0000 00:00:05,000 --> 00:00:10,000 YoubetCash.net Agen Judi Online Aman & Terpercaya 000 00:00:11,000 --> 00:00:15,000 Bonus Cashback Bola 6% Bonus Rollingan 0,80% 00 00:00:16,000 --> 00:00:20,000 Welcome Bonus Rp 25.000 Extra Bonus Tambahan Withdraw Rp 2.000.000 0 00:00:21,000 --> 00:00:25,000 CashBack Mix Parlay 100% Bonus Ajak teman 45,2% 1 00:00:16,900 --> 00:00:18,061 When you're starting a company, 2 00:00:18,070 --> 00:00:22,653 you labor in obscurity for what feels like years. 3 00:00:23,500 --> 00:00:25,291 You tell your friends what you're working on 4 00:00:25,300 --> 00:00:28,601 and they kind of glaze over or don't understand. 5 00:00:28,610 --> 00:00:30,991 No one recognizes the name. 6 00:00:31,000 --> 00:00:33,244 And you wonder, "Who am I doing this for?" 7 00:00:33,253 --> 00:00:36,241 - I think I remember writing 30 different bullet points 8 00:00:36,250 --> 00:00:37,241 about why it wouldn't work. 9 00:00:37,250 --> 00:00:40,261 - At that point, DVDs were a rich man's game. 10 00:00:40,270 --> 00:00:41,731 - Well, the worst thing that can happen 11 00:00:41,740 --> 00:00:44,491 is you divvy up the DVDs and you come home. 12 00:00:44,500 --> 00:00:45,771 - Are we actually gonna make it? 13 00:00:45,780 --> 00:00:48,508 - And he said, "I don't know why you're taking this job. 14 00:00:48,517 --> 00:00:50,828 "They're only shipping 2,000 a day 15 00:00:50,837 --> 00:00:53,268 "and they need to ship 100,000 just to break even. 16 00:00:53,277 --> 00:00:54,601 "That'll never happen." 17 00:00:54,610 --> 00:00:56,348 - At that time, the studios thought, 18 00:00:56,357 --> 00:00:59,491 "Oh, there's gonna be a huge amount of piracy." 19 00:00:59,500 --> 00:01:03,315 - We all believed in it early on, and maybe blindly. 20 00:01:03,324 --> 00:01:05,331 - Your parents and your spouse 21 00:01:05,340 --> 00:01:06,818 are looking at you like, "What the... 22 00:01:06,827 --> 00:01:08,611 "Why are you doing this?!" 23 00:01:08,620 --> 00:01:10,148 - He'd say, "Ah, because I believe." 24 00:01:23,410 --> 00:01:25,171 - Netflix began mailing DVDs 25 00:01:25,180 --> 00:01:27,641 in those red envelopes back in 1997. 26 00:01:27,650 --> 00:01:29,181 Today, it brags about being 27 00:01:29,190 --> 00:01:31,721 the world's leading internet television network. 28 00:01:31,730 --> 00:01:34,801 - The company better known for renting and streaming movies 29 00:01:34,810 --> 00:01:37,121 is offering TV viewers a whole new way 30 00:01:37,130 --> 00:01:38,921 to enjoy first-run shows. 31 00:01:38,930 --> 00:01:42,661 And the Oscar goes to "Icarus", 32 00:01:42,670 --> 00:01:45,701 Bryan Fogel and Dan Cogan. 33 00:01:45,710 --> 00:01:49,741 - Thanks to Ted Sarandos, Lisa Nishimura, and Adam Del Deo, 34 00:01:49,750 --> 00:01:51,848 our incredible partners at Netflix. 35 00:01:51,857 --> 00:01:53,677 - And the Oscar goes to... 36 00:01:55,097 --> 00:01:55,930 "Roma"! 37 00:01:57,353 --> 00:01:59,791 - Streaming giant Netflix won big at the Oscars last night, 38 00:01:59,800 --> 00:02:01,061 with its film "Roma" 39 00:02:01,070 --> 00:02:03,091 taking home three of the golden trophies. 40 00:02:03,100 --> 00:02:04,821 - Well, and it's changing Hollywood. 41 00:02:04,830 --> 00:02:07,211 I mean, look what happened, Disney and Fox. 42 00:02:07,220 --> 00:02:09,271 Their studios won a lot of awards last night. 43 00:02:09,280 --> 00:02:10,951 They're merging because Disney's about to launch 44 00:02:10,960 --> 00:02:12,931 their own streaming service 45 00:02:12,940 --> 00:02:14,871 that they're hoping is gonna compete with Netflix. 46 00:02:14,880 --> 00:02:16,351 And Apple, in the next few weeks, 47 00:02:16,360 --> 00:02:18,558 they're gonna launch their own streaming service. 48 00:02:33,210 --> 00:02:35,639 ♪ The money on my mind ♪ 49 00:02:35,648 --> 00:02:37,782 ♪ A great deal of it will fix me ♪ 50 00:02:37,791 --> 00:02:40,791 ♪ All I've ever desired ♪ 51 00:02:40,800 --> 00:02:43,209 ♪ The money on my mind ♪ 52 00:02:43,218 --> 00:02:46,551 ♪ The money got my mind ♪ 53 00:03:19,689 --> 00:03:23,197 ♪ The money got my mind ♪ 54 00:03:28,610 --> 00:03:30,791 As we approach the 21st century, 55 00:03:30,800 --> 00:03:33,711 a new means of communication is emerging. 56 00:03:33,720 --> 00:03:37,161 One day, we will all be connected to the internet. 57 00:03:37,170 --> 00:03:39,121 - When I was at Berkeley in the '80s, 58 00:03:39,130 --> 00:03:40,165 I had a roommate who was a 59 00:03:40,174 --> 00:03:41,578 computer science guy and he said, 60 00:03:41,587 --> 00:03:44,178 "Okay, hey, Corey, you've got a Mac, you've got a modem. 61 00:03:44,187 --> 00:03:46,278 "Let me show you this thing called the internet. 62 00:03:46,287 --> 00:03:48,320 "Whatever your weird-ass little 63 00:03:48,329 --> 00:03:50,178 hobby or favorite things is, 64 00:03:50,187 --> 00:03:52,034 "you're gonna find 2,000 other people 65 00:03:52,043 --> 00:03:55,491 "who love that same thing," and that was hugely powerful. 66 00:03:55,500 --> 00:04:00,001 - In 1981, only 213 computers were hooked to the internet. 67 00:04:00,010 --> 00:04:01,624 As the new year begins, an 68 00:04:01,633 --> 00:04:03,691 estimated 2.5 million computers 69 00:04:03,700 --> 00:04:04,831 will be on the network, 70 00:04:04,840 --> 00:04:06,634 serving as many as 20 million people. 71 00:04:06,643 --> 00:04:09,451 - Back in the olden days before the internet 72 00:04:09,460 --> 00:04:13,971 and technology companies created instant millionaires, 73 00:04:13,980 --> 00:04:15,661 companies, publicly traded companies, 74 00:04:15,670 --> 00:04:18,501 were judged on old-fashioned metrics 75 00:04:18,510 --> 00:04:21,601 of profitability and reliable returns. 76 00:04:21,610 --> 00:04:25,581 And Netscape really sort of reset investor expectations 77 00:04:25,590 --> 00:04:27,373 and really marked the beginning 78 00:04:27,382 --> 00:04:28,781 of the dot-com boom era. 79 00:04:28,790 --> 00:04:31,871 - Has the 1990s boom shattered old assumptions 80 00:04:31,880 --> 00:04:33,571 about how the economy works? 81 00:04:33,580 --> 00:04:34,651 The internet evolved 82 00:04:34,660 --> 00:04:36,481 into a commercial phenomenon. 83 00:04:36,490 --> 00:04:39,471 Since 1991, the economy has expanded 84 00:04:39,480 --> 00:04:41,081 in what's about to break the record 85 00:04:41,090 --> 00:04:43,541 as America's longest boom. 86 00:04:43,550 --> 00:04:45,871 - And it really did mark the beginning 87 00:04:45,880 --> 00:04:50,451 of Silicon Valley's first wave of investment speculation. 88 00:04:50,460 --> 00:04:53,101 Investors were drawn to the market, 89 00:04:53,110 --> 00:04:56,631 not necessarily by underlying market fundamentals, 90 00:04:56,640 --> 00:05:01,197 but rather by the promise or the promise of a technology. 91 00:05:01,206 --> 00:05:05,241 - At least at the time, it was so nuts working at Netscape 92 00:05:05,250 --> 00:05:07,818 that we had financial advisors sending out alerts saying, 93 00:05:07,827 --> 00:05:10,038 "Listen, if you've got a Netscape bumper sticker 94 00:05:10,047 --> 00:05:11,578 "on your car, take that off 95 00:05:11,587 --> 00:05:14,408 "because people are jumping in front of vehicles 96 00:05:14,417 --> 00:05:16,808 "because they assume that it's billionaires driving 'em 97 00:05:16,817 --> 00:05:18,461 "and people are looking for payouts." 98 00:05:18,470 --> 00:05:21,371 - Some of these celebrities of the tech industry 99 00:05:21,380 --> 00:05:23,641 sort of distilled what American 100 00:05:23,650 --> 00:05:25,351 culture loves the most: 101 00:05:25,360 --> 00:05:27,281 youth and brashness. 102 00:05:27,290 --> 00:05:28,941 Nerdy dudes who might have struggled 103 00:05:28,950 --> 00:05:31,691 to get a date in high school were suddenly rock stars 104 00:05:31,700 --> 00:05:33,461 in the eyes of the media world. 105 00:05:33,470 --> 00:05:35,571 Jeff Bezos was finding himself 106 00:05:35,580 --> 00:05:37,701 on the front page of the Wall Street Journal. 107 00:05:37,710 --> 00:05:40,491 - Was that initial excitement all just a fictitious, 108 00:05:40,500 --> 00:05:42,811 if thrilling, children's story? 109 00:05:42,820 --> 00:05:44,811 Or is the next chapter for Steve Jobs 110 00:05:44,820 --> 00:05:46,511 likely to be his gaudiest? 111 00:05:46,520 --> 00:05:48,131 - He was in disgrace in Silicon Valley. 112 00:05:48,140 --> 00:05:50,011 He'd been booted from his own company 113 00:05:50,020 --> 00:05:53,071 and he had received a call from an old friend of his, 114 00:05:53,080 --> 00:05:54,691 George Lucas at Pixar. 115 00:05:54,700 --> 00:05:56,651 George was going through a divorce 116 00:05:56,660 --> 00:05:58,941 and needed to raise some money pretty quickly, 117 00:05:58,950 --> 00:06:02,051 so he actually went and met with Lucas 118 00:06:02,060 --> 00:06:05,301 and saw some promise in the technology 119 00:06:05,310 --> 00:06:06,911 that Pixar was cultivating. 120 00:06:06,920 --> 00:06:09,921 At the time, it was just animating commercials, 121 00:06:09,930 --> 00:06:13,451 but he saw that there was the opportunity for storytelling 122 00:06:13,460 --> 00:06:16,291 and for him to make his mark in Hollywood. 123 00:06:16,300 --> 00:06:17,124 - When Toy Story came out, 124 00:06:17,133 --> 00:06:21,813 Toy Story was treated like a foreign object 125 00:06:23,400 --> 00:06:24,524 more than a precious 126 00:06:24,533 --> 00:06:26,514 here's-a-precursor-to-the-future. 127 00:06:26,523 --> 00:06:30,311 - I think it is fair to say that Hollywood was blindsided 128 00:06:30,320 --> 00:06:32,401 by the success that was Toy Story, 129 00:06:32,410 --> 00:06:34,621 its enormous box office performance. 130 00:06:34,630 --> 00:06:36,461 - Well, you know, Toy Story 131 00:06:36,470 --> 00:06:38,391 has really exceeded our expectations. 132 00:06:38,400 --> 00:06:40,001 It's about $180 million right now, 133 00:06:40,010 --> 00:06:41,881 I think, in domestic box office. 134 00:06:41,890 --> 00:06:44,912 It's being released internationally as we speak. 135 00:06:44,921 --> 00:06:46,261 - Yeah, well, if you hadn't shown up 136 00:06:46,270 --> 00:06:48,041 in your stupid little cardboard spaceship 137 00:06:48,050 --> 00:06:50,341 and taken away everything that was important to me... 138 00:06:50,350 --> 00:06:51,651 - Don't talk to me about importance. 139 00:06:51,660 --> 00:06:53,861 Because of you, the security of this entire universe 140 00:06:53,870 --> 00:06:55,151 is in jeopardy. - What?! 141 00:06:55,160 --> 00:06:57,551 - I would argue that Woody, the cowboy, 142 00:06:57,560 --> 00:07:00,641 and Buzz, the brash space explorer, 143 00:07:00,650 --> 00:07:02,021 they were sort of emblematic 144 00:07:02,030 --> 00:07:04,265 of Silicon Valley and Hollywood, 145 00:07:04,274 --> 00:07:06,041 which needed one another, 146 00:07:06,050 --> 00:07:08,823 but were apprehensive about one another. 147 00:07:10,240 --> 00:07:13,201 - So, the Netflix story actually, 148 00:07:13,210 --> 00:07:14,201 as most of these stories do, 149 00:07:14,210 --> 00:07:17,171 begins quite a distance in the past. 150 00:07:17,180 --> 00:07:18,361 - Back in the early days, 151 00:07:18,370 --> 00:07:20,481 Marc actually worked for Reed Hastings 152 00:07:20,490 --> 00:07:22,261 at a company called Pure Atria. 153 00:07:22,270 --> 00:07:25,631 - Reed also lived where I lived, lived in Santa Cruz. 154 00:07:25,640 --> 00:07:28,631 And a bunch of us every day would carpool to work. 155 00:07:28,640 --> 00:07:30,411 So, not only was I working for Reed, 156 00:07:30,420 --> 00:07:32,661 but also I was getting to know him reasonably well 157 00:07:32,670 --> 00:07:34,921 in this one-hour commute each direction 158 00:07:34,930 --> 00:07:36,911 from Santa Cruz over to Sunnyvale. 159 00:07:36,920 --> 00:07:40,658 - Marc called me one night and he said, "Listen, Christina, 160 00:07:40,667 --> 00:07:43,308 "I have found this great company. 161 00:07:43,317 --> 00:07:45,288 "We're gonna do corporate marketing. 162 00:07:45,297 --> 00:07:47,088 "It's gonna be 9-to-5. 163 00:07:47,097 --> 00:07:48,901 "Come have fun." 164 00:07:48,910 --> 00:07:51,391 And I right away said yes. 165 00:07:51,400 --> 00:07:54,771 Five days later, he said, "I have some news." 166 00:07:54,780 --> 00:07:56,861 - Our big software company was acquired 167 00:07:56,870 --> 00:07:58,791 by an even bigger company. 168 00:07:58,800 --> 00:08:00,481 I didn't get a job with the new company. 169 00:08:00,490 --> 00:08:01,391 I was fired. 170 00:08:01,400 --> 00:08:03,691 And a smile here because I was fired 171 00:08:03,700 --> 00:08:06,611 in that wonderful kinda Silicon Valley 172 00:08:06,620 --> 00:08:08,661 golden handcuff-sy kinda way. 173 00:08:08,670 --> 00:08:10,968 And what happens in that case is they come to you and say, 174 00:08:10,977 --> 00:08:13,118 "Marc, we're no longer gonna need your service, 175 00:08:13,127 --> 00:08:16,238 "but you need to stick around for maybe six months 176 00:08:16,247 --> 00:08:19,061 "helping us figure this out in case we have a question." 177 00:08:19,070 --> 00:08:21,351 And I go, "That sounds actually pretty good to me." 178 00:08:21,360 --> 00:08:22,798 And I said, "I am delighted. 179 00:08:22,807 --> 00:08:25,378 "I'm gonna actually use this opportunity 180 00:08:25,387 --> 00:08:27,061 "to start my next company." 181 00:08:27,070 --> 00:08:29,441 And Reed, he was being made redundant. 182 00:08:29,450 --> 00:08:32,038 But unlike me, Reed said, 183 00:08:32,047 --> 00:08:34,451 "I don't think I wanna start another company." 184 00:08:34,460 --> 00:08:37,761 Reed, I believed, really wanted to try and change 185 00:08:37,770 --> 00:08:38,901 the world of education. 186 00:08:38,910 --> 00:08:41,271 But once an entrepreneur, always an entrepreneur. 187 00:08:41,280 --> 00:08:44,481 Reed said he wanted to keep his hand in, so to speak. 188 00:08:44,490 --> 00:08:46,521 - So, Reed called me in to Marc's office 189 00:08:46,530 --> 00:08:48,911 and Reed looked and said, I'm gonna be your angel. 190 00:08:48,920 --> 00:08:51,121 I'm giving you $2 million to start a company. 191 00:08:51,130 --> 00:08:55,551 - This is back in 1996-97. 192 00:08:55,560 --> 00:08:58,273 The internet was still in its infancy then, 193 00:08:59,310 --> 00:09:01,121 but people were starting to experiment 194 00:09:01,130 --> 00:09:03,501 with selling things over the internet. 195 00:09:03,510 --> 00:09:06,701 - At that point in time, the only thing on the internet 196 00:09:06,710 --> 00:09:09,131 was entertainment, finances, shopping. 197 00:09:09,140 --> 00:09:11,141 Amazon was not even two years old. 198 00:09:11,150 --> 00:09:13,231 And so, we started looking at big markets, 199 00:09:13,240 --> 00:09:15,311 and Marc was particularly interested 200 00:09:15,320 --> 00:09:17,211 in what was going to shift. 201 00:09:17,220 --> 00:09:18,741 And so, we started looking at 202 00:09:18,750 --> 00:09:20,661 all the brick-and-mortar businesses. 203 00:09:20,670 --> 00:09:24,771 The day-to-day reality of actually how this ideation 204 00:09:24,780 --> 00:09:28,591 and then validation happened is it would happen in the car. 205 00:09:28,600 --> 00:09:32,901 Reed and I had an hour ride to Sunnyvale every day 206 00:09:32,910 --> 00:09:35,031 and then we had an hour ride back. 207 00:09:35,040 --> 00:09:37,701 And so, he'd pick me up at my house up in Scotts Valley, 208 00:09:37,710 --> 00:09:39,131 which is just north of Santa Cruz, 209 00:09:39,140 --> 00:09:40,911 and I'd hop in and we'd get in the car. 210 00:09:40,920 --> 00:09:42,310 And almost immediately, we'd 211 00:09:42,319 --> 00:09:43,861 jump in to talking about ideas. 212 00:09:43,870 --> 00:09:46,881 And eventually we kinda stumbled on video. 213 00:09:46,890 --> 00:09:49,068 We said, "But what about rental?" 214 00:09:49,077 --> 00:09:51,511 That's an $8-billion business. 215 00:09:51,520 --> 00:09:54,238 And even better, people hate it. 216 00:10:00,090 --> 00:10:03,061 According to Consumer Electronics magazine, 217 00:10:03,070 --> 00:10:06,133 video is clearly on the verge of a mass market breakthrough. 218 00:10:07,620 --> 00:10:10,381 By the end of 1982, there were five million 219 00:10:10,390 --> 00:10:13,083 video cassette recorders in the United States. 220 00:10:13,940 --> 00:10:15,571 Sony Corporation is projecting 221 00:10:15,580 --> 00:10:18,281 a total of 40 million video cassette recorders 222 00:10:18,290 --> 00:10:23,290 in the US by 1990, an increase of 800% in only eight years. 223 00:10:24,840 --> 00:10:27,231 As this growth takes place, 224 00:10:27,240 --> 00:10:31,271 it will create a demand for convenience video stores, 225 00:10:31,280 --> 00:10:34,891 stores that'll provide video equipment, accessories, 226 00:10:34,900 --> 00:10:39,041 software, and rental movies to a neighborhood customer base 227 00:10:39,050 --> 00:10:42,241 much the same way that convenience food stores 228 00:10:42,250 --> 00:10:44,481 provide groceries and other items today. 229 00:10:44,490 --> 00:10:46,783 - My dad was a serial entrepreneur. 230 00:10:47,820 --> 00:10:49,701 And in around 1980, 231 00:10:49,710 --> 00:10:53,021 he opened the first video rental store in Louisiana, 232 00:10:53,030 --> 00:10:54,971 in a town called Lafayette, Louisiana. 233 00:10:54,980 --> 00:10:57,345 And it started as a wall in a pharmacy 234 00:10:57,354 --> 00:11:00,001 and bought 70 movies and put 'em up on the wall 235 00:11:00,010 --> 00:11:02,941 and had the pharmacist kind of rent 'em out to people. 236 00:11:02,950 --> 00:11:04,391 And it took off so much 237 00:11:04,400 --> 00:11:06,358 that eventually the pharmacy became a video store 238 00:11:06,367 --> 00:11:09,461 and that video store became five more video stores 239 00:11:09,470 --> 00:11:11,001 and eventually became a franchise. 240 00:11:11,010 --> 00:11:13,821 - Independent stores popped up all over the country. 241 00:11:13,830 --> 00:11:16,061 And not only were they renting VHS tapes, 242 00:11:16,070 --> 00:11:18,521 but a lot of 'em were renting the VCRs. 243 00:11:18,530 --> 00:11:20,711 Because it was so expensive to buy one, 244 00:11:20,720 --> 00:11:22,163 a lotta people couldn't afford them. 245 00:11:22,172 --> 00:11:24,051 - You have to remember, in the early-'80s, 246 00:11:24,060 --> 00:11:26,561 most people didn't know what video rental was. 247 00:11:26,570 --> 00:11:28,541 This was a new concept to everybody. 248 00:11:28,550 --> 00:11:31,721 People didn't know that you could actually own a VCR 249 00:11:31,730 --> 00:11:33,221 or a device that could play movies 250 00:11:33,230 --> 00:11:35,211 and there's a place where you could go and rent them. 251 00:11:35,220 --> 00:11:37,201 So, one of the things my parents would do at the stores 252 00:11:37,210 --> 00:11:40,941 is create events to draw people into the store 253 00:11:40,950 --> 00:11:43,471 and then kind of expose them to all the options 254 00:11:43,480 --> 00:11:44,797 and kinda the movie consumption 255 00:11:44,806 --> 00:11:45,841 that could happen there. 256 00:11:45,850 --> 00:11:48,621 So, they would do things like, for kids, 257 00:11:48,630 --> 00:11:50,541 have a Strawberry Shortcake day 258 00:11:50,550 --> 00:11:52,221 and have somebody dressed as Strawberry Shortcake 259 00:11:52,230 --> 00:11:54,541 who could come in and kids could come and take pictures 260 00:11:54,550 --> 00:11:56,591 and sign autographs and they could highlight 261 00:11:56,600 --> 00:11:59,471 all the different kid-friendly movies that the store had. 262 00:11:59,480 --> 00:12:01,231 Or when a new title came out, 263 00:12:01,240 --> 00:12:03,901 they could have a theme around that title, like M♪A♪S♪H. 264 00:12:03,910 --> 00:12:07,771 - Your options at that time were supermarkets, 265 00:12:07,780 --> 00:12:09,571 some convenience stores rented them. 266 00:12:09,580 --> 00:12:11,331 There was a lot of independents, 267 00:12:11,340 --> 00:12:15,031 and the independents typically were small operations 268 00:12:15,040 --> 00:12:16,831 and not great real estate, 269 00:12:16,840 --> 00:12:19,151 which really provided the opportunity 270 00:12:19,160 --> 00:12:21,221 for the superstore concept later on. 271 00:12:21,230 --> 00:12:23,871 - Pre-Blockbuster, most video stores 272 00:12:23,880 --> 00:12:25,487 were small mom-and-pop 273 00:12:25,496 --> 00:12:27,991 operations in bad strip centers. 274 00:12:28,000 --> 00:12:30,321 The interiors were nothing fancy. 275 00:12:30,330 --> 00:12:32,821 The movie selections often were really bad. 276 00:12:32,830 --> 00:12:34,631 You were lucky if they had one or two copies 277 00:12:34,640 --> 00:12:36,261 of the top new release. 278 00:12:36,270 --> 00:12:38,271 You would see huge Playboy displays 279 00:12:38,280 --> 00:12:39,438 in the middle of a store, which, 280 00:12:39,447 --> 00:12:42,721 for a store that would kids movies and family movies, 281 00:12:42,730 --> 00:12:44,981 to then suddenly have a giant Playboy display, 282 00:12:44,990 --> 00:12:47,611 now, looking back, doesn't seem to make a lotta sense, 283 00:12:47,620 --> 00:12:48,851 which is one of the really smart things 284 00:12:48,860 --> 00:12:50,221 that Blockbuster did when they launched 285 00:12:50,230 --> 00:12:51,901 was taking that element out of the stores 286 00:12:51,910 --> 00:12:55,455 and really focusing being a family-friendly environment. 287 00:12:58,160 --> 00:13:00,201 Welcome to Blockbuster Video. 288 00:13:00,210 --> 00:13:01,873 Blockbuster Video gives you 289 00:13:01,882 --> 00:13:03,851 over 10,000 videos to chose from 290 00:13:03,860 --> 00:13:06,051 in over 30 different categories. 291 00:13:06,060 --> 00:13:07,452 - The story is kind of 292 00:13:07,461 --> 00:13:09,561 legendary in the video industry 293 00:13:09,570 --> 00:13:12,841 is that David Cook had opened one of the first 294 00:13:12,850 --> 00:13:14,231 true video superstores. 295 00:13:14,240 --> 00:13:15,541 There were others in the country, 296 00:13:15,550 --> 00:13:18,501 but he opened one in Dallas. 297 00:13:18,510 --> 00:13:19,461 - And then Blockbuster came along 298 00:13:19,470 --> 00:13:21,141 and literally decided they were gonna be 299 00:13:21,150 --> 00:13:23,481 the superstore of video stores. 300 00:13:23,490 --> 00:13:25,871 And they did it through having more titles, 301 00:13:25,880 --> 00:13:27,561 more copies of the new releases. 302 00:13:27,570 --> 00:13:29,748 - The great thing about Wayne Huizenga 303 00:13:29,757 --> 00:13:31,401 and the start of Blockbuster 304 00:13:31,410 --> 00:13:35,711 is that he knew how to ramp up a business unbelievably fast. 305 00:13:35,720 --> 00:13:38,191 When Huizenga bought the Blockbuster chain 306 00:13:38,200 --> 00:13:39,821 from David Cook in Dallas, 307 00:13:39,830 --> 00:13:42,841 the first thing he did is he started buying chains 308 00:13:42,850 --> 00:13:44,692 because he knew that he couldn't 309 00:13:44,701 --> 00:13:46,101 open stores fast enough. 310 00:13:46,110 --> 00:13:47,631 He had to open corporate stores, 311 00:13:47,640 --> 00:13:49,141 he had to open franchise stores, 312 00:13:49,150 --> 00:13:50,611 and he had to acquire stores, 313 00:13:50,620 --> 00:13:53,531 and that's how he was gonna take over the business. 314 00:13:53,540 --> 00:13:56,341 And his whole plan from day one was to take it national 315 00:13:56,350 --> 00:13:58,611 and do it faster than anybody else. 316 00:13:58,620 --> 00:14:01,161 Imagine the perfect video store. 317 00:14:01,170 --> 00:14:03,191 It would have a great selection, right? 318 00:14:03,200 --> 00:14:04,024 Right! 319 00:14:04,033 --> 00:14:05,781 Over 10,000 videos! 320 00:14:05,790 --> 00:14:08,441 Three-evening rentals, so no rush, no hassle. 321 00:14:08,450 --> 00:14:09,471 Fast checking. 322 00:14:09,480 --> 00:14:11,271 24-hour quick drop return. 323 00:14:11,280 --> 00:14:13,031 Open late every night. 324 00:14:13,040 --> 00:14:15,761 Well, the perfect video store... 325 00:14:15,770 --> 00:14:17,291 - Welcome to Blockbuster Video! 326 00:14:17,300 --> 00:14:19,833 Is popping up all over the country. 327 00:14:21,360 --> 00:14:22,853 There's one near you. 328 00:14:24,232 --> 00:14:25,961 ♪ Blockbuster Video ♪ 329 00:14:25,970 --> 00:14:28,488 ♪ Wow, what a difference ♪ 330 00:14:30,880 --> 00:14:33,551 - There was a business model in place at the time 331 00:14:33,560 --> 00:14:36,751 that I later called manage to satisfaction 332 00:14:36,760 --> 00:14:40,701 because the popular wisdom in the video business 333 00:14:40,710 --> 00:14:43,231 was people come to a video store. 334 00:14:43,240 --> 00:14:47,351 They don't expect to get the movie that they want. 335 00:14:47,360 --> 00:14:49,841 They'll trade off to a different movie. 336 00:14:49,850 --> 00:14:50,981 They'll rent that. 337 00:14:50,990 --> 00:14:53,081 And they'll come back two weeks later 338 00:14:53,090 --> 00:14:54,331 and rent the movie that they want 339 00:14:54,340 --> 00:14:57,421 because they now can get it 'cause demand is lessened. 340 00:14:57,430 --> 00:14:58,254 - Hi. 341 00:14:58,263 --> 00:14:59,087 How's it going today. 342 00:14:59,096 --> 00:15:00,931 - It started okay. 343 00:15:00,940 --> 00:15:02,273 - Well, when you got a good 344 00:15:02,282 --> 00:15:03,861 video, it's bound to get better. 345 00:15:03,870 --> 00:15:04,703 Take care! 346 00:15:05,570 --> 00:15:07,981 - My day'll get better when this line starts moving. 347 00:15:07,990 --> 00:15:09,851 - Yeah, I mean, one of the things we were disrupting 348 00:15:09,860 --> 00:15:12,701 was waiting in line, walking up to a 17-year-old 349 00:15:12,710 --> 00:15:14,891 who had no customer service experience 350 00:15:14,900 --> 00:15:16,022 who was trying to sell you 351 00:15:16,031 --> 00:15:17,551 popcorn when all you wanted to do 352 00:15:17,560 --> 00:15:19,261 was rent a movie that wasn't there. 353 00:15:19,270 --> 00:15:22,730 - Being mad when the five movies were already gone 354 00:15:23,870 --> 00:15:25,341 and then having to pay your late fees. 355 00:15:25,350 --> 00:15:26,611 - So, we started looking at 356 00:15:26,620 --> 00:15:28,341 who was renting movies at that time. 357 00:15:28,350 --> 00:15:29,428 The biggest was Blockbuster. 358 00:15:29,437 --> 00:15:31,471 - And it turns out there's probably a pretty good reason 359 00:15:31,480 --> 00:15:34,781 why you didn't wanna do video rental as an e-commerce play, 360 00:15:34,790 --> 00:15:37,601 and the reason is the VHS cassette. 361 00:15:37,610 --> 00:15:40,521 They are big and they are heavy 362 00:15:40,530 --> 00:15:42,021 and they're not very durable. 363 00:15:42,030 --> 00:15:44,518 - The movie studios, their concept was, 364 00:15:44,527 --> 00:15:47,058 "Okay, we'll put movies out on a VHS tape, 365 00:15:47,067 --> 00:15:50,211 "but it's gonna cost the consumer up to $100," 366 00:15:50,220 --> 00:15:52,351 because from their perspective, 367 00:15:52,360 --> 00:15:54,651 if a whole lotta people can watch it, 368 00:15:54,660 --> 00:15:56,401 we're gonna get a lot for it. 369 00:15:56,410 --> 00:15:58,951 - And you can make back $100 on a rental 370 00:15:58,960 --> 00:16:01,091 when you're turning it every day, 371 00:16:01,100 --> 00:16:02,961 but we wanted to try mailing things. 372 00:16:02,970 --> 00:16:05,081 So, we knew we had two or three days mailing it out 373 00:16:05,090 --> 00:16:07,141 and they keep it for a week or whatever 374 00:16:07,150 --> 00:16:08,211 and then they mail it back. 375 00:16:08,220 --> 00:16:09,251 That wasn't gonna work. 376 00:16:09,260 --> 00:16:12,021 And video rental by mail went the way 377 00:16:12,030 --> 00:16:15,003 of all of our other ideas, which is discarded. 378 00:16:16,380 --> 00:16:19,991 - The innovations that come in different technologies 379 00:16:20,000 --> 00:16:22,611 usually come from some entrepreneur, 380 00:16:22,620 --> 00:16:24,363 somebody who sees an opening. 381 00:16:25,320 --> 00:16:27,891 The question is only are the studios run 382 00:16:27,900 --> 00:16:31,611 with enough sophistication to spot the trends 383 00:16:31,620 --> 00:16:33,543 and jump into them early? 384 00:16:35,720 --> 00:16:38,871 - One day, Reed read about a technology 385 00:16:38,880 --> 00:16:40,971 that was being test-marketed in San Francisco 386 00:16:40,980 --> 00:16:42,761 and some other cities called the DVD. 387 00:16:42,770 --> 00:16:47,770 And the DVD was this small, light, thin medium for movies. 388 00:16:48,817 --> 00:16:51,131 And we were going, "That's really kinda interesting." 389 00:16:51,140 --> 00:16:54,338 - When DVD launched, the studios realized, 390 00:16:54,347 --> 00:16:55,718 "Hey, there is a market 391 00:16:55,727 --> 00:16:57,978 "for us to sell these direct to consumers 392 00:16:57,987 --> 00:16:59,591 "and in some ways take the 393 00:16:59,600 --> 00:17:01,708 power away from the video stores 394 00:17:01,717 --> 00:17:03,468 "and have our own relationship with consumers 395 00:17:03,477 --> 00:17:05,221 "and just sell direct." 396 00:17:05,230 --> 00:17:06,837 - I really remember it 397 00:17:06,846 --> 00:17:09,341 completely like it was yesterday 398 00:17:09,350 --> 00:17:12,471 that Reed and I were probably halfway up 399 00:17:12,480 --> 00:17:14,311 over the mountains to Sunnyvale 400 00:17:14,320 --> 00:17:16,368 as we were talking about this and we said, 401 00:17:16,377 --> 00:17:17,928 "There's an easy way to figure out 402 00:17:17,937 --> 00:17:19,151 "whether this is gonna work or not," 403 00:17:19,160 --> 00:17:20,351 and we turned the car around 404 00:17:20,360 --> 00:17:23,511 and we drove back down into Santa Cruz and parked downtown 405 00:17:23,520 --> 00:17:27,241 and went to one of the used record stores 406 00:17:27,250 --> 00:17:28,361 in downtown Santa Cruz 407 00:17:28,370 --> 00:17:30,761 and went in and bought a used music CD 408 00:17:30,770 --> 00:17:33,241 and then went two doors down to a stationery store 409 00:17:33,250 --> 00:17:34,641 and bought a little envelope, 410 00:17:34,650 --> 00:17:36,321 the kind of envelope that you would use 411 00:17:36,330 --> 00:17:38,464 to mail a greeting card in, 412 00:17:38,473 --> 00:17:40,921 and put the CD in the envelope, 413 00:17:40,930 --> 00:17:43,731 addressed it to Reed's house in Santa Cruz, 414 00:17:43,740 --> 00:17:46,441 and then we walked to the other end of the mall 415 00:17:46,450 --> 00:17:48,161 and went to the Santa Cruz Post Office 416 00:17:48,170 --> 00:17:49,351 and went up and bought a stamp 417 00:17:49,360 --> 00:17:50,611 and then dropped it in the slot 418 00:17:50,620 --> 00:17:51,791 and then drove to the office 419 00:17:51,800 --> 00:17:53,701 and didn't think too much more about it. 420 00:17:53,710 --> 00:17:55,731 But I think it was the very next morning 421 00:17:55,740 --> 00:17:57,101 and Reed comes to pick me up, 422 00:17:57,110 --> 00:17:59,181 and he didn't even need to say anything. 423 00:17:59,190 --> 00:18:03,291 He just kind of handed me this envelope 424 00:18:03,300 --> 00:18:05,621 with an unbroken CD in it 425 00:18:05,630 --> 00:18:07,481 that had gotten from the Santa Cruz Post Office 426 00:18:07,490 --> 00:18:10,041 to his house in just one day. 427 00:18:10,050 --> 00:18:12,601 And I think that was the very moment 428 00:18:12,610 --> 00:18:16,757 when Reed and I said, "Huh, this just might work." 429 00:18:18,590 --> 00:18:22,171 So, it got to this point in about September of 1997 430 00:18:22,180 --> 00:18:24,081 where it was put up or shut up. 431 00:18:24,090 --> 00:18:25,911 Reed wrote us a big check, 432 00:18:25,920 --> 00:18:27,171 my mother actually wrote a check, 433 00:18:27,180 --> 00:18:29,401 some other friends wrote small checks, 434 00:18:29,410 --> 00:18:31,081 and that was the start. 435 00:18:31,090 --> 00:18:33,851 Now, where you start from is a different question. 436 00:18:33,860 --> 00:18:36,811 After all those years of me having to drive 437 00:18:36,820 --> 00:18:40,451 from Santa Cruz up over the mountains to Silicon Valley, 438 00:18:40,460 --> 00:18:42,531 dammit, I was gonna try and have a company 439 00:18:42,540 --> 00:18:45,851 actually that I could get to in less than 50 minutes. 440 00:18:45,860 --> 00:18:48,791 So, Scotts Valley it is. 441 00:18:48,800 --> 00:18:52,421 But our very first office was not actually an office at all. 442 00:18:52,430 --> 00:18:54,508 There's a Best Western in Scotts Valley. 443 00:18:54,517 --> 00:18:58,301 And we made an arrangement with the Best Western manager, 444 00:18:58,310 --> 00:19:01,251 considering he didn't have many conferences, 445 00:19:01,260 --> 00:19:03,041 that we could use his conference room 446 00:19:03,050 --> 00:19:05,821 as our very first Netflix office 447 00:19:05,830 --> 00:19:09,861 and eventually decided we need a little bit more space. 448 00:19:09,870 --> 00:19:11,881 - When we set up our offices in Scotts Valley, 449 00:19:11,890 --> 00:19:13,861 we were in a small office park. 450 00:19:13,870 --> 00:19:17,161 We brought in folding tables, we brought in beach chairs. 451 00:19:17,170 --> 00:19:20,201 We did go and buy computers and bring those in. 452 00:19:20,210 --> 00:19:22,931 We had green carpeting, which we thought was lucky 453 00:19:22,940 --> 00:19:24,650 because it was the color of money. 454 00:19:24,659 --> 00:19:26,461 - It was about the size of an average house. 455 00:19:26,470 --> 00:19:28,541 - It was messy with papers everywhere 456 00:19:28,550 --> 00:19:30,671 and drawings of the system 457 00:19:30,680 --> 00:19:32,761 and how it all's supposed to look like. 458 00:19:32,770 --> 00:19:34,051 - Yeah; in fact, we were so cheap, 459 00:19:34,060 --> 00:19:37,191 we actually kept the DVDs wrapped in their cellophane 460 00:19:37,200 --> 00:19:39,431 in case we ordered too many and had to return them, 461 00:19:39,440 --> 00:19:41,481 because we were just making it up as we went. 462 00:19:41,490 --> 00:19:44,711 - So, we had this old, I guess it musta been a bank 463 00:19:44,720 --> 00:19:46,791 'cause we had this old bank vault in there, 464 00:19:46,800 --> 00:19:49,233 like a big steel round door. 465 00:19:50,360 --> 00:19:52,171 That's where we put all the DVDs. 466 00:19:52,180 --> 00:19:54,801 - The funny thing is that we copied Blockbuster 467 00:19:54,810 --> 00:19:55,634 in every step of the way 468 00:19:55,643 --> 00:19:57,828 and we actually used Blockbuster 469 00:19:57,837 --> 00:19:59,631 shelves in our bank vault. 470 00:19:59,640 --> 00:20:01,401 At the time, when we launched Netflix, 471 00:20:01,410 --> 00:20:04,021 there were only 3,000 DVDs in circulation, 472 00:20:04,030 --> 00:20:07,763 so we had to have at least one copy of 3,000 different DVDs. 473 00:20:08,620 --> 00:20:11,841 Well, when you put one copy and more of 3,000 DVDs 474 00:20:11,850 --> 00:20:15,261 in a thousand-square-foot space, that's a problem. 475 00:20:15,270 --> 00:20:17,731 - But I did realize it would be helpful 476 00:20:17,740 --> 00:20:20,401 to have someone had had at least an inkling 477 00:20:20,410 --> 00:20:22,351 what the video business was all about. 478 00:20:22,360 --> 00:20:26,792 Then began this six-month courtship of Mitch Lowe. 479 00:20:26,801 --> 00:20:28,681 And now, here's a special announcement 480 00:20:28,690 --> 00:20:31,111 from the Video Software Dealers Association. 481 00:20:31,120 --> 00:20:34,481 From every major studio and independent video supplier 482 00:20:34,490 --> 00:20:36,855 to distributors, accessory companies, 483 00:20:36,864 --> 00:20:38,831 and thousands of video retailers. 484 00:20:38,840 --> 00:20:40,941 - The industry association 485 00:20:40,950 --> 00:20:43,711 that was the Video Software Dealers Association, 486 00:20:43,720 --> 00:20:46,071 it had a board and Mitch was on that board. 487 00:20:46,080 --> 00:20:49,448 - I was going, "I've gotta get this guy involved. 488 00:20:49,457 --> 00:20:51,591 "I've gotta get him to help us." 489 00:20:51,600 --> 00:20:56,143 - I was just totally fascinated by Marc and Reed. 490 00:20:57,830 --> 00:21:00,831 I had been working behind the counter in a video store 491 00:21:00,840 --> 00:21:05,361 for, I think, by that time, 13-14,000 hours 492 00:21:05,370 --> 00:21:07,431 talking movies with people. 493 00:21:07,440 --> 00:21:10,821 And here were two guys who knew technology 494 00:21:10,830 --> 00:21:12,411 and knew marketing. 495 00:21:12,420 --> 00:21:15,821 And so, all I wanted to do was to work with them. 496 00:21:15,830 --> 00:21:17,948 - Our introduction to Mitch and Mitch coming on 497 00:21:17,957 --> 00:21:20,571 and teaching us the video rental business 498 00:21:20,580 --> 00:21:23,391 was the key to us feeling confident 499 00:21:23,400 --> 00:21:25,321 that we could go into that space. 500 00:21:25,330 --> 00:21:27,321 He introduced us to studios. 501 00:21:27,330 --> 00:21:29,881 He brought us to events. 502 00:21:29,890 --> 00:21:33,061 Mitch gave us all of that background information 503 00:21:33,070 --> 00:21:37,152 so that we could create a web store 504 00:21:37,161 --> 00:21:41,243 that matched their experience going into a physical store. 505 00:21:42,140 --> 00:21:43,621 - The intellectual stimulation 506 00:21:43,630 --> 00:21:46,221 of just interfacing with Marc and Christina were great. 507 00:21:46,230 --> 00:21:49,948 We were battling it out, and I was the naysayer. 508 00:21:49,957 --> 00:21:51,758 "Hey, let's just start with the number one thing: 509 00:21:51,767 --> 00:21:53,621 "this thing's gonna break in the mail." 510 00:21:53,630 --> 00:21:54,981 - As with any of these things, 511 00:21:54,990 --> 00:21:57,471 we were incredibly lucky in our ignorance, 512 00:21:57,480 --> 00:21:59,208 because it turns out that the post office 513 00:21:59,217 --> 00:22:02,461 has a totally different mail flow for local mail. 514 00:22:02,470 --> 00:22:04,811 So, local mail gets pulled outta the stack 515 00:22:04,820 --> 00:22:06,588 and they go, "Oh, it's in the Santa Cruz Post Office, 516 00:22:06,597 --> 00:22:08,758 "it's for Santa Cruz, so we're just gonna put it 517 00:22:08,767 --> 00:22:10,551 "right into the mail carrier's route," 518 00:22:10,560 --> 00:22:12,691 and off it goes to the person's house. 519 00:22:12,700 --> 00:22:14,141 What we didn't realize 520 00:22:14,150 --> 00:22:17,801 is that once we began trying this at scale, 521 00:22:17,810 --> 00:22:19,551 that mail was no longer working that way. 522 00:22:19,560 --> 00:22:21,611 It was now going to a central post office. 523 00:22:21,620 --> 00:22:23,871 - We put our first disc test in the mail 524 00:22:23,880 --> 00:22:25,231 and through the machines, 525 00:22:25,240 --> 00:22:28,601 but the envelope machine is a 40,000-letter-per-minute 526 00:22:28,610 --> 00:22:30,331 steel drum roll separator. 527 00:22:30,340 --> 00:22:31,961 You can imagine all these envelopes 528 00:22:31,970 --> 00:22:34,311 from all over the world sticking together. 529 00:22:34,320 --> 00:22:35,981 They had a machine that would make sure 530 00:22:35,990 --> 00:22:37,471 you separated the envelopes together 531 00:22:37,480 --> 00:22:40,021 so the sticky parts of the envelope didn't stick. 532 00:22:40,030 --> 00:22:41,631 Imagine your disc going through there. 533 00:22:41,640 --> 00:22:42,464 It was crushed. 534 00:22:42,473 --> 00:22:44,001 I actually thought we had failed 535 00:22:44,010 --> 00:22:45,741 when I found out that all envelope mail 536 00:22:45,750 --> 00:22:46,574 went through that machine. 537 00:22:46,583 --> 00:22:47,821 - But it just goes to show 538 00:22:47,830 --> 00:22:50,821 that sometimes you're lucky in your ignorance. 539 00:22:50,830 --> 00:22:53,721 If that first disc had been mailed in Sunnyvale, 540 00:22:53,730 --> 00:22:56,671 then it might've gone through the mail, it might've cracked, 541 00:22:56,680 --> 00:22:59,211 and Reed might've come in the morning and said, 542 00:22:59,220 --> 00:23:01,218 "Oop, there's another one. 543 00:23:01,227 --> 00:23:02,401 "Let's think of something new." 544 00:23:02,410 --> 00:23:03,261 - So, what we discovered 545 00:23:03,270 --> 00:23:06,011 was if we could package the DVD properly 546 00:23:06,020 --> 00:23:07,611 and we could barcode it properly, 547 00:23:07,620 --> 00:23:09,105 we would know with certainty 548 00:23:09,114 --> 00:23:10,761 that that DVD was going through 549 00:23:10,770 --> 00:23:12,751 the machine that we wanted it to go through 550 00:23:12,760 --> 00:23:15,011 and it would not get broken at the US Post Office. 551 00:23:15,020 --> 00:23:17,161 - One of the first things that we needed to do 552 00:23:17,170 --> 00:23:20,601 when we started setting up offices out in Scotts Valley 553 00:23:20,610 --> 00:23:22,601 was we needed to incorporate the company, 554 00:23:22,610 --> 00:23:24,911 and so we had to come up with a name. 555 00:23:24,920 --> 00:23:27,841 And so, Marc named us Kibble 556 00:23:27,850 --> 00:23:31,101 because he always said that we needed to make sure 557 00:23:31,110 --> 00:23:32,281 that we were building something 558 00:23:32,290 --> 00:23:34,371 where the dogs would eat the dog food. 559 00:23:34,380 --> 00:23:35,554 - One day in one of our whiteboarding sessions, 560 00:23:35,563 --> 00:23:37,911 we decided we needed a better name for the company. 561 00:23:37,920 --> 00:23:39,741 - To start, you've gotta come up with something 562 00:23:39,750 --> 00:23:42,601 which is evocative and creates emotion 563 00:23:42,610 --> 00:23:44,821 and communicates what it is you're trying to do 564 00:23:44,830 --> 00:23:47,321 and signals what market you're playing in. 565 00:23:47,330 --> 00:23:50,751 But there's some other more mundane requirements. 566 00:23:50,760 --> 00:23:52,811 It's gotta be a name that you can actually get 567 00:23:52,820 --> 00:23:55,941 the domain name, you know, the dot-com, for. 568 00:23:55,950 --> 00:23:58,121 It's gotta be a name that ideally you can trademark. 569 00:23:58,130 --> 00:24:00,801 It's gotta be a name that's not being used some place. 570 00:24:00,810 --> 00:24:03,051 It's gotta be a name that doesn't mean something 571 00:24:03,060 --> 00:24:05,001 deeply offensive in some other language. 572 00:24:05,010 --> 00:24:07,352 - And so, it had to say internet 573 00:24:07,361 --> 00:24:09,211 and it had to say movies, 574 00:24:09,220 --> 00:24:12,351 and so we spent a very short amount of time 575 00:24:12,360 --> 00:24:16,381 going into Marc's office, and on one side of the whiteboard 576 00:24:16,390 --> 00:24:19,241 we'd list all the things you would call the internet. 577 00:24:19,250 --> 00:24:21,241 And then, on the other side of the whiteboard 578 00:24:21,250 --> 00:24:26,250 we'd list how do you refer to entertainment, movies, video? 579 00:24:26,340 --> 00:24:27,558 - There were several names. 580 00:24:27,567 --> 00:24:28,601 There were 30 names on the board 581 00:24:28,610 --> 00:24:31,181 and we did the classic exercise of who likes what, 582 00:24:31,190 --> 00:24:34,441 and eventually we stumbled on Netflix. 583 00:24:34,450 --> 00:24:38,061 - Netflix actually had a yes in all the columns, 584 00:24:38,070 --> 00:24:41,791 except someone else had Netflicks, C-K-S. 585 00:24:41,800 --> 00:24:43,291 And the other problem, of course, 586 00:24:43,300 --> 00:24:45,228 is people always find problems and they were saying, 587 00:24:45,237 --> 00:24:46,813 "Now, 'flix, ' doesn't that 588 00:24:46,822 --> 00:24:48,631 kinda remind you of skinflicks? 589 00:24:48,640 --> 00:24:50,811 - I actually thought Netflix at first 590 00:24:50,820 --> 00:24:53,009 was a bit too almost porn-related, 591 00:24:53,018 --> 00:24:54,461 the 'flix' part of it. 592 00:24:54,470 --> 00:24:55,861 I didn't like it because of that. 593 00:24:55,870 --> 00:24:59,661 - We came to a day where we had to make up our minds. 594 00:24:59,670 --> 00:25:01,141 We just had to name it. 595 00:25:01,150 --> 00:25:03,901 - And so, Netflix it was. 596 00:25:03,910 --> 00:25:06,143 And it's kinda grown on me. 597 00:25:07,900 --> 00:25:10,741 - It was a very interesting proposition 598 00:25:10,750 --> 00:25:12,491 launching this new service. 599 00:25:12,500 --> 00:25:15,001 - Before we launched, Marc actually sent 600 00:25:15,010 --> 00:25:17,941 the very first Netflix DVD to himself 601 00:25:17,950 --> 00:25:19,151 just to test the process. 602 00:25:19,160 --> 00:25:20,601 He sent himself "Casino". 603 00:25:20,610 --> 00:25:23,708 Everybody's gotta watch everybody else. 604 00:25:23,717 --> 00:25:26,801 And the eye in the sky is watching us all. 605 00:25:26,810 --> 00:25:28,051 No one was watching us. 606 00:25:28,060 --> 00:25:30,811 That let us fly under the radar before we launched. 607 00:25:30,820 --> 00:25:31,951 - I mean, I think it's fair to say 608 00:25:31,960 --> 00:25:35,311 that when Netflix launched in the '90s, 609 00:25:35,320 --> 00:25:37,231 Hollywood was really fat and happy 610 00:25:37,240 --> 00:25:40,631 and no one really thought much about this little threat 611 00:25:40,640 --> 00:25:42,441 coming from Northern California. 612 00:25:42,450 --> 00:25:43,728 - Launch day comes. 613 00:25:43,737 --> 00:25:46,811 And for us, it was on April 14th, 1998, 614 00:25:46,820 --> 00:25:50,381 and we all had gathered in my conference room. 615 00:25:50,390 --> 00:25:53,881 And we had a table set up at one end with a computer on it. 616 00:25:53,890 --> 00:25:56,791 And Eric Meyer, CTO, had set it up 617 00:25:56,800 --> 00:25:59,751 so every time an order came in, a bell would ring. 618 00:25:59,760 --> 00:26:01,390 And at the other end of the 619 00:26:01,399 --> 00:26:03,271 room, we had set up a big table 620 00:26:03,280 --> 00:26:06,151 and we had champagne and champagne glasses 621 00:26:06,160 --> 00:26:08,241 and we were all set to kinda toast our success. 622 00:26:08,250 --> 00:26:10,491 - That challenge of launching the company, 623 00:26:10,500 --> 00:26:12,301 introducing something to the world 624 00:26:12,310 --> 00:26:14,811 that nobody had ever known that they wanted, 625 00:26:14,820 --> 00:26:15,831 that was exciting. 626 00:26:15,840 --> 00:26:18,391 That was exactly why I do startups. 627 00:26:18,400 --> 00:26:20,571 I knew where to go to find 628 00:26:20,580 --> 00:26:22,641 the first set of customers for Netflix. 629 00:26:22,650 --> 00:26:25,751 I knew what the online groups, the forums were. 630 00:26:25,760 --> 00:26:28,311 I knew who the influencers were in each of those. 631 00:26:28,320 --> 00:26:30,881 And if I could get them on our side, 632 00:26:30,890 --> 00:26:31,931 I knew that we could launch 633 00:26:31,940 --> 00:26:34,661 with just an unprecedented goodwill 634 00:26:34,670 --> 00:26:36,591 and enthusiasm and excitement. 635 00:26:36,600 --> 00:26:38,891 - And as we were kinda getting ready for the launch, 636 00:26:38,900 --> 00:26:40,791 which was at 9 a.m. sharp, 637 00:26:40,800 --> 00:26:44,491 we were all kind of placing bets on what was gonna happen. 638 00:26:44,500 --> 00:26:47,941 And so, 9 o'clock came around and Eric leans over 639 00:26:47,950 --> 00:26:50,211 and hits a few keys on the keyboard and we're live. 640 00:26:50,220 --> 00:26:52,221 And then we're all kinda looking around expectantly. 641 00:26:52,230 --> 00:26:54,161 And all of a sudden, ding! 642 00:26:54,170 --> 00:26:56,871 Our first order, and everyone cheers 643 00:26:56,880 --> 00:26:59,231 and we all go over and begin breaking open the champagne. 644 00:26:59,240 --> 00:27:01,941 And mid-pour, ding-ding! 645 00:27:01,950 --> 00:27:04,251 Two more orders, and we all cheer again. 646 00:27:04,260 --> 00:27:07,331 - The entire Netflix website is just engulfed in people. 647 00:27:07,340 --> 00:27:09,486 I mean, just orders of magnitude 648 00:27:09,495 --> 00:27:11,321 greater numbers of visitors 649 00:27:11,330 --> 00:27:13,111 than the team had predicted. 650 00:27:13,120 --> 00:27:15,243 - And then, ding-ding-ding-ding! 651 00:27:15,252 --> 00:27:16,361 And we'd cheer again. 652 00:27:16,370 --> 00:27:18,931 And then we're all waiting... 653 00:27:18,940 --> 00:27:20,761 And waiting... 654 00:27:20,770 --> 00:27:22,031 And waiting... 655 00:27:22,040 --> 00:27:23,791 - We were watching what's happening 656 00:27:23,800 --> 00:27:25,801 and then the server started going down, 657 00:27:25,810 --> 00:27:27,723 so it was kinda short-lived for 658 00:27:27,732 --> 00:27:29,471 excitement of the first day. 659 00:27:29,480 --> 00:27:31,661 - We didn't have enough capacity. 660 00:27:31,670 --> 00:27:34,351 We were sending people to Fry's Electronics 661 00:27:34,360 --> 00:27:35,631 to buy more computers. 662 00:27:35,640 --> 00:27:38,299 - We bought about 10 machines, I remember. 663 00:27:38,308 --> 00:27:40,376 - In addition to the two that you only have. 664 00:27:40,385 --> 00:27:42,131 Addition to the only two 665 00:27:42,140 --> 00:27:43,595 that we have already in the office. 666 00:27:43,604 --> 00:27:47,091 - And, boom, melts down again, and it just keeps happening, 667 00:27:47,100 --> 00:27:48,407 these cascading failures, 668 00:27:48,416 --> 00:27:50,151 'cause it's such a huge success 669 00:27:50,160 --> 00:27:54,331 because it was just exactly what that community wanted. 670 00:27:54,340 --> 00:27:56,901 - You had people ripping open cellophane packages 671 00:27:56,910 --> 00:27:58,681 and just throwing boxes all over the place, 672 00:27:58,690 --> 00:28:00,941 'cause you didn't need the box once you opened it. 673 00:28:00,950 --> 00:28:02,731 We weren't shipping the box to the customers. 674 00:28:02,740 --> 00:28:03,691 We were just shipping the discs. 675 00:28:03,700 --> 00:28:04,971 It was that kind of chaos. 676 00:28:04,980 --> 00:28:07,671 - We were trying to figure out how you put 677 00:28:07,680 --> 00:28:12,680 a "Sorry, we're closed" sign on an internet store. 678 00:28:13,000 --> 00:28:14,931 We did not know what to do. 679 00:28:14,940 --> 00:28:18,761 We were wildly successful on launch day. 680 00:28:18,770 --> 00:28:22,961 - And we closed that first day with 108 orders. 681 00:28:22,970 --> 00:28:25,671 I mean, that was my budget for the whole first month. 682 00:28:25,680 --> 00:28:30,211 I couldn't believe that a hundred people 683 00:28:30,220 --> 00:28:31,373 had ordered from us. 684 00:28:32,800 --> 00:28:35,531 - I first heard about Netflix from my partner, Sam Bloom, 685 00:28:35,540 --> 00:28:37,631 who was running business development at the time. 686 00:28:37,640 --> 00:28:38,908 He came in my office and said, 687 00:28:38,917 --> 00:28:41,098 "There's a new startup called Netflix 688 00:28:41,107 --> 00:28:42,971 "and they're delivering DVDs through the mail." 689 00:28:42,980 --> 00:28:45,398 And truth be told, at the time I was like, "Eh, okay. 690 00:28:45,407 --> 00:28:46,348 "Interesting. 691 00:28:46,357 --> 00:28:47,631 "We'll start keeping an eye on it." 692 00:28:47,640 --> 00:28:49,331 'Cause at the time, I ran competitive analysis 693 00:28:49,340 --> 00:28:50,321 across our competitors, 694 00:28:50,330 --> 00:28:52,051 so we started to track Netflix at that point. 695 00:28:52,060 --> 00:28:57,060 - So, that first summer was actually pretty good. 696 00:28:57,910 --> 00:28:59,431 We were actually starting to get business, 697 00:28:59,440 --> 00:29:01,241 we were starting to get traction. 698 00:29:01,250 --> 00:29:04,421 And I think it was sometime at the end of that first summer 699 00:29:04,430 --> 00:29:08,651 that we had our first $100,000 month, 700 00:29:08,660 --> 00:29:10,158 and that was a big accomplishment 701 00:29:10,167 --> 00:29:12,334 'cause a $100,000 month is a 702 00:29:12,343 --> 00:29:14,741 million-dollar annual run rate. 703 00:29:14,750 --> 00:29:19,750 The bad news was that almost all of that $100,000 704 00:29:20,157 --> 00:29:22,291 was selling DVDs. 705 00:29:22,300 --> 00:29:25,321 - It was about that time that Reed Hastings, 706 00:29:25,330 --> 00:29:28,441 while he was on our board and our angel funder, 707 00:29:28,450 --> 00:29:29,506 he also came in and was 708 00:29:29,515 --> 00:29:31,041 spending a little bit more time 709 00:29:31,050 --> 00:29:32,361 with us in the offices. 710 00:29:32,370 --> 00:29:36,341 His biggest concern was that selling movies 711 00:29:36,350 --> 00:29:38,561 was going to be a problem. 712 00:29:38,570 --> 00:29:41,771 - That was bad because we knew it was just a matter of time 713 00:29:41,780 --> 00:29:46,321 before Amazon sold DVDs and then Walmart would sell DVDs, 714 00:29:46,330 --> 00:29:48,991 then your local gas station would sell DVDs. 715 00:29:49,000 --> 00:29:51,001 And this nice, healthy business 716 00:29:51,010 --> 00:29:53,258 would have its margins taken out from underneath it 717 00:29:53,267 --> 00:29:56,541 and it would go to nothing and we'd be outta business. 718 00:29:56,550 --> 00:29:59,611 So, now, rental, that was a great business 719 00:29:59,620 --> 00:30:01,362 in that it had potentially high 720 00:30:01,371 --> 00:30:02,901 margins, really defensible. 721 00:30:02,910 --> 00:30:05,001 But nobody wanted to do it. 722 00:30:05,010 --> 00:30:07,471 We could barely get someone to rent once, 723 00:30:07,480 --> 00:30:09,011 so we'd never hear from them again. 724 00:30:09,020 --> 00:30:12,071 And even worse was doing both of them at the same time 725 00:30:12,080 --> 00:30:13,451 was brutally difficult. 726 00:30:13,460 --> 00:30:16,151 I mean, if you think about it, you'd come to our website 727 00:30:16,160 --> 00:30:17,968 and you'd be instantly confused. 728 00:30:17,977 --> 00:30:20,571 "Well, we rent movies and we sell movies." 729 00:30:20,580 --> 00:30:23,301 And then, some of the titles could be only sold, 730 00:30:23,310 --> 00:30:25,211 some of the movies could be only rented, 731 00:30:25,220 --> 00:30:26,631 and some could be both. 732 00:30:26,640 --> 00:30:28,191 I mean, think of the checking out. 733 00:30:28,200 --> 00:30:30,191 We had to set up a system that allowed someone 734 00:30:30,200 --> 00:30:32,741 to buy a movie, but also to rent a movie. 735 00:30:32,750 --> 00:30:34,741 And then the warehouse had to be able 736 00:30:34,750 --> 00:30:36,016 to package some of them in 737 00:30:36,025 --> 00:30:37,691 packaging to go out and stay out 738 00:30:37,700 --> 00:30:40,131 and some when in packaging to go out and come back. 739 00:30:40,140 --> 00:30:41,981 And we kinda came to this realization 740 00:30:41,990 --> 00:30:44,741 that if we were gonna be successful, we had to focus. 741 00:30:44,750 --> 00:30:47,351 We had to pick one thing and do it well. 742 00:30:47,360 --> 00:30:50,191 But of course, that then begs the question, which one? 743 00:30:50,200 --> 00:30:53,401 Do you bet everything on selling, 744 00:30:53,410 --> 00:30:56,823 which is paying 99% of salaries, 745 00:30:58,150 --> 00:31:01,801 but over a matter of time is gonna go down to zero? 746 00:31:01,810 --> 00:31:03,681 Or do you bet everything on rental, 747 00:31:03,690 --> 00:31:04,919 which, if you can make it work, 748 00:31:04,928 --> 00:31:05,971 could be a great business, 749 00:31:05,980 --> 00:31:09,311 but there is no indication whatsoever 750 00:31:09,320 --> 00:31:10,751 that that's gonna happen? 751 00:31:10,760 --> 00:31:13,181 When you decide overnight 752 00:31:13,190 --> 00:31:17,711 to walk away from 99% of your revenue, it has a way 753 00:31:17,720 --> 00:31:21,231 of focusing your mind on the problem. 754 00:31:21,240 --> 00:31:25,141 There comes a point, even when you're testing exhaustively, 755 00:31:25,150 --> 00:31:27,851 that you begin to run outta time 756 00:31:27,860 --> 00:31:29,881 and you begin to run outta money. 757 00:31:29,890 --> 00:31:32,461 And we were getting to the end of the rope 758 00:31:32,470 --> 00:31:36,381 and we still had three big things that we wanted to try. 759 00:31:36,390 --> 00:31:38,941 So, one thing we had noticed 760 00:31:38,950 --> 00:31:41,851 was we have this huge warehouse 761 00:31:41,860 --> 00:31:43,950 and it's full of DVDs. 762 00:31:44,210 --> 00:31:47,131 Maybe we could store them at the customers' houses. 763 00:31:47,140 --> 00:31:48,671 Maybe they just keep them 764 00:31:48,680 --> 00:31:50,429 and when they're ready for another one, 765 00:31:50,438 --> 00:31:53,181 they mail it back and we'll give 'em another one. 766 00:31:53,190 --> 00:31:54,891 That could be kinda interesting. 767 00:31:54,900 --> 00:31:55,941 And we have another idea. 768 00:31:55,950 --> 00:31:58,711 Right now, when someone mails one back, 769 00:31:58,720 --> 00:32:00,211 they've gotta come back to the website 770 00:32:00,220 --> 00:32:01,561 and pick their next movie. 771 00:32:01,570 --> 00:32:03,351 Well, that's pretty awkward; no one does that. 772 00:32:03,360 --> 00:32:05,691 So, how about if we have them make a list 773 00:32:05,700 --> 00:32:08,261 of all the movies they want and then we know, 774 00:32:08,270 --> 00:32:09,141 when a movie comes back, 775 00:32:09,150 --> 00:32:10,951 we'll just send the top one on the list. 776 00:32:10,960 --> 00:32:11,891 We'll call that the queue. 777 00:32:11,900 --> 00:32:15,801 And we say, "But why does it have to be a la carte?" 778 00:32:15,810 --> 00:32:17,581 Maybe we just set up some program 779 00:32:17,590 --> 00:32:20,861 where you can do it as often as you want, these exchanges, 780 00:32:20,870 --> 00:32:23,351 and we'll charge you a monthly subscription fee. 781 00:32:23,360 --> 00:32:26,578 And Reed, in his impatience, goes, 782 00:32:26,587 --> 00:32:28,118 "We're not gonna test these sequentially. 783 00:32:28,127 --> 00:32:28,951 "We're outta time. 784 00:32:28,960 --> 00:32:29,848 "Come on, chop-chop. 785 00:32:29,857 --> 00:32:32,681 "We're gonna test all three of these at the same time." 786 00:32:32,690 --> 00:32:37,281 So, we launched this three programs at once. 787 00:32:37,290 --> 00:32:39,561 And amazingly, it worked. 788 00:32:39,570 --> 00:32:42,011 All of a sudden, people are renting. 789 00:32:42,020 --> 00:32:45,041 And not only are they renting, they're coming back 790 00:32:45,050 --> 00:32:48,131 and they let us hit their credit card the next month 791 00:32:48,140 --> 00:32:50,611 and the next month and they're sticking around. 792 00:32:50,620 --> 00:32:52,861 And that was the moment 793 00:32:52,870 --> 00:32:55,431 where we kinda stopped being a startup 794 00:32:55,440 --> 00:32:59,551 and kind of realized we've figured something out. 795 00:32:59,560 --> 00:33:00,841 If you don't watch a lotta movies, 796 00:33:00,850 --> 00:33:02,851 you may never learn certain valuable things, 797 00:33:02,860 --> 00:33:04,981 like what to do when an animal talks to you. 798 00:33:04,990 --> 00:33:07,505 - Hey, kids, Jimmy needs your help down by the lake! 799 00:33:07,514 --> 00:33:08,338 - It talks! 800 00:33:08,347 --> 00:33:10,341 - Kill it! - No, no, no, wait! 801 00:33:10,350 --> 00:33:12,067 Jimmy... - Let's make a hat out of it! 802 00:33:12,076 --> 00:33:13,691 - Hold on, hold on, everybody take a deep breath. 803 00:33:13,700 --> 00:33:15,322 - Let's cook it and eat it! 804 00:33:16,931 --> 00:33:18,651 But if you watched a lot of movies, 805 00:33:18,660 --> 00:33:19,484 you'd know. 806 00:33:19,493 --> 00:33:21,693 - Hey, kids, Jimmy needs your help down by the lake! 807 00:33:21,702 --> 00:33:23,721 - Let's go help Jimmy! 808 00:33:23,730 --> 00:33:24,554 Thanks, prairie dog! 809 00:33:24,563 --> 00:33:26,931 Netflix: all the DVDs you want, 810 00:33:26,940 --> 00:33:29,404 20 bucks a month, and no late fees. 811 00:33:29,413 --> 00:33:30,636 - I was the home video industry 812 00:33:30,645 --> 00:33:31,721 and I learned about Netflix 813 00:33:31,730 --> 00:33:34,191 the way most people in the world did, 814 00:33:34,200 --> 00:33:36,831 I bought a DVD player and I opened up a DVD player 815 00:33:36,840 --> 00:33:38,091 and there's an offer for Netflix, 816 00:33:38,100 --> 00:33:39,471 which I had never heard of at the time. 817 00:33:39,480 --> 00:33:40,751 But I was intrigued by what 818 00:33:40,760 --> 00:33:42,221 they were doing professionally, 819 00:33:42,230 --> 00:33:44,761 so signed up and was blown away 820 00:33:44,770 --> 00:33:46,491 by the DVD-through-the-mail service. 821 00:33:46,500 --> 00:33:48,521 - One of the biggest things that we did 822 00:33:48,530 --> 00:33:53,281 which triggered this recognition at this early days 823 00:33:53,290 --> 00:33:57,171 was trying to jump on top of current events. 824 00:33:57,180 --> 00:34:00,001 And there was one particular current event 825 00:34:00,010 --> 00:34:04,141 that we thought would be a great thing to latch onto. 826 00:34:04,150 --> 00:34:05,521 - I'm not going to answer that question 827 00:34:05,530 --> 00:34:07,731 because I believe it's a question about conduct that, 828 00:34:07,740 --> 00:34:11,211 whatever the answer to it is, does not bear on the perjury 829 00:34:11,220 --> 00:34:13,931 because oral sex performed on the deponent 830 00:34:13,940 --> 00:34:18,101 under this definition is not sexual relations. 831 00:34:18,110 --> 00:34:21,651 - We found out one afternoon that, lo and behold, 832 00:34:21,660 --> 00:34:24,861 all the testimony was actually gonna be released 833 00:34:24,870 --> 00:34:27,771 of President Bill Clinton's testimony 834 00:34:27,780 --> 00:34:29,621 in the Monica Lewinsky case. 835 00:34:29,630 --> 00:34:31,858 And we said, "This is fantastic. 836 00:34:31,867 --> 00:34:33,091 "Let's do a DVD." 837 00:34:33,100 --> 00:34:34,771 - So, we actually made that DVD 838 00:34:34,780 --> 00:34:36,431 as an exclusive for our customers 839 00:34:36,440 --> 00:34:38,041 to see if anybody wanted it. 840 00:34:38,050 --> 00:34:40,221 - I had never seen any title 841 00:34:40,230 --> 00:34:42,341 fly off the shelf like that before. 842 00:34:42,350 --> 00:34:45,921 Every single order had a Clinton/Lewinsky DVD in it. 843 00:34:45,930 --> 00:34:48,261 And we were the only ones who had it 844 00:34:48,270 --> 00:34:50,769 and it was great for PR because 845 00:34:50,778 --> 00:34:52,971 suddenly we were on the map 846 00:34:52,980 --> 00:34:54,561 and a lotta people were signing up, 847 00:34:54,570 --> 00:34:56,711 'cause you couldn't order unless you signed up. 848 00:34:56,720 --> 00:34:59,141 - But first, we had to actually get the DVD. 849 00:34:59,150 --> 00:35:02,861 And now, Mitch was like pulling his hair out 850 00:35:02,870 --> 00:35:05,051 trying to figure out how to make this happen, 851 00:35:05,060 --> 00:35:07,631 how to download the actual material, 852 00:35:07,640 --> 00:35:12,041 how to get that material to a DVD mastering company, 853 00:35:12,050 --> 00:35:13,431 how to get the master made, 854 00:35:13,440 --> 00:35:15,361 and then how to have it all duplicated. 855 00:35:15,370 --> 00:35:17,591 And he was under so much time pressure 856 00:35:17,600 --> 00:35:19,861 that we decided to cut some corners. 857 00:35:19,870 --> 00:35:21,931 And so, one of the corners we decided to cut 858 00:35:21,940 --> 00:35:23,441 was we're gonna go without a label. 859 00:35:23,450 --> 00:35:25,992 - Unfortunately, the manufacturer 860 00:35:26,001 --> 00:35:27,800 who printed those discs 861 00:35:28,870 --> 00:35:32,121 got 'em mixed up with some Chinese porn 862 00:35:32,130 --> 00:35:34,176 that they were printing for 863 00:35:34,185 --> 00:35:36,531 presumably a different customer 864 00:35:36,540 --> 00:35:39,581 and we ended up mailing those out. 865 00:35:39,590 --> 00:35:44,391 - Then we begin getting these very curious emails. 866 00:35:44,400 --> 00:35:46,338 They're saying, "I'm not sure 867 00:35:46,347 --> 00:35:49,421 "this is what you meant to send me." 868 00:35:49,430 --> 00:35:50,321 We're going, "Huh?" 869 00:35:50,330 --> 00:35:51,948 - We thought, "Surely that can't be right. 870 00:35:51,957 --> 00:35:53,651 "Here, give me one of this discs, let's try." 871 00:35:53,660 --> 00:35:55,208 And then, "Oh my god! 872 00:35:55,217 --> 00:35:56,878 "What is going on?!" 873 00:35:56,887 --> 00:35:58,600 And so we sent out 874 00:36:00,480 --> 00:36:05,451 a full spindle of Chinese pornography 875 00:36:05,460 --> 00:36:07,031 to people who were requesting 876 00:36:07,040 --> 00:36:09,681 President Clinton's Monica Lewinsky testimony. 877 00:36:09,690 --> 00:36:12,391 And in some ways, that wasn't that far off. 878 00:36:12,400 --> 00:36:14,721 - The openhandedness, the openheartedness, 879 00:36:14,730 --> 00:36:18,048 just saying, "Well, that was a big mistake. 880 00:36:18,057 --> 00:36:19,121 "We're super sorry." 881 00:36:19,130 --> 00:36:24,041 And the recovery was quick and honest and sincere, 882 00:36:24,050 --> 00:36:29,050 which then led to another sort of brand expansion 883 00:36:30,070 --> 00:36:32,968 where people said, "Oh, these Netflix kids, you know what? 884 00:36:32,977 --> 00:36:33,878 "When they make a mistake, 885 00:36:33,887 --> 00:36:36,381 "they own up to it and they rectify it quick." 886 00:36:36,390 --> 00:36:39,563 And that remains an attribute in place to this day. 887 00:36:43,200 --> 00:36:45,291 - So, when the dot-com boom happened, 888 00:36:45,300 --> 00:36:48,291 it was also boom times for advertising agencies 889 00:36:48,300 --> 00:36:50,541 because all of those brands all of a sudden 890 00:36:50,550 --> 00:36:52,961 really needed agency partners 891 00:36:52,970 --> 00:36:55,491 to help 'em develop their campaign. 892 00:36:55,500 --> 00:36:56,791 They had huge budgets, 893 00:36:56,800 --> 00:37:00,111 and many of 'em actually had their eye on the Super Bowl. 894 00:37:00,120 --> 00:37:01,662 - Being a cat herder's probably 895 00:37:01,671 --> 00:37:02,881 about the toughest thing 896 00:37:02,890 --> 00:37:04,824 I think I've ever done. 897 00:37:04,833 --> 00:37:08,480 EDS, managing the complexities of e-business. 898 00:37:08,489 --> 00:37:10,554 ♪ Ooh, girl ♪ 899 00:37:10,563 --> 00:37:14,063 ♪ I just want you to stay ♪ 900 00:37:16,280 --> 00:37:20,181 - Early on, I think we didn't invest 901 00:37:20,190 --> 00:37:21,701 in marketing and branding 902 00:37:21,710 --> 00:37:23,871 like most early internet companies did. 903 00:37:23,880 --> 00:37:26,281 We invested everything in the customer experience. 904 00:37:26,290 --> 00:37:27,961 - And it's sort of ironic 905 00:37:27,970 --> 00:37:29,911 that the more successful a company gets, 906 00:37:29,920 --> 00:37:31,391 the more money it needs. 907 00:37:31,400 --> 00:37:34,291 If you're adding customers like crazy, 908 00:37:34,300 --> 00:37:36,471 you lose money on customers in the first few months. 909 00:37:36,480 --> 00:37:38,021 It takes a while to recover that. 910 00:37:38,030 --> 00:37:40,031 And so, as you're successful, 911 00:37:40,040 --> 00:37:44,941 the needs for financing are dramatically emphasized. 912 00:37:44,950 --> 00:37:47,681 Unfortunately, that was accelerating into a time 913 00:37:47,690 --> 00:37:50,491 when it was a very bad time to try and raise money. 914 00:37:50,500 --> 00:37:51,371 It's described 915 00:37:51,380 --> 00:37:53,031 as nothing short of breathtaking, 916 00:37:53,040 --> 00:37:56,088 a points drop never before seen on the US markets. 917 00:37:59,400 --> 00:38:02,191 This closing bell might as well have been an alarm, 918 00:38:02,200 --> 00:38:03,721 so savage was the selling. 919 00:38:03,730 --> 00:38:06,151 Technology stocks even harder hit. 920 00:38:06,160 --> 00:38:10,371 The Nasdaq Index in free-fall, down nearly 10%. 921 00:38:10,380 --> 00:38:13,591 It lost a quarter of its value in just one week. 922 00:38:13,600 --> 00:38:16,591 - Well, advertising has played a big role 923 00:38:16,600 --> 00:38:19,271 in the growth of most brands, 924 00:38:19,280 --> 00:38:22,691 including all of these tech brands. 925 00:38:22,700 --> 00:38:27,661 So, interestingly, advertising probably sped the death 926 00:38:27,670 --> 00:38:30,391 of a lot of bad dot-com products. 927 00:38:30,400 --> 00:38:31,941 Nothing kills a bad idea 928 00:38:31,950 --> 00:38:33,701 more than getting 100 million people 929 00:38:33,710 --> 00:38:35,081 to take a look at it right away 930 00:38:35,090 --> 00:38:38,994 and decide that it really doesn't do anything of value. 931 00:38:39,003 --> 00:38:44,003 - When the tech-com bubble burst and all of a sudden, 932 00:38:44,390 --> 00:38:46,551 oh, the mad money that had been spent 933 00:38:46,560 --> 00:38:48,031 on Super Bowl commercials, 934 00:38:48,040 --> 00:38:50,561 the 17 commercials went down to three, 935 00:38:50,570 --> 00:38:53,601 and E♪TRADE had a little bit of fun 936 00:38:53,610 --> 00:38:55,571 at its own industry's expense 937 00:38:55,580 --> 00:39:00,580 in a spot that captured the detritus of the dot-com era. 938 00:39:19,540 --> 00:39:23,981 - One of the concepts in investment in the Valley 939 00:39:23,990 --> 00:39:28,091 is the critical importance of who's running the company. 940 00:39:28,100 --> 00:39:31,401 It was obvious to Reed and myself 941 00:39:31,410 --> 00:39:32,961 and our board and other people 942 00:39:32,970 --> 00:39:36,451 that Reed had a very, very different profile 943 00:39:36,460 --> 00:39:39,141 amongst the investment community than I did. 944 00:39:39,150 --> 00:39:41,121 - Reed Hastings sort of recognized 945 00:39:41,130 --> 00:39:44,891 this kind of frothy environment in Silicon Valley 946 00:39:44,900 --> 00:39:45,901 of the late-'90s. 947 00:39:45,910 --> 00:39:48,581 He used to joke that you could walk around with a tin can 948 00:39:48,590 --> 00:39:52,081 and have people drop $50 million on you. 949 00:39:52,090 --> 00:39:54,631 And after the bottom fell out in 2000, 950 00:39:54,640 --> 00:39:56,011 that was not the case. 951 00:39:56,020 --> 00:39:57,811 - And it was clear 952 00:39:57,820 --> 00:40:00,231 that if we were gonna successfully raise the money 953 00:40:00,240 --> 00:40:03,257 we needed to get to the next level 954 00:40:03,266 --> 00:40:05,251 that it probably was gonna take someone like Reed. 955 00:40:05,260 --> 00:40:07,591 - I just remember when Reed started 956 00:40:07,600 --> 00:40:09,691 and a lot of buzz in the office 957 00:40:09,700 --> 00:40:12,421 and a lot of people trying to understand what was going on. 958 00:40:12,430 --> 00:40:13,511 Was Marc being outed? 959 00:40:13,520 --> 00:40:15,321 Was this disrespect in some way? 960 00:40:15,330 --> 00:40:16,154 What was happening? 961 00:40:16,163 --> 00:40:17,661 Why were we shifting? 962 00:40:17,670 --> 00:40:22,670 - It was difficult when we started transitioning the team 963 00:40:23,060 --> 00:40:24,761 over to Reed's team. 964 00:40:24,770 --> 00:40:27,601 I felt bad for Marc because we didn't get to do 965 00:40:27,610 --> 00:40:29,834 everything we set out to do. 966 00:40:29,843 --> 00:40:32,321 - It's such a common story in Silicon Valley 967 00:40:32,330 --> 00:40:35,921 is the notion of you have the early-stage entrepreneurs, 968 00:40:35,930 --> 00:40:40,221 people who have the vision, the drive, the madness 969 00:40:40,230 --> 00:40:41,672 to think they can actually 970 00:40:41,681 --> 00:40:43,631 change the world in whatever way. 971 00:40:43,640 --> 00:40:46,731 And then, money people send in the designated grownups 972 00:40:46,740 --> 00:40:49,351 who can scale a business better. 973 00:40:49,360 --> 00:40:51,751 - And that ended up being, in retrospect, 974 00:40:51,760 --> 00:40:53,781 a smart thing for us to do, 975 00:40:53,790 --> 00:40:55,791 because in fact that was a time 976 00:40:55,800 --> 00:40:59,221 when if we had not raised that money, we would be gone. 977 00:40:59,230 --> 00:41:02,211 And we raised that money almost entirely 978 00:41:02,220 --> 00:41:04,351 on an interpersonal, 979 00:41:04,360 --> 00:41:05,947 one person saying, "I'm willing 980 00:41:05,956 --> 00:41:07,301 to bet on another person," 981 00:41:07,310 --> 00:41:09,823 and that was certainly one of our close calls. 982 00:41:11,060 --> 00:41:14,001 Almost 2001, and the technologies that bring us 983 00:41:14,010 --> 00:41:17,011 telephones, TV, and computers are merging. 984 00:41:17,020 --> 00:41:18,601 - Five years from now, we're not gonna have 985 00:41:18,610 --> 00:41:21,701 distinct cable and telephone industries. 986 00:41:21,710 --> 00:41:23,421 It's going to be one industry 987 00:41:23,430 --> 00:41:25,591 and they'll be companies carrying bits, 988 00:41:25,600 --> 00:41:28,401 little pieces of information from point A to point B. 989 00:41:28,410 --> 00:41:30,611 There are also interactive TV channels 990 00:41:30,620 --> 00:41:32,661 where people order movies on demand 991 00:41:32,670 --> 00:41:34,911 instead of driving to the local video store. 992 00:41:34,920 --> 00:41:37,171 - Even though the video rental business 993 00:41:37,180 --> 00:41:40,101 was going pretty strong in 2000, 994 00:41:40,110 --> 00:41:43,591 we were really looking at other ways 995 00:41:43,600 --> 00:41:47,261 of delivering movies and content to people. 996 00:41:47,270 --> 00:41:48,681 This is a demonstration 997 00:41:48,690 --> 00:41:50,720 of the graphic user interface 998 00:41:51,960 --> 00:41:55,671 for the Blockbuster Enron video-on-demand service. 999 00:41:55,680 --> 00:42:00,680 Along about 2000, a company called Enron came to visit us. 1000 00:42:02,060 --> 00:42:04,791 And they basically said, very simple proposition, 1001 00:42:04,800 --> 00:42:06,311 we'll provide all the technology. 1002 00:42:06,320 --> 00:42:09,511 All you have to do is get the content for us. 1003 00:42:09,520 --> 00:42:10,901 On the right-hand side of the screen, 1004 00:42:10,910 --> 00:42:12,381 again, there's several categories. 1005 00:42:12,390 --> 00:42:15,551 'Just In' is basically, as we click on it, 1006 00:42:15,560 --> 00:42:17,549 it is a listing of the most 1007 00:42:17,558 --> 00:42:19,911 recent additions to the service. 1008 00:42:19,920 --> 00:42:22,921 Enron had these set-top boxes invented 1009 00:42:22,930 --> 00:42:25,561 and we actually installed them in people's homes 1010 00:42:25,570 --> 00:42:27,411 in the San Francisco Bay Area. 1011 00:42:27,420 --> 00:42:30,491 Well, some of the boxes actually caught on fire 1012 00:42:30,500 --> 00:42:31,481 in people's homes. 1013 00:42:31,490 --> 00:42:33,531 And not long after that... 1014 00:42:33,540 --> 00:42:35,611 - Congressional hearings begin this morning 1015 00:42:35,620 --> 00:42:37,371 in the Enron investigation. 1016 00:42:37,380 --> 00:42:40,331 - Enron's fired Arthur Andersen auditor David Duncan 1017 00:42:40,340 --> 00:42:42,401 will take the Fifth Amendment today. 1018 00:42:42,410 --> 00:42:44,711 Members want to question him about his role 1019 00:42:44,720 --> 00:42:46,815 in the destruction of financial documents. 1020 00:42:46,824 --> 00:42:47,981 - And that was the beginning of it. 1021 00:42:47,990 --> 00:42:51,961 In a matter of days, it all blew up. 1022 00:42:51,970 --> 00:42:53,751 Guilty verdicts in the biggest case 1023 00:42:53,760 --> 00:42:55,601 of corporate fraud in history. 1024 00:42:55,610 --> 00:42:58,271 38 counts of fraud and conspiracy. 1025 00:42:58,280 --> 00:43:00,691 Lawyers for Jeffrey Skilling and Kenneth Lay 1026 00:43:00,700 --> 00:43:02,351 threw around complicated notions 1027 00:43:02,360 --> 00:43:04,461 about margin calls and short-selling. 1028 00:43:04,470 --> 00:43:06,061 - So, in the fall of 2000, 1029 00:43:06,070 --> 00:43:08,721 Netflix was about two-and-a-half years old. 1030 00:43:08,730 --> 00:43:11,251 And by some measures, we were doing pretty good. 1031 00:43:11,260 --> 00:43:12,861 We had just finished a year 1032 00:43:12,870 --> 00:43:15,371 approaching $5 million in revenue. 1033 00:43:15,380 --> 00:43:18,491 And in fact, 2000 looked like it could be a year 1034 00:43:18,500 --> 00:43:20,581 north of $30 million in revenue. 1035 00:43:20,590 --> 00:43:24,581 Now, the bad news was we had accumulated losses 1036 00:43:24,590 --> 00:43:26,521 exceeding $50 million. 1037 00:43:26,530 --> 00:43:30,211 And if you can remember what 2000 was like, 1038 00:43:30,220 --> 00:43:34,621 that was not a good climate to have lost $50 million. 1039 00:43:34,630 --> 00:43:36,921 And so, being prudent entrepreneurs like we are, 1040 00:43:36,930 --> 00:43:38,941 we decided this was the time to pursue 1041 00:43:38,950 --> 00:43:40,801 some strategic alternatives. 1042 00:43:40,810 --> 00:43:42,991 In other words, how do we get the hell outta this one? 1043 00:43:43,000 --> 00:43:46,981 And the obvious strategic alternative was Blockbuster. 1044 00:43:46,990 --> 00:43:50,931 And now, Blockbuster was in a very, very different place. 1045 00:43:50,940 --> 00:43:53,471 We were about to do $30 million. 1046 00:43:53,480 --> 00:43:55,681 They were about to do $6 billion. 1047 00:43:55,690 --> 00:43:59,161 - Blockbuster, circa 2000, we had just overcome 1048 00:43:59,170 --> 00:44:01,851 some difficulties, got the business back on track. 1049 00:44:01,860 --> 00:44:04,081 Rental business was growing again. 1050 00:44:04,090 --> 00:44:06,291 We were opening stores and, at that point, 1051 00:44:06,300 --> 00:44:09,431 had about 8,000 stores internationally. 1052 00:44:09,440 --> 00:44:11,211 - We were nothing to them. 1053 00:44:11,220 --> 00:44:13,615 And so, when we called Blockbuster 1054 00:44:13,624 --> 00:44:15,271 trying to get a meeting 1055 00:44:15,280 --> 00:44:16,801 or when we called Blockbuster 1056 00:44:16,810 --> 00:44:19,481 trying to explore this, nothing. 1057 00:44:19,490 --> 00:44:20,901 Crickets, for months. 1058 00:44:20,910 --> 00:44:24,301 Until finally, about two months later, 1059 00:44:24,310 --> 00:44:27,631 we were on a retreat at a little ranch 1060 00:44:27,640 --> 00:44:29,331 in the hills outside of Santa Barbara, 1061 00:44:29,340 --> 00:44:31,041 and we took the whole company away. 1062 00:44:31,050 --> 00:44:32,567 And, you know, in Silicon 1063 00:44:32,576 --> 00:44:34,711 Valley, people are pretty casual. 1064 00:44:34,720 --> 00:44:36,401 But on retreat, even more so. 1065 00:44:36,410 --> 00:44:38,041 And I think all that I really had with me 1066 00:44:38,050 --> 00:44:41,731 was a couple of tank-tops and I had flip-flops 1067 00:44:41,740 --> 00:44:46,341 and I had shorts, and everyone else was dressed similarly. 1068 00:44:46,350 --> 00:44:49,871 And of course, this is the moment 1069 00:44:49,880 --> 00:44:54,111 when Ed Stead from Blockbuster calls Barry McCarthy 1070 00:44:54,120 --> 00:44:57,483 and says, "We'd love to see you. 1071 00:44:58,497 --> 00:45:00,088 "Tomorrow. 1072 00:45:00,097 --> 00:45:01,251 "In Dallas." 1073 00:45:01,260 --> 00:45:02,831 And we were not a rich company, 1074 00:45:02,840 --> 00:45:05,051 but we chartered a private jet. 1075 00:45:05,060 --> 00:45:07,351 And to paint this picture, I'm in a tank-top 1076 00:45:07,360 --> 00:45:11,661 and shorts and flip-flops, and Reed is in a Hawaiian shirt. 1077 00:45:11,670 --> 00:45:16,131 So, him and Barry McCarthy and I, we arrive in Dallas 1078 00:45:16,140 --> 00:45:19,341 and we take a car over to the Renaissance Tower. 1079 00:45:19,350 --> 00:45:23,681 And for years, that was the biggest building in Dallas. 1080 00:45:23,690 --> 00:45:24,761 And we get in the elevator, 1081 00:45:24,770 --> 00:45:27,621 go up to the, I don't know, 36th-37th floor, 1082 00:45:27,630 --> 00:45:31,181 and we come into this room and it's a football field 1083 00:45:31,190 --> 00:45:34,088 and one of those huge endangered 1084 00:45:34,097 --> 00:45:36,121 hardwood board tables. 1085 00:45:36,130 --> 00:45:39,621 I mean, everything short of having rhinoceros heads 1086 00:45:39,630 --> 00:45:40,454 on the wall. 1087 00:45:40,463 --> 00:45:42,161 - So, Blockbuster's headquarters were, I think, 1088 00:45:42,170 --> 00:45:45,391 fairly typical for a company that size. 1089 00:45:45,400 --> 00:45:48,501 I wouldn't say palatial, but not Spartan either. 1090 00:45:48,510 --> 00:45:50,951 - And the Blockbuster guys come in. 1091 00:45:50,960 --> 00:45:52,591 It's John Antioco and Ed Stead. 1092 00:45:52,600 --> 00:45:54,646 And he's wearing like a 1093 00:45:54,655 --> 00:45:57,600 $73,000 suit, so stereotypical. 1094 00:45:57,900 --> 00:46:01,131 - I can tell you quite categorically 1095 00:46:01,140 --> 00:46:03,871 I've never worn a suit to the Blockbuster office. 1096 00:46:03,880 --> 00:46:06,006 So, I have a feeling that 1097 00:46:06,015 --> 00:46:08,831 whoever the guy was in the suit 1098 00:46:08,840 --> 00:46:10,251 wasn't John Antioco. 1099 00:46:10,260 --> 00:46:12,211 - And we all get around the table 1100 00:46:12,220 --> 00:46:14,151 and we talk and we kinda make our pitch to them. 1101 00:46:14,160 --> 00:46:17,768 We go, "We think there is great synergy here. 1102 00:46:17,777 --> 00:46:19,351 "We could run your online 1103 00:46:19,360 --> 00:46:21,448 business, you'd run the stores. 1104 00:46:21,457 --> 00:46:23,711 "This would be a great combination." 1105 00:46:23,720 --> 00:46:24,544 But they finally said, 1106 00:46:24,553 --> 00:46:26,341 "So, what do you think we should pay for you?" 1107 00:46:26,350 --> 00:46:30,761 And I remember Reed kind of screwing up his courage 1108 00:46:30,770 --> 00:46:34,661 and doing the swallows, but he goes, "$50 million." 1109 00:46:34,670 --> 00:46:36,221 I'm sure my memory's playing tricks, 1110 00:46:36,230 --> 00:46:38,051 but I swear they were all kinda doing 1111 00:46:38,060 --> 00:46:41,424 that little holding a laugh in. 1112 00:46:41,433 --> 00:46:43,961 And if they weren't, they may as well have been 1113 00:46:43,970 --> 00:46:46,271 'cause they found that so ridiculous. 1114 00:46:46,280 --> 00:46:48,821 - I could see why someone like Ed 1115 00:46:48,830 --> 00:46:51,191 would take a look at a business of Netflix, 1116 00:46:51,200 --> 00:46:54,101 which was, I think, losing money at the time 1117 00:46:54,110 --> 00:46:59,110 in the midst of the dot-com bubble explosion, if you will, 1118 00:46:59,300 --> 00:47:00,868 and say, "Eh, I don't think that's something 1119 00:47:00,877 --> 00:47:01,821 "we wanna mess with." 1120 00:47:01,830 --> 00:47:06,441 - So, we slunk out quietly outta the building, 1121 00:47:06,450 --> 00:47:08,971 tail between our legs, got back on the plane, 1122 00:47:08,980 --> 00:47:12,591 like this totally quiet ride back to Santa Barbara. 1123 00:47:12,600 --> 00:47:15,238 And I swear to god I remember sitting there going, 1124 00:47:15,247 --> 00:47:18,565 "Ugh, god, now we're gonna have to kick their ass." 1125 00:47:23,710 --> 00:47:25,021 You know what the best part is? 1126 00:47:26,217 --> 00:47:27,903 You know what the best part is. 1127 00:47:29,310 --> 00:47:31,163 - When Netflix came on the scene, 1128 00:47:32,030 --> 00:47:34,791 we felt vulnerable because of the messaging they were giving 1129 00:47:34,800 --> 00:47:39,121 because it was emphasizing the poor pieces of Blockbuster. 1130 00:47:39,130 --> 00:47:40,901 But we couldn't work out economically 1131 00:47:40,910 --> 00:47:42,361 how they were gonna make it work. 1132 00:47:42,370 --> 00:47:43,165 And we certainly didn't 1133 00:47:43,174 --> 00:47:44,431 understand the subscription model. 1134 00:47:44,440 --> 00:47:46,018 I mean, "Subscriptions? 1135 00:47:46,027 --> 00:47:46,851 "What are you talking about?" 1136 00:47:46,860 --> 00:47:48,261 - So, I started to get concerned about Netflix 1137 00:47:48,270 --> 00:47:50,911 when we took a trip to San Francisco. 1138 00:47:50,920 --> 00:47:52,301 So, we went up there to understand 1139 00:47:52,310 --> 00:47:54,721 what was driving the subscription business 1140 00:47:54,730 --> 00:47:56,391 and the movie industry itself. 1141 00:47:56,400 --> 00:47:58,591 And so, we took 50 Netflix customers 1142 00:47:58,600 --> 00:48:00,181 and we interviewed them in focus groups. 1143 00:48:00,190 --> 00:48:04,001 And what we heard was fantastic customer loyalty, 1144 00:48:04,010 --> 00:48:05,402 even on product they had to 1145 00:48:05,411 --> 00:48:07,061 wait three, four, five days for. 1146 00:48:07,070 --> 00:48:09,761 What's interesting for us is our executive team at the time 1147 00:48:09,770 --> 00:48:10,911 couldn't get their head around the fact 1148 00:48:10,920 --> 00:48:13,141 that it wasn't sort of an immediate gratification. 1149 00:48:13,150 --> 00:48:15,328 But what we heard from Netflix customers was, 1150 00:48:15,337 --> 00:48:17,028 "It is immediate gratification. 1151 00:48:17,037 --> 00:48:18,371 "It's in my house." 1152 00:48:18,380 --> 00:48:20,571 And that for me was a sorta aha moment 1153 00:48:20,580 --> 00:48:23,318 that said, "No, this is actually instantaneous. 1154 00:48:23,327 --> 00:48:25,527 "It just takes a little bit of planning." 1155 00:48:29,600 --> 00:48:31,201 - There was this wonderful young woman 1156 00:48:31,210 --> 00:48:34,801 working in our fledgling sort of PR group 1157 00:48:34,810 --> 00:48:36,081 and I said, "How are you doing today?" 1158 00:48:36,090 --> 00:48:37,308 And she started crying and she said, 1159 00:48:37,317 --> 00:48:39,968 "If this company folds, it'll be the fifth one 1160 00:48:39,977 --> 00:48:41,778 "that's folded that I've worked with, 1161 00:48:41,787 --> 00:48:43,801 "and I don't know if I can do this again." 1162 00:48:43,810 --> 00:48:45,541 And that's when it kind of hit me 1163 00:48:45,550 --> 00:48:48,831 that this is really real and personal for a lotta people. 1164 00:48:48,840 --> 00:48:50,421 - We started running out of money 1165 00:48:50,430 --> 00:48:53,931 and we did I don't know how many rounds of financing, 1166 00:48:53,940 --> 00:48:54,991 three, four. 1167 00:48:55,000 --> 00:48:58,121 - When companies go through rough patches 1168 00:48:58,130 --> 00:49:00,071 where all of a sudden you hit a point 1169 00:49:00,080 --> 00:49:02,631 where what you expected to happen doesn't, 1170 00:49:02,640 --> 00:49:04,631 the revenues don't come in, 1171 00:49:04,640 --> 00:49:06,666 the new customers aren't 1172 00:49:06,675 --> 00:49:09,640 acquired, and you have to adjust. 1173 00:49:09,760 --> 00:49:13,661 - At some point, we had to let go of about 40% of employees. 1174 00:49:13,670 --> 00:49:14,701 That was pretty tough. 1175 00:49:14,710 --> 00:49:16,441 - The management framed that very well, 1176 00:49:16,450 --> 00:49:18,214 that this is a rough time, 1177 00:49:18,223 --> 00:49:20,471 every company needs to do this, 1178 00:49:20,480 --> 00:49:23,541 and what we're doing is gonna make us survive the long-term. 1179 00:49:23,550 --> 00:49:24,451 The week leading up to the layoffs, 1180 00:49:24,460 --> 00:49:27,521 there were a lot of closed-door meetings, 1181 00:49:27,530 --> 00:49:31,441 but all our rooms are glass, so there were a lotta suits. 1182 00:49:31,450 --> 00:49:33,971 And Netflix at that time was very casual. 1183 00:49:33,980 --> 00:49:36,271 I think a lot of us thought Blockbuster was gonna buy us 1184 00:49:36,280 --> 00:49:38,001 or Microsoft was gonna buy us. 1185 00:49:38,010 --> 00:49:39,911 And people were like, "Oh, do we go to Seattle?" 1186 00:49:39,920 --> 00:49:41,811 And we are all trying to speculate. 1187 00:49:41,820 --> 00:49:43,781 And then, the morning of, 1188 00:49:43,790 --> 00:49:46,661 I noticed there were Kleenex boxes in the glass rooms. 1189 00:49:46,670 --> 00:49:50,031 - It was a necessity at that time 1190 00:49:50,040 --> 00:49:52,981 to survive that full-frontal attack. 1191 00:49:52,990 --> 00:49:55,341 Every department had to cut a certain number of people 1192 00:49:55,350 --> 00:49:56,921 to protect our cashflow. 1193 00:49:56,930 --> 00:49:59,091 It shocked people to their core. 1194 00:49:59,100 --> 00:50:01,631 - And what makes it especially tough 1195 00:50:01,640 --> 00:50:05,571 is that the people that you have to fire sometimes 1196 00:50:05,580 --> 00:50:06,801 didn't do anything wrong 1197 00:50:06,810 --> 00:50:09,431 'cause these are people who quit their jobs 1198 00:50:09,440 --> 00:50:13,073 to come and take on something unsurmountable. 1199 00:50:15,390 --> 00:50:17,691 - I didn't think it was gonna be me, but it was. 1200 00:50:17,700 --> 00:50:21,751 And Reed talked to us and we went in and had a meeting 1201 00:50:21,760 --> 00:50:24,301 and it was sad because you love your job 1202 00:50:24,310 --> 00:50:26,601 and you wanna be there to see how it turns out. 1203 00:50:26,610 --> 00:50:28,541 - I think a lot of us felt really dysfunctional 1204 00:50:28,550 --> 00:50:30,551 for days afterward, you know? 1205 00:50:30,560 --> 00:50:32,271 Just a massive amount of survivor guilt, 1206 00:50:32,280 --> 00:50:33,831 because we were so tight-knit. 1207 00:50:33,840 --> 00:50:36,221 - And going around that room 1208 00:50:36,230 --> 00:50:39,391 and asking people one after another into your office 1209 00:50:39,400 --> 00:50:42,401 and they know what's coming just breaks your heart. 1210 00:50:42,410 --> 00:50:45,831 But all I can do is to the people that I've brought in 1211 00:50:45,840 --> 00:50:48,411 and said, "Thank you and I'm sorry," 1212 00:50:48,420 --> 00:50:52,821 is to have them feel the same pride that I do 1213 00:50:52,830 --> 00:50:56,271 in what we all built together. 1214 00:50:56,280 --> 00:50:57,831 - There's a better way to rent movies, 1215 00:50:57,840 --> 00:51:00,131 as many as you want for just 20 bucks a month 1216 00:51:00,140 --> 00:51:01,591 and no late fees. 1217 00:51:01,600 --> 00:51:03,351 Go to Netflix.com. 1218 00:51:03,360 --> 00:51:05,511 Make a list of the movies you wanna see. 1219 00:51:05,520 --> 00:51:08,971 And in about one business day, you'll get three DVDs. 1220 00:51:08,980 --> 00:51:11,521 Keep them as long as you want without late fees. 1221 00:51:11,530 --> 00:51:14,861 Then, when you're done, look: prepaid envelopes. 1222 00:51:14,870 --> 00:51:16,871 Return one and they'll send you another movie 1223 00:51:16,880 --> 00:51:17,871 from your list. 1224 00:51:17,880 --> 00:51:18,833 It's easy. 1225 00:51:21,420 --> 00:51:23,581 Netflix: All the movies you want, 1226 00:51:23,590 --> 00:51:25,461 20 bucks a month, and no late fees. 1227 00:51:25,470 --> 00:51:28,531 - The thing about late fees, two-edged sword. 1228 00:51:28,540 --> 00:51:30,661 Late fees were great as a source of profit, 1229 00:51:30,670 --> 00:51:33,301 but they were the single biggest irritation to a guest. 1230 00:51:33,310 --> 00:51:36,531 - Forever, late fees are the most hated thing 1231 00:51:36,540 --> 00:51:38,301 about video rental. 1232 00:51:38,310 --> 00:51:40,741 And Blockbuster being the big player 1233 00:51:40,750 --> 00:51:42,011 in the video rental business, 1234 00:51:42,020 --> 00:51:43,391 we got the blame for late fees. 1235 00:51:43,400 --> 00:51:45,941 - So, we were now building up all of this horror 1236 00:51:45,950 --> 00:51:48,288 of guests saying, "I know I've gotta go to Blockbuster 1237 00:51:48,297 --> 00:51:51,231 "'cause I've got nowhere else, but I don't like it." 1238 00:51:51,240 --> 00:51:53,221 And then in comes Reed on his white Charger 1239 00:51:53,230 --> 00:51:55,248 and he says, "These guys charge you late fees. 1240 00:51:55,257 --> 00:51:56,288 "We're gonna figure that out. 1241 00:51:56,297 --> 00:51:57,864 "You're gonna pay a subscription, 1242 00:51:57,873 --> 00:51:59,123 have as much as you like." 1243 00:51:59,132 --> 00:52:01,091 And to most people who didn't bother doing the math, 1244 00:52:01,100 --> 00:52:02,158 they go, "Well, that's easy. 1245 00:52:02,167 --> 00:52:03,858 "I don't have to get outta my armchair, 1246 00:52:03,867 --> 00:52:06,308 "I don't pay late fees, and all this stuff gets delivered. 1247 00:52:06,317 --> 00:52:07,238 "And those guys down there 1248 00:52:07,247 --> 00:52:09,928 "who've been charging me a fortune forever, 1249 00:52:09,937 --> 00:52:12,101 "I don't wanna do business with them anymore." 1250 00:52:12,110 --> 00:52:13,851 And so, we had to deal with that. 1251 00:52:13,860 --> 00:52:15,231 - The most important thing we could do 1252 00:52:15,240 --> 00:52:17,631 is enhance the brand image 1253 00:52:17,640 --> 00:52:20,051 because it was that brand that was going to launch us 1254 00:52:20,060 --> 00:52:23,331 into the next level of this business, 1255 00:52:23,340 --> 00:52:25,411 which was gonna be digital delivery. 1256 00:52:25,420 --> 00:52:26,684 So, one of the rationales 1257 00:52:26,693 --> 00:52:28,421 behind getting rid of late fees, 1258 00:52:28,430 --> 00:52:30,781 it would be very popular with customers, 1259 00:52:30,790 --> 00:52:32,632 it would eliminate the thing 1260 00:52:32,641 --> 00:52:34,681 most dreaded about Blockbuster, 1261 00:52:34,690 --> 00:52:36,605 but it was a major decision. 1262 00:52:36,614 --> 00:52:38,395 No more late fees! 1263 00:52:38,404 --> 00:52:40,280 No more late fees! 1264 00:52:40,289 --> 00:52:42,278 No more late fees! 1265 00:52:42,287 --> 00:52:44,333 No more late fees! 1266 00:52:44,342 --> 00:52:48,414 No more late fees? 1267 00:52:48,423 --> 00:52:50,501 - What I remember most vividly 1268 00:52:50,510 --> 00:52:54,661 is Nick Shepherd and I walking outta the Blockbuster office 1269 00:52:54,670 --> 00:52:58,061 after just seeing the rough cut of the commercial 1270 00:52:58,070 --> 00:53:01,631 that we were going to announce the end of late fees. 1271 00:53:01,640 --> 00:53:03,973 And all of a sudden, they broke into song. 1272 00:53:03,982 --> 00:53:06,337 ♪ It's over ♪ 1273 00:53:08,356 --> 00:53:12,339 ♪ It's over ♪ 1274 00:53:12,348 --> 00:53:14,931 ♪ It's over ♪ 1275 00:53:14,940 --> 00:53:18,351 Someday, you'll remember where you were 1276 00:53:18,360 --> 00:53:19,861 when you first heard 1277 00:53:19,870 --> 00:53:23,151 that there are no more late fees at Blockbuster. 1278 00:53:23,160 --> 00:53:26,641 If you need an extra day or two with your movies or games, 1279 00:53:26,650 --> 00:53:28,071 you go right ahead. 1280 00:53:28,080 --> 00:53:28,904 Take 'em. 1281 00:53:28,913 --> 00:53:29,737 Relax. 1282 00:53:29,746 --> 00:53:32,213 Enjoy more time and less stress. 1283 00:53:32,222 --> 00:53:35,834 ♪ It's over, it's over, it's over ♪ 1284 00:53:35,843 --> 00:53:37,423 - It's so beautiful. 1285 00:53:38,850 --> 00:53:40,071 - Thank you. 1286 00:53:40,080 --> 00:53:41,071 ♪ It's over ♪ 1287 00:53:41,080 --> 00:53:43,151 The end of late fees. 1288 00:53:43,160 --> 00:53:44,881 The start of more. 1289 00:53:44,890 --> 00:53:46,643 The new Blockbuster. 1290 00:53:48,260 --> 00:53:50,458 - But as we were going out the door, I said to Nick, 1291 00:53:50,467 --> 00:53:52,058 "You know, it's over stuff, 1292 00:53:52,067 --> 00:53:54,678 "I'm not sure if we're talking about late fees 1293 00:53:54,687 --> 00:53:59,687 "or our careers, but I guess we'll find out." 1294 00:53:59,980 --> 00:54:04,641 - You don't do this job for the money. 1295 00:54:04,650 --> 00:54:06,061 It's a long haul. 1296 00:54:06,070 --> 00:54:08,861 The odds are extremely low 1297 00:54:08,870 --> 00:54:10,563 that your company's gonna 1298 00:54:10,572 --> 00:54:13,021 survive, no less be a big success. 1299 00:54:13,030 --> 00:54:15,091 But when everything goes right, 1300 00:54:15,100 --> 00:54:18,291 it ends up aligning everybody in success. 1301 00:54:18,300 --> 00:54:20,911 - I was even too young to really know what it was. 1302 00:54:20,920 --> 00:54:23,079 I had never been in an IPO before. 1303 00:54:23,088 --> 00:54:24,941 - But I think everyone recognizes that an IPO 1304 00:54:24,950 --> 00:54:26,624 is like high school graduation. 1305 00:54:26,633 --> 00:54:28,241 It's big at the time. 1306 00:54:28,250 --> 00:54:29,631 But with hindsight, 1307 00:54:29,640 --> 00:54:32,021 it's only really a beginning of something else. 1308 00:54:32,030 --> 00:54:34,311 The celebrations might someday return 1309 00:54:34,320 --> 00:54:37,081 to other Silicon Valley technology companies, 1310 00:54:37,090 --> 00:54:40,021 but Netflix represents one of the few successes 1311 00:54:40,030 --> 00:54:43,361 in an otherwise desolate technology sector. 1312 00:54:43,370 --> 00:54:46,063 Oh my gosh, these numbers are just, 1313 00:54:47,070 --> 00:54:50,561 not type of numbers you let yourself think about. 1314 00:54:50,570 --> 00:54:52,451 - It's commonly the case when companies go public 1315 00:54:52,460 --> 00:54:55,061 in Silicon Valley that a bunch of people make a lotta money 1316 00:54:55,070 --> 00:54:57,321 and you start seeing fancy cars in the parking lot. 1317 00:54:57,330 --> 00:54:58,801 That never happened at Netflix 1318 00:54:58,810 --> 00:55:00,151 because we never felt that 1319 00:55:00,160 --> 00:55:01,871 sort of success and prominence. 1320 00:55:01,880 --> 00:55:04,661 We were under attack almost immediately by Walmart, 1321 00:55:04,670 --> 00:55:06,548 and then, of course, Amazon and Blockbuster. 1322 00:55:06,557 --> 00:55:07,831 - And from an online perspective, 1323 00:55:07,840 --> 00:55:10,251 we were just looking at this small company 1324 00:55:10,260 --> 00:55:14,571 growing double digits, almost triple-digit growth. 1325 00:55:14,580 --> 00:55:17,041 And Netflix, it was still pretty small 1326 00:55:17,050 --> 00:55:19,162 at that period of time compared 1327 00:55:19,171 --> 00:55:21,091 to a Hollywood or a Gamestop 1328 00:55:21,100 --> 00:55:23,731 with thousands of locations and billion dollars of sales. 1329 00:55:23,740 --> 00:55:25,801 - We used to love when people wrote us off. 1330 00:55:25,810 --> 00:55:27,381 There was a couple Antioco quotes 1331 00:55:27,390 --> 00:55:30,711 where he said stuff about us being niche market. 1332 00:55:30,720 --> 00:55:31,544 I think that's the line 1333 00:55:31,553 --> 00:55:33,701 that we all used to always joke about. 1334 00:55:33,710 --> 00:55:35,421 We were great 'cause we didn't get attention. 1335 00:55:35,430 --> 00:55:37,617 No one really was re-engineering 1336 00:55:37,626 --> 00:55:39,021 us, and we loved it. 1337 00:55:39,030 --> 00:55:41,711 - The customer affinity to that brand, 1338 00:55:41,720 --> 00:55:45,151 the loyalty that brand had was so high 1339 00:55:45,160 --> 00:55:48,911 and the word of mouth on that product was so good 1340 00:55:48,920 --> 00:55:51,071 that clearly we should address it. 1341 00:55:51,080 --> 00:55:53,441 - Reed's sort of a big-picture guy 1342 00:55:53,450 --> 00:55:54,951 and he wasn't worried about the pennies 1343 00:55:54,960 --> 00:55:56,221 on a day-to-day basis. 1344 00:55:56,230 --> 00:55:59,411 He knew that if he could get an installed base of users 1345 00:55:59,420 --> 00:56:02,061 that he could keep them and he could eventually figure out 1346 00:56:02,070 --> 00:56:03,101 how to make money from them. 1347 00:56:03,110 --> 00:56:04,951 And he would also be able to work with the studios 1348 00:56:04,960 --> 00:56:06,871 to make it worthwhile for the studios. 1349 00:56:06,880 --> 00:56:09,761 And so, he went all out just to build a user base. 1350 00:56:09,770 --> 00:56:11,521 Now, that user base had to come from somewhere. 1351 00:56:11,530 --> 00:56:13,581 Well, guess what: It was coming from us. 1352 00:56:13,590 --> 00:56:15,141 And so, on the one hand, we've got a model 1353 00:56:15,150 --> 00:56:16,671 that the guests don't like. 1354 00:56:16,680 --> 00:56:17,504 And on the other, he's got a model 1355 00:56:17,513 --> 00:56:18,831 that the guests kinda like. 1356 00:56:18,840 --> 00:56:21,001 - I mean, one of the biggest motivating factors 1357 00:56:21,010 --> 00:56:22,641 was disrupting Blockbuster, 1358 00:56:22,650 --> 00:56:25,068 making the world a better place to rent movies. 1359 00:56:25,077 --> 00:56:28,351 - And it actually took a guy like Shane, 1360 00:56:28,360 --> 00:56:30,631 who eventually sat a number of us done 1361 00:56:30,640 --> 00:56:32,898 and said, "You oughta think about this. 1362 00:56:32,907 --> 00:56:35,158 "Think about how this might play out. 1363 00:56:35,167 --> 00:56:37,948 "Think about the economics of not being in our business 1364 00:56:37,957 --> 00:56:40,261 "versus the economics of being in our business." 1365 00:56:40,270 --> 00:56:42,791 And he made it brutally clear: 1366 00:56:42,800 --> 00:56:45,901 If we didn't get into the online business and fast, 1367 00:56:45,910 --> 00:56:47,601 our economics would tumble. 1368 00:56:47,610 --> 00:56:51,001 - In 2002, we recognize we need to have 1369 00:56:51,010 --> 00:56:52,053 an offering against Netflix, 1370 00:56:52,062 --> 00:56:53,221 there's no question about that. 1371 00:56:53,230 --> 00:56:55,641 - So, after listening to a lot of heated debate 1372 00:56:55,650 --> 00:56:57,418 for quite some time, I said, 1373 00:56:57,427 --> 00:56:59,638 "Look, here's the way to solve this. 1374 00:56:59,647 --> 00:57:02,691 "I'm gonna give Shane a budget." 1375 00:57:02,700 --> 00:57:04,971 And as I recall, it was $25 million, 1376 00:57:04,980 --> 00:57:07,778 and I'm gonna say, "Get a small group of people, 1377 00:57:07,787 --> 00:57:11,091 "get an office, get offsite, and get this business going." 1378 00:57:11,100 --> 00:57:13,171 - Luckily, our parent company, Viacom, 1379 00:57:13,180 --> 00:57:14,991 owned a building down the road 1380 00:57:15,000 --> 00:57:17,041 in an area of Dallas called the West End. 1381 00:57:17,050 --> 00:57:18,931 There was a building called the Paramount Building. 1382 00:57:18,940 --> 00:57:21,831 - And so, for us, it was like a gift, right? 1383 00:57:21,840 --> 00:57:24,461 We get $25 million, we get the Blockbuster brand, 1384 00:57:24,470 --> 00:57:27,231 and we get to get away from what you would consider to be 1385 00:57:27,240 --> 00:57:28,811 sorta this corporate culture 1386 00:57:28,820 --> 00:57:31,531 that may sorta hold down a startup business. 1387 00:57:31,540 --> 00:57:33,641 So, for the Blockbuster Online team, 1388 00:57:33,650 --> 00:57:36,578 we were part of this giant $6-billion company, 1389 00:57:36,587 --> 00:57:38,661 but we really felt like we were the little guy 1390 00:57:38,670 --> 00:57:39,851 going up against the giant. 1391 00:57:39,860 --> 00:57:41,791 Everybody knew Netflix at the time. 1392 00:57:41,800 --> 00:57:43,211 - We don't have any subscribers. 1393 00:57:43,220 --> 00:57:44,951 They've got well over a million. 1394 00:57:44,960 --> 00:57:46,351 We have no idea what we're doing. 1395 00:57:46,360 --> 00:57:48,411 They're a well-operated machine. 1396 00:57:48,420 --> 00:57:49,891 And we now have to figure out a way 1397 00:57:49,900 --> 00:57:52,351 to build a culture that wants to attack them, 1398 00:57:52,360 --> 00:57:54,491 that wants to kill them, basically. 1399 00:57:54,500 --> 00:57:57,681 - And at the same time, you can't market in our stores, 1400 00:57:57,690 --> 00:57:59,531 you can't use our customer list. 1401 00:57:59,540 --> 00:58:01,421 You have to do this truly on your own. 1402 00:58:01,430 --> 00:58:03,661 - So, we had to come up with the best consumer proposition 1403 00:58:03,670 --> 00:58:04,811 to compete against Netflix, 1404 00:58:04,820 --> 00:58:07,931 so we came up with two main objectives. 1405 00:58:07,940 --> 00:58:10,511 One was have more titles. 1406 00:58:10,520 --> 00:58:11,901 They had 20,000 titles. 1407 00:58:11,910 --> 00:58:14,211 We were gonna launch with 25,000 titles 1408 00:58:14,220 --> 00:58:16,211 and have an in-store component. 1409 00:58:16,220 --> 00:58:17,831 You could get unlimited discs online 1410 00:58:17,840 --> 00:58:20,021 and two free in-store rentals when we launch. 1411 00:58:20,030 --> 00:58:21,281 - So, we had to be scrappy. 1412 00:58:21,290 --> 00:58:22,841 And so, like David and Goliath, 1413 00:58:22,850 --> 00:58:25,771 any rock we could find we throw, we'd throw. 1414 00:58:25,780 --> 00:58:28,551 - To get to 25,000 titles was no small feat. 1415 00:58:28,560 --> 00:58:31,161 Now, to get that many, there's just not that many around. 1416 00:58:31,170 --> 00:58:32,121 I think we had one 1417 00:58:32,130 --> 00:58:35,011 that was a fireplace burning on a television. 1418 00:58:35,020 --> 00:58:36,531 We also were hampered a little bit 1419 00:58:36,540 --> 00:58:39,571 because we couldn't put more risque movies out there. 1420 00:58:39,580 --> 00:58:42,081 The Blockbuster brand was a family brand. 1421 00:58:42,090 --> 00:58:44,851 - So, we had a team of guys in our office 1422 00:58:44,860 --> 00:58:46,371 who would watch these movies 1423 00:58:46,380 --> 00:58:47,836 to make sure they were Blockbuster 1424 00:58:47,845 --> 00:58:48,931 appropriate and approved. 1425 00:58:48,940 --> 00:58:51,611 - So, there were certain rules that we had at Blockbuster 1426 00:58:51,620 --> 00:58:53,521 that you could have and you couldn't have. 1427 00:58:53,530 --> 00:58:55,681 So, for instance, you could have frontal nudity, 1428 00:58:55,690 --> 00:58:58,681 but you couldn't have full-frontal nudity. 1429 00:58:58,690 --> 00:58:59,961 - So, literally, our film team 1430 00:58:59,970 --> 00:59:02,361 would have to watch these movies through a hood. 1431 00:59:02,370 --> 00:59:03,491 So, you would walk through the hall 1432 00:59:03,500 --> 00:59:06,011 and there would be a team of folks 1433 00:59:06,020 --> 00:59:07,571 looking through a monitor, 1434 00:59:07,580 --> 00:59:10,261 watching movies at high speed with headphones on 1435 00:59:10,270 --> 00:59:11,094 to try to determine 1436 00:59:11,103 --> 00:59:13,301 if they were Blockbuster appropriate or not. 1437 00:59:13,310 --> 00:59:15,351 And the saddest thing in our office 1438 00:59:15,360 --> 00:59:16,341 is when you would have a guy 1439 00:59:16,350 --> 00:59:17,721 who would watch two hours of a movie, 1440 00:59:17,730 --> 00:59:19,561 and then in the last few minutes 1441 00:59:19,570 --> 00:59:20,881 you would hear him scream in agony 1442 00:59:20,890 --> 00:59:23,061 because it would cross the threshold 1443 00:59:23,070 --> 00:59:23,911 at the end of the movie. 1444 00:59:23,920 --> 00:59:24,831 - We've got six months 1445 00:59:24,840 --> 00:59:27,111 and we are now gonna reverse-engineer Netflix. 1446 00:59:27,120 --> 00:59:27,944 The first thing we do 1447 00:59:27,953 --> 00:59:29,811 is just rip apart their website, obviously. 1448 00:59:29,820 --> 00:59:32,001 This was not a static website 1449 00:59:32,010 --> 00:59:34,521 that you could just go in and copy the words 1450 00:59:34,530 --> 00:59:36,901 and copy the layout and copy the pricing 1451 00:59:36,910 --> 00:59:38,611 and think that you've now caught us. 1452 00:59:38,620 --> 00:59:40,011 What you're missing is the data. 1453 00:59:40,020 --> 00:59:42,031 You're missing all that understanding 1454 00:59:42,040 --> 00:59:44,501 that comes from knowing the reason 1455 00:59:44,510 --> 00:59:47,141 why this headline is in 18-point type 1456 00:59:47,150 --> 00:59:49,601 and this one's in 12, rather than vice-versa. 1457 00:59:49,610 --> 00:59:51,341 - Netflix had a huge headstart on us 1458 00:59:51,350 --> 00:59:53,021 from an online perspective. 1459 00:59:53,030 --> 00:59:55,621 They knew how to acquire our customers effectively. 1460 00:59:55,630 --> 00:59:58,451 They knew how movie ratings and recommendations work. 1461 00:59:58,460 --> 01:00:00,201 There was a lotta things that they knew 1462 01:00:00,210 --> 01:00:01,704 that we basically had to try to learn 1463 01:00:01,713 --> 01:00:02,971 in a condensed time period. 1464 01:00:02,980 --> 01:00:05,401 - We made it so that when you showed up at a website 1465 01:00:05,410 --> 01:00:07,321 or I showed up or someone else showed up, 1466 01:00:07,330 --> 01:00:09,061 everyone got a different experience. 1467 01:00:09,070 --> 01:00:10,601 It was personalized. 1468 01:00:10,610 --> 01:00:12,441 And it wasn't just personalized 1469 01:00:12,450 --> 01:00:15,541 based on what you might like as a movie. 1470 01:00:15,550 --> 01:00:17,282 It was based on things like 1471 01:00:17,291 --> 01:00:19,341 what movies do we have in stock? 1472 01:00:19,350 --> 01:00:20,741 It was based on 1473 01:00:20,750 --> 01:00:23,581 what movies do we have better financial terms on? 1474 01:00:23,590 --> 01:00:26,241 It was based on, once we had regional hubs, 1475 01:00:26,250 --> 01:00:29,051 which movie do we have in stock near you? 1476 01:00:29,060 --> 01:00:31,571 And all these things would go into the choice 1477 01:00:31,580 --> 01:00:34,081 that of course happens on the internet in an instant 1478 01:00:34,090 --> 01:00:36,631 of what 10 movies we choose to pop up 1479 01:00:36,640 --> 01:00:38,341 and have you pick from. 1480 01:00:38,350 --> 01:00:40,691 - Obviously, the distribution operations was a big deal. 1481 01:00:40,700 --> 01:00:42,211 They were starting to get overnight delivery. 1482 01:00:42,220 --> 01:00:44,051 And everywhere they had overnight delivery, 1483 01:00:44,060 --> 01:00:46,391 their penetration rates were significantly higher 1484 01:00:46,400 --> 01:00:47,331 than when they didn't. 1485 01:00:47,340 --> 01:00:49,941 So, we sent people into their distribution centers. 1486 01:00:49,950 --> 01:00:51,981 And we didn't do it under any false pretenses. 1487 01:00:51,990 --> 01:00:54,968 We went there and said, "We are subscribers of Netflix. 1488 01:00:54,977 --> 01:00:56,108 "We think it's fantastic. 1489 01:00:56,117 --> 01:00:57,608 "We saw where the return envelope was. 1490 01:00:57,617 --> 01:00:59,281 "We just wanted to check it out." 1491 01:00:59,290 --> 01:01:01,381 And they opened the door and they let us in. 1492 01:01:01,390 --> 01:01:03,081 Not only that, they let us take pictures. 1493 01:01:03,090 --> 01:01:05,001 They described exactly how the discs came in. 1494 01:01:05,010 --> 01:01:06,781 They described exactly how the discs went out. 1495 01:01:06,790 --> 01:01:08,751 They described how they cycle-counted a disc, 1496 01:01:08,760 --> 01:01:10,641 how they kept track of the discs. 1497 01:01:10,650 --> 01:01:13,091 It was a real good education for us. 1498 01:01:13,100 --> 01:01:14,641 They did figure it out though, 1499 01:01:14,650 --> 01:01:16,641 because we want back a couple more times 1500 01:01:16,650 --> 01:01:18,288 and they finally said, "No, no, we're done. 1501 01:01:18,297 --> 01:01:21,561 "You can't tour the facility any longer." 1502 01:01:21,570 --> 01:01:24,331 Later, we actually hired a person from Netflix, 1503 01:01:24,340 --> 01:01:25,789 and he was on a conference call 1504 01:01:25,798 --> 01:01:27,071 with one of their operators 1505 01:01:27,080 --> 01:01:28,991 and they were not happy with the fact 1506 01:01:29,000 --> 01:01:31,401 that Blockbuster got a carte-blanche movement 1507 01:01:31,410 --> 01:01:33,501 through their distribution centers. 1508 01:01:33,510 --> 01:01:36,661 - What we learned was that Blockbuster had sent people in 1509 01:01:36,670 --> 01:01:39,601 to look at our facility and see what we did. 1510 01:01:39,610 --> 01:01:43,311 And we did the same thing, not as much perhaps as they did. 1511 01:01:43,320 --> 01:01:46,321 But at one point, I sent some of my hub managers over 1512 01:01:46,330 --> 01:01:48,851 to interview for jobs at Blockbuster 1513 01:01:48,860 --> 01:01:50,451 and they would give 'em the grand tour 1514 01:01:50,460 --> 01:01:52,731 and then they'd come back and report it all. 1515 01:01:52,740 --> 01:01:55,431 When our people looked at what Blockbuster was doing, 1516 01:01:55,440 --> 01:01:57,222 it looked like it was two years 1517 01:01:57,231 --> 01:01:58,741 behind what we were doing. 1518 01:01:58,750 --> 01:02:02,931 - This machine is a standard first-class mail postal sorter 1519 01:02:02,940 --> 01:02:06,671 that Netflix rebuilt to do many things. 1520 01:02:06,680 --> 01:02:08,833 We put these DVDs in this machine, 1521 01:02:09,690 --> 01:02:13,551 and the barcode on the DVD is read right there. 1522 01:02:13,560 --> 01:02:17,951 And from there, it's sorted for various purposes. 1523 01:02:17,960 --> 01:02:19,441 - Netflix had a lotta media, 1524 01:02:19,450 --> 01:02:21,651 and so, obviously, their PR strategy was brilliant. 1525 01:02:21,660 --> 01:02:22,851 And one of the things they did 1526 01:02:22,860 --> 01:02:25,961 is they had videos of their distribution centers online. 1527 01:02:25,970 --> 01:02:28,911 They also had a lot of photos of their distribution centers 1528 01:02:28,920 --> 01:02:30,481 and the packing material 1529 01:02:30,490 --> 01:02:32,281 and the machines that were kicking stuff in and out. 1530 01:02:32,290 --> 01:02:34,631 So, in fact, we used those pictures 1531 01:02:34,640 --> 01:02:37,281 to call the same firm to build our machinery. 1532 01:02:37,290 --> 01:02:39,811 - We knew that we had lots of press coming through. 1533 01:02:39,820 --> 01:02:41,919 And to make sure no one knew 1534 01:02:41,928 --> 01:02:44,251 where our automation came from, 1535 01:02:44,260 --> 01:02:46,801 we relabeled all the equipment 1536 01:02:46,810 --> 01:02:48,761 with fake names and fake cities 1537 01:02:48,770 --> 01:02:51,571 so that if they went to go and try to buy it from there, 1538 01:02:51,580 --> 01:02:53,333 they'd discover it doesn't exist. 1539 01:03:01,267 --> 01:03:03,061 - Hey. - Hey. 1540 01:03:03,070 --> 01:03:04,270 - Your movie came today. 1541 01:03:05,617 --> 01:03:07,031 "Alien", right? 1542 01:03:07,040 --> 01:03:08,367 I'm not quite sure where I... 1543 01:03:08,376 --> 01:03:09,818 What is this?! 1544 01:03:09,827 --> 01:03:11,128 What's happening?! 1545 01:03:12,376 --> 01:03:14,209 It's coming outta my... 1546 01:03:15,097 --> 01:03:16,243 You're gonna like it. 1547 01:03:19,441 --> 01:03:20,462 - So, before we launched 1548 01:03:20,471 --> 01:03:21,971 Blockbuster Online to the public, 1549 01:03:21,980 --> 01:03:23,671 we had what's called a soft launch, 1550 01:03:23,680 --> 01:03:26,481 which is basically the service was operational, 1551 01:03:26,490 --> 01:03:29,601 not available to everybody, and we sent invites 1552 01:03:29,610 --> 01:03:32,161 to limited friends and family and employees 1553 01:03:32,170 --> 01:03:33,491 to stress test the system. 1554 01:03:33,500 --> 01:03:36,171 - Funny enough, we see Reed Hastings sign up. 1555 01:03:36,180 --> 01:03:37,931 We see Barry McCarthy sign up. 1556 01:03:37,940 --> 01:03:40,491 So, we see a whole bunch of Netflix URLs 1557 01:03:40,500 --> 01:03:43,538 start to make its way into our Blockbuster Online signup. 1558 01:03:43,547 --> 01:03:46,611 And so I said, "Apparently we have their attention." 1559 01:03:46,620 --> 01:03:49,201 It's July 2004, we're about to launch, 1560 01:03:49,210 --> 01:03:51,721 and Netflix announces that they're gonna take their price 1561 01:03:51,730 --> 01:03:53,161 up to $21.99. 1562 01:03:53,170 --> 01:03:55,831 And we are like it's Christmas. 1563 01:03:55,840 --> 01:03:57,931 One, we've done all this market research 1564 01:03:57,940 --> 01:04:00,991 that says anything about $20 is bad news. 1565 01:04:01,000 --> 01:04:03,661 And two, we're gonna launch at $19.99 1566 01:04:03,670 --> 01:04:04,861 and be underneath them. 1567 01:04:04,870 --> 01:04:07,911 - So, I remember the launch day for Blockbuster Online. 1568 01:04:07,920 --> 01:04:09,951 - We had organized a giant launch party 1569 01:04:09,960 --> 01:04:11,949 at the Granada Theater in Dallas. 1570 01:04:11,958 --> 01:04:13,173 This is it! 1571 01:04:13,182 --> 01:04:14,376 This is a sign! 1572 01:04:22,579 --> 01:04:27,291 - This is your wake-up call, pal. 1573 01:04:27,300 --> 01:04:28,991 We have this big launch party. 1574 01:04:29,000 --> 01:04:31,081 We're not sure we should go to market yet or not. 1575 01:04:31,090 --> 01:04:34,391 - Challenge was the site was maybe not quite ready 1576 01:04:34,400 --> 01:04:35,781 for public consumption. 1577 01:04:35,790 --> 01:04:37,841 - And so, we launch, 1578 01:04:37,850 --> 01:04:41,301 and every 30 minutes we have to restart our servers 1579 01:04:41,310 --> 01:04:42,761 so the system stays up. 1580 01:04:42,770 --> 01:04:44,491 - Literally, it was almost like the hamster 1581 01:04:44,500 --> 01:04:47,691 turning the wheel behind the scenes to keep the site up. 1582 01:04:47,700 --> 01:04:48,891 - They had a great brand. 1583 01:04:48,900 --> 01:04:51,371 I mean, they were the one company that we all feared. 1584 01:04:51,380 --> 01:04:52,202 In fact, there was this 1585 01:04:52,211 --> 01:04:53,401 analyst who still is out there, 1586 01:04:53,410 --> 01:04:55,851 Michael Pachter, who called them, 1587 01:04:55,860 --> 01:04:57,651 we were like the little dog 1588 01:04:57,660 --> 01:04:59,531 yapping at the heels of the big dog. 1589 01:04:59,540 --> 01:05:02,301 - One of Reed's quarterly messages to the company 1590 01:05:02,310 --> 01:05:04,071 was how to take down Blockbuster. 1591 01:05:04,080 --> 01:05:05,381 - We needed to do a lotta work 1592 01:05:05,390 --> 01:05:08,731 to figure out what flexibility we had on pricing. 1593 01:05:08,740 --> 01:05:10,365 We had taken it up, and we were 1594 01:05:10,374 --> 01:05:11,801 gonna have to take it down. 1595 01:05:11,810 --> 01:05:13,931 - And then Netflix drops their price to $17.99. 1596 01:05:13,940 --> 01:05:15,601 We clearly now have their attention. 1597 01:05:15,610 --> 01:05:17,711 So, we now have to make a decision: What do we wanna do? 1598 01:05:17,720 --> 01:05:20,328 I wanna drop the price point to $17.49. 1599 01:05:20,337 --> 01:05:22,438 - "Shane, that's kinda kissing your sister, right? 1600 01:05:22,447 --> 01:05:25,755 "If we're gonna undercut them, let's go for it: $14.99." 1601 01:05:25,764 --> 01:05:27,308 "14.99?! 1602 01:05:27,317 --> 01:05:28,311 "You're crazy!" 1603 01:05:28,320 --> 01:05:31,621 - John was always a guy who wasn't afraid to move on price 1604 01:05:31,630 --> 01:05:34,231 if he thought there was a big pickup in volume to be had. 1605 01:05:34,240 --> 01:05:35,291 - We had an inferior product. 1606 01:05:35,300 --> 01:05:37,131 We didn't have as many distribution centers. 1607 01:05:37,140 --> 01:05:38,941 We couldn't get the movies to the people 1608 01:05:38,950 --> 01:05:40,361 as fast as Netflix can. 1609 01:05:40,370 --> 01:05:42,251 - John's logic is we don't have that many, 1610 01:05:42,260 --> 01:05:44,601 they've got a lot; they can't drop the price to get us. 1611 01:05:44,610 --> 01:05:47,001 - Netflix has two million members. 1612 01:05:47,010 --> 01:05:52,010 If they drop their price $5, that's $10 million a month. 1613 01:05:52,730 --> 01:05:55,481 That's about $120 million a year 1614 01:05:55,490 --> 01:05:57,161 at their existing subscriber base. 1615 01:05:57,170 --> 01:05:58,781 I don't think they'll do it. 1616 01:05:58,790 --> 01:06:02,001 - His bias was always just go right to the customers, 1617 01:06:02,010 --> 01:06:04,354 give 'em great value, give 'em a great something 1618 01:06:04,363 --> 01:06:06,181 that really plays back into a lower price. 1619 01:06:06,190 --> 01:06:08,127 Lower price, more value; the customers will love it. 1620 01:06:08,136 --> 01:06:09,691 I mean, it's that simple. 1621 01:06:09,700 --> 01:06:10,918 Don't over-complicate it. 1622 01:06:10,927 --> 01:06:12,998 - "And as a matter of fact, 1623 01:06:13,007 --> 01:06:16,341 "let's go on the Super Bowl with a commercial at $14.99." 1624 01:06:16,350 --> 01:06:18,461 - I'm gonna pick up a movie from Blockbuster. 1625 01:06:18,470 --> 01:06:19,593 - Okay, drive safely. 1626 01:06:29,730 --> 01:06:32,461 Now, Blockbuster is as close as your mailbox. 1627 01:06:32,470 --> 01:06:34,521 Introducing Blockbuster Online. 1628 01:06:34,530 --> 01:06:35,751 Choose your movies online. 1629 01:06:35,760 --> 01:06:37,111 Receive and return them by mail. 1630 01:06:37,120 --> 01:06:39,158 Enjoy unlimited rentals and keep them as long as you want. 1631 01:06:39,167 --> 01:06:41,571 Plus, get two free in-store rentals every month, 1632 01:06:41,580 --> 01:06:43,801 all for just $14.99. 1633 01:06:43,810 --> 01:06:45,061 - So, I've got a Blackberry. 1634 01:06:45,070 --> 01:06:47,481 So, every hour on the hour, I get an update 1635 01:06:47,490 --> 01:06:49,551 as to how many subscribers we're getting 1636 01:06:49,560 --> 01:06:50,951 on the Super Bowl itself. 1637 01:06:50,960 --> 01:06:52,781 - And so, literally, in that next hour, 1638 01:06:52,790 --> 01:06:54,571 we signed up the same number of subscribers 1639 01:06:54,580 --> 01:06:56,611 we were normally seeing in a day. 1640 01:06:56,620 --> 01:06:59,151 Then the next hour, that number doubled. 1641 01:06:59,160 --> 01:07:01,401 Then the next hour, that number doubled. 1642 01:07:01,410 --> 01:07:04,231 And basically, the day within the Super Bowl, 1643 01:07:04,240 --> 01:07:05,251 we signed up as many people 1644 01:07:05,260 --> 01:07:06,908 as we had signed up in the previous month. 1645 01:07:06,917 --> 01:07:08,621 - And I remember looking at Ben 1646 01:07:08,630 --> 01:07:10,791 and saying, "We got something here." 1647 01:07:10,800 --> 01:07:12,791 - With the price increase, there was two sides. 1648 01:07:12,800 --> 01:07:15,111 There was circle the wagons and do what's right 1649 01:07:15,120 --> 01:07:17,498 and let the model show that they couldn't handle it. 1650 01:07:17,507 --> 01:07:19,681 And then, of course, the other option was to lower prices 1651 01:07:19,690 --> 01:07:21,601 and get into a price war with Blockbuster. 1652 01:07:21,610 --> 01:07:23,901 - Even assuming that they were as efficient as we were, 1653 01:07:23,910 --> 01:07:25,644 we knew actually that those early months 1654 01:07:25,653 --> 01:07:27,361 were gonna cost 'em a lot 1655 01:07:27,370 --> 01:07:29,551 and they were aggressively underpricing us. 1656 01:07:29,560 --> 01:07:32,951 - So, we could model what Blockbuster was getting 1657 01:07:32,960 --> 01:07:34,281 from their customers. 1658 01:07:34,290 --> 01:07:37,421 But at the lower price, they were never breaking even. 1659 01:07:37,430 --> 01:07:39,499 They were burning cash. 1660 01:07:46,210 --> 01:07:47,551 - When we left Viacom, 1661 01:07:47,560 --> 01:07:49,948 we had a board that was a pretty supportive board. 1662 01:07:49,957 --> 01:07:52,401 And that all changed after the proxy fight. 1663 01:07:52,410 --> 01:07:54,504 - Motorola is a perfect example 1664 01:07:54,513 --> 01:07:56,351 of how Carl Icahn operates. 1665 01:07:56,360 --> 01:07:59,521 He's been making demands in order to jolt up 1666 01:07:59,530 --> 01:08:01,391 the sagging stock price. 1667 01:08:01,400 --> 01:08:03,961 First one: Dump the CEO. 1668 01:08:03,970 --> 01:08:06,101 That happened in December. 1669 01:08:06,110 --> 01:08:07,521 Then break up the company. 1670 01:08:07,530 --> 01:08:10,998 - All Carl could see was, "You guys are very expensive, 1671 01:08:11,007 --> 01:08:12,461 "you make a lotta money." 1672 01:08:12,470 --> 01:08:14,091 And so, when we were talking to him 1673 01:08:14,100 --> 01:08:16,421 about how we're saving costs, 1674 01:08:16,430 --> 01:08:17,948 I remember talking to him about 1675 01:08:17,957 --> 01:08:19,291 how we were closing stores, 1676 01:08:19,300 --> 01:08:22,329 integrating stores, and how that saved money. 1677 01:08:22,338 --> 01:08:25,017 And it was like, "We don't believe in numbers." 1678 01:08:25,970 --> 01:08:28,171 His goal is always the same: 1679 01:08:28,180 --> 01:08:31,241 to reap a heft profit for himself. 1680 01:08:31,250 --> 01:08:33,511 He's been successful, say Wall Streeters, 1681 01:08:33,520 --> 01:08:36,621 because he's intimidating and relentless. 1682 01:08:36,630 --> 01:08:39,631 - So, now you have Carl coming in with a couple of his guys, 1683 01:08:39,640 --> 01:08:40,531 didn't listen to anything. 1684 01:08:40,540 --> 01:08:42,711 And Carl, I mean, you couldn't get Carl 1685 01:08:42,720 --> 01:08:44,461 to kind of focus on anything. 1686 01:08:44,470 --> 01:08:45,868 And so, they didn't come in and say, 1687 01:08:45,877 --> 01:08:47,411 "Let me understand your business." 1688 01:08:47,420 --> 01:08:49,161 They came in to tell us how to run a business. 1689 01:08:49,170 --> 01:08:53,401 And I can remember sitting in the first board meeting, 1690 01:08:53,410 --> 01:08:56,031 which was meant to be an acclimation meeting, 1691 01:08:56,040 --> 01:08:57,601 help them understand the business. 1692 01:08:57,610 --> 01:09:00,371 I don't think I had gotten to slide two 1693 01:09:00,380 --> 01:09:02,301 before these guys are throwing ideas 1694 01:09:02,310 --> 01:09:03,134 and, "You guys haven't tested this 1695 01:09:03,143 --> 01:09:04,591 "and you should be doing that." 1696 01:09:04,600 --> 01:09:07,518 And one of the guys said, "People buy jeans. 1697 01:09:07,527 --> 01:09:09,298 "Why don't you take some movies off the wall 1698 01:09:09,307 --> 01:09:10,521 "and put jeans on the wall." 1699 01:09:10,530 --> 01:09:14,301 And you go, "Genius; I wish I'd thought about that one." 1700 01:09:14,310 --> 01:09:16,361 - We had launched our online service 1701 01:09:16,370 --> 01:09:18,961 and I was desperately looking for a way 1702 01:09:18,970 --> 01:09:22,741 to leverage the stores as part of an online service. 1703 01:09:22,750 --> 01:09:25,468 So, in a meeting with Shane, we talked about, 1704 01:09:25,477 --> 01:09:29,088 "Wouldn't it be nice if our online customers 1705 01:09:29,097 --> 01:09:31,731 "could exchange their movies in our stores?" 1706 01:09:31,740 --> 01:09:33,101 - Our observations and our research 1707 01:09:33,110 --> 01:09:33,951 showed that this was actually 1708 01:09:33,960 --> 01:09:35,211 really interesting to consumers, 1709 01:09:35,220 --> 01:09:38,151 the idea that you can get a movie in the mail 1710 01:09:38,160 --> 01:09:40,743 and take it in the store and immediately get another movie. 1711 01:09:40,752 --> 01:09:43,261 One of the things that we always knew about our services 1712 01:09:43,270 --> 01:09:45,121 is that you couldn't get instant gratification. 1713 01:09:45,130 --> 01:09:46,481 You actually had to wait for the mail. 1714 01:09:46,490 --> 01:09:48,581 And we optimized our distribution centers 1715 01:09:48,590 --> 01:09:50,071 so that it would be one day each way, 1716 01:09:50,080 --> 01:09:51,351 but that's as good as it would be. 1717 01:09:51,360 --> 01:09:53,331 Well, you could just drive to the store and do it. 1718 01:09:53,340 --> 01:09:55,171 So, that was actually scarier. 1719 01:09:55,180 --> 01:09:56,531 - We read the results. 1720 01:09:56,540 --> 01:09:58,041 The results were fantastic. 1721 01:09:58,050 --> 01:10:01,381 We've put the media together to launch Total Access. 1722 01:10:01,390 --> 01:10:05,791 We do a big to-do with Jessica Simpson in November 1723 01:10:05,800 --> 01:10:07,191 where John and Jessica go out there 1724 01:10:07,200 --> 01:10:10,011 and she talks about how Total Access is the best thing ever. 1725 01:10:10,020 --> 01:10:12,051 - They hired Jessica Simpson to be a spokesperson. 1726 01:10:12,060 --> 01:10:13,571 Netflix couldn't afford a celebrity 1727 01:10:13,580 --> 01:10:15,191 of her caliber at the time. 1728 01:10:15,200 --> 01:10:17,071 So, this was a pretty intense competition. 1729 01:10:17,080 --> 01:10:20,551 - I never understood the financial market support 1730 01:10:20,560 --> 01:10:21,841 of Blockbuster through it all. 1731 01:10:21,850 --> 01:10:24,161 I mean, they kept giving 'em money. 1732 01:10:24,170 --> 01:10:27,151 And we were struggling month-to-month, 1733 01:10:27,160 --> 01:10:28,381 but we had the better model. 1734 01:10:28,390 --> 01:10:31,861 - We had I wanna say a half-a-million subs, 1735 01:10:31,870 --> 01:10:34,851 it mighta been 750,000 subs in two months, 1736 01:10:34,860 --> 01:10:37,231 and absolutely pupt Netflix on their heels. 1737 01:10:37,240 --> 01:10:40,431 And so, we now get into the first quarter 1738 01:10:40,440 --> 01:10:43,881 and they go negative for the first time in their history. 1739 01:10:43,890 --> 01:10:47,981 In the second quarter, we pick up 115% of the market share. 1740 01:10:47,990 --> 01:10:51,041 We have absolutely got them dead to rights. 1741 01:10:51,050 --> 01:10:53,811 - I mean, at the time, the stock went down to $1.50. 1742 01:10:53,820 --> 01:10:55,431 There was a lotta questions 1743 01:10:55,440 --> 01:10:57,771 if we were gonna survive three major attacks 1744 01:10:57,780 --> 01:11:00,911 from Amazon, Blockbuster, and Walmart. 1745 01:11:00,920 --> 01:11:03,881 But we were confident in what we had modeled. 1746 01:11:03,890 --> 01:11:05,771 We always believed that anybody could get into this, 1747 01:11:05,780 --> 01:11:07,068 but that nobody else could make money 1748 01:11:07,077 --> 01:11:09,488 and offer the service as successful as we did. 1749 01:11:21,325 --> 01:11:22,325 - Thank you. 1750 01:11:23,780 --> 01:11:26,061 Change is inevitable. 1751 01:11:26,070 --> 01:11:29,253 And some people fight it, and some people embrace it. 1752 01:11:30,100 --> 01:11:32,621 - Sundance, to Blockbuster, was a pretty big deal. 1753 01:11:32,630 --> 01:11:34,061 - So, we went ever year. 1754 01:11:34,070 --> 01:11:36,251 We got to meet with the studios. 1755 01:11:36,260 --> 01:11:37,898 - And for me, what it was is, 1756 01:11:37,907 --> 01:11:40,308 "Hey, this is an opportunity for Blockbuster 1757 01:11:40,317 --> 01:11:43,838 "to intermingle with the film community, 1758 01:11:43,847 --> 01:11:46,771 "to look at opportunities to acquire content, 1759 01:11:46,780 --> 01:11:48,841 and quite frankly to kinda relax 1760 01:11:48,850 --> 01:11:51,321 and do a little skiing when we weren't working. 1761 01:11:51,330 --> 01:11:52,691 - Once we started getting kinda big, 1762 01:11:52,700 --> 01:11:54,931 we would take the whole company out to Sundance, 1763 01:11:54,940 --> 01:11:57,601 people going on skiing trips and taking lessons 1764 01:11:57,610 --> 01:12:01,011 and coordinating huge dinners for everyone, 1765 01:12:01,020 --> 01:12:02,881 and it was a lotta fun. 1766 01:12:02,890 --> 01:12:04,961 - Netflix had made Sundance 1767 01:12:04,970 --> 01:12:06,849 one of their key pillars early on 1768 01:12:06,858 --> 01:12:08,321 and they would take lots of employees there, 1769 01:12:08,330 --> 01:12:10,711 so we wanted to see what type of vibe 1770 01:12:10,720 --> 01:12:12,581 was around Netflix at Sundance. 1771 01:12:12,590 --> 01:12:16,391 - So, we're strolling the streets of Sundance. 1772 01:12:16,400 --> 01:12:18,318 It was one of my favorite times of year 1773 01:12:18,327 --> 01:12:20,901 to bask in all that Hollywood kind of stuff. 1774 01:12:20,910 --> 01:12:23,401 I was walking with Nick Shepherd and his phone rang. 1775 01:12:23,410 --> 01:12:25,678 And so I said, "Hey, Nick, what was that about?" 1776 01:12:25,687 --> 01:12:27,208 "It was Matthew Smith. 1777 01:12:27,217 --> 01:12:30,108 "He just got a call from Ted over at Netflix, 1778 01:12:30,117 --> 01:12:31,458 "and Reed would like to see you." 1779 01:12:31,467 --> 01:12:32,291 "He does?" 1780 01:12:32,300 --> 01:12:33,928 I said, "Okay. 1781 01:12:33,937 --> 01:12:37,041 "So, I guess, set it up and I'll go see Mr. Hastings." 1782 01:12:37,050 --> 01:12:38,276 - You have to understand, 1783 01:12:38,285 --> 01:12:40,011 Netflix just won't even recognize 1784 01:12:40,020 --> 01:12:41,431 that we have an online business, right? 1785 01:12:41,440 --> 01:12:44,591 So, it was very, "Blockbuster who?" 1786 01:12:44,600 --> 01:12:46,251 - I mean, Reed said a lotta things 1787 01:12:46,260 --> 01:12:49,171 that were basically poo-pooing Blockbuster's ability 1788 01:12:49,180 --> 01:12:50,591 to get into this business. 1789 01:12:50,600 --> 01:12:52,161 - But that particular Sundance, 1790 01:12:52,170 --> 01:12:53,721 so we'd just had a couple of quarters 1791 01:12:53,730 --> 01:12:56,331 where we'd sort of whooped on Netflix. 1792 01:12:56,340 --> 01:12:58,241 - We put a million subs on in six months, 1793 01:12:58,250 --> 01:13:00,211 which is the fastest subscription business 1794 01:13:00,220 --> 01:13:02,071 to a million people you've ever seen. 1795 01:13:02,080 --> 01:13:03,821 And so, we finally have their attention. 1796 01:13:03,830 --> 01:13:06,421 - Next day, it's off to see Mr. Hastings, 1797 01:13:06,430 --> 01:13:09,061 and we drive to his villa. 1798 01:13:09,070 --> 01:13:12,998 And I enter the premise and Reed says, "Hi, John. 1799 01:13:13,007 --> 01:13:14,791 "Congratulations." 1800 01:13:14,800 --> 01:13:16,101 I said, "What's that about, Reed?" 1801 01:13:16,110 --> 01:13:20,141 He said, "Total Access, having an impact." 1802 01:13:20,150 --> 01:13:22,801 Both Netflix and Blockbuster Total Access 1803 01:13:22,810 --> 01:13:24,091 give you the convenience of movies 1804 01:13:24,100 --> 01:13:25,651 delivered right to your home. 1805 01:13:25,660 --> 01:13:26,741 Except, with Netflix, 1806 01:13:26,750 --> 01:13:30,001 to get new movies, you can only return by mail and wait. 1807 01:13:30,010 --> 01:13:31,991 But with Blockbuster Total Access... 1808 01:13:32,000 --> 01:13:33,721 - Hey, I don't have to wait! 1809 01:13:33,730 --> 01:13:35,511 You can also return movies at the store 1810 01:13:35,520 --> 01:13:37,851 and exchange them for new ones at no extra charge. 1811 01:13:37,860 --> 01:13:39,621 - So, you get new movies faster. 1812 01:13:39,630 --> 01:13:41,061 Yay, more movies! 1813 01:13:41,070 --> 01:13:42,891 - Total Access was different. 1814 01:13:42,900 --> 01:13:43,921 It was really problematic 1815 01:13:43,930 --> 01:13:45,801 because Blockbuster was leveraging an asset, 1816 01:13:45,810 --> 01:13:46,831 the stores, that we didn't have, 1817 01:13:46,840 --> 01:13:48,461 and we had no way to match that. 1818 01:13:48,470 --> 01:13:49,348 - And at that point, he said, 1819 01:13:49,357 --> 01:13:51,118 "Well, you guys really don't have any business 1820 01:13:51,127 --> 01:13:52,698 "being in this business, 1821 01:13:52,707 --> 01:13:56,031 "so why don't we just buy your subscribers?" 1822 01:13:56,040 --> 01:13:58,261 - The thing was we'd lost our confidence 1823 01:13:58,270 --> 01:14:01,291 because here these insurgents have come into our business. 1824 01:14:01,300 --> 01:14:02,251 They were picking us off 1825 01:14:02,260 --> 01:14:03,831 because of things we'd done in the past, 1826 01:14:03,840 --> 01:14:05,211 things we hadn't got right. 1827 01:14:05,220 --> 01:14:07,121 And they were making a kind of big deal 1828 01:14:07,130 --> 01:14:09,671 of stuff like late fees and all of this sorta stuff. 1829 01:14:09,680 --> 01:14:10,918 And then, all of a sudden, 1830 01:14:10,927 --> 01:14:13,061 "No, no, we're stopping them stealing our business." 1831 01:14:13,070 --> 01:14:15,341 Now we're getting it right and they can't get it right. 1832 01:14:15,350 --> 01:14:16,601 So, we felt pretty good about that, 1833 01:14:16,610 --> 01:14:18,231 so now our confidence has started to come back 1834 01:14:18,240 --> 01:14:21,188 because you go, "There's a future for our business. 1835 01:14:21,197 --> 01:14:22,021 "They're wrong. 1836 01:14:22,030 --> 01:14:24,091 "We can get this business really motoring." 1837 01:14:24,100 --> 01:14:26,011 - I personally never had an interest in selling it, 1838 01:14:26,020 --> 01:14:27,191 but felt like I had an obligation 1839 01:14:27,200 --> 01:14:28,561 to talk to the board about it. 1840 01:14:28,570 --> 01:14:31,278 - John calls me and he says, "Netflix has made an offer. 1841 01:14:31,287 --> 01:14:32,921 "We need to go talk to the board." 1842 01:14:32,930 --> 01:14:34,261 At the time, a lotta those board meetings 1843 01:14:34,270 --> 01:14:36,161 were in New York in Carl's office. 1844 01:14:36,170 --> 01:14:37,651 Carl asked me, he said, "Well, what do ya think?" 1845 01:14:37,660 --> 01:14:39,188 And I said, "I wouldn't sell at this point 1846 01:14:39,197 --> 01:14:42,598 "because we're pushing 'em so hard 1847 01:14:42,607 --> 01:14:44,258 "that they're either gonna pay more later 1848 01:14:44,267 --> 01:14:45,408 "or we're gonna be profitable. 1849 01:14:45,417 --> 01:14:47,968 "One of those two things is about to happen, Carl. 1850 01:14:47,977 --> 01:14:50,710 "At five million subscribers, we're profitable. 1851 01:14:50,719 --> 01:14:51,543 "We're at two-and-a-half now, 1852 01:14:51,552 --> 01:14:53,388 "we're gonna be at four by the end of the quarter. 1853 01:14:53,397 --> 01:14:54,919 "Or Netflix comes in and offers 1854 01:14:54,928 --> 01:14:56,171 us well over $1 billion." 1855 01:14:56,180 --> 01:14:58,981 So, at that point, we make the decision not to sell. 1856 01:14:58,990 --> 01:15:00,791 Now, what I also don't know 1857 01:15:00,800 --> 01:15:02,431 that happens at that board meeting 1858 01:15:02,440 --> 01:15:05,911 is Carl decides not to pay John has agreed-to bonus. 1859 01:15:05,920 --> 01:15:08,131 - It didn't sit right with me. 1860 01:15:08,140 --> 01:15:09,698 Honestly, if they'd come and they'd said, 1861 01:15:09,707 --> 01:15:12,558 "You know, this is a significant bonus; 1862 01:15:12,567 --> 01:15:15,201 "the stock price didn't have a great year," 1863 01:15:15,210 --> 01:15:18,081 I don't know, I mighta given it some consideration. 1864 01:15:18,090 --> 01:15:20,161 But it wasn't going to be unilaterally 1865 01:15:20,170 --> 01:15:22,521 them deciding to violate my contract 1866 01:15:22,530 --> 01:15:24,191 and not pay me what I earned. 1867 01:15:24,200 --> 01:15:27,001 - When we first heard about John Antioco 1868 01:15:27,010 --> 01:15:30,361 facing off Carl Icahn, we knew he had his hands full. 1869 01:15:30,370 --> 01:15:32,151 - We didn't have any control over it, 1870 01:15:32,160 --> 01:15:34,023 so we were just watching, 1871 01:15:35,720 --> 01:15:37,361 not really knowing what was gonna happen. 1872 01:15:37,370 --> 01:15:42,141 - You can't have a business that's fighting for its life 1873 01:15:42,150 --> 01:15:45,371 in an environment which is changing daily 1874 01:15:45,380 --> 01:15:48,091 and not have a board who aren't supporting you, 1875 01:15:48,100 --> 01:15:50,011 challenging you, but supporting you. 1876 01:15:50,020 --> 01:15:51,771 The agendas were different. 1877 01:15:51,780 --> 01:15:53,211 I don't know quite what the agenda was, 1878 01:15:53,220 --> 01:15:54,381 but it was certainly wasn't the agenda 1879 01:15:54,390 --> 01:15:55,751 of making Blockbuster successful, 1880 01:15:55,760 --> 01:15:57,531 'cause they didn't contribute to that. 1881 01:15:57,540 --> 01:15:59,652 - It was time for a change. 1882 01:15:59,661 --> 01:16:02,141 I'd been successful enough financially. 1883 01:16:02,150 --> 01:16:03,851 I was at a time in my life 1884 01:16:03,860 --> 01:16:07,361 where I wanted to spend more time at home and family, 1885 01:16:07,370 --> 01:16:08,911 so it just seemed like the right time 1886 01:16:08,920 --> 01:16:11,691 to transition the business to someone else. 1887 01:16:11,700 --> 01:16:13,293 - John sits us all down. 1888 01:16:14,673 --> 01:16:15,923 He says he's gonna leave, 1889 01:16:17,630 --> 01:16:18,611 which is a tough day for all of us, 1890 01:16:18,620 --> 01:16:20,871 it was like knife in the heart, 1891 01:16:20,880 --> 01:16:22,651 and says they're gonna launch a search 1892 01:16:22,660 --> 01:16:23,831 and bring in a new CEO. 1893 01:16:23,840 --> 01:16:27,351 And we're all thinking digital expertise, movie background, 1894 01:16:27,360 --> 01:16:30,631 something to transition us into this new space. 1895 01:16:30,640 --> 01:16:32,511 - My hope was that they would give the job 1896 01:16:32,520 --> 01:16:34,370 to Nick Shepherd, the president 1897 01:16:34,379 --> 01:16:35,771 and COO of the company, 1898 01:16:35,780 --> 01:16:38,366 who understood the business, understood the challenges, 1899 01:16:38,375 --> 01:16:41,061 and, I think, understood what Blockbuster had to do 1900 01:16:41,070 --> 01:16:42,611 to move forward in the business. 1901 01:16:42,620 --> 01:16:44,401 Instead, they made a different decision. 1902 01:16:44,410 --> 01:16:45,901 - Jim Keyes, now our CEO, 1903 01:16:45,910 --> 01:16:47,551 gets us all up to Rough Creek Ranch. 1904 01:16:47,560 --> 01:16:49,221 First question he asks us, he gets us all in a room 1905 01:16:49,230 --> 01:16:51,308 and he says, "Who here thinks Blockbuster's 1906 01:16:51,317 --> 01:16:53,261 "in a lotta trouble and going bankrupt?" 1907 01:16:53,270 --> 01:16:55,307 And everybody raises their hand but me. 1908 01:16:55,316 --> 01:16:56,140 And Jim looks at me and he says, 1909 01:16:56,149 --> 01:16:57,761 "Shane, how are you not raising your hand?" 1910 01:16:57,770 --> 01:16:58,594 And I said, "Well, Jim, 1911 01:16:58,603 --> 01:17:00,658 "we have the offer to sell the company. 1912 01:17:00,667 --> 01:17:04,148 "If we're going to not invest in the online business, 1913 01:17:04,157 --> 01:17:05,158 "let's just sell the company 1914 01:17:05,167 --> 01:17:06,461 "and we'll get rid of all the debt." 1915 01:17:06,470 --> 01:17:09,391 - You do the math, that's a billion dollars. 1916 01:17:09,400 --> 01:17:11,471 And so, that's a very attractive number, 1917 01:17:11,480 --> 01:17:14,663 especially if you've got $720 million worth of debt 1918 01:17:14,672 --> 01:17:15,731 on your balance sheet. 1919 01:17:15,740 --> 01:17:19,568 - Jim had a billion-dollar tagline that he wanted to say: 1920 01:17:19,577 --> 01:17:21,001 "Movies any way." 1921 01:17:21,010 --> 01:17:23,831 And in that billion-dollar tagline, 1922 01:17:23,840 --> 01:17:25,881 you had to keep the online business operational 1923 01:17:25,890 --> 01:17:27,481 because you could deliver it in the store, 1924 01:17:27,490 --> 01:17:28,861 you could deliver it digitally, 1925 01:17:28,870 --> 01:17:30,821 and you could deliver it by mail. 1926 01:17:30,830 --> 01:17:35,211 - Working 18-, 20-hour days for months on end, 1927 01:17:35,220 --> 01:17:37,051 and to have that, 1928 01:17:37,060 --> 01:17:39,151 being told that we're gonna be done with the online deal 1929 01:17:39,160 --> 01:17:40,941 and we're gonna reengage in the stores 1930 01:17:40,950 --> 01:17:43,701 felt like kind of a losing proposition. 1931 01:17:43,710 --> 01:17:45,192 - When we heard Jim Keyes say, 1932 01:17:45,201 --> 01:17:46,181 "We're gonna make the stores great again," 1933 01:17:46,190 --> 01:17:47,241 we thought, "Really?" 1934 01:17:47,250 --> 01:17:49,041 - The day was coming for the end of the store. 1935 01:17:49,050 --> 01:17:49,958 That was the point where we realized, 1936 01:17:49,967 --> 01:17:51,681 "Okay, we think we've won now." 1937 01:17:51,690 --> 01:17:54,141 - When he exited Blockbuster Total Access, 1938 01:17:54,150 --> 01:17:56,451 I knew it was not a good sign; 1939 01:17:56,460 --> 01:17:59,378 in fact, so much so that I said, 1940 01:17:59,387 --> 01:18:03,788 "I'm gonna buy some Netflix stock," and I did, 1941 01:18:03,797 --> 01:18:07,491 and I bought a lot of Netflix stock. 1942 01:18:07,500 --> 01:18:10,621 - I remembered poor Jim Keyes was gonna buy Circuit City, 1943 01:18:10,630 --> 01:18:13,421 and that was just like, "Wow." 1944 01:18:13,430 --> 01:18:14,831 That was like the Titanic 1945 01:18:14,840 --> 01:18:16,871 is gonna merge with the Hindenberg. 1946 01:18:16,880 --> 01:18:19,161 It was just like, "What are you thinking?" 1947 01:18:19,170 --> 01:18:22,091 - I remember being on my back porch, crying. 1948 01:18:22,100 --> 01:18:25,111 We spent three years and we developed a great product. 1949 01:18:25,120 --> 01:18:26,871 We had 'em. 1950 01:18:26,880 --> 01:18:28,261 We were gonna be that retailer 1951 01:18:28,270 --> 01:18:30,221 that actually cannibalized itself, 1952 01:18:30,230 --> 01:18:33,821 that moved from a store business to a digital platform 1953 01:18:33,830 --> 01:18:38,081 and transitioned out, and Jim ended it. 1954 01:18:38,090 --> 01:18:40,918 - It wasn't long after we sort of won that battle 1955 01:18:40,927 --> 01:18:43,441 and all of a sudden we were starting to work on 1956 01:18:43,450 --> 01:18:45,051 what at the time we called downloading, 1957 01:18:45,060 --> 01:18:46,471 which didn't materialize that way 1958 01:18:46,480 --> 01:18:48,711 because the studios wouldn't let the movie 1959 01:18:48,720 --> 01:18:51,720 be captured on a device, so it became the streaming project. 1960 01:18:53,890 --> 01:18:55,301 We never gushed profit. 1961 01:18:55,310 --> 01:18:57,711 We were always operating very leanly and efficiently 1962 01:18:57,720 --> 01:18:59,321 and Wall Street always wanted more from us. 1963 01:18:59,330 --> 01:19:01,608 So then, it pivoted to, "What do you do 1964 01:19:01,617 --> 01:19:03,718 "about this opportunity to stream movies 1965 01:19:03,727 --> 01:19:05,490 "and how much we spend on content 1966 01:19:05,499 --> 01:19:06,368 "and where are we gonna get it 1967 01:19:06,377 --> 01:19:08,281 "and how are we gonna get it to the TV?" 1968 01:19:08,290 --> 01:19:10,201 - I remember most is a lot of conversation 1969 01:19:10,210 --> 01:19:15,210 about trying to figure out how to convince consumers 1970 01:19:16,640 --> 01:19:17,881 that this made sense 1971 01:19:17,890 --> 01:19:19,721 and wasn't the craziest thing they'd ever heard. 1972 01:19:19,730 --> 01:19:22,163 - The first two years, it was free. 1973 01:19:24,126 --> 01:19:27,811 At that time, no one knew how to hook up their internet 1974 01:19:27,820 --> 01:19:30,771 to their television in their living room, 1975 01:19:30,780 --> 01:19:32,891 and so there was a whole kind of learning, 1976 01:19:32,900 --> 01:19:34,898 like, "Is it worth it? 1977 01:19:34,907 --> 01:19:36,218 "How do you do it? 1978 01:19:36,227 --> 01:19:38,271 "Can I only watch it on my laptop?" 1979 01:19:38,280 --> 01:19:39,921 - The first thing, again, that I did 1980 01:19:39,930 --> 01:19:42,481 was I sat down with a lot of TV executives 1981 01:19:42,490 --> 01:19:44,771 to try to figure out what is this right 1982 01:19:44,780 --> 01:19:46,061 that we're trying to acquire? 1983 01:19:46,070 --> 01:19:50,431 - And the studios began to strike distribution deals 1984 01:19:50,440 --> 01:19:52,311 that they considered found money. 1985 01:19:52,320 --> 01:19:55,171 They were taking advantage of the dupes at Netflix 1986 01:19:55,180 --> 01:19:57,187 by charging exorbitant fees for 1987 01:19:57,196 --> 01:19:59,021 the right to stream content. 1988 01:19:59,030 --> 01:20:02,271 And Starz was one of the first to strike a deal with Netflix 1989 01:20:02,280 --> 01:20:05,981 that provided access to Disney films and to Sony films, 1990 01:20:05,990 --> 01:20:07,523 like Spider-Man 3. 1991 01:20:07,532 --> 01:20:08,932 - I know what it feels like. 1992 01:20:09,840 --> 01:20:11,391 Feels good. 1993 01:20:11,400 --> 01:20:12,224 The power. 1994 01:20:12,233 --> 01:20:13,451 - This was a pivotal moment 1995 01:20:13,460 --> 01:20:14,801 in the development of the streaming service. 1996 01:20:14,810 --> 01:20:17,201 It finally gave Netflix access 1997 01:20:17,210 --> 01:20:20,811 to mainstream cinematic content that it could use 1998 01:20:20,820 --> 01:20:22,901 to build and popularize its streaming service. 1999 01:20:22,910 --> 01:20:25,141 - This was a wonderful, easy payday. 2000 01:20:25,150 --> 01:20:27,071 I license content to Netflix. 2001 01:20:27,080 --> 01:20:28,061 I get money. 2002 01:20:28,070 --> 01:20:30,551 I make my quarterly numbers. 2003 01:20:30,560 --> 01:20:31,781 This is great. 2004 01:20:31,790 --> 01:20:35,851 What they've discovered though as they've gone further 2005 01:20:35,860 --> 01:20:38,301 is that, at a macro level, what they were doing 2006 01:20:38,310 --> 01:20:41,561 was actually helping Netflix get big, 2007 01:20:41,570 --> 01:20:44,571 that Netflix got big on the backs of their content. 2008 01:20:44,580 --> 01:20:46,261 And then, once they were big enough, 2009 01:20:46,270 --> 01:20:48,581 they were able to create their own content 2010 01:20:48,590 --> 01:20:50,981 and they didn't need the studios as much. 2011 01:20:50,990 --> 01:20:53,521 - I mean, a real key moment for Netflix 2012 01:20:53,530 --> 01:20:56,641 was when it realized it should be on every single device, 2013 01:20:56,650 --> 01:20:58,561 from your phone to your PC 2014 01:20:58,570 --> 01:21:01,061 to your gaming console to your streaming box. 2015 01:21:01,070 --> 01:21:03,521 Xbox 360 will be the only game system 2016 01:21:03,530 --> 01:21:06,001 that lets members who are also Netflix subscribers 2017 01:21:06,010 --> 01:21:10,091 instantly watch more than 10,000 movies and TV episodes, 2018 01:21:10,100 --> 01:21:13,161 more than doubling our current content offering. 2019 01:21:13,170 --> 01:21:14,951 - By 2010, it was pretty clear 2020 01:21:14,960 --> 01:21:17,601 that you did not really have a new hardware platform 2021 01:21:17,610 --> 01:21:19,031 unless Netflix was on it. 2022 01:21:19,040 --> 01:21:20,621 And so, it was completely logical 2023 01:21:20,630 --> 01:21:24,141 that when Apple announced the first iPad that year, 2024 01:21:24,150 --> 01:21:26,821 they really played up Netflix being one of the first apps. 2025 01:21:26,830 --> 01:21:30,140 Later in 2010, Apple had an event 2026 01:21:31,140 --> 01:21:33,291 where they had Reed Hastings come out on stage 2027 01:21:33,300 --> 01:21:34,831 to talk about the fact 2028 01:21:34,840 --> 01:21:36,971 that Netflix was arriving on the iPhone. 2029 01:21:36,980 --> 01:21:38,661 - And it's my pleasure to introduce 2030 01:21:38,670 --> 01:21:40,507 Netflix CEO Reed Hastings. 2031 01:21:40,516 --> 01:21:41,867 Thank you, Steve. 2032 01:21:41,876 --> 01:21:44,043 Thank you, Reed. 2033 01:21:45,100 --> 01:21:48,091 - Two months ago, we launched the Netflix application 2034 01:21:48,100 --> 01:21:51,401 for the iPad, and it's been a tremendous success for us. 2035 01:21:51,410 --> 01:21:54,571 It's now one of our fastest growing platforms. 2036 01:21:54,580 --> 01:21:56,381 It's just incredible. 2037 01:21:56,390 --> 01:21:58,591 The customer ratings in the App Store 2038 01:21:58,600 --> 01:22:00,971 are some of the highest of any application. 2039 01:22:00,980 --> 01:22:05,091 It's been one of the top 10 most downloaded applications 2040 01:22:05,100 --> 01:22:06,761 in all of the App Store. 2041 01:22:06,770 --> 01:22:08,951 And in particular, in the entertainment category, 2042 01:22:08,960 --> 01:22:11,411 the Netflix has been the number-one 2043 01:22:11,420 --> 01:22:12,833 most downloaded application. 2044 01:22:13,840 --> 01:22:15,031 - Well, Blockbuster is getting ready 2045 01:22:15,040 --> 01:22:17,451 for a bankruptcy filing in mid-September, 2046 01:22:17,460 --> 01:22:18,721 according to the LA Times. 2047 01:22:18,730 --> 01:22:20,811 The home rental company informed 2048 01:22:20,820 --> 01:22:22,292 six major Hollywood movie 2049 01:22:22,301 --> 01:22:24,371 studios about the plan last week. 2050 01:22:24,380 --> 01:22:28,231 Blockbuster has lost more than a billion dollars since 2008. 2051 01:22:28,240 --> 01:22:30,141 It's carrying about the same amount of debt. 2052 01:22:30,150 --> 01:22:32,691 Now, the paper says that Blockbuster plans to close 2053 01:22:32,700 --> 01:22:36,021 between 500 and 800 stores this year. 2054 01:22:36,030 --> 01:22:37,581 - There wasn't any great joy 2055 01:22:37,590 --> 01:22:39,978 or there wasn't any backslapping or anything. 2056 01:22:39,987 --> 01:22:41,521 It was like business as usual. 2057 01:22:41,530 --> 01:22:42,981 - Not that Netflix did anything 2058 01:22:42,990 --> 01:22:45,081 other than not go out of business 2059 01:22:45,090 --> 01:22:46,631 while Blockbuster was screwing up. 2060 01:22:46,640 --> 01:22:50,921 - It's a shame, but it's the reality of the business 2061 01:22:50,930 --> 01:22:53,491 that Blockbuster was in, in the store business. 2062 01:22:53,500 --> 01:22:57,081 There was nothing that was going to save 2063 01:22:57,090 --> 01:22:58,601 video rental stores. 2064 01:22:58,610 --> 01:23:00,463 - Hello, welcome to Blockbuster! 2065 01:23:02,720 --> 01:23:04,220 Can I help you find something? 2066 01:23:05,470 --> 01:23:09,571 I can't find Turner & Hooch. 2067 01:23:09,580 --> 01:23:11,811 Where is Turner & Hooch? 2068 01:23:11,820 --> 01:23:13,952 - Oh, I believe we have that over in the... 2069 01:23:19,770 --> 01:23:21,421 Oh; oh, I get it. 2070 01:23:21,430 --> 01:23:23,831 Video stores are so old they have ghosts in them. 2071 01:23:23,840 --> 01:23:24,771 Okay, thanks. 2072 01:23:24,780 --> 01:23:25,811 I get it. 2073 01:23:25,820 --> 01:23:26,821 But you're wrong! 2074 01:23:26,830 --> 01:23:29,311 - I do remember the South Park episode. 2075 01:23:29,320 --> 01:23:31,861 The common perception was we were going away, 2076 01:23:31,870 --> 01:23:35,971 and that was just, that was their way of talking about it. 2077 01:23:35,980 --> 01:23:38,911 - It was really sad to see that a Blockbuster, 2078 01:23:38,920 --> 01:23:41,103 and there were plenty of other chains, 2079 01:23:42,610 --> 01:23:44,753 got put out by Netflix. 2080 01:23:46,080 --> 01:23:48,961 That, I think, was the first indication by the industry. 2081 01:23:48,970 --> 01:23:49,918 They're like, "Oh, these people 2082 01:23:49,927 --> 01:23:52,341 "are doing something innovative." 2083 01:23:52,350 --> 01:23:53,951 - Reed Hastings is brilliant. 2084 01:23:53,960 --> 01:23:55,131 Reed is a visionary. 2085 01:23:55,140 --> 01:23:58,481 - At the strategic points, I think Reed brought that vision 2086 01:23:58,490 --> 01:24:03,003 with the subscription, with the focus on downloadable. 2087 01:24:03,880 --> 01:24:07,041 From the beginning, that was in his head and in his ideas. 2088 01:24:07,050 --> 01:24:10,011 - You know, Reed is the smartest guy I've ever know. 2089 01:24:10,020 --> 01:24:13,271 - Every time he had an idea, it was just exciting 2090 01:24:13,280 --> 01:24:15,048 and it was like, "Well, maybe that will work." 2091 01:24:15,057 --> 01:24:18,201 - He was really a visionary who saw the streaming. 2092 01:24:18,210 --> 01:24:19,651 - In the context of this time, 2093 01:24:19,660 --> 01:24:21,681 where Netflix had just launched 2094 01:24:21,690 --> 01:24:23,711 very successfully in Latin America, 2095 01:24:23,720 --> 01:24:27,311 growth was at expectations, US growth was off the charts, 2096 01:24:27,320 --> 01:24:30,071 everything Netflix did turned to gold. 2097 01:24:30,080 --> 01:24:32,121 Netflix was invincible; it was unstoppable. 2098 01:24:32,130 --> 01:24:33,721 And we kinda knew that. 2099 01:24:33,730 --> 01:24:35,798 - We never, at any point in the streaming business, 2100 01:24:35,807 --> 01:24:38,471 said, "You have to protect the DVD side." 2101 01:24:38,480 --> 01:24:39,788 We said, "Let's grow this business, 2102 01:24:39,797 --> 01:24:41,918 "and it might have a little impact on DVD. 2103 01:24:41,927 --> 01:24:43,478 "It might have a negative impact on our DVD business, 2104 01:24:43,487 --> 01:24:45,061 "but it's gonna grow the overall." 2105 01:24:45,070 --> 01:24:47,941 - Eventually, in 2010, the belief was 2106 01:24:47,950 --> 01:24:51,141 you could separate out the two services. 2107 01:24:51,150 --> 01:24:55,751 And of course, that was a huge challenge at that time. 2108 01:24:55,760 --> 01:24:57,561 There was the raising of the price. 2109 01:24:57,570 --> 01:24:59,641 There was the separating of the services. 2110 01:24:59,650 --> 01:25:01,171 - We're making this video today 2111 01:25:01,180 --> 01:25:04,891 to apologize in person, or at least on camera, 2112 01:25:04,900 --> 01:25:06,921 for something that we did recently. 2113 01:25:06,930 --> 01:25:11,871 - The video, Reed apologized for the price increase, 2114 01:25:11,880 --> 01:25:14,781 admitting that he slid into arrogance 2115 01:25:14,790 --> 01:25:16,858 and said that that was, 2116 01:25:16,867 --> 01:25:19,128 "We wish we had announced the price increase differently, 2117 01:25:19,137 --> 01:25:22,008 "which is why we're now taking the time on video 2118 01:25:22,017 --> 01:25:22,841 "with Andy Rendich 2119 01:25:22,850 --> 01:25:26,591 "to explain how DVD and streaming are separating." 2120 01:25:26,600 --> 01:25:29,841 - We think that the DVD service needs its own brand 2121 01:25:29,850 --> 01:25:31,711 so that we can advertise it. 2122 01:25:31,720 --> 01:25:34,781 So, we've named our DVD service Qwikster. 2123 01:25:34,790 --> 01:25:36,511 - Qwikster was the name given to 2124 01:25:36,520 --> 01:25:38,261 what was to be the DVD-by-mail company. 2125 01:25:38,270 --> 01:25:39,604 All the DVD-by-mail subscribers 2126 01:25:39,613 --> 01:25:41,661 were gonna go have their own account. 2127 01:25:41,670 --> 01:25:43,141 It's gonna be its own company. 2128 01:25:43,150 --> 01:25:45,081 Andy Rendich was named CEO. 2129 01:25:45,090 --> 01:25:46,231 They had their own office space. 2130 01:25:46,240 --> 01:25:47,561 They moved outta the building. 2131 01:25:47,570 --> 01:25:49,861 Netflix management meetings were separated. 2132 01:25:49,870 --> 01:25:53,391 And it was truly a division of the two entities. 2133 01:25:53,400 --> 01:25:55,131 And consumers hated it. 2134 01:25:55,140 --> 01:25:56,518 It was the right strategy, 2135 01:25:56,527 --> 01:25:59,001 but it was implemented far too aggressively. 2136 01:25:59,010 --> 01:26:00,861 I remember actually more of the fallout 2137 01:26:00,870 --> 01:26:01,801 than the actual filming 2138 01:26:01,810 --> 01:26:04,591 because Saturday Night Live did a parody 2139 01:26:04,600 --> 01:26:07,451 of the video that Reed and Andy Rendich shot. 2140 01:26:07,460 --> 01:26:09,421 - Did we spell Qwikster in a normal way? 2141 01:26:09,430 --> 01:26:11,031 No, we didn't. - No. 2142 01:26:11,040 --> 01:26:13,571 - Q-W-I-K; annoying, but easier. 2143 01:26:13,580 --> 01:26:14,451 - Right, yeah. 2144 01:26:14,460 --> 01:26:15,991 And by the way, we know it's off-putting 2145 01:26:16,000 --> 01:26:17,951 to see the CEO of a powerful company 2146 01:26:17,960 --> 01:26:19,551 rocking a goatee and teal shirt, 2147 01:26:19,560 --> 01:26:22,989 but trust us, we know what we're doing. 2148 01:26:24,594 --> 01:26:25,891 You know you're a successful company 2149 01:26:25,900 --> 01:26:27,691 when you became the source of parody. 2150 01:26:27,700 --> 01:26:29,844 - The whole Qwikster debacle, that was not the first time 2151 01:26:29,853 --> 01:26:32,501 that influencers turned against Netflix 2152 01:26:32,510 --> 01:26:35,443 or that I'd seen influencers turn against other companies. 2153 01:26:36,540 --> 01:26:38,387 That's part of the dynamics. 2154 01:26:38,396 --> 01:26:42,921 You're tapping into people's primal passion. 2155 01:26:42,930 --> 01:26:44,591 - There was significant backlash. 2156 01:26:44,600 --> 01:26:47,671 Netflix lost 880,000 subscribers, 2157 01:26:47,680 --> 01:26:49,173 almost a million subscribers. 2158 01:26:50,240 --> 01:26:52,351 The punishment by the market was severe. 2159 01:26:52,360 --> 01:26:55,381 They devalued Netflix by about 70% of its market cap 2160 01:26:55,390 --> 01:26:56,761 in about three months. 2161 01:26:56,770 --> 01:26:59,141 And that lasted for about a year. 2162 01:26:59,150 --> 01:27:04,150 - When I first read the news about Qwikster 2163 01:27:04,470 --> 01:27:07,981 and saw the community up in arms 2164 01:27:07,990 --> 01:27:11,121 about this unbelievable, horrendous, 2165 01:27:11,130 --> 01:27:14,531 disastrous thing that had taken place, 2166 01:27:14,540 --> 01:27:17,258 all I could think to myself is, 2167 01:27:17,267 --> 01:27:20,341 "Oh my god, I know exactly what's going on here." 2168 01:27:20,350 --> 01:27:24,178 Reed was looking at the business and saying, 2169 01:27:24,187 --> 01:27:28,238 "I have to be willing to sacrifice the business 2170 01:27:28,247 --> 01:27:32,458 "which is the past and put everything I have 2171 01:27:32,467 --> 01:27:34,261 "on the business which is the future." 2172 01:27:34,270 --> 01:27:37,531 And where I did that with several thousand customers, 2173 01:27:37,540 --> 01:27:40,783 he was doing it with 30 or 40 million customers. 2174 01:27:42,000 --> 01:27:44,991 And I said, "Oh my god." 2175 01:27:45,000 --> 01:27:47,171 That may not have been handled perfectly, 2176 01:27:47,180 --> 01:27:49,991 but that is one of the most courageous things 2177 01:27:50,000 --> 01:27:51,891 I've seen an entrepreneur do. 2178 01:27:51,900 --> 01:27:56,311 - For us, navigating the unknown is always the future. 2179 01:27:56,320 --> 01:27:58,261 Using this kind of data that we have, 2180 01:27:58,270 --> 01:28:00,129 which can help us identify great 2181 01:28:00,138 --> 01:28:01,721 filmmakers and great actors 2182 01:28:01,730 --> 01:28:04,541 and the size of audiences for certain shows 2183 01:28:04,550 --> 01:28:05,374 and all those things, 2184 01:28:05,383 --> 01:28:09,411 we set out to begin to produce Netflix original series. 2185 01:28:09,420 --> 01:28:11,421 And that first one is "House of Cards". 2186 01:28:11,430 --> 01:28:13,178 - When Netflix announced, 2187 01:28:13,187 --> 01:28:14,578 "We're gonna start dipping our toes 2188 01:28:14,587 --> 01:28:15,731 "into original programming," 2189 01:28:15,740 --> 01:28:17,528 I think a lot of Hollywood thought, "Wait a minute. 2190 01:28:17,537 --> 01:28:20,368 "These are the guys who just mail us our DVDs 2191 01:28:20,377 --> 01:28:21,838 "and they're streaming movies now too, 2192 01:28:21,847 --> 01:28:26,251 "but what does this really mean in the big picture?" 2193 01:28:26,260 --> 01:28:27,623 What is it you want? 2194 01:28:28,960 --> 01:28:33,461 - Your absolute, unquestioning loyalty. 2195 01:28:33,470 --> 01:28:34,874 - And I remember seeing this 2196 01:28:34,883 --> 01:28:36,441 big billboard with Kevin Spacey 2197 01:28:36,450 --> 01:28:37,274 for "House of Cards", and I was like, 2198 01:28:37,283 --> 01:28:38,861 "What is this new show?" 2199 01:28:38,870 --> 01:28:39,891 And I saw it was on Netflix. 2200 01:28:39,900 --> 01:28:41,588 I was like, "Well, Netflix, 2201 01:28:41,597 --> 01:28:44,098 "that's where I get my movies from every week, 2202 01:28:44,107 --> 01:28:45,778 "but I never thought of it as a place to go 2203 01:28:45,787 --> 01:28:47,461 "to watch original programming." 2204 01:28:47,470 --> 01:28:51,001 - The idea that we had to kind of out-angle everybody else 2205 01:28:51,010 --> 01:28:52,441 to get it on Netflix, 2206 01:28:52,450 --> 01:28:54,221 the story behind that really 2207 01:28:54,230 --> 01:28:56,191 was us convincing David Fincher 2208 01:28:56,200 --> 01:28:57,391 that this would be a great place 2209 01:28:57,400 --> 01:29:00,221 to take this really risky bet for himself, 2210 01:29:00,230 --> 01:29:03,291 coming out of feature film and into a TV series. 2211 01:29:03,300 --> 01:29:04,911 And the way that we got him excited about it 2212 01:29:04,920 --> 01:29:07,621 was pointing out to him how different it was gonna be 2213 01:29:07,630 --> 01:29:09,481 from every other kind of television. 2214 01:29:09,490 --> 01:29:11,311 - They actually outbid HBO. 2215 01:29:11,320 --> 01:29:13,801 HBO was kinda vying for that as well, 2216 01:29:13,810 --> 01:29:15,651 the David Fincher series, 'cause it's a big production. 2217 01:29:15,660 --> 01:29:17,211 You have David Fincher, Kevin Spacey. 2218 01:29:17,220 --> 01:29:18,601 Who wouldn't want the project? 2219 01:29:18,610 --> 01:29:22,181 But Netflix threw $100 million at it for two seasons. 2220 01:29:22,190 --> 01:29:24,671 I was like, "Wow, they just out-punched HBO," 2221 01:29:24,680 --> 01:29:25,674 which I always, for me, 2222 01:29:25,683 --> 01:29:27,821 it's the premium of all premium networks. 2223 01:29:27,830 --> 01:29:29,521 So, I was really impressed with that. 2224 01:29:29,530 --> 01:29:31,201 - I know it's changed how we think about 2225 01:29:31,210 --> 01:29:32,771 how we're gonna watch television. 2226 01:29:32,780 --> 01:29:34,391 I don't think anybody's gonna reserve 2227 01:29:34,400 --> 01:29:36,351 a night for a show from hereon. 2228 01:29:36,360 --> 01:29:39,201 I think people are gonna expect it to change for them, 2229 01:29:39,210 --> 01:29:43,501 that if you want any sort of serialized storytelling form, 2230 01:29:43,510 --> 01:29:45,011 then you should have it available 2231 01:29:45,020 --> 01:29:47,091 as the consumer can consume it. 2232 01:29:47,100 --> 01:29:49,621 And we don't have those lives that we used to be able 2233 01:29:49,630 --> 01:29:51,811 to organize around Thursday nights anymore. 2234 01:29:51,820 --> 01:29:53,461 - Yeah, being a part of something like that 2235 01:29:53,470 --> 01:29:54,921 that gets people talking, 2236 01:29:54,930 --> 01:29:56,403 whether they were talking about 2237 01:29:56,412 --> 01:29:57,661 it or not, is always nice. 2238 01:29:57,670 --> 01:29:59,391 - And they've really kind of changed 2239 01:29:59,400 --> 01:30:00,911 what is water-cooler talk. 2240 01:30:00,920 --> 01:30:02,201 It's instant. 2241 01:30:02,210 --> 01:30:04,501 People are talking about it right away on social media. 2242 01:30:04,510 --> 01:30:05,628 You look at shows like "13 2243 01:30:05,637 --> 01:30:07,108 Reasons Why", "Stranger Things", 2244 01:30:07,117 --> 01:30:08,981 "The Crown", "Orange is the New Black". 2245 01:30:08,990 --> 01:30:10,722 - I think "Orange is the New 2246 01:30:10,731 --> 01:30:12,651 Black" really set Netflix apart 2247 01:30:12,660 --> 01:30:16,851 from your cable providers and broadcasters 2248 01:30:16,860 --> 01:30:21,121 because it had this huge cast of just really diverse women, 2249 01:30:21,130 --> 01:30:22,751 women that we really haven't seen before, 2250 01:30:22,760 --> 01:30:24,291 women that aren't featured in a lotta content. 2251 01:30:24,300 --> 01:30:28,011 Some brand new actresses were introduced 2252 01:30:28,020 --> 01:30:29,899 that people have fallen in love with over the years. 2253 01:30:29,908 --> 01:30:32,671 - A lot of us in the very first year of this show, 2254 01:30:32,680 --> 01:30:35,368 most of us did not have any fame or anything like that, 2255 01:30:35,377 --> 01:30:37,921 and we really went through this journey together. 2256 01:30:37,930 --> 01:30:39,543 - It's also the true representation 2257 01:30:39,552 --> 01:30:40,541 of what the world is. 2258 01:30:40,550 --> 01:30:41,991 I know diversity is a trend now, 2259 01:30:42,000 --> 01:30:42,978 but this is what it really is. 2260 01:30:42,987 --> 01:30:44,368 And the stories that are being told 2261 01:30:44,377 --> 01:30:47,351 and that we've been working on have connected, 2262 01:30:47,360 --> 01:30:49,138 not only in America but throughout the world. 2263 01:30:49,147 --> 01:30:52,191 - It was a brilliant move on their part 2264 01:30:52,200 --> 01:30:54,791 to go the original programming route, 2265 01:30:54,800 --> 01:30:56,841 because of course we see where they are today, 2266 01:30:56,850 --> 01:30:57,801 this powerhouse. 2267 01:30:57,810 --> 01:31:01,283 People want their shows on Netflix. 2268 01:31:02,384 --> 01:31:03,334 - Do you know Will? 2269 01:31:04,550 --> 01:31:05,750 Do you know where he is? 2270 01:31:06,880 --> 01:31:08,261 - Hiding. 2271 01:31:08,270 --> 01:31:09,795 From who? 2272 01:31:17,197 --> 01:31:18,030 - Run! 2273 01:31:19,950 --> 01:31:21,347 - I work really hard on 2274 01:31:21,356 --> 01:31:23,431 everything that I'm involved in, 2275 01:31:23,440 --> 01:31:26,661 and I'm doing it so that it reaches audiences, 2276 01:31:26,670 --> 01:31:29,001 so that when it turns out to be something 2277 01:31:29,010 --> 01:31:31,311 like "Night at the Museum" or "Stranger Things" 2278 01:31:31,320 --> 01:31:34,281 or "Arrival", things that find a big audience, 2279 01:31:34,290 --> 01:31:35,751 that's very, very satisfying 2280 01:31:35,760 --> 01:31:39,191 because it means that this story that I found interesting 2281 01:31:39,200 --> 01:31:41,361 connected with millions of people around the world. 2282 01:31:41,370 --> 01:31:43,241 So, that's the best part of that success. 2283 01:31:43,250 --> 01:31:46,511 - I think there's data, they actually know what I watch, 2284 01:31:46,520 --> 01:31:47,808 but I don't think they 2285 01:31:47,817 --> 01:31:49,761 recommend stuff that I'll like. 2286 01:31:49,770 --> 01:31:52,671 I think they recommend stuff 'cause they need to justify 2287 01:31:52,680 --> 01:31:54,451 that they made an investment in it, 2288 01:31:54,460 --> 01:31:56,321 'cause they love bragging on earnings calls 2289 01:31:56,330 --> 01:31:58,827 about the ROI on the $90 million 2290 01:31:58,836 --> 01:32:00,961 they spent making "Bright", 2291 01:32:00,970 --> 01:32:03,741 which was a piece of crap, by the way, 2292 01:32:03,750 --> 01:32:06,781 as was "The Cloverfield Paradox," a piece of crap, 2293 01:32:06,790 --> 01:32:09,778 and they bragged, "Oh yeah, Super Bowl ad was worth it. 2294 01:32:09,787 --> 01:32:11,321 "We had more views of that movie..." 2295 01:32:11,330 --> 01:32:13,351 Well, had you heard of "The Cloverfield Paradox" 2296 01:32:13,360 --> 01:32:14,341 before the Super Bowl? 2297 01:32:14,350 --> 01:32:15,174 No. 2298 01:32:15,183 --> 01:32:16,861 I had, 'cause I cover movie theaters 2299 01:32:16,870 --> 01:32:18,461 and I knew Paramount was making it 2300 01:32:18,470 --> 01:32:20,891 and had delayed it twice and canceled it, 2301 01:32:20,900 --> 01:32:22,381 and Netflix bought a piece of crap 2302 01:32:22,390 --> 01:32:24,121 and then recommended it to all of us. 2303 01:32:24,130 --> 01:32:25,661 And they're like, "ROI!" 2304 01:32:25,670 --> 01:32:26,931 I think that hurts them. 2305 01:32:26,940 --> 01:32:29,261 I think if they have you watch crap, 2306 01:32:29,270 --> 01:32:32,398 you are far more likely to go, "I hate this company 2307 01:32:32,407 --> 01:32:34,121 "and I don't wanna be a subscriber anymore." 2308 01:32:34,130 --> 01:32:36,801 - What's really interesting about the amount of money 2309 01:32:36,810 --> 01:32:38,441 Netflix spends is they're spending 2310 01:32:38,450 --> 01:32:41,331 tens of billions of dollars 2311 01:32:41,340 --> 01:32:43,851 on their original programming and acquisitions. 2312 01:32:43,860 --> 01:32:46,341 They're not making that back. 2313 01:32:46,350 --> 01:32:48,041 Does it matter to them right now? 2314 01:32:48,050 --> 01:32:48,874 I don't think so. 2315 01:32:48,883 --> 01:32:52,291 I think they have a much longer-term plan in place. 2316 01:32:52,300 --> 01:32:55,311 - They can spread out the cost of their content 2317 01:32:55,320 --> 01:32:58,201 over millions and millions of subscribers. 2318 01:32:58,210 --> 01:33:02,361 That gives them the ability to pay more than a studio 2319 01:33:02,370 --> 01:33:05,531 that's got to make money on that particular film. 2320 01:33:05,540 --> 01:33:10,540 So, today, I think they see them as a huge competitor, 2321 01:33:10,590 --> 01:33:14,351 both on the content side as well as the distribution. 2322 01:33:14,360 --> 01:33:15,991 - I do a lot of work with Netflix 2323 01:33:16,000 --> 01:33:19,621 and I like the fact that stories are stories. 2324 01:33:19,630 --> 01:33:22,178 That old idea that, "Well, there's movies up here 2325 01:33:22,187 --> 01:33:24,001 "and then there's TV," no. 2326 01:33:24,010 --> 01:33:25,141 That's obsolete. 2327 01:33:25,150 --> 01:33:26,641 Now there's just good stories. 2328 01:33:26,650 --> 01:33:29,541 And it doesn't matter whether you watch them on a big-screen 2329 01:33:29,550 --> 01:33:31,281 or a laptop or a phone. 2330 01:33:31,290 --> 01:33:32,547 The strength of good 2331 01:33:32,556 --> 01:33:34,641 storytelling is everywhere now, 2332 01:33:34,650 --> 01:33:37,181 and I think that that's a really good thing. 2333 01:33:37,190 --> 01:33:40,811 - Hollywood talent, actors, A-listers, 2334 01:33:40,820 --> 01:33:43,911 probably weren't taking this very seriously at first. 2335 01:33:43,920 --> 01:33:46,471 - It doesn't affect our process of making the film 2336 01:33:46,480 --> 01:33:48,421 in any obvious ways. 2337 01:33:48,430 --> 01:33:50,441 It may, before we get to shooting, 2338 01:33:50,450 --> 01:33:51,971 in terms of what you're talking about 2339 01:33:51,980 --> 01:33:53,911 or does it reach the most people, 2340 01:33:53,920 --> 01:33:55,094 it definitely has something to do 2341 01:33:55,103 --> 01:33:56,791 with the way films are marketed. 2342 01:33:56,800 --> 01:33:59,801 - I think it helps get films out to the world, 2343 01:33:59,810 --> 01:34:00,861 films that I wouldn't see 2344 01:34:00,870 --> 01:34:02,891 that are being done in different parts of the world, 2345 01:34:02,900 --> 01:34:05,553 filmmakers from the Philippines 2346 01:34:05,562 --> 01:34:07,391 or India or wherever, 2347 01:34:07,400 --> 01:34:09,871 these little movies that you get to see now 2348 01:34:09,880 --> 01:34:11,831 and these filmmakers that are really talented 2349 01:34:11,840 --> 01:34:13,498 that you get to finally see their work. 2350 01:34:13,507 --> 01:34:15,281 And it's inspiring to see that. 2351 01:34:15,290 --> 01:34:17,961 It hurts it only because they see everything now, 2352 01:34:17,970 --> 01:34:19,911 so you have to really try to challenge yourself 2353 01:34:19,920 --> 01:34:20,941 to bring something new 2354 01:34:20,950 --> 01:34:23,621 and something special to the audience. 2355 01:34:23,630 --> 01:34:25,891 They can binge all night long. 2356 01:34:25,900 --> 01:34:27,471 - The internet is transforming 2357 01:34:27,480 --> 01:34:29,501 so many sectors of our economy. 2358 01:34:29,510 --> 01:34:30,951 And we're internet TV, 2359 01:34:30,960 --> 01:34:34,731 and that sector has grown from very small 15 years ago 2360 01:34:34,740 --> 01:34:36,961 to starting to be significant now. 2361 01:34:36,970 --> 01:34:38,481 And in the next 10 or 20 years, 2362 01:34:38,490 --> 01:34:40,871 internet TV is gonna be all of TV. 2363 01:34:40,880 --> 01:34:45,691 - I think Netflix has changed Hollywood because their model 2364 01:34:45,700 --> 01:34:48,221 is unlike anything that we've seen before. 2365 01:34:48,230 --> 01:34:50,071 - Netflix is not changing the global market. 2366 01:34:50,080 --> 01:34:53,201 It's totally revolutionizing it. 2367 01:34:53,210 --> 01:34:54,611 We have a system in France. 2368 01:34:54,620 --> 01:34:56,721 First, the movie are released in theaters, 2369 01:34:56,730 --> 01:35:00,431 and then 18 months later they're on Canal+ 2370 01:35:00,440 --> 01:35:02,502 or pay TV or the pay TVs, 2371 01:35:02,511 --> 01:35:05,721 and then we have them on network television. 2372 01:35:05,730 --> 01:35:07,571 - I think that Netflix is a machine 2373 01:35:07,580 --> 01:35:09,191 that brings your passions out. 2374 01:35:09,200 --> 01:35:10,701 Either you hate it or you love it. 2375 01:35:10,710 --> 01:35:13,081 Let's say if you're a small distribution company 2376 01:35:13,090 --> 01:35:15,691 and you only distribute theatrical, 2377 01:35:15,700 --> 01:35:17,761 Netflix is not gonna be your friend. 2378 01:35:17,770 --> 01:35:19,711 - I mean, the kids, they're not watching TV anymore. 2379 01:35:19,720 --> 01:35:20,581 They're going back to that. 2380 01:35:20,590 --> 01:35:22,721 They're watching the show however they want 2381 01:35:22,730 --> 01:35:23,731 on whatever they want, 2382 01:35:23,740 --> 01:35:27,251 on the phone, on their tablets, on their computers. 2383 01:35:27,260 --> 01:35:28,351 They don't watch TV anymore. 2384 01:35:28,360 --> 01:35:29,401 And when they watch TV, 2385 01:35:29,410 --> 01:35:31,721 they watch Netflix on TV with their parents. 2386 01:35:31,730 --> 01:35:33,921 - The studios, they're not sure what to do about that. 2387 01:35:33,930 --> 01:35:35,681 I mean, they do the tent pole movies. 2388 01:35:35,690 --> 01:35:38,431 They make the big Avengers movies that come out, 2389 01:35:38,440 --> 01:35:39,291 and these are the movies 2390 01:35:39,300 --> 01:35:41,231 that millions of people are gonna go see 2391 01:35:41,240 --> 01:35:42,691 and make billions of dollars. 2392 01:35:42,700 --> 01:35:44,791 But in the long term, what do we do 2393 01:35:44,800 --> 01:35:46,591 to keep people watching our stuff 2394 01:35:46,600 --> 01:35:47,991 in between the three or four years 2395 01:35:48,000 --> 01:35:49,671 it takes to make one of these tent pole films? 2396 01:35:49,680 --> 01:35:51,931 And I think they're reacting to that. 2397 01:35:51,940 --> 01:35:54,932 I think it's causing a lotta these mergers to take place, 2398 01:35:54,941 --> 01:35:58,651 like Fox-Disney and AT&T and Time Warner, 2399 01:35:58,660 --> 01:36:01,511 to compete to pull all their resources together. 2400 01:36:01,520 --> 01:36:03,311 That's why Disney is coming out 2401 01:36:03,320 --> 01:36:05,031 with their own streaming platform, 2402 01:36:05,040 --> 01:36:05,928 because they wanna be like, 2403 01:36:05,937 --> 01:36:07,828 "Hey, you wanna come watch our stuff. 2404 01:36:07,837 --> 01:36:08,917 "Not gonna be on Netflix 2405 01:36:08,926 --> 01:36:10,421 anymore; you gotta come to us." 2406 01:36:10,430 --> 01:36:13,481 - I mean, Netflix is valued like a Silicon Valley company. 2407 01:36:13,490 --> 01:36:14,671 But as they start to look 2408 01:36:14,680 --> 01:36:16,941 more and more like a media company, 2409 01:36:16,950 --> 01:36:19,421 and as media companies such as Disney 2410 01:36:19,430 --> 01:36:21,061 try to take on Netflix more directly, 2411 01:36:21,070 --> 01:36:23,154 at some point you have to ask yourself whether it adds up 2412 01:36:23,163 --> 01:36:25,081 that the valuations are different. 2413 01:36:25,090 --> 01:36:28,261 - Warner Bros. Was an $84-billion deal. 2414 01:36:28,270 --> 01:36:30,621 Fox is a $90-billion deal. 2415 01:36:30,630 --> 01:36:32,681 So, Netflix is worth more than Warner Bros., 2416 01:36:32,690 --> 01:36:34,601 HBO, and Fox combined? 2417 01:36:34,610 --> 01:36:35,831 That's crazy. 2418 01:36:35,840 --> 01:36:38,381 And if you don't think these studio heads, 2419 01:36:38,390 --> 01:36:41,771 these CEOs of these companies recognize that, 2420 01:36:41,780 --> 01:36:43,101 they're bitter about it. 2421 01:36:43,110 --> 01:36:46,201 They're gonna win back their economic rent. 2422 01:36:46,210 --> 01:36:47,981 - All the tech giants are competing with Netflix 2423 01:36:47,990 --> 01:36:49,411 in one way or another. 2424 01:36:49,420 --> 01:36:51,808 Amazon is doing it very directly 2425 01:36:51,817 --> 01:36:53,631 with Amazon Prime Video. 2426 01:36:53,640 --> 01:36:55,351 YouTube now has YouTube TV, 2427 01:36:55,360 --> 01:36:59,061 which is sort of a cable-TV-type service. 2428 01:36:59,070 --> 01:37:01,601 Netflix has such a headstart these days 2429 01:37:01,610 --> 01:37:03,661 that even these really smart companies 2430 01:37:03,670 --> 01:37:05,891 have a pretty steep road ahead of them. 2431 01:37:05,900 --> 01:37:07,101 And Netflix is doing that well. 2432 01:37:07,110 --> 01:37:09,821 They're spending their money wisely, and you can tell. 2433 01:37:09,830 --> 01:37:11,585 I mean, they're growing every day. 2434 01:37:11,594 --> 01:37:13,931 - You're like one of the big new media disruptors. 2435 01:37:13,940 --> 01:37:16,711 Why did the entertainment industry need to be disrupted? 2436 01:37:16,720 --> 01:37:19,841 - I think people in our industry 2437 01:37:19,850 --> 01:37:22,531 gravitate to disruption because of the challenge, 2438 01:37:22,540 --> 01:37:26,851 because it's a sense of change and impact in what we can do. 2439 01:37:26,860 --> 01:37:30,461 And to be able to watch TV shows any time you want, 2440 01:37:30,470 --> 01:37:32,560 it's a nice, friendly kind of disruption. 2441 01:37:43,950 --> 01:37:48,651 - Midnight that Sunday night, my phone starts ringing, 2442 01:37:48,660 --> 01:37:51,618 and ringing, texts coming through. 2443 01:37:51,627 --> 01:37:53,658 "You gotta see this, you gotta see this. 2444 01:37:53,667 --> 01:37:54,498 "You gotta do it, you gotta do it." 2445 01:37:54,507 --> 01:37:56,301 "What are you talking about?" 2446 01:37:56,310 --> 01:37:57,861 - Despite the fact that Blockbuster 2447 01:37:57,870 --> 01:37:59,831 filed for bankruptcy in 2010, 2448 01:37:59,840 --> 01:38:03,271 there are apparently four independently owned franchises 2449 01:38:03,280 --> 01:38:05,111 still operating in the United States, 2450 01:38:05,120 --> 01:38:06,751 three of which are in Alaska. 2451 01:38:06,760 --> 01:38:09,721 - So, I got up the next morning and watched the clip, 2452 01:38:09,730 --> 01:38:12,321 and then I started to understand what he had done. 2453 01:38:12,330 --> 01:38:13,514 - It does sound like something 2454 01:38:13,523 --> 01:38:14,521 that we would do; 2455 01:38:14,530 --> 01:38:17,411 you know, buy Russell Crowe's jockstrap 2456 01:38:17,420 --> 01:38:19,491 and send it to one of the last remaining Blockbusters 2457 01:38:19,500 --> 01:38:20,324 in Alaska. 2458 01:38:20,333 --> 01:38:21,963 Even that sentence is absolutely 2459 01:38:21,972 --> 01:38:23,361 incredible to say out loud. 2460 01:38:23,370 --> 01:38:26,571 - So then, the deal was is that we wanna buy this stuff 2461 01:38:26,580 --> 01:38:27,861 and we think we wanna give it 2462 01:38:27,870 --> 01:38:30,091 to the last Blockbusters in Alaska 2463 01:38:30,100 --> 01:38:31,633 to help out their business. 2464 01:38:32,690 --> 01:38:33,972 Okay, great deal! 2465 01:38:36,046 --> 01:38:38,353 - Are you not entertained?! 2466 01:38:38,362 --> 01:38:40,445 Are you not entertained?! 2467 01:38:41,610 --> 01:38:44,321 - It did generate a lotta traffic, 2468 01:38:44,330 --> 01:38:47,251 a lot from tourists that knew about it, 2469 01:38:47,260 --> 01:38:49,201 and they would come in just to see that. 2470 01:38:49,210 --> 01:38:50,246 Of course, we'd try to sell 'em 2471 01:38:50,255 --> 01:38:51,201 something when they came in, 2472 01:38:51,210 --> 01:38:52,901 but a lotta people didn't buy anything. 2473 01:38:52,910 --> 01:38:55,541 But, yeah, there's no doubt it generated traffic. 2474 01:38:55,550 --> 01:38:57,451 Unfortunately, it didn't help it enough. 2475 01:38:57,460 --> 01:38:59,821 Alaska's last two Blockbuster video stores 2476 01:38:59,830 --> 01:39:04,830 are calling it quits, leaving just one store open in the US. 2477 01:39:04,870 --> 01:39:06,761 The closures come just two months after 2478 01:39:06,770 --> 01:39:10,151 the host of HBO's "Last Week Tonight with John Oliver" 2479 01:39:10,160 --> 01:39:13,051 sent film memorabilia to the Anchorage store, 2480 01:39:13,060 --> 01:39:16,161 which displayed it in an effort to ramp up business. 2481 01:39:16,170 --> 01:39:19,351 The closures will leave the Blockbuster in Bend, Oregon, 2482 01:39:19,360 --> 01:39:21,411 as the sole holdout. 2483 01:39:21,420 --> 01:39:23,191 - The nostalgia effect 2484 01:39:23,200 --> 01:39:25,551 of the closure of these last few stores 2485 01:39:25,560 --> 01:39:28,191 has exceeded anything I anticipated. 2486 01:39:28,200 --> 01:39:30,101 And you can see by all the national press 2487 01:39:30,110 --> 01:39:31,821 that picked up these stories, 2488 01:39:31,830 --> 01:39:34,771 it added to the negative emotion of all of it. 2489 01:39:34,780 --> 01:39:36,151 But it's business, you know? 2490 01:39:36,160 --> 01:39:37,653 We had no choice. 2491 01:40:04,800 --> 01:40:06,600 War is a universal language. 2492 01:40:08,860 --> 01:40:11,031 - The one true of the entertainment industry 2493 01:40:11,040 --> 01:40:14,251 always has been producers want to distribute 2494 01:40:14,260 --> 01:40:15,291 and distributors want to 2495 01:40:15,300 --> 01:40:16,771 produce and actors wanna direct. 2496 01:40:16,780 --> 01:40:18,901 And so, everyone always has a fantasy 2497 01:40:18,910 --> 01:40:20,221 about doing the other thing, 2498 01:40:20,230 --> 01:40:21,431 and ultimately what they wanna do 2499 01:40:21,440 --> 01:40:24,011 is to get the best return on investment for their content, 2500 01:40:24,020 --> 01:40:25,371 and Netflix turns out to be 2501 01:40:25,380 --> 01:40:28,101 the best way that they can get that return in this space. 2502 01:40:28,110 --> 01:40:29,231 And if they thought they could do it 2503 01:40:29,240 --> 01:40:31,568 better and bigger on their own, they probably would. 2504 01:40:31,577 --> 01:40:33,341 And they have experimented over the years 2505 01:40:33,350 --> 01:40:35,351 and they have always not worked out well 2506 01:40:35,360 --> 01:40:37,481 because it's a different, very different expertise. 2507 01:40:37,490 --> 01:40:42,261 - The reason AT&T is particularly interesting 2508 01:40:42,270 --> 01:40:44,561 is because they might be able to use 2509 01:40:44,570 --> 01:40:47,658 their ownership over the pipe to say, 2510 01:40:47,667 --> 01:40:51,608 "You can get lower-cost access to my streaming service 2511 01:40:51,617 --> 01:40:53,288 "than you could to Netflix 2512 01:40:53,297 --> 01:40:54,168 "because with Netflix, 2513 01:40:54,177 --> 01:40:55,998 "you're gonna have to pay for your data, 2514 01:40:56,007 --> 01:40:57,648 "whereas with my service, 2515 01:40:57,657 --> 01:40:59,541 "I'm gonna give you the data for free." 2516 01:40:59,550 --> 01:41:04,341 - The one company that always terrified Netflix is Amazon 2517 01:41:04,350 --> 01:41:08,121 because Amazon, like a few other companies, 2518 01:41:08,130 --> 01:41:13,121 can subsidize content through selling dog food 2519 01:41:13,130 --> 01:41:15,151 and barbecues and things like that. 2520 01:41:15,160 --> 01:41:17,011 Netflix has a couple 2521 01:41:17,020 --> 01:41:18,691 of unique advantages, right? 2522 01:41:18,700 --> 01:41:21,021 One is they have this headstart, 2523 01:41:21,030 --> 01:41:24,201 both acquiring the customers and they've got a headstart 2524 01:41:24,210 --> 01:41:26,391 on creating their own unique content. 2525 01:41:26,400 --> 01:41:29,211 They're able to use the content to attract customers 2526 01:41:29,220 --> 01:41:31,431 and use the customers to attract great creators 2527 01:41:31,440 --> 01:41:32,461 who wanna make content. 2528 01:41:32,470 --> 01:41:35,721 - I think there's gonna be six or so big players 2529 01:41:35,730 --> 01:41:39,031 like Amazon, Hulu, Disney, Netflix, 2530 01:41:39,040 --> 01:41:41,820 and then hundreds of niche players 2531 01:41:42,680 --> 01:41:46,276 that cater to every different choice out there. 2532 01:41:46,285 --> 01:41:49,721 - I don't know, it's that whole thing of theater 2533 01:41:49,730 --> 01:41:53,241 versus seeing it on your television. 2534 01:41:53,250 --> 01:41:54,881 I'm glad if people see it. 2535 01:41:54,890 --> 01:41:57,361 I don't care so much in what format. 2536 01:41:57,370 --> 01:41:58,853 - Well, I think that's something 2537 01:41:58,862 --> 01:41:59,991 you learn early in life. 2538 01:42:00,000 --> 01:42:00,888 Movies are for the world. 2539 01:42:00,897 --> 01:42:03,201 And I never make a movie without knowing now 2540 01:42:03,210 --> 01:42:04,501 it is gonna travel the world. 2541 01:42:04,510 --> 01:42:07,571 - I just hope the discussion between Netflix 2542 01:42:07,580 --> 01:42:11,771 and platforms in general and theatrical should be over. 2543 01:42:11,780 --> 01:42:15,991 I think that those guys should get together and just realize 2544 01:42:16,000 --> 01:42:18,131 that whatever they are doing with discussion 2545 01:42:18,140 --> 01:42:19,193 is hurting cinema. 2546 01:42:20,070 --> 01:42:22,741 They both together, they can elevate cinema. 2547 01:42:22,750 --> 01:42:24,021 And more important, 2548 01:42:24,030 --> 01:42:26,851 they can create that diversity in cinema. 2549 01:42:26,860 --> 01:42:30,511 - I think the legacy our founding team gave Netflix 2550 01:42:30,520 --> 01:42:31,900 was building a fantastic 2551 01:42:31,909 --> 01:42:33,991 foundation of creative innovation. 2552 01:42:34,000 --> 01:42:35,721 - When your company becomes a verb, 2553 01:42:35,730 --> 01:42:38,108 that means you achieved success. 2554 01:42:38,117 --> 01:42:40,571 So, when people started saying 'Netflixed it, ' 2555 01:42:40,580 --> 01:42:41,404 it felt really, really great. 2556 01:42:41,413 --> 01:42:43,241 - There were proof points along the way 2557 01:42:43,250 --> 01:42:44,721 that we knew that we were doing our job 2558 01:42:44,730 --> 01:42:47,501 of embedding Netflix in popular culture, 2559 01:42:47,510 --> 01:42:50,171 making Netflix a household name in America. 2560 01:42:50,180 --> 01:42:54,371 - It goes back to disrupting an old way of doing things 2561 01:42:54,380 --> 01:42:57,411 and making people's movie experience better. 2562 01:42:57,420 --> 01:43:00,561 And to be part of that is something that I look back on 2563 01:43:00,570 --> 01:43:02,251 and say, "Yeah, that's pretty cool." 2564 01:43:02,260 --> 01:43:04,901 - I'm incredibly proud of the fact 2565 01:43:04,910 --> 01:43:08,531 that this tiny group of people took a chance. 2566 01:43:08,540 --> 01:43:11,371 - I trust that the things that we established 2567 01:43:11,380 --> 01:43:12,721 at the very beginning, 2568 01:43:12,730 --> 01:43:14,115 that the fundamentally important 2569 01:43:14,124 --> 01:43:15,221 thing about this business 2570 01:43:15,230 --> 01:43:19,511 was provide entertainment that people love, 2571 01:43:19,520 --> 01:43:22,574 that if you can just keep on doing that, 2572 01:43:22,583 --> 01:43:26,601 that as long as people like consuming entertainment, 2573 01:43:26,610 --> 01:43:30,493 there's gonna be a place for a company like Netflix. 2574 01:43:39,310 --> 01:43:42,801 - We were listening to a Netflix phone call. 2575 01:43:42,810 --> 01:43:44,901 - And Reed Hastings gets on one of the earnings calls 2576 01:43:44,910 --> 01:43:47,008 and he says, "They've thrown everything at us 2577 01:43:47,017 --> 01:43:48,601 "but the kitchen sink." 2578 01:43:48,610 --> 01:43:52,651 - At which point Ed Stead got up, left the conference room, 2579 01:43:52,660 --> 01:43:55,237 came back later, I don't know, within an hour 2580 01:43:55,246 --> 01:43:58,961 and said, "I just mailed Netflix a kitchen sink." 2581 01:43:58,970 --> 01:44:02,971 - And a couple of days later, this large carton crate 2582 01:44:02,980 --> 01:44:05,811 arrived at the Netflix office and we pried it open 2583 01:44:05,820 --> 01:44:06,911 and it was a kitchen sink. 2584 01:44:06,920 --> 01:44:08,111 - I think I remember seeing it 2585 01:44:08,120 --> 01:44:10,408 and saying, "What? 2586 01:44:10,417 --> 01:44:11,918 "Why? 2587 01:44:11,927 --> 01:44:13,498 "Perhaps that's why they're not doing well; 2588 01:44:13,507 --> 01:44:17,681 "they're taking time to do things like this." 2589 01:44:17,690 --> 01:44:20,271 Well done, Ed. 2590 01:44:20,280 --> 01:44:23,561 And to Reed's credit, he sent me an email the next day 2591 01:44:23,570 --> 01:44:25,220 thanking me for the kitchen sink.