Here’s How Reed Hastings And Netflix Won

reed hastings netflix

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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.

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[slide
permalink=”hastings-modest-beginnings-1″
title=”Hastings’ modest beginnings”
content=”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.”
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[slide
permalink=”hastings-first-company-made-him-rich-2″
title=”Hastings’ first company made him rich.”
content=”Mark Box: ‘Hastings’ big revelation was to realise that programs were being designed by multiple people instead of just one and that [the new model] introduced multiple errors.’

The pair founded Pure Software, which doubled year-over-year for four years and was the most successful IPO of 1995… until a week later when Netscape IPO’d.

Hastings recruited one software designer for Pure by coming over to his apartment with a six-pack of beer.

He sold the company two years after the IPO for $750 million.”
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[slide
permalink=”time-out-for-learning-3″
title=”Time out for learning”
content=”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.”
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[slide
permalink=”the-origins-of-netflix-4″
title=”The origins of Netflix”
content=”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.”
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[slide
permalink=”but-would-it-work-5″
title=”But would it work?”
content=”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.”
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[slide
permalink=”the-first-netflix-hq-6″
title=”The first Netflix HQ”
content=”It was located in an old bank.

The inventory was in the vault.”
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[slide
permalink=”netflix-was-full-of-innovations-7″
title=”Netflix was full of innovations.”
content=”The subscription model, the queue, and the recommendations were innovations.

Michael Pachter, a securities analyst who has followed Netflix for 10 years: ‘Where Netflix really thrived early on, they were the first to really figure [those innovations] out.'”
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[slide
permalink=”but-still-netflix-was-getting-its-butt-kicked-8″
title=”But still, Netflix was getting its butt kicked.”
content=”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.'”
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[slide
permalink=”hastings-was-still-interested-in-education-9″
title=”Hastings was still interested in education.”
content=”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.”
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[slide
permalink=”the-company-wanted-to-ipo-10″
title=”The company wanted to IPO.”
content=”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”
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[slide
permalink=”then-netflix-got-a-lucky-break-11″
title=”Then, Netflix got a lucky break.”
content=”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.”
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[slide
permalink=”companies-started-paying-attention-12″
title=”Companies started paying attention.”
content=”Blockbuster entered the market, and they starting a price war with Netflix.

Blockbuster sent a kitchen sink to Netflix. Literally.

Pachter, among others, thought Netflix wouldn’t be able to compete.

‘[We though that] Blockbuster and then Wal-Mart were ultimately going to just squeeze the profit out of Netflix in pretty short order,’ Heath Terry, director of internet research for Canaccord Genuity, says. ‘I think what both companies found in pretty short order was that this business was a lot harder than they thought.'”
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[slide
permalink=”netflix-and-blockbuster-had-discussions-about-combining-forces-13″
title=”Netflix and Blockbuster had discussions about combining forces.”
content=”Hastings wanted to buy Blockbuster Online.

Blockbuster wanted to merge.

The talks never went beyond that stage because of anti-trust issues.”
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[slide
permalink=”eventually-netflix-defeated-blockbuster-and-immediately-started-talking-streaming-14″
title=”Eventually, Netflix defeated Blockbuster… and immediately started talking streaming.”
content=”‘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.'”
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[slide
permalink=”netflix-streaming-struggled-until-15″
title=”Netflix streaming struggled, until…”
content=”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.”
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[slide
permalink=”but-the-battle-is-not-over-16″
title=”But the battle is not over.”
content=”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?

Amazon.com has a new streaming plan, and Facebook has a deal with Warner Brothers.”
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[slide
permalink=”so-netflix-is-fighting-back-17″
title=”So Netflix is fighting back.”
content=”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.)”
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[slide
permalink=”you-know-who-has-a-better-life-than-hastings-18″
title=”You know who has a better life than Hastings?”
content=”Richard Branson. Seriously. >>>
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[/slideshow]