix, it was still pretty small

1289
00:55:17,050 --> 00:55:21,100
at that period of time compared
to a Hollywood or a Gamestop

1290
00:55:21,100 --> 00:55:23,740
with thousands of locations
and billion dollars of sales.

1291
00:55:23,740 --> 00:55:25,810
- We used to love when
people wrote us off.

1292
00:55:25,810 --> 00:55:27,390
There was a couple Antioco quotes

1293
00:55:27,390 --> 00:55:30,720
where he said stuff about
us being niche market.

1294
00:55:30,720 --> 00:55:31,553
I think that's the line

1295
00:55:31,553 --> 00:55:33,710
that we all used to always joke about.

1296
00:55:33,710 --> 00:55:35,430
We were great 'cause we
didn't get attention.

1297
00:55:35,430 --> 00:55:39,030
No one really was re-engineering
us, and we loved it.

1298
00:55:39,030 --> 00:55:41,720
- The customer affinity to that brand,

1299
00:55:41,720 --> 00:55:45,160
the loyalty that brand had was so high

1300
00:55:45,160 --> 00:55:48,920
and the word of mouth on
that product was so good

1301
00:55:48,920 --> 00:55:51,080
that clearly we should address it.

1302
00:55:51,080 --> 00:55:53,450
- Reed's sort of a big-picture guy

1303
00:55:53,450 --> 00:55:54,960
and he wasn't worried about the pennies

1304
00:55:54,960 --> 00:55:56,230
on a day-to-day basis.

1305
00:55:56,230 --> 00:55:59,420
He knew that if he could get
an installed base of users

1306
00:55:59,420 --> 00:56:02,070
that he could keep them and
he could eventually figure out

1307
00:56:02,070 --> 00:56:03,110
how to make money from them.

1308
00:56:03,110 --> 00:56:04,960
And he would also be able
to work with the studios

1309
00:56:04,960 --> 00:56:06,880
to make it worthwhile for the studios.

1310
00:56:06,880 --> 00:56:09,770
And so, he went all out
just to build a user base.

1311
00:56:09,770 --> 00:56:11,530
Now, that user base had
to come from somewhere.

1312
00:56:11,530 --> 00:56:13,590
Well, guess what: It was coming from us.

1313
00:56:13,590 --> 00:56:15,150
And so, on the one hand, we've got a model

1314
00:56:15,150 --> 00:56:16,680
that the guests don't like.

1315
00:56:16,680 --> 00:56:17,513
And on the other, he's got a model

1316
00:56:17,513 --> 00:56:18,840
that the guests kinda like.

1317
00:56:18,840 --> 00:56:21,010
- I mean, one of the
biggest motivating factors

1318
00:56:21,010 --> 00:56:22,650
was disrupting Blockbuster,

1319
00:56:22,650 --> 00:56:25,077
making the world a better
place to rent movies.

1320
00:56:25,077 --> 00:56:28,360
- And it actually took a guy like Shane,

1321
00:56:28,360 --> 00:56:30,640
who eventually sat a number of us done

1322
00:56:30,640 --> 00:56:32,907
and said, "You oughta think about this.

1323
00:56:32,907 --> 00:56:35,167
"Think about how this might play out.

1324
00:56:35,167 --> 00:56:37,957
"Think about the economics
of not being in our business

1325
00:56:37,957 --> 00:56:40,270
"versus the economics of
being in our business."

1326
00:56:40,270 --> 00:56:42,800
And he made it brutally clear:

1327
00:56:42,800 --> 00:56:45,910
If we didn't get into the
online business and fast,

1328
00:56:45,910 --> 00:56:47,610
our economics would tumble.

1329
00:56:47,610 --> 00:56:51,010
- In 2002, we recognize we need to have

1330
00:56:51,010 --> 00:56:53,230
an offering against Netflix,
there's no question about that.

1331
00:56:53,230 --> 00:56:55,650
- So, after listening to
a lot of heated debate

1332
00:56:55,650 --> 00:56:57,427
for quite some time, I said,

1333
00:56:57,427 --> 00:56:59,647
"Look, here's the way to solve this.

1334
00:56:59,647 --> 00:57:02,700
"I'm gonna give Shane a budget."

1335
00:57:02,700 --> 00:57:04,980
And as I recall, it was $25 million,

1336
00:57:04,980 --> 00:57:07,787
and I'm gonna say, "Get
a small group of people,

1337
00:57:07,787 --> 00:57:11,100
"get an office, get offsite,
and get this business going."

1338
00:57:11,100 --> 00:57:13,180
- Luckily, our parent company, Viacom,

1339
00:57:13,180 --> 00:57:15,000
owned a building down the road

1340
00:57:15,000 --> 00:57:17,050
in an area of Dallas called the West End.

1341
00:57:17,050 --> 00:57:18,940
There was a building called
the Paramount Building.

1342
00:57:18,940 --> 00:57:21,840
- And so, for us, it
was like a gift, right?

1343
00:57:21,840 --> 00:57:24,470
We get $25 million, we
get the Blockbuster brand,

1344
00:57:24,470 --> 00:57:27,240
and we get to get away from
what you would consider to be

1345
00:57:27,240 --> 00:57:28,820
sorta this corporate culture

1346
00:57:28,820 --> 00:57:31,540
that may sorta hold
down a startup business.

1347
00:57:31,540 --> 00:57:33,650
- [Ben] So, for the
Blockbuster Online team,

1348
00:57:33,650 --> 00:57:36,587
we were part of this
giant $6-billion company,

1349
00:57:36,587 --> 00:57:38,670
but we really felt like
we were the little guy

1350
00:57:38,670 --> 00:57:39,860
going up against the giant.

1351
00:57:39,860 --> 00:57:41,800
Everybody knew Netflix at the time.

1352
00:57:41,800 --> 00:57:43,220
- We don't have any subscribers.

1353
00:57:43,220 --> 00:57:44,960
They've got well over a million.

1354
00:57:44,960 --> 00:57:46,360
We have no idea what we're doing.

1355
00:57:46,360 --> 00:57:48,420
They're a well-operated machine.

1356
00:57:48,420 --> 00:57:49,900
And we now have to figure out a way

1357
00:57:49,900 --> 00:57:52,360
to build a culture that
wants to attack them,

1358
00:57:52,360 --> 00:57:54,500
that wants to kill them, basically.

1359
00:57:54,500 --> 00:57:57,690
- And at the same time, you
can't market in our stores,

1360
00:57:57,690 --> 00:57:59,540
you can't use our customer list.

1361
00:57:59,540 --> 00:58:01,430
You have to do this truly on your own.

1362
00:58:01,430 --> 00:58:03,670
- So, we had to come up with
the best consumer proposition

1363
00:58:03,670 --> 00:58:04,820
to compete against Netflix,

1364
00:58:04,820 --> 00:58:07,940
so we came up with two main objectives.

1365
00:58:07,940 --> 00:58:10,520
One was have more titles.

1366
00:58:10,520 --> 00:58:11,910
They had 20,000 titles.

1367
00:58:11,910 --> 00:58:14,220
We were gonna launch with 25,000 titles

1368
00:58:14,220 --> 00:58:16,220
and have an in-store component.

1369
00:58:16,220 --> 00:58:17,840
You could get unlimited discs online

1370
00:58:17,840 --> 00:58:20,030
and two free in-store
rentals when we launch.

1371
00:58:20,030 --> 00:58:21,290
- So, we had to be scrappy.

1372
00:58:21,290 --> 00:58:22,850
And so, like David and Goliath,

1373
00:58:22,850 --> 00:58:25,780
any rock we could find
we throw, we'd throw.

1374
00:58:25,780 --> 00:58:28,560
- To get to 25,000
titles was no small feat.

1375
00:58:28,560 --> 00:58:31,170
Now, to get that many, there's
just not that many around.

1376
00:58:31,170 --> 00:58:32,130
I think we had one

1377
00:58:32,130 --> 00:58:35,020
that was a fireplace
burning on a television.

1378
00:58:35,020 --> 00:58:36,540
We also were hampered a little bit

1379
00:58:36,540 --> 00:58:39,580
because we couldn't put more
risque movies out there.

1380
00:58:39,580 --> 00:58:42,090
The Blockbuster brand was a family brand.

1381
00:58:42,090 --> 00:58:44,860
- So, we had a team of guys in our office

1382
00:58:44,860 --> 00:58:46,380
who would watch these movies

1383
00:58:46,380 --> 00:58:48,940
to make sure they were Blockbuster
appropriate and approved.

1384
00:58:48,940 --> 00:58:51,620
- So, there were certain rules
that we had at Blockbuster

1385
00:58:51,620 --> 00:58:53,530
that you could have and you couldn't have.

1386
00:58:53,530 --> 00:58:55,690
So, for instance, you
could have frontal nudity,

1387
00:58:55,690 --> 00:58:58,690
but you couldn't have full-frontal nudity.

1388
00:58:58,690 --> 00:58:59,970
- So, literally, our film team

1389
00:58:59,970 --> 00:59:02,370
would have to watch these
movies through a hood.

1390
00:59:02,370 --> 00:59:03,500
So, you would walk through the hall

1391
00:59:03,500 --> 00:59:06,020
and there would be a team of folks

1392
00:59:06,020 --> 00:59:07,580
looking through a monitor,

1393
00:59:07,580 --> 00:59:10,270
watching movies at high
speed with headphones on

1394
00:59:10,270 --> 00:59:11,103
to try to determine

1395
00:59:11,103 --> 00:59:13,310
if they were Blockbuster
appropriate or not.

1396
00:59:13,310 --> 00:59:15,360
And the saddest thing in our office

1397
00:59:15,360 --> 00:59:16,350
is when you would have a guy

1398
00:59:16,350 --> 00:59:17,730
who would watch two hours of a movie,

1399
00:59:17,730 --> 00:59:19,570
and then in the last few minutes

1400
00:59:19,570 --> 00:59:20,890
you would hear him scream in agony

1401
00:59:20,890 --> 00:59:23,070
because it would cross the threshold

1402
00:59:23,070 --> 00:59:23,920
at the end of the movie.

1403
00:59:23,920 --> 00:59:24,840
- We've got six months

1404
00:59:24,840 --> 00:59:27,120
and we are now gonna
reverse-engineer Netflix.

1405
00:59:27,120 --> 00:59:27,953
The first thing we do

1406
00:59:27,953 --> 00:59:29,820
is just rip apart their
website, obviously.

1407
00:59:29,820 --> 00:59:32,010
- [Marc] This was not a static website

1408
00:59:32,010 --> 00:59:34,530
that you could just go
in and copy the words

1409
00:59:34,530 --> 00:59:36,910
and copy the layout and copy the pricing

1410
00:59:36,910 --> 00:59:38,620
and think that you've now caught us.

1411
00:59:38,620 --> 00:59:40,020
What you're missing is the data.

1412
00:59:40,020 --> 00:59:42,040
You're missing all that understanding

1413
00:59:42,040 --> 00:59:44,510
that comes from knowing the reason

1414
00:59:44,510 --> 00:59:47,150
why this headline is in 18-point type

1415
00:59:47,150 --> 00:59:49,610
and this one's in 12,
rather than vice-versa.

1416
00:59:49,610 --> 00:59:51,350
- Netflix had a huge headstart on us

1417
00:59:51,350 --> 00:59:53,030
from an online perspective.

1418
00:59:53,030 --> 00:59:55,630
They knew how to acquire
our customers effectively.

1419
00:59:55,630 --> 00:59:58,460
They knew how movie ratings
and recommendations work.

1420
00:59:58,460 --> 01:00:00,210
There was a lotta things that they knew

1421
01:00:00,210 --> 01:00:01,713
that we basically had to try to learn

1422
01:00:01,713 --> 01:00:02,980
in a condensed time period.

1423
01:00:02,980 --> 01:00:05,410
- We made it so that when
you showed up at a website

1424
01:00:05,410 --> 01:00:07,330
or I showed up or someone else showed up,

1425
01:00:07,330 --> 01:00:09,070
everyone got a different experience.

1426
01:00:09,070 --> 01:00:10,610
It was personalized.

1427
01:00:10,610 --> 01:00:12,450
And it wasn't just personalized

1428
01:00:12,450 --> 01:00:15,550
based on what you might like as a movie.

1429
01:00:15,550 --> 01:00:19,350
It was based on things like
what movies do we have in stock?

1430
01:00:19,350 --> 01:00:20,750
It was based on

1431
01:00:20,750 --> 01:00:23,590
what movies do we have
better financial terms on?

1432
01:00:23,590 --> 01:00:26,250
It was based on, once
we had regional hubs,

1433
01:00:26,250 --> 01:00:29,060
which movie do we have in stock near you?

1434
01:00:29,060 --> 01:00:31,580
And all these things
would go into the choice

1435
01:00:31,580 --> 01:00:34,090
that of course happens on
the internet in an instant

1436
01:00:34,090 --> 01:00:36,640
of what 10 movies we choose to pop up

1437
01:00:36,640 --> 01:00:38,350
and have you pick from.

1438
01:00:38,350 --> 01:00:40,700
- Obviously, the distribution
operations was a big deal.

1439
01:00:40,700 --> 01:00:42,220
They were starting to
get overnight delivery.

1440
01:00:42,220 --> 01:00:44,060
And everywhere they
had overnight delivery,

1441
01:00:44,060 --> 01:00:46,400
their penetration rates
were significantly higher

1442
01:00:46,400 --> 01:00:47,340
than when they didn't.

1443
01:00:47,340 --> 01:00:49,950
So, we sent people into
their distribution centers.

1444
01:00:49,950 --> 01:00:51,990
And we didn't do it under
any false pretenses.

1445
01:00:51,990 --> 01:00:54,977
We went there and said, "We
are subscribers of Netflix.

1446
01:00:54,977 --> 01:00:56,117
"We think it's fantastic.

1447
01:00:56,117 --> 01:00:57,617
"We saw where the return envelope was.

1448
01:00:57,617 --> 01:00:59,290
"We just wanted to check it out."

1449
01:00:59,290 --> 01:01:01,390
And they opened the
door and they let us in.

1450
01:01:01,390 --> 01:01:03,090
Not only that, they let us take pictures.

1451
01:01:03,090 --> 01:01:05,010
They described exactly
how the discs came in.

1452
01:01:05,010 --> 01:01:06,790
They described exactly
how the discs went out.

1453
01:01:06,790 --> 01:01:08,760
They described how they
cycle-counted a disc,

1454
01:01:08,760 --> 01:01:10,650
how they kept track of the discs.

1455
01:01:10,650 --> 01:01:13,100
It was a real good education for us.

1456
01:01:13,100 --> 01:01:14,650
They did figure it out though,

1457
01:01:14,650 --> 01:01:16,650
because we want back a couple more times

1458
01:01:16,650 --> 01:01:18,297
and they finally said,
"No, no, we're done.

1459
01:01:18,297 --> 01:01:21,570
"You can't tour the facility any longer."

1460
01:01:21,570 --> 01:01:24,340
Later, we actually hired
a person from Netflix,

1461
01:01:24,340 --> 01:01:27,080
and he was on a conference call
with one of their operators

1462
01:01:27,080 --> 01:01:29,000
and they were not happy with the fact

1463
01:01:29,000 --> 01:01:31,410
that Blockbuster got a
carte-blanche movement

1464
01:01:31,410 --> 01:01:33,510
through their distribution centers.

1465
01:01:33,510 --> 01:01:36,670
- What we learned was that
Blockbuster had sent people in

1466
01:01:36,670 --> 01:01:39,610
to look at our facility
and see what we did.

1467
01:01:39,610 --> 01:01:43,320
And we did the same thing, not
as much perhaps as they did.

1468
01:01:43,320 --> 01:01:46,330
But at one point, I sent
some of my hub managers over

1469
01:01:46,330 --> 01:01:48,860
to interview for jobs at Blockbuster

1470
01:01:48,860 --> 01:01:50,460
and they would give 'em the grand tour

1471
01:01:50,460 --> 01:01:52,740
and then they'd come
back and report it all.

1472
01:01:52,740 --> 01:01:55,440
When our people looked at
what Blockbuster was doing,

1473
01:01:55,440 --> 01:01:58,750
it looked like it was two years
behind what we were doing.

1474
01:01:58,750 --> 01:02:02,940
- This machine is a standard
first-class mail postal sorter

1475
01:02:02,940 --> 01:02:06,680
that Netflix rebuilt to do many things.

1476
01:02:06,680 --> 01:02:08,833
We put these DVDs in this machine,

1477
01:02:09,690 --> 01:02:13,560
and the barcode on the
DVD is read right there.

1478
01:02:13,560 --> 01:02:17,960
And from there, it's sorted
for various purposes.

1479
01:02:17,960 --> 01:02:19,450
- Netflix had a lotta media,

1480
01:02:19,450 --> 01:02:21,660
and so, obviously, their
PR strategy was brilliant.

1481
01:02:21,660 --> 01:02:22,860
And one of the things they did

1482
01:02:22,860 --> 01:02:25,970
is they had videos of their
distribution centers online.

1483
01:02:25,970 --> 01:02:28,920
They also had a lot of photos
of their distribution centers

1484
01:02:28,920 --> 01:02:30,490
and the packing material

1485
01:02:30,490 --> 01:02:32,290
and the machines that were
kicking stuff in and out.

1486
01:02:32,290 --> 01:02:34,640
So, in fact, we used those pictures

1487
01:02:34,640 --> 01:02:37,290
to call the same firm
to build our machinery.

1488
01:02:37,290 --> 01:02:39,820
- We knew that we had lots
of press coming through.

1489
01:02:39,820 --> 01:02:44,260
And to make sure no one knew
where our automation came from,

1490
01:02:44,260 --> 01:02:46,810
we relabeled all the equipment

1491
01:02:46,810 --> 01:02:48,770
with fake names and fake cities

1492
01:02:48,770 --> 01:02:51,580
so that if they went to go
and try to buy it from there,

1493
01:02:51,580 --> 01:02:53,333
they'd discover it doesn't exist.

1494
01:03:01,267 --> 01:03:03,070
- Hey.
- Hey.

1495
01:03:03,070 --> 01:03:04,270
- Your movie came today.

1496
01:03:05,617 --> 01:03:07,040
"Alien", right?

1497
01:03:07,040 --> 01:03:08,376
I'm not quite sure where I--

1498
01:03:08,376 --> 01:03:09,827
(screaming) What is this?!

1499
01:03:09,827 --> 01:03:11,128
What's happening?!

1500
01:03:11,128 --> 01:03:12,376
(screaming)

1501
01:03:12,376 --> 01:03:14,209
It's coming outta my--

1502
01:03:15,097 --> 01:03:16,243
You're gonna like it.

1503
01:03:19,441 --> 01:03:21,980
- So, before we launched
Blockbuster Online to the public,

1504
01:03:21,980 --> 01:03:23,680
we had what's called a soft launch,

1505
01:03:23,680 --> 01:03:26,490
which is basically the
service was operational,

1506
01:03:26,490 --> 01:03:29,610
not available to everybody,
and we sent invites

1507
01:03:29,610 --> 01:03:32,170
to limited friends and
family and employees

1508
01:03:32,170 --> 01:03:33,500
to stress test the system.

1509
01:03:33,500 --> 01:03:36,180
- Funny enough, we see
Reed Hastings sign up.

1510
01:03:36,180 --> 01:03:37,940
We see Barry McCarthy sign up.

1511
01:03:37,940 --> 01:03:40,500
So, we see a whole bunch of Netflix URLs

1512
01:03:40,500 --> 01:03:43,547
start to make its way into
our Blockbuster Online signup.

1513
01:03:43,547 --> 01:03:46,620
And so I said, "Apparently
we have their attention."

1514
01:03:46,620 --> 01:03:49,210
It's July 2004, we're about to launch,

1515
01:03:49,210 --> 01:03:51,730
and Netflix announces that
they're gonna take their price

1516
01:03:51,730 --> 01:03:53,170
up to $21.99.

1517
01:03:53,170 --> 01:03:55,840
And we are like it's Christmas.

1518
01:03:55,840 --> 01:03:57,940
One, we've done all this market research

1519
01:03:57,940 --> 01:04:01,000
that says anything about $20 is bad news.

1520
01:04:01,000 --> 01:04:03,670
And two, we're gonna launch at $19.99

1521
01:04:03,670 --> 01:04:04,870
and be underneath them.

1522
01:04:04,870 --> 01:04:07,920
- So, I remember the launch
day for Blockbuster Online.

1523
01:04:07,920 --> 01:04:09,960
- We had organized a giant launch party

1524
01:04:09,960 --> 01:04:11,958
at the Granada Theater in Dallas.

1525
01:04:11,958 --> 01:04:13,182
- [Man] This is it!

1526
01:04:13,182 --> 01:04:14,376
This is a sign!

1527
01:04:14,376 --> 01:04:18,126
(pulsating electronic music)

1528
01:04:22,579 --> 01:04:27,300
- This is your wake-up call, pal.

1529
01:04:27,300 --> 01:04:29,000
- [Shane] We have this big launch party.

1530
01:04:29,000 --> 01:04:31,090
We're not sure we should
go to market yet or not.

1531
01:04:31,090 --> 01:04:34,400
- Challenge was the site
was maybe not quite ready

1532
01:04:34,400 --> 01:04:35,790
for public consumption.

1533
01:04:35,790 --> 01:04:37,850
- And so, we launch,

1534
01:04:37,850 --> 01:04:41,310
and every 30 minutes we
have to restart our servers

1535
01:04:41,310 --> 01:04:42,770
so the system stays up.

1536
01:04:42,770 --> 01:04:44,500
- Literally, it was
almost like the hamster

1537
01:04:44,500 --> 01:04:47,700
turning the wheel behind the
scenes to keep the site up.

1538
01:04:47,700 --> 01:04:48,900
- They had a great brand.

1539
01:04:48,900 --> 01:04:51,380
I mean, they were the one
company that we all feared.

1540
01:04:51,380 --> 01:04:53,410
In fact, there was this
analyst who still is out there,

1541
01:04:53,410 --> 01:04:55,860
Michael Pachter, who called them,

1542
01:04:55,860 --> 01:04:57,660
we were like the little dog

1543
01:04:57,660 --> 01:04:59,540
yapping at the heels of the big dog.

1544
01:04:59,540 --> 01:05:02,310
- One of Reed's quarterly
messages to the company

1545
01:05:02,310 --> 01:05:04,080
was how to take down Blockbuster.

1546
01:05:04,080 --> 01:05:05,390
- We needed to do a lotta work

1547
01:05:05,390 --> 01:05:08,740
to figure out what
flexibility we had on pricing.

1548
01:05:08,740 --> 01:05:11,810
We had taken it up, and we were
gonna have to take it down.

1549
01:05:11,810 --> 01:05:13,940
- And then Netflix drops
their price to $17.99.

1550
01:05:13,940 --> 01:05:15,610
We clearly now have their attention.

1551
01:05:15,610 --> 01:05:17,720
So, we now have to make a
decision: What do we wanna do?

1552
01:05:17,720 --> 01:05:20,337
I wanna drop the price point to $17.49.

1553
01:05:20,337 --> 01:05:22,447
- "Shane, that's kinda
kissing your sister, right?

1554
01:05:22,447 --> 01:05:25,764
"If we're gonna undercut them,
let's go for it: $14.99."

1555
01:05:25,764 --> 01:05:27,317
"14.99?!

1556
01:05:27,317 --> 01:05:28,320
"You're crazy!"

1557
01:05:28,320 --> 01:05:31,630
- John was always a guy who
wasn't afraid to move on price

1558
01:05:31,630 --> 01:05:34,240
if he thought there was a big
pickup in volume to be had.

1559
01:05:34,240 --> 01:05:35,300
- We had an inferior product.

1560
01:05:35,300 --> 01:05:37,140
We didn't have as many
distribution centers.

1561
01:05:37,140 --> 01:05:38,950
We couldn't get the movies to the people

1562
01:05:38,950 --> 01:05:40,370
as fast as Netflix can.

1563
01:05:40,370 --> 01:05:42,260
- John's logic is we don't have that many,

1564
01:05:42,260 --> 01:05:44,610
they've got a lot; they can't
drop the price to get us.

1565
01:05:44,610 --> 01:05:47,010
- Netflix has two million members.

1566
01:05:47,010 --> 01:05:52,010
If they drop their price $5,
that's $10 million a month.

1567
01:05:52,730 --> 01:05:55,490
That's about $120 million a year

1568
01:05:55,490 --> 01:05:57,170
at their existing subscriber base.

1569
01:05:57,170 --> 01:05:58,790
I don't think they'll do it.

1570
01:05:58,790 --> 01:06:02,010
- His bias was always just
go right to the customers,

1571
01:06:02,010 --> 01:06:04,363
give 'em great value,
give 'em a great something

1572
01:06:04,363 --> 01:06:06,190
that really plays back into a lower price.

1573
01:06:06,190 --> 01:06:08,136
Lower price, more value;
the customers will love it.

1574
01:06:08,136 --> 01:06:09,700
I mean, it's that simple.

1575
01:06:09,700 --> 01:06:10,927
Don't over-complicate it.

1576
01:06:10,927 --> 01:06:13,007
- "And as a matter of fact,

1577
01:06:13,007 --> 01:06:16,350
"let's go on the Super Bowl
with a commercial at $14.99."

1578
01:06:16,350 --> 01:06:18,470
- I'm gonna pick up a
movie from Blockbuster.

1579
01:06:18,470 --> 01:06:19,593
- Okay, drive safely.

1580
01:06:29,730 --> 01:06:32,470
- [Announcer] Now, Blockbuster
is as close as your mailbox.

1581
01:06:32,470 --> 01:06:34,530
Introducing Blockbuster Online.

1582
01:06:34,530 --> 01:06:35,760
Choose your movies online.

1583
01:06:35,760 --> 01:06:37,120
Receive and return them by mail.

1584
01:06:37,120 --> 01:06:39,167
Enjoy unlimited rentals and
keep them as long as you want.

1585
01:06:39,167 --> 01:06:41,580
Plus, get two free in-store
rentals every month,

1586
01:06:41,580 --> 01:06:43,810
all for just $14.99.

1587
01:06:43,810 --> 01:06:45,070
- So, I've got a Blackberry.

1588
01:06:45,070 --> 01:06:47,490
So, every hour on the
hour, I get an update

1589
01:06:47,490 --> 01:06:49,560
as to how many subscribers we're getting

1590
01:06:49,560 --> 01:06:50,960
on the Super Bowl itself.

1591
01:06:50,960 --> 01:06:52,790
- And so, literally, in that next hour,

1592
01:06:52,790 --> 01:06:54,580
we signed up the same
number of subscribers

1593
01:06:54,580 --> 01:06:56,620
we were normally seeing in a day.

1594
01:06:56,620 --> 01:06:59,160
Then the next hour, that number doubled.

1595
01:06:59,160 --> 01:07:01,410
Then the next hour, that number doubled.

1596
01:07:01,410 --> 01:07:04,240
And basically, the day
within the Super Bowl,

1597
01:07:04,240 --> 01:07:05,260
we signed up as many people

1598
01:07:05,260 --> 01:07:06,917
as we had signed up in the previous month.

1599
01:07:06,917 --> 01:07:08,630
- And I remember looking at Ben

1600
01:07:08,630 --> 01:07:10,800
and saying, "We got something here."

1601
01:07:10,800 --> 01:07:12,800
- With the price increase,
there was two sides.

1602
01:07:12,800 --> 01:07:15,120
There was circle the
wagons and do what's right

1603
01:07:15,120 --> 01:07:17,507
and let the model show that
they couldn't handle it.

1604
01:07:17,507 --> 01:07:19,690
And then, of course, the other
option was to lower prices

1605
01:07:19,690 --> 01:07:21,610
and get into a price war with Blockbuster.

1606
01:07:21,610 --> 01:07:23,910
- Even assuming that they
were as efficient as we were,

1607
01:07:23,910 --> 01:07:25,653
we knew actually that those early months

1608
01:07:25,653 --> 01:07:27,370
were gonna cost 'em a lot

1609
01:07:27,370 --> 01:07:29,560
and they were aggressively
underpricing us.

1610
01:07:29,560 --> 01:07:32,960
- So, we could model what
Blockbuster was getting

1611
01:07:32,960 --> 01:07:34,290
from their customers.

1612
01:07:34,290 --> 01:07:37,430
But at the lower price, they
were never breaking even.

1613
01:07:37,430 --> 01:07:39,499
They were burning cash.

1614
01:07:39,499 --> 01:07:42,582
(soft pensive music)

1615
01:07:46,210 --> 01:07:47,560
- When we left Viacom,

1616
01:07:47,560 --> 01:07:49,957
we had a board that was a
pretty supportive board.

1617
01:07:49,957 --> 01:07:52,410
And that all changed
after the proxy fight.

1618
01:07:52,410 --> 01:07:56,360
- Motorola is a perfect example
of how Carl Icahn operates.

1619
01:07:56,360 --> 01:07:59,530
He's been making demands
in order to jolt up

1620
01:07:59,530 --> 01:08:01,400
the sagging stock price.

1621
01:08:01,400 --> 01:08:03,970
First one: Dump the CEO.

1622
01:08:03,970 --> 01:08:06,110
That happened in December.

1623
01:08:06,110 --> 01:08:07,530
Then break up the company.

1624
01:08:07,530 --> 01:08:11,007
- All Carl could see was,
"You guys are very expensive,

1625
01:08:11,007 --> 01:08:12,470
"you make a lotta money."

1626
01:08:12,470 --> 01:08:14,100
And so, when we were talking to him

1627
01:08:14,100 --> 01:08:16,430
about how we're saving costs,

1628
01:08:16,430 --> 01:08:19,300
I remember talking to him about
how we were closing stores,

1629
01:08:19,300 --> 01:08:22,338
integrating stores, and
how that saved money.

1630
01:08:22,338 --> 01:08:25,017
And it was like, "We
don't believe in numbers."

1631
01:08:25,970 --> 01:08:28,180
- [Lesley] His goal is always the same:

1632
01:08:28,180 --> 01:08:31,250
to reap a heft profit for himself.

1633
01:08:31,250 --> 01:08:33,520
He's been successful, say Wall Streeters,

1634
01:08:33,520 --> 01:08:36,630
because he's intimidating and relentless.

1635
01:08:36,630 --> 01:08:39,640
- So, now you have Carl coming
in with a couple of his guys,

1636
01:08:39,640 --> 01:08:40,540
didn't listen to anything.

1637
01:08:40,540 --> 01:08:42,720
And Carl, I mean, you couldn't get Carl

1638
01:08:42,720 --> 01:08:44,470
to kind of focus on anything.

1639
01:08:44,470 --> 01:08:45,877
And so, they didn't come in and say,

1640
01:08:45,877 --> 01:08:47,420
"Let me understand your business."

1641
01:08:47,420 --> 01:08:49,170
They came in to tell us
how to run a business.

1642
01:08:49,170 --> 01:08:53,410
And I can remember sitting
in the first board meeting,

1643
01:08:53,410 --> 01:08:56,040
which was meant to be
an acclimation meeting,

1644
01:08:56,040 --> 01:08:57,610
help them understand the business.

1645
01:08:57,610 --> 01:09:00,380
I don't think I had gotten to slide two

1646
01:09:00,380 --> 01:09:02,310
before these guys are throwing ideas

1647
01:09:02,310 --> 01:09:03,143
and, "You guys haven't tested this

1648
01:09:03,143 --> 01:09:04,600
"and you should be doing that."

1649
01:09:04,600 --> 01:09:07,527
And one of the guys
said, "People buy jeans.

1650
01:09:07,527 --> 01:09:09,307
"Why don't you take
some movies off the wall

1651
01:09:09,307 --> 01:09:10,530
"and put jeans on the wall."

1652
01:09:10,530 --> 01:09:14,310
And you go, "Genius; I wish
I'd thought about that one."

1653
01:09:14,310 --> 01:09:16,370
- We had launched our online service

1654
01:09:16,370 --> 01:09:18,970
and I was desperately looking for a way

1655
01:09:18,970 --> 01:09:22,750
to leverage the stores as
part of an online service.

1656
01:09:22,750 --> 01:09:25,477
So, in a meeting with
Shane, we talked about,

1657
01:09:25,477 --> 01:09:29,097
"Wouldn't it be nice
if our online customers

1658
01:09:29,097 --> 01:09:31,740
"could exchange their
movies in our stores?"

1659
01:09:31,740 --> 01:09:33,110
- Our observations and our research

1660
01:09:33,110 --> 01:09:33,960
showed that this was actually

1661
01:09:33,960 --> 01:09:35,220
really interesting to consumers,

1662
01:09:35,220 --> 01:09:38,160
the idea that you can
get a movie in the mail

1663
01:09:38,160 --> 01:09:40,752
and take it in the store and
immediately get another movie.

1664
01:09:40,752 --> 01:09:43,270
One of the things that we
always knew about our services

1665
01:09:43,270 --> 01:09:45,130
is that you couldn't get
instant gratification.

1666
01:09:45,130 --> 01:09:46,490
You actually had to wait for the mail.

1667
01:09:46,490 --> 01:09:48,590
And we optimized our distribution centers

1668
01:09:48,590 --> 01:09:50,080
so that it would be one day each way,

1669
01:09:50,080 --> 01:09:51,360
but that's as good as it would be.

1670
01:09:51,360 --> 01:09:53,340
Well, you could just drive
to the store and do it.

1671
01:09:53,340 --> 01:09:55,180
So, that was actually scarier.

1672
01:09:55,180 --> 01:09:56,540
- We read the results.

1673
01:09:56,540 --> 01:09:58,050
The results were fantastic.

1674
01:09:58,050 --> 01:10:01,390
We've put the media together
to launch Total Access.

1675
01:10:01,390 --> 01:10:05,800
We do a big to-do with
Jessica Simpson in November

1676
01:10:05,800 --> 01:10:07,200
where John and Jessica go out there

1677
01:10:07,200 --> 01:10:10,020
and she talks about how Total
Access is the best thing ever.

1678
01:10:10,020 --> 01:10:12,060
- They hired Jessica Simpson
to be a spokesperson.

1679
01:10:12,060 --> 01:10:13,580
Netflix couldn't afford a celebrity

1680
01:10:13,580 --> 01:10:15,200
of her caliber at the time.

1681
01:10:15,200 --> 01:10:17,080
So, this was a pretty intense competition.

1682
01:10:17,080 --> 01:10:20,560
- I never understood the
financial market support

1683
01:10:20,560 --> 01:10:21,850
of Blockbuster through it all.

1684
01:10:21,850 --> 01:10:24,170
I mean, they kept giving 'em money.

1685
01:10:24,170 --> 01:10:27,160
And we were struggling month-to-month,

1686
01:10:27,160 --> 01:10:28,390
but we had the better model.

1687
01:10:28,390 --> 01:10:31,870
- We had I wanna say
a half-a-million subs,

1688
01:10:31,870 --> 01:10:34,860
it mighta been 750,000 subs in two months,

1689
01:10:34,860 --> 01:10:37,240
and absolutely pupt
Netflix on their heels.

1690
01:10:37,240 --> 01:10:40,440
And so, we now get into the first quarter

1691
01:10:40,440 --> 01:10:43,890
and they go negative for the
first time in their history.

1692
01:10:43,890 --> 01:10:47,990
In the second quarter, we pick
up 115% of the market share.

1693
01:10:47,990 --> 01:10:51,050
We have absolutely got
them dead to rights.

1694
01:10:51,050 --> 01:10:53,820
- I mean, at the time, the
stock went down to $1.50.

1695
01:10:53,820 --> 01:10:55,440
There was a lotta questions

1696
01:10:55,440 --> 01:10:57,780
if we were gonna survive
three major attacks

1697
01:10:57,780 --> 01:11:00,920
from Amazon, Blockbuster, and Walmart.

1698
01:11:00,920 --> 01:11:03,890
But we were confident
in what we had modeled.

1699
01:11:03,890 --> 01:11:05,780
We always believed that
anybody could get into this,

1700
01:11:05,780 --> 01:11:07,077
but that nobody else could make money

1701
01:11:07,077 --> 01:11:09,488
and offer the service
as successful as we did.

1702
01:11:09,488 --> 01:11:12,571
(film reel spinning)

1703
01:11:13,617 --> 01:11:16,784
(audience applauding)

1704
01:11:21,325 --> 01:11:22,325
- Thank you.

1705
01:11:23,780 --> 01:11:26,070
Change is inevitable.

1706
01:11:26,070 --> 01:11:29,253
And some people fight it,
and some people embrace it.

1707
01:11:30,100 --> 01:11:32,630
- Sundance, to Blockbuster,
was a pretty big deal.

1708
01:11:32,630 --> 01:11:34,070
- So, we went ever year.

1709
01:11:34,070 --> 01:11:36,260
We got to meet with the studios.

1710
01:11:36,260 --> 01:11:37,907
- And for me, what it was is,

1711
01:11:37,907 --> 01:11:40,317
"Hey, this is an
opportunity for Blockbuster

1712
01:11:40,317 --> 01:11:43,847
"to intermingle with the film community,

1713
01:11:43,847 --> 01:11:46,780
"to look at opportunities
to acquire content,

1714
01:11:46,780 --> 01:11:48,850
and quite frankly to kinda relax

1715
01:11:48,850 --> 01:11:51,330
and do a little skiing
when we weren't working.

1716
01:11:51,330 --> 01:11:52,700
- Once we started getting kinda big,

1717
01:11:52,700 --> 01:11:54,940
we would take the whole
company out to Sundance,

1718
01:11:54,940 --> 01:11:57,610
people going on skiing
trips and taking lessons

1719
01:11:57,610 --> 01:12:01,020
and coordinating huge
dinners for everyone,

1720
01:12:01,020 --> 01:12:02,890
and it was a lotta fun.

1721
01:12:02,890 --> 01:12:04,970
- Netflix had made Sundance

1722
01:12:04,970 --> 01:12:06,858
one of their key pillars early on

1723
01:12:06,858 --> 01:12:08,330
and they would take
lots of employees there,

1724
01:12:08,330 --> 01:12:10,720
so we wanted to see what type of vibe

1725
01:12:10,720 --> 01:12:12,590
was around Netflix at Sundance.

1726
01:12:12,590 --> 01:12:16,400
- So, we're strolling
the streets of Sundance.

1727
01:12:16,400 --> 01:12:18,327
It was one of my favorite times of year

1728
01:12:18,327 --> 01:12:20,910
to bask in all that
Hollywood kind of stuff.

1729
01:12:20,910 --> 01:12:23,410
I was walking with Nick
Shepherd and his phone rang.

1730
01:12:23,410 --> 01:12:25,687
And so I said, "Hey, Nick,
what was that about?"

1731
01:12:25,687 --> 01:12:27,217
"It was Matthew Smith.

1732
01:12:27,217 --> 01:12:30,117
"He just got a call from
Ted over at Netflix,

1733
01:12:30,117 --> 01:12:31,467
"and Reed would like to see you."

1734
01:12:31,467 --> 01:12:32,300
"He does?"

1735
01:12:32,300 --> 01:12:33,937
I said, "Okay.

1736
01:12:33,937 --> 01:12:37,050
"So, I guess, set it up and
I'll go see Mr. Hastings."

1737
01:12:37,050 --> 01:12:40,020
- You have to understand,
Netflix just won't even recognize

1738
01:12:40,020 --> 01:12:41,440
that we have an online business, right?

1739
01:12:41,440 --> 01:12:44,600
So, it was very, "Blockbuster who?"

1740
01:12:44,600 --> 01:12:46,260
- I mean, Reed said a lotta things

1741
01:12:46,260 --> 01:12:49,180
that were basically poo-pooing
Blockbuster's ability

1742
01:12:49,180 --> 01:12:50,600
to get into this business.

1743
01:12:50,600 --> 01:12:52,170
- But that particular Sundance,

1744
01:12:52,170 --> 01:12:53,730
so we'd just had a couple of quarters

1745
01:12:53,730 --> 01:12:56,340
where we'd sort of whooped on Netflix.

1746
01:12:56,340 --> 01:12:58,250
- We put a million subs on in six months,

1747
01:12:58,250 --> 01:13:00,220
which is the fastest subscription business

1748
01:13:00,220 --> 01:13:02,080
to a million people you've ever seen.

1749
01:13:02,080 --> 01:13:03,830
And so, we finally have their attention.

1750
01:13:03,830 --> 01:13:06,430
- Next day, it's off to see Mr. Hastings,

1751
01:13:06,430 --> 01:13:09,070
and we drive to his villa.

1752
01:13:09,070 --> 01:13:13,007
And I enter the premise
and Reed says, "Hi, John.

1753
01:13:13,007 --> 01:13:14,800
"Congratulations."

1754
01:13:14,800 --> 01:13:16,110
I said, "What's that about, Reed?"

1755
01:13:16,110 --> 01:13:20,150
He said, "Total Access, having an impact."

1756
01:13:20,150 --> 01:13:22,810
- [Announcer] Both Netflix
and Blockbuster Total Access

1757
01:13:22,810 --> 01:13:24,100
give you the convenience of movies

1758
01:13:24,100 --> 01:13:25,660
delivered right to your home.

1759
01:13:25,660 --> 01:13:26,750
Except, with Netflix,

1760
01:13:26,750 --> 01:13:30,010
to get new movies, you can
only return by mail and wait.

1761
01:13:30,010 --> 01:13:32,000
But with Blockbuster Total Access--

1762
01:13:32,000 --> 01:13:33,730
- Hey, I don't have to wait!

1763
01:13:33,730 --> 01:13:35,520
- [Announcer] You can also
return movies at the store

1764
01:13:35,520 --> 01:13:37,860
and exchange them for new
ones at no extra charge.

1765
01:13:37,860 --> 01:13:39,630
- So, you get new movies faster.

1766
01:13:39,630 --> 01:13:41,070
- [All] Yay, more movies!

1767
01:13:41,070 --> 01:13:42,900
- Total Access was different.

1768
01:13:42,900 --> 01:13:43,930
It was really problematic

1769
01:13:43,930 --> 01:13:45,810
because Blockbuster was
leveraging an asset,

1770
01:13:45,810 --> 01:13:46,840
the stores, that we didn't have,

1771
01:13:46,840 --> 01:13:48,470
and we had no way to match that.

1772
01:13:48,470 --> 01:13:49,357
- And at that point, he said,

1773
01:13:49,357 --> 01:13:51,127
"Well, you guys really
don't have any business

1774
01:13:51,127 --> 01:13:52,707
"being in this business,

1775
01:13:52,707 --> 01:13:56,040
"so why don't we just
buy your subscribers?"

1776
01:13:56,040 --> 01:13:58,270
- The thing was we'd lost our confidence

1777
01:13:58,270 --> 01:14:01,300
because here these insurgents
have come into our business.

1778
01:14:01,300 --> 01:14:02,260
They were picking us off

1779
01:14:02,260 --> 01:14:03,840
because of things we'd done in the past,

1780
01:14:03,840 --> 01:14:05,220
things we hadn't got right.

1781
01:14:05,220 --> 01:14:07,130
And they were making a kind of big deal

1782
01:14:07,130 --> 01:14:09,680
of stuff like late fees and
all of this sorta stuff.

1783
01:14:09,680 --> 01:14:10,927
And then, all of a sudden,

1784
01:14:10,927 --> 01:14:13,070
"No, no, we're stopping
them stealing our business."

1785
01:14:13,070 --> 01:14:15,350
Now we're getting it right
and they can't get it right.

1786
01:14:15,350 --> 01:14:16,610
So, we felt pretty good about that,

1787
01:14:16,610 --> 01:14:18,240
so now our confidence
has started to come back

1788
01:14:18,240 --> 01:14:21,197
because you go, "There's
a future for our business.

1789
01:14:21,197 --> 01:14:22,030
"They're wrong.

1790
01:14:22,030 --> 01:14:24,100
"We can get this business
really motoring."

1791
01:14:24,100 --> 01:14:26,020
- I personally never had
an interest in selling it,

1792
01:14:26,020 --> 01:14:27,200
but felt like I had an obligation

1793
01:14:27,200 --> 01:14:28,570
to talk to the board about it.

1794
01:14:28,570 --> 01:14:31,287
- John calls me and he says,
"Netflix has made an offer.

1795
01:14:31,287 --> 01:14:32,930
"We need to go talk to the board."

1796
01:14:32,930 --> 01:14:34,270
At the time, a lotta those board meetings

1797
01:14:34,270 --> 01:14:36,170
were in New York in Carl's office.

1798
01:14:36,170 --> 01:14:37,660
Carl asked me, he said,
"Well, what do ya think?"

1799
01:14:37,660 --> 01:14:39,197
And I said, "I wouldn't sell at this point

1800
01:14:39,197 --> 01:14:42,607
"because we're pushing 'em so hard

1801
01:14:42,607 --> 01:14:44,267
"that they're either gonna pay more later

1802
01:14:44,267 --> 01:14:45,417
"or we're gonna be profitable.

1803
01:14:45,417 --> 01:14:47,977
"One of those two things
is about to happen, Carl.

1804
01:14:47,977 --> 01:14:50,719
"At five million subscribers,
we're profitable.

1805
01:14:50,719 --> 01:14:51,552
"We're at two-and-a-half now,

1806
01:14:51,552 --> 01:14:53,397
"we're gonna be at four
by the end of the quarter.

1807
01:14:53,397 --> 01:14:56,180
"Or Netflix comes in and offers
us well over $1 billion."

1808
01:14:56,180 --> 01:14:58,990
So, at that point, we make
the decision not to sell.

1809
01:14:58,990 --> 01:15:00,800
Now, what I also don't know

1810
01:15:00,800 --> 01:15:02,440
that happens at that board meeting

1811
01:15:02,440 --> 01:15:05,920
is Carl decides not to pay
John has agreed-to bonus.

1812
01:15:05,920 --> 01:15:08,140
- It didn't sit right with me.

1813
01:15:08,140 --> 01:15:09,707
Honestly, if they'd come and they'd said,

1814
01:15:09,707 --> 01:15:12,567
"You know, this is a significant bonus;

1815
01:15:12,567 --> 01:15:15,210
"the stock price didn't
have a great year,"

1816
01:15:15,210 --> 01:15:18,090
I don't know, I mighta
given it some consideration.

1817
01:15:18,090 --> 01:15:20,170
But it wasn't going to be unilaterally

1818
01:15:20,170 --> 01:15:22,530
them deciding to violate my contract

1819
01:15:22,530 --> 01:15:24,200
and not pay me what I earned.

1820
01:15:24,200 --> 01:15:27,010
- When we first heard about John Antioco

1821
01:15:27,010 --> 01:15:30,370
facing off Carl Icahn, we
knew he had his hands full.

1822
01:15:30,370 --> 01:15:32,160
- We didn't have any control over it,

1823
01:15:32,160 --> 01:15:34,023
so we were just watching,

1824
01:15:35,720 --> 01:15:37,370
not really knowing what was gonna happen.

1825
01:15:37,370 --> 01:15:42,150
- You can't have a business
that's fighting for its life

1826
01:15:42,150 --> 01:15:45,380
in an environment which is changing daily

1827
01:15:45,380 --> 01:15:48,100
and not have a board who
aren't supporting you,

1828
01:15:48,100 --> 01:15:50,020
challenging you, but supporting you.

1829
01:15:50,020 --> 01:15:51,780
The agendas were different.

1830
01:15:51,780 --> 01:15:53,220
I don't know quite what the agenda was,

1831
01:15:53,220 --> 01:15:54,390
but it was certainly wasn't the agenda

1832
01:15:54,390 --> 01:15:55,760
of making Blockbuster successful,

1833
01:15:55,760 --> 01:15:57,540
'cause they didn't contribute to that.

1834
01:15:57,540 --> 01:15:59,661
- It was time for a change.

1835
01:15:59,661 --> 01:16:02,150
I'd been successful enough financially.

1836
01:16:02,150 --> 01:16:03,860
I was at a time in my life

1837
01:16:03,860 --> 01:16:07,370
where I wanted to spend more
time at home and family,

1838
01:16:07,370 --> 01:16:08,920
so it just seemed like the right time

1839
01:16:08,920 --> 01:16:11,700
to transition the
business to someone else.

1840
01:16:11,700 --> 01:16:13,293
- John sits us all down.

1841
01:16:14,673 --> 01:16:15,923
He says he's gonna leave,

1842
01:16:17,630 --> 01:16:18,620
which is a tough day for all of us,

1843
01:16:18,620 --> 01:16:20,880
it was like knife in the heart,

1844
01:16:20,880 --> 01:16:22,660
and says they're gonna launch a search

1845
01:16:22,660 --> 01:16:23,840
and bring in a new CEO.

1846
01:16:23,840 --> 01:16:27,360
And we're all thinking digital
expertise, movie background,

1847
01:16:27,360 --> 01:16:30,640
something to transition
us into this new space.

1848
01:16:30,640 --> 01:16:32,520
- My hope was that they would give the job

1849
01:16:32,520 --> 01:16:35,780
to Nick Shepherd, the president
and COO of the company,

1850
01:16:35,780 --> 01:16:38,375
who understood the business,
understood the challenges,

1851
01:16:38,375 --> 01:16:41,070
and, I think, understood
what Blockbuster had to do

1852
01:16:41,070 --> 01:16:42,620
to move forward in the business.

1853
01:16:42,620 --> 01:16:44,410
Instead, they made a different decision.

1854
01:16:44,410 --> 01:16:45,910
- Jim Keyes, now our CEO,

1855
01:16:45,910 --> 01:16:47,560
gets us all up to Rough Creek Ranch.

1856
01:16:47,560 --> 01:16:49,230
First question he asks us,
he gets us all in a room

1857
01:16:49,230 --> 01:16:51,317
and he says, "Who here
thinks Blockbuster's

1858
01:16:51,317 --> 01:16:53,270
"in a lotta trouble and going bankrupt?"

1859
01:16:53,270 --> 01:16:55,316
And everybody raises their hand but me.

1860
01:16:55,316 --> 01:16:56,149
And Jim looks at me and he says,

1861
01:16:56,149 --> 01:16:57,770
"Shane, how are you
not raising your hand?"

1862
01:16:57,770 --> 01:16:58,603
And I said, "Well, Jim,

1863
01:16:58,603 --> 01:17:00,667
"we have the offer to sell the company.

1864
01:17:00,667 --> 01:17:04,157
"If we're going to not invest
in the online business,

1865
01:17:04,157 --> 01:17:05,167
"let's just sell the company

1866
01:17:05,167 --> 01:17:06,470
"and we'll get rid of all the debt."

1867
01:17:06,470 --> 01:17:09,400
- You do the math,
that's a billion dollars.

1868
01:17:09,400 --> 01:17:11,480
And so, that's a very attractive number,

1869
01:17:11,480 --> 01:17:14,672
especially if you've got
$720 million worth of debt

1870
01:17:14,672 --> 01:17:15,740
on your balance sheet.

1871
01:17:15,740 --> 01:17:19,577
- Jim had a billion-dollar
tagline that he wanted to say:

1872
01:17:19,577 --> 01:17:21,010
"Movies any way."

1873
01:17:21,010 --> 01:17:23,840
And in that billion-dollar tagline,

1874
01:17:23,840 --> 01:17:25,890
you had to keep the online
business operational

1875
01:17:25,890 --> 01:17:27,490
because you could deliver it in the store,

1876
01:17:27,490 --> 01:17:28,870
you could deliver it digitally,

1877
01:17:28,870 --> 01:17:30,830
and you could deliver it by mail.

1878
01:17:30,830 --> 01:17:35,220
- Working 18-, 20-hour
days for months on end,

1879
01:17:35,220 --> 01:17:37,060
and to have that,

1880
01:17:37,060 --> 01:17:39,160
being told that we're gonna
be done with the online deal

1881
01:17:39,160 --> 01:17:40,950
and we're gonna reengage in the stores

1882
01:17:40,950 --> 01:17:43,710
felt like kind of a losing proposition.

1883
01:17:43,710 --> 01:17:45,201
- When we heard Jim Keyes say,

1884
01:17:45,201 --> 01:17:46,190
"We're gonna make the stores great again,"

1885
01:17:46,190 --> 01:17:47,250
we thought, "Really?"

1886
01:17:47,250 --> 01:17:49,050
- The day was coming for
the end of the store.

1887
01:17:49,050 --> 01:17:49,967
That was the point where we realized,

1888
01:17:49,967 --> 01:17:51,690
"Okay, we think we've won now."

1889
01:17:51,690 --> 01:17:54,150
- When he exited Blockbuster Total Access,

1890
01:17:54,150 --> 01:17:56,460
I knew it was not a good sign;

1891
01:17:56,460 --> 01:17:59,387
in fact, so much so that I said,

1892
01:17:59,387 --> 01:18:03,797
"I'm gonna buy some
Netflix stock," and I did,

1893
01:18:03,797 --> 01:18:07,500
and I bought a lot of Netflix stock.

1894
01:18:07,500 --> 01:18:10,630
- I remembered poor Jim Keyes
was gonna buy Circuit City,

1895
01:18:10,630 --> 01:18:13,430
and that was just like, "Wow."

1896
01:18:13,430 --> 01:18:14,840
That was like the Titanic

1897
01:18:14,840 --> 01:18:16,880
is gonna merge with the Hindenberg.

1898
01:18:16,880 --> 01:18:19,170
It was just like, "What are you thinking?"

1899
01:18:19,170 --> 01:18:22,100
- I remember being on
my back porch, crying.

1900
01:18:22,100 --> 01:18:25,120
We spent three years and we
developed a great product.

1901
01:18:25,120 --> 01:18:26,880
We had 'em.

1902
01:18:26,880 --> 01:18:28,270
We were gonna be that retailer

1903
01:18:28,270 --> 01:18:30,230
that actually cannibalized itself,

1904
01:18:30,230 --> 01:18:33,830
that moved from a store
business to a digital platform

1905
01:18:33,830 --> 01:18:38,090
and transitioned out, and Jim ended it.

1906
01:18:38,090 --> 01:18:40,927
- It wasn't long after we
sort of won that battle

1907
01:18:40,927 --> 01:18:43,450
and all of a sudden we
were starting to work on

1908
01:18:43,450 --> 01:18:45,060
what at the time we called downloading,

1909
01:18:45,060 --> 01:18:46,480
which didn't materialize that way

1910
01:18:46,480 --> 01:18:48,720
because the studios wouldn't let the movie

1911
01:18:48,720 --> 01:18:51,720
be captured on a device, so it
became the streaming project.

1912
01:18:53,890 --> 01:18:55,310
We never gushed profit.

1913
01:18:55,310 --> 01:18:57,720
We were always operating
very leanly and efficiently

1914
01:18:57,720 --> 01:18:59,330
and Wall Street always
wanted more from us.

1915
01:18:59,330 --> 01:19:01,617
So then, it pivoted to, "What do you do

1916
01:19:01,617 --> 01:19:03,727
"about this opportunity to stream movies

1917
01:19:03,727 --> 01:19:05,499
"and how much we spend on content

1918
01:19:05,499 --> 01:19:06,377
"and where are we gonna get it

1919
01:19:06,377 --> 01:19:08,290
"and how are we gonna get it to the TV?"

1920
01:19:08,290 --> 01:19:10,210
- I remember most is a lot of conversation

1921
01:19:10,210 --> 01:19:15,210
about trying to figure out
how to convince consumers

1922
01:19:16,640 --> 01:19:17,890
that this made sense

1923
01:19:17,890 --> 01:19:19,730
and wasn't the craziest
thing they'd ever heard.

1924
01:19:19,730 --> 01:19:22,163
- The first two years, it was free.

1925
01:19:24,126 --> 01:19:27,820
At that time, no one knew
how to hook up their internet

1926
01:19:27,820 --> 01:19:30,780
to their television in their living room,

1927
01:19:30,780 --> 01:19:32,900
and so there was a whole kind of learning,

1928
01:19:32,900 --> 01:19:34,907
like, "Is it worth it?

1929
01:19:34,907 --> 01:19:36,227
"How do you do it?

1930
01:19:36,227 --> 01:19:38,280
"Can I only watch it on my laptop?"

1931
01:19:38,280 --> 01:19:39,930
- The first thing, again, that I did

1932
01:19:39,930 --> 01:19:42,490
was I sat down with a lot of TV executives

1933
01:19:42,490 --> 01:19:44,780
to try to figure out what is this right

1934
01:19:44,780 --> 01:19:46,070
that we're trying to acquire?

1935
01:19:46,070 --> 01:19:50,440
- And the studios began to
strike distribution deals

1936
01:19:50,440 --> 01:19:52,320
that they considered found money.

1937
01:19:52,320 --> 01:19:55,180
They were taking advantage
of the dupes at Netflix

1938
01:19:55,180 --> 01:19:59,030
by charging exorbitant fees for
the right to stream content.

1939
01:19:59,030 --> 01:20:02,280
And Starz was one of the first
to strike a deal with Netflix

1940
01:20:02,280 --> 01:20:05,990
that provided access to Disney
films and to Sony films,

1941
01:20:05,990 --> 01:20:07,532
like Spider-Man 3.

1942
01:20:07,532 --> 01:20:08,932
- I know what it feels like.

1943
01:20:09,840 --> 01:20:11,400
Feels good.

1944
01:20:11,400 --> 01:20:12,233
The power.

1945
01:20:12,233 --> 01:20:13,460
- This was a pivotal moment

1946
01:20:13,460 --> 01:20:14,810
in the development of
the streaming service.

1947
01:20:14,810 --> 01:20:17,210
It finally gave Netflix access

1948
01:20:17,210 --> 01:20:20,820
to mainstream cinematic
content that it could use

1949
01:20:20,820 --> 01:20:22,910
to build and popularize
its streaming service.

1950
01:20:22,910 --> 01:20:25,150
- This was a wonderful, easy payday.

1951
01:20:25,150 --> 01:20:27,080
I license content to Netflix.

1952
01:20:27,080 --> 01:20:28,070
I get money.

1953
01:20:28,070 --> 01:20:30,560
I make my quarterly numbers.

1954
01:20:30,560 --> 01:20:31,790
This is great.

1955
01:20:31,790 --> 01:20:35,860
What they've discovered
though as they've gone further

1956
01:20:35,860 --> 01:20:38,310
is that, at a macro level,
what they were doing

1957
01:20:38,310 --> 01:20:41,570
was actually helping Netflix get big,

1958
01:20:41,570 --> 01:20:44,580
that Netflix got big on
the backs of their content.

1959
01:20:44,580 --> 01:20:46,270
And then, once they were big enough,

1960
01:20:46,270 --> 01:20:48,590
they were able to create their own content

1961
01:20:48,590 --> 01:20:50,990
and they didn't need the studios as much.

1962
01:20:50,990 --> 01:20:53,530
- I mean, a real key moment for Netflix

1963
01:20:53,530 --> 01:20:56,650
was when it realized it should
be on every single device,

1964
01:20:56,650 --> 01:20:58,570
from your phone to your PC

1965
01:20:58,570 --> 01:21:01,070
to your gaming console
to your streaming box.

1966
01:21:01,070 --> 01:21:03,530
- [Man] Xbox 360 will
be the only game system

1967
01:21:03,530 --> 01:21:06,010
that lets members who are
also Netflix subscribers

1968
01:21:06,010 --> 01:21:10,100
instantly watch more than
10,000 movies and TV episodes,

1969
01:21:10,100 --> 01:21:13,170
more than doubling our
current content offering.

1970
01:21:13,170 --> 01:21:14,960
- By 2010, it was pretty clear

1971
01:21:14,960 --> 01:21:17,610
that you did not really
have a new hardware platform

1972
01:21:17,610 --> 01:21:19,040
unless Netflix was on it.

1973
01:21:19,040 --> 01:21:20,630
And so, it was completely logical

1974
01:21:20,630 --> 01:21:24,150
that when Apple announced
the first iPad that year,

1975
01:21:24,150 --> 01:21:26,830
they really played up Netflix
being one of the first apps.

1976
01:21:26,830 --> 01:21:30,140
Later in 2010, Apple had an event

1977
01:21:31,140 --> 01:21:33,300
where they had Reed
Hastings come out on stage

1978
01:21:33,300 --> 01:21:34,840
to talk about the fact

1979
01:21:34,840 --> 01:21:36,980
that Netflix was arriving on the iPhone.

1980
01:21:36,980 --> 01:21:38,670
- And it's my pleasure to introduce

1981
01:21:38,670 --> 01:21:40,516
Netflix CEO Reed Hastings.

1982
01:21:40,516 --> 01:21:41,876
(audience applauding)
- Thank you, Steve.

1983
01:21:41,876 --> 01:21:44,043
- [Steve] Thank you, Reed.

1984
01:21:45,100 --> 01:21:48,100
- Two months ago, we launched
the Netflix application

1985
01:21:48,100 --> 01:21:51,410
for the iPad, and it's been
a tremendous success for us.

1986
01:21:51,410 --> 01:21:54,580
It's now one of our
fastest growing platforms.

1987
01:21:54,580 --> 01:21:56,390
It's just incredible.

1988
01:21:56,390 --> 01:21:58,600
The customer ratings in the App Store

1989
01:21:58,600 --> 01:22:00,980
are some of the highest
of any application.

1990
01:22:00,980 --> 01:22:05,100
It's been one of the top 10
most downloaded applications

1991
01:22:05,100 --> 01:22:06,770
in all of the App Store.

1992
01:22:06,770 --> 01:22:08,960
And in particular, in the
entertainment category,

1993
01:22:08,960 --> 01:22:11,420
the Netflix has been the number-one

1994
01:22:11,420 --> 01:22:12,833
most downloaded application.

1995
01:22:13,840 --> 01:22:15,040
- Well, Blockbuster is getting ready

1996
01:22:15,040 --> 01:22:17,460
for a bankruptcy filing in mid-September,

1997
01:22:17,460 --> 01:22:18,730
according to the LA Times.

1998
01:22:18,730 --> 01:22:20,820
The home rental company informed

1999
01:22:20,820 --> 01:22:24,380
six major Hollywood movie
studios about the plan last week.

2000
01:22:24,380 --> 01:22:28,240
Blockbuster has lost more than
a billion dollars since 2008.

2001
01:22:28,240 --> 01:22:30,150
It's carrying about the
same amount of debt.

2002
01:22:30,150 --> 01:22:32,700
Now, the paper says that
Blockbuster plans to close

2003
01:22:32,700 --> 01:22:36,030
between 500 and 800 stores this year.

2004
01:22:36,030 --> 01:22:37,590
- There wasn't any great joy

2005
01:22:37,590 --> 01:22:39,987
or there wasn't any
backslapping or anything.

2006
01:22:39,987 --> 01:22:41,530
It was like business as usual.

2007
01:22:41,530 --> 01:22:42,990
- Not that Netflix did anything

2008
01:22:42,990 --> 01:22:45,090
other than not go out of business

2009
01:22:45,090 --> 01:22:46,640
while Blockbuster was screwing up.

2010
01:22:46,640 --> 01:22:50,930
- It's a shame, but it's
the reality of the business

2011
01:22:50,930 --> 01:22:53,500
that Blockbuster was in,
in the store business.

2012
01:22:53,500 --> 01:22:57,090
There was nothing that was going to save

2013
01:22:57,090 --> 01:22:58,610
video rental stores.

2014
01:22:58,610 --> 01:23:00,463
- Hello, welcome to Blockbuster!

2015
01:23:02,720 --> 01:23:04,220
Can I help you find something?

2016
01:23:05,470 --> 01:23:09,580
- I can't find (pausing) Turner & Hooch.

2017
01:23:09,580 --> 01:23:11,820
Where is Turner & Hooch?

2018
01:23:11,820 --> 01:23:13,952
- Oh, I believe we have that over in the--

2019
01:23:13,952 --> 01:23:17,119
(incorporeal sighing)

2020
01:23:19,770 --> 01:23:21,430
Oh; oh, I get it.

2021
01:23:21,430 --> 01:23:23,840
Video stores are so old
they have ghosts in them.

2022
01:23:23,840 --> 01:23:24,780
Okay, thanks.

2023
01:23:24,780 --> 01:23:25,820
I get it.

2024
01:23:25,820 --> 01:23:26,830
But you're wrong!

2025
01:23:26,830 --> 01:23:29,320
- I do remember the South Park episode.

2026
01:23:29,320 --> 01:23:31,870
The common perception
was we were going away,

2027
01:23:31,870 --> 01:23:35,980
and that was just, that was
their way of talking about it.

2028
01:23:35,980 --> 01:23:38,920
- It was really sad to
see that a Blockbuster,

2029
01:23:38,920 --> 01:23:41,103
and there were plenty of other chains,

2030
01:23:42,610 --> 01:23:44,753
got put out by Netflix.

2031
01:23:46,080 --> 01:23:48,970
That, I think, was the first
indication by the industry.

2032
01:23:48,970 --> 01:23:49,927
They're like, "Oh, these people

2033
01:23:49,927 --> 01:23:52,350
"are doing something innovative."

2034
01:23:52,350 --> 01:23:53,960
- Reed Hastings is brilliant.

2035
01:23:53,960 --> 01:23:55,140
Reed is a visionary.

2036
01:23:55,140 --> 01:23:58,490
- At the strategic points, I
think Reed brought that vision

2037
01:23:58,490 --> 01:24:03,003
with the subscription, with
the focus on downloadable.

2038
01:24:03,880 --> 01:24:07,050
From the beginning, that was
in his head and in his ideas.

2039
01:24:07,050 --> 01:24:10,020
- You know, Reed is the
smartest guy I've ever know.

2040
01:24:10,020 --> 01:24:13,280
- Every time he had an
idea, it was just exciting

2041
01:24:13,280 --> 01:24:15,057
and it was like, "Well,
maybe that will work."

2042
01:24:15,057 --> 01:24:18,210
- He was really a visionary
who saw the streaming.

2043
01:24:18,210 --> 01:24:19,660
- In the context of this time,

2044
01:24:19,660 --> 01:24:21,690
where Netflix had just launched

2045
01:24:21,690 --> 01:24:23,720
very successfully in Latin America,

2046
01:24:23,720 --> 01:24:27,320
growth was at expectations,
US growth was off the charts,

2047
01:24:27,320 --> 01:24:30,080
everything Netflix did turned to gold.

2048
01:24:30,080 --> 01:24:32,130
Netflix was invincible;
it was unstoppable.

2049
01:24:32,130 --> 01:24:33,730
And we kinda knew that.

2050
01:24:33,730 --> 01:24:35,807
- We never, at any point
in the streaming business,

2051
01:24:35,807 --> 01:24:38,480
said, "You have to protect the DVD side."

2052
01:24:38,480 --> 01:24:39,797
We said, "Let's grow this business,

2053
01:24:39,797 --> 01:24:41,927
"and it might have a little impact on DVD.

2054
01:24:41,927 --> 01:24:43,487
"It might have a negative
impact on our DVD business,

2055
01:24:43,487 --> 01:24:45,070
"but it's gonna grow the overall."

2056
01:24:45,070 --> 01:24:47,950
- Eventually, in 2010, the belief was

2057
01:24:47,950 --> 01:24:51,150
you could separate out the two services.

2058
01:24:51,150 --> 01:24:55,760
And of course, that was a
huge challenge at that time.

2059
01:24:55,760 --> 01:24:57,570
There was the raising of the price.

2060
01:24:57,570 --> 01:24:59,650
There was the separating of the services.

2061
01:24:59,650 --> 01:25:01,180
- We're making this video today

2062
01:25:01,180 --> 01:25:04,900
to apologize in person,
or at least on camera,

2063
01:25:04,900 --> 01:25:06,930
for something that we did recently.

2064
01:25:06,930 --> 01:25:11,880
- The video, Reed apologized
for the price increase,

2065
01:25:11,880 --> 01:25:14,790
admitting that he slid into arrogance

2066
01:25:14,790 --> 01:25:16,867
and said that that was,

2067
01:25:16,867 --> 01:25:19,137
"We wish we had announced the
price increase differently,

2068
01:25:19,137 --> 01:25:22,017
"which is why we're now
taking the time on video

2069
01:25:22,017 --> 01:25:22,850
"with Andy Rendich

2070
01:25:22,850 --> 01:25:26,600
"to explain how DVD and
streaming are separating."

2071
01:25:26,600 --> 01:25:29,850
- We think that the DVD
service needs its own brand

2072
01:25:29,850 --> 01:25:31,720
so that we can advertise it.

2073
01:25:31,720 --> 01:25:34,790
So, we've named our DVD service Qwikster.

2074
01:25:34,790 --> 01:25:36,520
- Qwikster was the name given to

2075
01:25:36,520 --> 01:25:38,270
what was to be the DVD-by-mail company.

2076
01:25:38,270 --> 01:25:39,613
All the DVD-by-mail subscribers

2077
01:25:39,613 --> 01:25:41,670
were gonna go have their own account.

2078
01:25:41,670 --> 01:25:43,150
It's gonna be its own company.

2079
01:25:43,150 --> 01:25:45,090
Andy Rendich was named CEO.

2080
01:25:45,090 --> 01:25:46,240
They had their own office space.

2081
01:25:46,240 --> 01:25:47,570
They moved outta the building.

2082
01:25:47,570 --> 01:25:49,870
Netflix management
meetings were separated.

2083
01:25:49,870 --> 01:25:53,400
And it was truly a division
of the two entities.

2084
01:25:53,400 --> 01:25:55,140
And consumers hated it.

2085
01:25:55,140 --> 01:25:56,527
It was the right strategy,

2086
01:25:56,527 --> 01:25:59,010
but it was implemented
far too aggressively.

2087
01:25:59,010 --> 01:26:00,870
I remember actually more of the fallout

2088
01:26:00,870 --> 01:26:01,810
than the actual filming

2089
01:26:01,810 --> 01:26:04,600
because Saturday Night Live did a parody

2090
01:26:04,600 --> 01:26:07,460
of the video that Reed
and Andy Rendich shot.

2091
01:26:07,460 --> 01:26:09,430
- Did we spell Qwikster in a normal way?

2092
01:26:09,430 --> 01:26:11,040
No, we didn't.
- No.

2093
01:26:11,040 --> 01:26:13,580
- Q-W-I-K; annoying, but easier.

2094
01:26:13,580 --> 01:26:14,460
- Right, yeah.

2095
01:26:14,460 --> 01:26:16,000
And by the way, we know it's off-putting

2096
01:26:16,000 --> 01:26:17,960
to see the CEO of a powerful company

2097
01:26:17,960 --> 01:26:19,560
rocking a goatee and teal shirt,

2098
01:26:19,560 --> 01:26:22,989
but trust us, (laughing)
we know what we're doing.

2099
01:26:22,989 --> 01:26:24,594
(audience laughing)

2100
01:26:24,594 --> 01:26:25,900
- [Steve] You know you're
a successful company

2101
01:26:25,900 --> 01:26:27,700
when you became the source of parody.

2102
01:26:27,700 --> 01:26:29,853
- The whole Qwikster debacle,
that was not the first time

2103
01:26:29,853 --> 01:26:32,510
that influencers turned against Netflix

2104
01:26:32,510 --> 01:26:35,443
or that I'd seen influencers
turn against other companies.

2105
01:26:36,540 --> 01:26:38,396
That's part of the dynamics.

2106
01:26:38,396 --> 01:26:42,930
You're tapping into
people's primal passion.

2107
01:26:42,930 --> 01:26:44,600
- There was significant backlash.

2108
01:26:44,600 --> 01:26:47,680
Netflix lost 880,000 subscribers,

2109
01:26:47,680 --> 01:26:49,173
almost a million subscribers.

2110
01:26:50,240 --> 01:26:52,360
The punishment by the market was severe.

2111
01:26:52,360 --> 01:26:55,390
They devalued Netflix by
about 70% of its market cap

2112
01:26:55,390 --> 01:26:56,770
in about three months.

2113
01:26:56,770 --> 01:26:59,150
And that lasted for about a year.

2114
01:26:59,150 --> 01:27:04,150
- When I first read
the news about Qwikster

2115
01:27:04,470 --> 01:27:07,990
and saw the community up in arms

2116
01:27:07,990 --> 01:27:11,130
about this unbelievable, horrendous,

2117
01:27:11,130 --> 01:27:14,540
disastrous thing that had taken place,

2118
01:27:14,540 --> 01:27:17,267
all I could think to myself is,

2119
01:27:17,267 --> 01:27:20,350
"Oh my god, I know exactly
what's going on here."

2120
01:27:20,350 --> 01:27:24,187
Reed was looking at the
business and saying,

2121
01:27:24,187 --> 01:27:28,247
"I have to be willing to
sacrifice the business

2122
01:27:28,247 --> 01:27:32,467
"which is the past and
put everything I have

2123
01:27:32,467 --> 01:27:34,270
"on the business which is the future."

2124
01:27:34,270 --> 01:27:37,540
And where I did that with
several thousand customers,

2125
01:27:37,540 --> 01:27:40,783
he was doing it with 30
or 40 million customers.

2126
01:27:42,000 --> 01:27:45,000
And I said, "Oh my god."

2127
01:27:45,000 --> 01:27:47,180
That may not have been handled perfectly,

2128
01:27:47,180 --> 01:27:50,000
but that is one of the
most courageous things

2129
01:27:50,000 --> 01:27:51,900
I've seen an entrepreneur do.

2130
01:27:51,900 --> 01:27:56,320
- For us, navigating the
unknown is always the future.

2131
01:27:56,320 --> 01:27:58,270
Using this kind of data that we have,

2132
01:27:58,270 --> 01:28:01,730
which can help us identify great
filmmakers and great actors

2133
01:28:01,730 --> 01:28:04,550
and the size of audiences
for certain shows

2134
01:28:04,550 --> 01:28:05,383
and all those things,

2135
01:28:05,383 --> 01:28:09,420
we set out to begin to produce
Netflix original series.

2136
01:28:09,420 --> 01:28:11,430
And that first one is "House of Cards".

2137
01:28:11,430 --> 01:28:13,187
- When Netflix announced,

2138
01:28:13,187 --> 01:28:14,587
"We're gonna start dipping our toes

2139
01:28:14,587 --> 01:28:15,740
"into original programming,"

2140
01:28:15,740 --> 01:28:17,537
I think a lot of Hollywood
thought, "Wait a minute.

2141
01:28:17,537 --> 01:28:20,377
"These are the guys who
just mail us our DVDs

2142
01:28:20,377 --> 01:28:21,847
"and they're streaming movies now too,

2143
01:28:21,847 --> 01:28:26,260
"but what does this really
mean in the big picture?"

2144
01:28:26,260 --> 01:28:27,623
- [Man] What is it you want?

2145
01:28:28,960 --> 01:28:33,470
- Your absolute, unquestioning loyalty.

2146
01:28:33,470 --> 01:28:36,450
- And I remember seeing this
big billboard with Kevin Spacey

2147
01:28:36,450 --> 01:28:37,283
for "House of Cards", and I was like,

2148
01:28:37,283 --> 01:28:38,870
"What is this new show?"

2149
01:28:38,870 --> 01:28:39,900
And I saw it was on Netflix.

2150
01:28:39,900 --> 01:28:41,597
I was like, "Well, Netflix,

2151
01:28:41,597 --> 01:28:44,107
"that's where I get my
movies from every week,

2152
01:28:44,107 --> 01:28:45,787
"but I never thought
of it as a place to go

2153
01:28:45,787 --> 01:28:47,470
"to watch original programming."

2154
01:28:47,470 --> 01:28:51,010
- The idea that we had to kind
of out-angle everybody else

2155
01:28:51,010 --> 01:28:52,450
to get it on Netflix,

2156
01:28:52,450 --> 01:28:56,200
the story behind that really
was us convincing David Fincher

2157
01:28:56,200 --> 01:28:57,400
that this would be a great place

2158
01:28:57,400 --> 01:29:00,230
to take this really risky bet for himself,

2159
01:29:00,230 --> 01:29:03,300
coming out of feature
film and into a TV series.

2160
01:29:03,300 --> 01:29:04,920
And the way that we got
him excited about it

2161
01:29:04,920 --> 01:29:07,630
was pointing out to him how
different it was gonna be

2162
01:29:07,630 --> 01:29:09,490
from every other kind of television.

2163
01:29:09,490 --> 01:29:11,320
- They actually outbid HBO.

2164
01:29:11,320 --> 01:29:13,810
HBO was kinda vying for that as well,

2165
01:29:13,810 --> 01:29:15,660
the David Fincher series,
'cause it's a big production.

2166
01:29:15,660 --> 01:29:17,220
You have David Fincher, Kevin Spacey.

2167
01:29:17,220 --> 01:29:18,610
Who wouldn't want the project?

2168
01:29:18,610 --> 01:29:22,190
But Netflix threw $100
million at it for two seasons.

2169
01:29:22,190 --> 01:29:24,680
I was like, "Wow, they
just out-punched HBO,"

2170
01:29:24,680 --> 01:29:25,683
which I always, for me,

2171
01:29:25,683 --> 01:29:27,830
it's the premium of all premium networks.

2172
01:29:27,830 --> 01:29:29,530
So, I was really impressed with that.

2173
01:29:29,530 --> 01:29:31,210
- I know it's changed how we think about

2174
01:29:31,210 --> 01:29:32,780
how we're gonna watch television.

2175
01:29:32,780 --> 01:29:34,400
I don't think anybody's gonna reserve

2176
01:29:34,400 --> 01:29:36,360
a night for a show from hereon.

2177
01:29:36,360 --> 01:29:39,210
I think people are gonna
expect it to change for them,

2178
01:29:39,210 --> 01:29:43,510
that if you want any sort of
serialized storytelling form,

2179
01:29:43,510 --> 01:29:45,020
then you should have it available

2180
01:29:45,020 --> 01:29:47,100
as the consumer can consume it.

2181
01:29:47,100 --> 01:29:49,630
And we don't have those
lives that we used to be able

2182
01:29:49,630 --> 01:29:51,820
to organize around
Thursday nights anymore.

2183
01:29:51,820 --> 01:29:53,470
- Yeah, being a part
of something like that

2184
01:29:53,470 --> 01:29:54,930
that gets people talking,

2185
01:29:54,930 --> 01:29:57,670
whether they were talking about
it or not, is always nice.

2186
01:29:57,670 --> 01:29:59,400
- And they've really kind of changed

2187
01:29:59,400 --> 01:30:00,920
what is water-cooler talk.

2188
01:30:00,920 --> 01:30:02,210
It's instant.

2189
01:30:02,210 --> 01:30:04,510
People are talking about it
right away on social media.

2190
01:30:04,510 --> 01:30:07,117
You look at shows like "13
Reasons Why", "Stranger Things",

2191
01:30:07,117 --> 01:30:08,990
"The Crown", "Orange is the New Black".

2192
01:30:08,990 --> 01:30:12,660
- I think "Orange is the New
Black" really set Netflix apart

2193
01:30:12,660 --> 01:30:16,860
from your cable providers and broadcasters

2194
01:30:16,860 --> 01:30:21,130
because it had this huge cast
of just really diverse women,

2195
01:30:21,130 --> 01:30:22,760
women that we really haven't seen before,

2196
01:30:22,760 --> 01:30:24,300
women that aren't featured
in a lotta content.

2197
01:30:24,300 --> 01:30:28,020
Some brand new actresses were introduced

2198
01:30:28,020 --> 01:30:29,908
that people have fallen in
love with over the years.

2199
01:30:29,908 --> 01:30:32,680
- A lot of us in the very
first year of this show,

2200
01:30:32,680 --> 01:30:35,377
most of us did not have any
fame or anything like that,

2201
01:30:35,377 --> 01:30:37,930
and we really went through
this journey together.

2202
01:30:37,930 --> 01:30:40,550
- It's also the true representation
of what the world is.

2203
01:30:40,550 --> 01:30:42,000
I know diversity is a trend now,

2204
01:30:42,000 --> 01:30:42,987
but this is what it really is.

2205
01:30:42,987 --> 01:30:44,377
And the stories that are being told

2206
01:30:44,377 --> 01:30:47,360
and that we've been
working on have connected,

2207
01:30:47,360 --> 01:30:49,147
not only in America but
throughout the world.

2208
01:30:49,147 --> 01:30:52,200
- It was a brilliant move on their part

2209
01:30:52,200 --> 01:30:54,800
to go the original programming route,

2210
01:30:54,800 --> 01:30:56,850
because of course we see
where they are today,

2211
01:30:56,850 --> 01:30:57,810
this powerhouse.

2212
01:30:57,810 --> 01:31:01,283
People want their shows on Netflix.

2213
01:31:02,384 --> 01:31:03,334
- Do you know Will?

2214
01:31:04,550 --> 01:31:05,750
Do you know where he is?

2215
01:31:06,880 --> 01:31:08,270
- Hiding.

2216
01:31:08,270 --> 01:31:09,795
- [Mike] From who?

2217
01:31:09,795 --> 01:31:13,295
(building dramatic music)

2218
01:31:17,197 --> 01:31:18,030
- Run!

2219
01:31:19,950 --> 01:31:23,440
- I work really hard on
everything that I'm involved in,

2220
01:31:23,440 --> 01:31:26,670
and I'm doing it so that
it reaches audiences,

2221
01:31:26,670 --> 01:31:29,010
so that when it turns out to be something

2222
01:31:29,010 --> 01:31:31,320
like "Night at the Museum"
or "Stranger Things"

2223
01:31:31,320 --> 01:31:34,290
or "Arrival", things
that find a big audience,

2224
01:31:34,290 --> 01:31:35,760
that's very, very satisfying

2225
01:31:35,760 --> 01:31:39,200
because it means that this
story that I found interesting

2226
01:31:39,200 --> 01:31:41,370
connected with millions of
people around the world.

2227
01:31:41,370 --> 01:31:43,250
So, that's the best part of that success.

2228
01:31:43,250 --> 01:31:46,520
- I think there's data, they
actually know what I watch,

2229
01:31:46,520 --> 01:31:49,770
but I don't think they
recommend stuff that I'll like.

2230
01:31:49,770 --> 01:31:52,680
I think they recommend stuff
'cause they need to justify

2231
01:31:52,680 --> 01:31:54,460
that they made an investment in it,

2232
01:31:54,460 --> 01:31:56,330
'cause they love bragging
on earnings calls

2233
01:31:56,330 --> 01:32:00,970
about the ROI on the $90 million
they spent making "Bright",

2234
01:32:00,970 --> 01:32:03,750
which was a piece of crap, by the way,

2235
01:32:03,750 --> 01:32:06,790
as was "The Cloverfield
Paradox," a piece of crap,

2236
01:32:06,790 --> 01:32:09,787
and they bragged, "Oh yeah,
Super Bowl ad was worth it.

2237
01:32:09,787 --> 01:32:11,330
"We had more views of that movie--"

2238
01:32:11,330 --> 01:32:13,360
Well, had you heard of
"The Cloverfield Paradox"

2239
01:32:13,360 --> 01:32:14,350
before the Super Bowl?

2240
01:32:14,350 --> 01:32:15,183
No.

2241
01:32:15,183 --> 01:32:16,870
I had, 'cause I cover movie theaters

2242
01:32:16,870 --> 01:32:18,470
and I knew Paramount was making it

2243
01:32:18,470 --> 01:32:20,900
and had delayed it twice and canceled it,

2244
01:32:20,900 --> 01:32:22,390
and Netflix bought a piece of crap

2245
01:32:22,390 --> 01:32:24,130
and then recommended it to all of us.

2246
01:32:24,130 --> 01:32:25,670
And they're like, "ROI!"

2247
01:32:25,670 --> 01:32:26,940
I think that hurts them.

2248
01:32:26,940 --> 01:32:29,270
I think if they have you watch crap,

2249
01:32:29,270 --> 01:32:32,407
you are far more likely to
go, "I hate this company

2250
01:32:32,407 --> 01:32:34,130
"and I don't wanna be
a subscriber anymore."

2251
01:32:34,130 --> 01:32:36,810
- What's really interesting
about the amount of money

2252
01:32:36,810 --> 01:32:38,450
Netflix spends is they're spending

2253
01:32:38,450 --> 01:32:41,340
tens of billions of dollars

2254
01:32:41,340 --> 01:32:43,860
on their original
programming and acquisitions.

2255
01:32:43,860 --> 01:32:46,350
They're not making that back.

2256
01:32:46,350 --> 01:32:48,050
Does it matter to them right now?

2257
01:32:48,050 --> 01:32:48,883
I don't think so.

2258
01:32:48,883 --> 01:32:52,300
I think they have a much
longer-term plan in place.

2259
01:32:52,300 --> 01:32:55,320
- They can spread out
the cost of their content

2260
01:32:55,320 --> 01:32:58,210
over millions and millions of subscribers.

2261
01:32:58,210 --> 01:33:02,370
That gives them the ability
to pay more than a studio

2262
01:33:02,370 --> 01:33:05,540
that's got to make money
on that particular film.

2263
01:33:05,540 --> 01:33:10,540
So, today, I think they see
them as a huge competitor,

2264
01:33:10,590 --> 01:33:14,360
both on the content side as
well as the distribution.

2265
01:33:14,360 --> 01:33:16,000
- I do a lot of work with Netflix

2266
01:33:16,000 --> 01:33:19,630
and I like the fact that
stories are stories.

2267
01:33:19,630 --> 01:33:22,187
That old idea that, "Well,
there's movies up here

2268
01:33:22,187 --> 01:33:24,010
"and then there's TV," no.

2269
01:33:24,010 --> 01:33:25,150
That's obsolete.

2270
01:33:25,150 --> 01:33:26,650
Now there's just good stories.

2271
01:33:26,650 --> 01:33:29,550
And it doesn't matter whether
you watch them on a big-screen

2272
01:33:29,550 --> 01:33:31,290
or a laptop or a phone.

2273
01:33:31,290 --> 01:33:34,650
The strength of good
storytelling is everywhere now,

2274
01:33:34,650 --> 01:33:37,190
and I think that that's
a really good thing.

2275
01:33:37,190 --> 01:33:40,820
- Hollywood talent, actors, A-listers,

2276
01:33:40,820 --> 01:33:43,920
probably weren't taking this
very seriously at first.

2277
01:33:43,920 --> 01:33:46,480
- It doesn't affect our
process of making the film

2278
01:33:46,480 --> 01:33:48,430
in any obvious ways.

2279
01:33:48,430 --> 01:33:50,450
It may, before we get to shooting,

2280
01:33:50,450 --> 01:33:51,980
in terms of what you're talking about

2281
01:33:51,980 --> 01:33:53,920
or does it reach the most people,

2282
01:33:53,920 --> 01:33:55,103
it definitely has something to do

2283
01:33:55,103 --> 01:33:56,800
with the way films are marketed.

2284
01:33:56,800 --> 01:33:59,810
- I think it helps get
films out to the world,

2285
01:33:59,810 --> 01:34:00,870
films that I wouldn't see

2286
01:34:00,870 --> 01:34:02,900
that are being done in
different parts of the world,

2287
01:34:02,900 --> 01:34:07,400
filmmakers from the Philippines
or India or wherever,

2288
01:34:07,400 --> 01:34:09,880
these little movies
that you get to see now

2289
01:34:09,880 --> 01:34:11,840
and these filmmakers
that are really talented

2290
01:34:11,840 --> 01:34:13,507
that you get to finally see their work.

2291
01:34:13,507 --> 01:34:15,290
And it's inspiring to see that.

2292
01:34:15,290 --> 01:34:17,970
It hurts it only because
they see everything now,

2293
01:34:17,970 --> 01:34:19,920
so you have to really
try to challenge yourself

2294
01:34:19,920 --> 01:34:20,950
to bring something new

2295
01:34:20,950 --> 01:34:23,630
and something special to the audience.

2296
01:34:23,630 --> 01:34:25,900
They can binge all night long.

2297
01:34:25,900 --> 01:34:27,480
- The internet is transforming

2298
01:34:27,480 --> 01:34:29,510
so many sectors of our economy.

2299
01:34:29,510 --> 01:34:30,960
And we're internet TV,

2300
01:34:30,960 --> 01:34:34,740
and that sector has grown
from very small 15 years ago

2301
01:34:34,740 --> 01:34:36,970
to starting to be significant now.

2302
01:34:36,970 --> 01:34:38,490
And in the next 10 or 20 years,

2303
01:34:38,490 --> 01:34:40,880
internet TV is gonna be all of TV.

2304
01:34:40,880 --> 01:34:45,700
- I think Netflix has changed
Hollywood because their model

2305
01:34:45,700 --> 01:34:48,230
is unlike anything that we've seen before.

2306
01:34:48,230 --> 01:34:50,080
- Netflix is not changing
the global market.

2307
01:34:50,080 --> 01:34:53,210
It's totally revolutionizing it.

2308
01:34:53,210 --> 01:34:54,620
We have a system in France.

2309
01:34:54,620 --> 01:34:56,730
First, the movie are released in theaters,

2310
01:34:56,730 --> 01:35:00,440
and then 18 months later they're on Canal+

2311
01:35:00,440 --> 01:35:02,511
or pay TV or the pay TVs,

2312
01:35:02,511 --> 01:35:05,730
and then we have them
on network television.

2313
01:35:05,730 --> 01:35:07,580
- I think that Netflix is a machine

2314
01:35:07,580 --> 01:35:09,200
that brings your passions out.

2315
01:35:09,200 --> 01:35:10,710
Either you hate it or you love it.

2316
01:35:10,710 --> 01:35:13,090
Let's say if you're a
small distribution company

2317
01:35:13,090 --> 01:35:15,700
and you only distribute theatrical,

2318
01:35:15,700 --> 01:35:17,770
Netflix is not gonna be your friend.

2319
01:35:17,770 --> 01:35:19,720
- I mean, the kids, they're
not watching TV anymore.

2320
01:35:19,720 --> 01:35:20,590
They're going back to that.

2321
01:35:20,590 --> 01:35:22,730
They're watching the
show however they want

2322
01:35:22,730 --> 01:35:23,740
on whatever they want,

2323
01:35:23,740 --> 01:35:27,260
on the phone, on their
tablets, on their computers.

2324
01:35:27,260 --> 01:35:28,360
They don't watch TV anymore.

2325
01:35:28,360 --> 01:35:29,410
And when they watch TV,

2326
01:35:29,410 --> 01:35:31,730
they watch Netflix on
TV with their parents.

2327
01:35:31,730 --> 01:35:33,930
- The studios, they're not
sure what to do about that.

2328
01:35:33,930 --> 01:35:35,690
I mean, they do the tent pole movies.

2329
01:35:35,690 --> 01:35:38,440
They make the big Avengers
movies that come out,

2330
01:35:38,440 --> 01:35:39,300
and these are the movies

2331
01:35:39,300 --> 01:35:41,240
that millions of people are gonna go see

2332
01:35:41,240 --> 01:35:42,700
and make billions of dollars.

2333
01:35:42,700 --> 01:35:44,800
But in the long term, what do we do

2334
01:35:44,800 --> 01:35:46,600
to keep people watching our stuff

2335
01:35:46,600 --> 01:35:48,000
in between the three or four years

2336
01:35:48,000 --> 01:35:49,680
it takes to make one of
these tent pole films?

2337
01:35:49,680 --> 01:35:51,940
And I think they're reacting to that.

2338
01:35:51,940 --> 01:35:54,941
I think it's causing a lotta
these mergers to take place,

2339
01:35:54,941 --> 01:35:58,660
like Fox-Disney and AT&T and Time Warner,

2340
01:35:58,660 --> 01:36:01,520
to compete to pull all
their resources together.

2341
01:36:01,520 --> 01:36:03,320
That's why Disney is coming out

2342
01:36:03,320 --> 01:36:05,040
with their own streaming platform,

2343
01:36:05,040 --> 01:36:05,937
because they wanna be like,

2344
01:36:05,937 --> 01:36:07,837
"Hey, you wanna come watch our stuff.

2345
01:36:07,837 --> 01:36:10,430
"Not gonna be on Netflix
anymore; you gotta come to us."

2346
01:36:10,430 --> 01:36:13,490
- I mean, Netflix is valued
like a Silicon Valley company.

2347
01:36:13,490 --> 01:36:14,680
But as they start to look

2348
01:36:14,680 --> 01:36:16,950
more and more like a media company,

2349
01:36:16,950 --> 01:36:19,430
and as media companies such as Disney

2350
01:36:19,430 --> 01:36:21,070
try to take on Netflix more directly,

2351
01:36:21,070 --> 01:36:23,163
at some point you have to ask
yourself whether it adds up

2352
01:36:23,163 --> 01:36:25,090
that the valuations are different.

2353
01:36:25,090 --> 01:36:28,270
- Warner Bros. was an $84-billion deal.

2354
01:36:28,270 --> 01:36:30,630
Fox is a $90-billion deal.

2355
01:36:30,630 --> 01:36:32,690
So, Netflix is worth
more than Warner Bros.,

2356
01:36:32,690 --> 01:36:34,610
HBO, and Fox combined?

2357
01:36:34,610 --> 01:36:35,840
That's crazy.

2358
01:36:35,840 --> 01:36:38,390
And if you don't think these studio heads,

2359
01:36:38,390 --> 01:36:41,780
these CEOs of these
companies recognize that,

2360
01:36:41,780 --> 01:36:43,110
they're bitter about it.

2361
01:36:43,110 --> 01:36:46,210
They're gonna win back
their economic rent.

2362
01:36:46,210 --> 01:36:47,990
- All the tech giants are
competing with Netflix

2363
01:36:47,990 --> 01:36:49,420
in one way or another.

2364
01:36:49,420 --> 01:36:53,640
Amazon is doing it very directly
with Amazon Prime Video.

2365
01:36:53,640 --> 01:36:55,360
YouTube now has YouTube TV,

2366
01:36:55,360 --> 01:36:59,070
which is sort of a cable-TV-type service.

2367
01:36:59,070 --> 01:37:01,610
Netflix has such a headstart these days

2368
01:37:01,610 --> 01:37:03,670
that even these really smart companies

2369
01:37:03,670 --> 01:37:05,900
have a pretty steep road ahead of them.

2370
01:37:05,900 --> 01:37:07,110
- [David] And Netflix is doing that well.

2371
01:37:07,110 --> 01:37:09,830
They're spending their money
wisely, and you can tell.

2372
01:37:09,830 --> 01:37:11,594
I mean, they're growing every day.

2373
01:37:11,594 --> 01:37:13,940
- You're like one of the
big new media disruptors.

2374
01:37:13,940 --> 01:37:16,720
Why did the entertainment
industry need to be disrupted?

2375
01:37:16,720 --> 01:37:19,850
- I think people in our industry

2376
01:37:19,850 --> 01:37:22,540
gravitate to disruption
because of the challenge,

2377
01:37:22,540 --> 01:37:26,860
because it's a sense of change
and impact in what we can do.

2378
01:37:26,860 --> 01:37:30,470
And to be able to watch TV
shows any time you want,

2379
01:37:30,470 --> 01:37:32,560
it's a nice, friendly kind of disruption.

2380
01:37:32,560 --> 01:37:35,477
(soft piano music)

2381
01:37:43,950 --> 01:37:48,660
- Midnight that Sunday night,
my phone starts ringing,

2382
01:37:48,660 --> 01:37:51,627
and ringing, texts coming through.

2383
01:37:51,627 --> 01:37:53,667
"You gotta see this, you gotta see this.

2384
01:37:53,667 --> 01:37:54,507
"You gotta do it, you gotta do it."

2385
01:37:54,507 --> 01:37:56,310
"What are you talking about?"

2386
01:37:56,310 --> 01:37:57,870
- Despite the fact that Blockbuster

2387
01:37:57,870 --> 01:37:59,840
filed for bankruptcy in 2010,

2388
01:37:59,840 --> 01:38:03,280
there are apparently four
independently owned franchises

2389
01:38:03,280 --> 01:38:05,120
still operating in the United States,

2390
01:38:05,120 --> 01:38:06,760
three of which are in Alaska.

2391
01:38:06,760 --> 01:38:09,730
- So, I got up the next
morning and watched the clip,

2392
01:38:09,730 --> 01:38:12,330
and then I started to
understand what he had done.

2393
01:38:12,330 --> 01:38:13,523
- It does sound like something

2394
01:38:13,523 --> 01:38:14,530
that we would do;
(audience laughing)

2395
01:38:14,530 --> 01:38:17,420
you know, buy Russell Crowe's jockstrap

2396
01:38:17,420 --> 01:38:19,500
and send it to one of the
last remaining Blockbusters

2397
01:38:19,500 --> 01:38:20,333
in Alaska.

2398
01:38:20,333 --> 01:38:23,370
Even that sentence is absolutely
incredible to say out loud.

2399
01:38:23,370 --> 01:38:26,580
- So then, the deal was is
that we wanna buy this stuff

2400
01:38:26,580 --> 01:38:27,870
and we think we wanna give it

2401
01:38:27,870 --> 01:38:30,100
to the last Blockbusters in Alaska

2402
01:38:30,100 --> 01:38:31,633
to help out their business.

2403
01:38:32,690 --> 01:38:33,972
Okay, great deal!

2404
01:38:33,972 --> 01:38:36,046
(audience cheering)

2405
01:38:36,046 --> 01:38:38,362
- Are you not entertained?!

2406
01:38:38,362 --> 01:38:40,445
Are you not entertained?!

2407
01:38:41,610 --> 01:38:44,330
- It did generate a lotta traffic,

2408
01:38:44,330 --> 01:38:47,260
a lot from tourists that knew about it,

2409
01:38:47,260 --> 01:38:49,210
and they would come in just to see that.

2410
01:38:49,210 --> 01:38:51,210
Of course, we'd try to sell 'em
something when they came in,

2411
01:38:51,210 --> 01:38:52,910
but a lotta people didn't
buy anything. (laughing)

2412
01:38:52,910 --> 01:38:55,550
But, yeah, there's no
doubt it generated traffic.

2413
01:38:55,550 --> 01:38:57,460
Unfortunately, it didn't help it enough.

2414
01:38:57,460 --> 01:38:59,830
- [Reporter] Alaska's last
two Blockbuster video stores

2415
01:38:59,830 --> 01:39:04,830
are calling it quits, leaving
just one store open in the US.

2416
01:39:04,870 --> 01:39:06,770
The closures come just two months after

2417
01:39:06,770 --> 01:39:10,160
the host of HBO's "Last Week
Tonight with John Oliver"

2418
01:39:10,160 --> 01:39:13,060
sent film memorabilia
to the Anchorage store,

2419
01:39:13,060 --> 01:39:16,170
which displayed it in an
effort to ramp up business.

2420
01:39:16,170 --> 01:39:19,360
The closures will leave the
Blockbuster in Bend, Oregon,

2421
01:39:19,360 --> 01:39:21,420
as the sole holdout.

2422
01:39:21,420 --> 01:39:23,200
- The nostalgia effect

2423
01:39:23,200 --> 01:39:25,560
of the closure of these last few stores

2424
01:39:25,560 --> 01:39:28,200
has exceeded anything I anticipated.

2425
01:39:28,200 --> 01:39:30,110
And you can see by all the national press

2426
01:39:30,110 --> 01:39:31,830
that picked up these stories,

2427
01:39:31,830 --> 01:39:34,780
it added to the negative
emotion of all of it.

2428
01:39:34,780 --> 01:39:36,160
But it's business, you know?

2429
01:39:36,160 --> 01:39:37,653
We had no choice.

2430
01:39:38,878 --> 01:39:41,961
(somber piano music)

2431
01:39:46,709 --> 01:39:49,709
(explosion booming)

2432
01:39:56,136 --> 01:39:58,719
(uneasy music)

2433
01:40:04,800 --> 01:40:06,600
- [Man] War is a universal language.

2434
01:40:08,860 --> 01:40:11,040
- The one true of the
entertainment industry

2435
01:40:11,040 --> 01:40:14,260
always has been producers
want to distribute

2436
01:40:14,260 --> 01:40:16,780
and distributors want to
produce and actors wanna direct.

2437
01:40:16,780 --> 01:40:18,910
And so, everyone always has a fantasy

2438
01:40:18,910 --> 01:40:20,230
about doing the other thing,

2439
01:40:20,230 --> 01:40:21,440
and ultimately what they wanna do

2440
01:40:21,440 --> 01:40:24,020
is to get the best return on
investment for their content,

2441
01:40:24,020 --> 01:40:25,380
and Netflix turns out to be

2442
01:40:25,380 --> 01:40:28,110
the best way that they can
get that return in this space.

2443
01:40:28,110 --> 01:40:29,240
And if they thought they could do it

2444
01:40:29,240 --> 01:40:31,577
better and bigger on their
own, they probably would.

2445
01:40:31,577 --> 01:40:33,350
And they have experimented over the years

2446
01:40:33,350 --> 01:40:35,360
and they have always not worked out well

2447
01:40:35,360 --> 01:40:37,490
because it's a different,
very different expertise.

2448
01:40:37,490 --> 01:40:42,270
- The reason AT&T is
particularly interesting

2449
01:40:42,270 --> 01:40:44,570
is because they might be able to use

2450
01:40:44,570 --> 01:40:47,667
their ownership over the pipe to say,

2451
01:40:47,667 --> 01:40:51,617
"You can get lower-cost
access to my streaming service

2452
01:40:51,617 --> 01:40:53,297
"than you could to Netflix

2453
01:40:53,297 --> 01:40:54,177
"because with Netflix,

2454
01:40:54,177 --> 01:40:56,007
"you're gonna have to pay for your data,

2455
01:40:56,007 --> 01:40:57,657
"whereas with my service,

2456
01:40:57,657 --> 01:40:59,550
"I'm gonna give you the data for free."

2457
01:40:59,550 --> 01:41:04,350
- The one company that always
terrified Netflix is Amazon

2458
01:41:04,350 --> 01:41:08,130
because Amazon, like
a few other companies,

2459
01:41:08,130 --> 01:41:13,130
can subsidize content
through selling dog food

2460
01:41:13,130 --> 01:41:15,160
and barbecues and things like that.

2461
01:41:15,160 --> 01:41:17,020
- [Michael] Netflix has a couple

2462
01:41:17,020 --> 01:41:18,700
of unique advantages, right?

2463
01:41:18,700 --> 01:41:21,030
One is they have this headstart,

2464
01:41:21,030 --> 01:41:24,210
both acquiring the customers
and they've got a headstart

2465
01:41:24,210 --> 01:41:26,400
on creating their own unique content.

2466
01:41:26,400 --> 01:41:29,220
They're able to use the
content to attract customers

2467
01:41:29,220 --> 01:41:31,440
and use the customers to
attract great creators

2468
01:41:31,440 --> 01:41:32,470
who wanna make content.

2469
01:41:32,470 --> 01:41:35,730
- I think there's gonna
be six or so big players

2470
01:41:35,730 --> 01:41:39,040
like Amazon, Hulu, Disney, Netflix,

2471
01:41:39,040 --> 01:41:41,820
and then hundreds of niche players

2472
01:41:42,680 --> 01:41:46,285
that cater to every
different choice out there.

2473
01:41:46,285 --> 01:41:49,730
- I don't know, it's that
whole thing of theater

2474
01:41:49,730 --> 01:41:53,250
versus seeing it on your television.

2475
01:41:53,250 --> 01:41:54,890
I'm glad if people see it.

2476
01:41:54,890 --> 01:41:57,370
I don't care so much in what format.

2477
01:41:57,370 --> 01:42:00,000
- Well, I think that's something
you learn early in life.

2478
01:42:00,000 --> 01:42:00,897
Movies are for the world.

2479
01:42:00,897 --> 01:42:03,210
And I never make a movie
without knowing now

2480
01:42:03,210 --> 01:42:04,510
it is gonna travel the world.

2481
01:42:04,510 --> 01:42:07,580
- I just hope the
discussion between Netflix

2482
01:42:07,580 --> 01:42:11,780
and platforms in general and
theatrical should be over.

2483
01:42:11,780 --> 01:42:16,000
I think that those guys should
get together and just realize

2484
01:42:16,000 --> 01:42:18,140
that whatever they are
doing with discussion

2485
01:42:18,140 --> 01:42:19,193
is hurting cinema.

2486
01:42:20,070 --> 01:42:22,750
They both together,
they can elevate cinema.

2487
01:42:22,750 --> 01:42:24,030
And more important,

2488
01:42:24,030 --> 01:42:26,860
they can create that diversity in cinema.

2489
01:42:26,860 --> 01:42:30,520
- I think the legacy our
founding team gave Netflix

2490
01:42:30,520 --> 01:42:34,000
was building a fantastic
foundation of creative innovation.

2491
01:42:34,000 --> 01:42:35,730
- When your company becomes a verb,

2492
01:42:35,730 --> 01:42:38,117
that means you achieved success.

2493
01:42:38,117 --> 01:42:40,580
So, when people started
saying 'Netflixed it,'

2494
01:42:40,580 --> 01:42:41,413
it felt really, really great.

2495
01:42:41,413 --> 01:42:43,250
- There were proof points along the way

2496
01:42:43,250 --> 01:42:44,730
that we knew that we were doing our job

2497
01:42:44,730 --> 01:42:47,510
of embedding Netflix in popular culture,

2498
01:42:47,510 --> 01:42:50,180
making Netflix a
household name in America.

2499
01:42:50,180 --> 01:42:54,380
- It goes back to disrupting
an old way of doing things

2500
01:42:54,380 --> 01:42:57,420
and making people's
movie experience better.

2501
01:42:57,420 --> 01:43:00,570
And to be part of that is
something that I look back on

2502
01:43:00,570 --> 01:43:02,260
and say, "Yeah, that's pretty cool."

2503
01:43:02,260 --> 01:43:04,910
- I'm incredibly proud of the fact

2504
01:43:04,910 --> 01:43:08,540
that this tiny group of
people took a chance.

2505
01:43:08,540 --> 01:43:11,380
- I trust that the things
that we established

2506
01:43:11,380 --> 01:43:12,730
at the very beginning,

2507
01:43:12,730 --> 01:43:15,230
that the fundamentally important
thing about this business

2508
01:43:15,230 --> 01:43:19,520
was provide entertainment
that people love,

2509
01:43:19,520 --> 01:43:22,583
that if you can just keep on doing that,

2510
01:43:22,583 --> 01:43:26,610
that as long as people like
consuming entertainment,

2511
01:43:26,610 --> 01:43:30,493
there's gonna be a place
for a company like Netflix.

2512
01:43:32,113 --> 01:43:35,863
("Feel Alive" by Rex Banner)

2513
01:43:39,310 --> 01:43:42,810
- We were listening to
a Netflix phone call.

2514
01:43:42,810 --> 01:43:44,910
- And Reed Hastings gets on
one of the earnings calls

2515
01:43:44,910 --> 01:43:47,017
and he says, "They've
thrown everything at us

2516
01:43:47,017 --> 01:43:48,610
"but the kitchen sink."

2517
01:43:48,610 --> 01:43:52,660
- At which point Ed Stead got
up, left the conference room,

2518
01:43:52,660 --> 01:43:55,246
came back later, I don't
know, within an hour

2519
01:43:55,246 --> 01:43:58,970
and said, "I just mailed
Netflix a kitchen sink."

2520
01:43:58,970 --> 01:44:02,980
- And a couple of days later,
this large carton crate

2521
01:44:02,980 --> 01:44:05,820
arrived at the Netflix
office and we pried it open

2522
01:44:05,820 --> 01:44:06,920
and it was a kitchen sink.

2523
01:44:06,920 --> 01:44:08,120
- I think I remember seeing it

2524
01:44:08,120 --> 01:44:10,417
and saying, "What? (laughing)

2525
01:44:10,417 --> 01:44:11,927
"Why? (laughing)

2526
01:44:11,927 --> 01:44:13,507
"Perhaps that's why
they're not doing well;

2527
01:44:13,507 --> 01:44:17,690
"they're taking time to do
things like this." (laughing)

2528
01:44:17,690 --> 01:44:20,280
- Well done, Ed. (laughing)

2529
01:44:20,280 --> 01:44:23,570
And to Reed's credit, he
sent me an email the next day

2530
01:44:23,570 --> 01:44:25,220
thanking me for the kitchen sink.