Here's How Reed Hastings And Netflix Won

reed hastings netflix

Photo: JD Lasica/Flickr

Netflix’s momentum cannot be stopped.The reason: The strong foundation created by CEO Reed Hastings and his astonishing long-term vision.

Bloomberg TV explored the history of the company on Tuesday night’s Game Changers.

(See Business Insider’s exclusive interview with Hastings here.)

The story did not have too much new information, but it served as an excellent compilation of the entire Netflix creation myth.

Hastings, through his impressive vision and balls-out approach, built a massively successful company that lived through the dot-com bust before taking on Blockbuster and Wal-Mart and coming out on the other side.

It’s a wild story.

Hastings' modest beginnings

Hastings' friend, former California governor grey Davis, credits Hastings' success to 'education.'

He earned a bachelor's degree from Bowdoin, then spent one summer in the military before joined the Peace Corp. He felt it was a better fit. Hastings taught high school maths in Swaziland for two years before hitchhiking across Africa with $10 in his pocket.

Hastings' first company made him rich.

Time out for learning

Hastings then decided to go into education.

'I got a call from somebody I've never heard of named Reid Hastings who said he wanted to come to Stanford and study state policy and politics,' Michael Kirst, professor emeritus of education at Stanford University, says. 'I wasn't quite sure why he was interested because it didn't quite fit in with anything he had done.'

Hastings studied for six month, then created charter schools in California.

The origins of Netflix

He had a $40 late fee and did not want to tell his wife.

He did... but he started thinking about how something without late fees could work.

But would it work?

Hastings mailed himself CDs -- you couldn't buy DVDs -- and waited 24 hours for them to arrive in the mail to see if they were broken.

They weren't.

'This sucker is gonna work,' he thought.

The first Netflix HQ

It was located in an old bank.

The inventory was in the vault.

Netflix was full of innovations.

But still, Netflix was getting its butt kicked.

At the start of 2000, Blockbuster's revenue was 900x Netflix's. ($4.5 billion to $5 million)

'We were having trouble acquiring customers... We saw Blockbuster as the single biggest source for renters, so we reached out to them to become a strategic partner and an investor,' Mitch Lowe, former Netflix vice president, tells Game Changers.

Blockbuster said no.

'Netflix was very lucky that Blockbuster didn't do anything. The sleeping giant stayed sleeping.'

Hastings was still interested in education.

In 2000, Hastings took a job on California's state board of education.

He was appointed by Davis.

Four years later, his fellow Democrats kicked him off the board because he advocated for more bilingual books in schools.

The company wanted to IPO.

But the tough industry and Netflix's struggling fortunes forced Hastings to cancel the offering. The company laid off one-third of its staff.

'I think that between 1999 and 2002, Netflix could have gone under at any time.' -- Pachter

Then, Netflix got a lucky break.

The price of DVD players plunged, and 'Hastings slipped a coupon for Netflix into nearly every box.' (How this happened is not explained.)

The company IPO'd in 2002.

Companies started paying attention.

Netflix and Blockbuster had discussions about combining forces.

Hastings wanted to buy Blockbuster Online.

Blockbuster wanted to merge.

The talks never went beyond that stage because of anti-trust issues.

Eventually, Netflix defeated Blockbuster... and immediately started talking streaming.

'He's going to stream to the PC. We don't watch movies on our PC. Who cares? We thought he was nuts,' Pachter says. 'When he then announced he was going to provide it for free, then we were sure he was nuts.'

Netflix streaming struggled, until...

The deal with Starz was the 'steal of the decade' at $20 million. It got Netflix access to Spiderman, Pirates of the Caribbean, and other major titles.

But the battle is not over.

Cliff Edwards, a reporter for Bloomberg News, says 'If you were thinking of any time when they faced more pressure, I can't think of one.'

Why? has a new streaming plan, and Facebook has a deal with Warner Brothers.

So Netflix is fighting back.

They paid an estimated $100m for House of Cards starring Kevin Spacey.

'You are witnessing the birth of a network of sorts... Netflix might end up redefining not just what a network is, but what a content company is.'

(They are also expanding to Europe, although Game Changers only briefly touched upon the international move.)

You know who has a better life than Hastings?

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