1 00:00:00,360 --> 00:00:02,920 Speaker 1: If you were born in the nineties or before, you 2 00:00:03,040 --> 00:00:06,640 Speaker 1: probably remember going to Blockbuster to rent movies. But that 3 00:00:06,800 --> 00:00:10,879 Speaker 1: massive company fell apart for one reason. I'm Patty Steele. 4 00:00:11,280 --> 00:00:15,120 Speaker 1: How one idea changed the way we consume entertainment. That's 5 00:00:15,200 --> 00:00:22,319 Speaker 1: next on the backstory. The backstory is back. One of 6 00:00:22,320 --> 00:00:26,040 Speaker 1: my favorite memories is heading to Blockbuster to rent a movie. 7 00:00:26,160 --> 00:00:29,400 Speaker 1: We'd buy some popcorn and giant boxes of movie candy, 8 00:00:29,920 --> 00:00:32,879 Speaker 1: but the thrill was being able to see movies that 9 00:00:32,920 --> 00:00:35,879 Speaker 1: had cycled out of theaters and only occasionally showed up 10 00:00:35,880 --> 00:00:39,000 Speaker 1: on TV. Now I could rent a slew of flicks, 11 00:00:39,200 --> 00:00:42,559 Speaker 1: huge films from the nineteen thirties right through to the 12 00:00:42,680 --> 00:00:45,320 Speaker 1: very most recent ones a few months after they were 13 00:00:45,360 --> 00:00:49,520 Speaker 1: in theaters, Movie night at home or at a pal's house. 14 00:00:50,040 --> 00:00:54,520 Speaker 1: Blockbuster was the king of home entertainment. What could be better? Hmm, 15 00:00:54,880 --> 00:00:58,160 Speaker 1: what could be better? Well, picture of this, It's nineteen 16 00:00:58,200 --> 00:01:01,640 Speaker 1: ninety seven. You rent V eight Chess tapes to watch movies. 17 00:01:01,760 --> 00:01:05,319 Speaker 1: You rewind them, or you forget to rewind them. Sometimes 18 00:01:05,319 --> 00:01:09,280 Speaker 1: you forget to return them. And when that happens, Blockbuster 19 00:01:09,440 --> 00:01:12,800 Speaker 1: charges late fees that add up faster than parking tickets. 20 00:01:12,840 --> 00:01:16,160 Speaker 1: In New York city. In those days, the average American 21 00:01:16,200 --> 00:01:19,640 Speaker 1: household paid forty bucks a year in late fees. It 22 00:01:19,760 --> 00:01:22,360 Speaker 1: was a lot of money. It was annoying, but for 23 00:01:22,520 --> 00:01:26,800 Speaker 1: Blockbuster it was an eight hundred million dollar revenue stream. 24 00:01:27,120 --> 00:01:30,920 Speaker 1: But then somebody with a better idea comes along. Enter 25 00:01:31,080 --> 00:01:35,760 Speaker 1: Read Hastings, a software entrepreneur. The story goes that he 26 00:01:35,920 --> 00:01:38,800 Speaker 1: racked up a forty dollars late fee for one movie 27 00:01:38,800 --> 00:01:43,120 Speaker 1: that he forgot to return, Apollo thirteen. Read got frustrated 28 00:01:43,160 --> 00:01:45,880 Speaker 1: and thought there's got to be a better way. So 29 00:01:45,920 --> 00:01:48,720 Speaker 1: he did the smart thing. Rather than just be annoyed, 30 00:01:48,960 --> 00:01:51,560 Speaker 1: he came up with a better idea. He saw a 31 00:01:51,600 --> 00:01:55,320 Speaker 1: bigger shift going on. The DVD was about to hit 32 00:01:55,360 --> 00:02:00,000 Speaker 1: the US market. The discs were thin, light, durable, and unlit. 33 00:02:00,120 --> 00:02:03,760 Speaker 1: Like vahs tape, they could be mailed. The problem was 34 00:02:04,120 --> 00:02:07,880 Speaker 1: nobody knew if DVDs could survive the journey, and mailing 35 00:02:08,040 --> 00:02:11,680 Speaker 1: envelopes at the time totally not designed for them. But 36 00:02:11,760 --> 00:02:14,720 Speaker 1: the motivation was what if you could skip the trip 37 00:02:14,760 --> 00:02:17,239 Speaker 1: to the strip mall and get the movie sent right 38 00:02:17,280 --> 00:02:20,079 Speaker 1: to your house. Keep in mind it was the late 39 00:02:20,160 --> 00:02:23,800 Speaker 1: nineteen nineties at this point, a time of dial up modems, 40 00:02:23,880 --> 00:02:27,720 Speaker 1: AOL and music on CDs. It really wasn't much in 41 00:02:27,760 --> 00:02:30,720 Speaker 1: the way of an Internet to download movies off of right, 42 00:02:31,560 --> 00:02:34,760 Speaker 1: the idea of mailing a DVD in a greeting card 43 00:02:35,000 --> 00:02:38,600 Speaker 1: envelope set off a chain reaction that would take down 44 00:02:38,720 --> 00:02:42,280 Speaker 1: an entire industry and build one of the most powerful 45 00:02:42,360 --> 00:02:46,880 Speaker 1: companies on Earth. The Netflix DVD dream should have failed, 46 00:02:47,360 --> 00:02:51,119 Speaker 1: but Read Hastings and his pal future Netflix co founder 47 00:02:51,200 --> 00:02:56,120 Speaker 1: Mark Randolph decided to do something kind of hilariously simple. 48 00:02:56,960 --> 00:02:59,799 Speaker 1: So they walk into a store. They buy a music 49 00:03:00,520 --> 00:03:05,160 Speaker 1: because DVDs aren't even commercially available yet, they slip it 50 00:03:05,200 --> 00:03:09,000 Speaker 1: into a standard paper greeting card envelope. They put a 51 00:03:09,080 --> 00:03:11,880 Speaker 1: stamp on it, and they mail it to Reed's house. 52 00:03:12,320 --> 00:03:16,160 Speaker 1: No bubble wrap, no special packaging, no protection, just as 53 00:03:16,280 --> 00:03:20,400 Speaker 1: CD floating through the US postal system in a flimsy 54 00:03:20,520 --> 00:03:24,080 Speaker 1: envelope being tossed through postal machines like a frisbee at 55 00:03:24,080 --> 00:03:27,000 Speaker 1: the beach. A few days go by and it arrives. 56 00:03:27,520 --> 00:03:31,920 Speaker 1: It's in perfect condition, not cracked, not scratched, not bent, 57 00:03:32,480 --> 00:03:36,000 Speaker 1: not warped. Imagine if it had been cracked or warped 58 00:03:36,880 --> 00:03:40,680 Speaker 1: anyway at that moment. These two guys, tiny ridiculous three 59 00:03:40,720 --> 00:03:45,600 Speaker 1: dollars experiment proved one thing, movies could be mailed, and 60 00:03:45,680 --> 00:03:48,280 Speaker 1: that meant you could build a rental business with no 61 00:03:48,440 --> 00:03:52,720 Speaker 1: retail stores, no lake fees, and no annoying employees asking 62 00:03:52,720 --> 00:03:55,840 Speaker 1: if you want a pre order next week's releases. So 63 00:03:56,000 --> 00:04:00,240 Speaker 1: in August nineteen ninety seven, Netflix launches as a DVD 64 00:04:00,280 --> 00:04:04,440 Speaker 1: by mail store. You don't subscribe, you don't stream, You 65 00:04:04,600 --> 00:04:07,840 Speaker 1: just buy DVDs online and maybe rent them because then 66 00:04:07,880 --> 00:04:09,840 Speaker 1: you'll send them back if you don't want to keep them. 67 00:04:10,120 --> 00:04:14,440 Speaker 1: But here's the thing. DVD players were crazy expensive, most 68 00:04:14,440 --> 00:04:18,239 Speaker 1: homes didn't even have one, and Blockbusters still owned Friday 69 00:04:18,360 --> 00:04:22,440 Speaker 1: Nights with its VHS tapes for a while. Netflix is 70 00:04:22,520 --> 00:04:26,960 Speaker 1: basically a cool idea with no customers. So the guys 71 00:04:27,000 --> 00:04:30,440 Speaker 1: go and meet with Jeff Bezos and he suggests they 72 00:04:30,480 --> 00:04:35,040 Speaker 1: sell Netflix to his company Amazon for around fifteen million dollars. 73 00:04:35,560 --> 00:04:38,520 Speaker 1: Mark wants to do it because he's afraid of competing 74 00:04:38,560 --> 00:04:42,520 Speaker 1: with Amazon, but since Reid owns seventy percent of the company, 75 00:04:42,920 --> 00:04:47,200 Speaker 1: he gives the offer a thumbs down. Smart move, so 76 00:04:47,440 --> 00:04:51,120 Speaker 1: they try everything to get Netflix on its feet. Free trials, 77 00:04:51,240 --> 00:04:56,520 Speaker 1: DVD sales, partnerships, crazy marketing stunts. They even offered to 78 00:04:56,600 --> 00:05:00,680 Speaker 1: run Blockbusters online division for them, which brings us to 79 00:05:00,920 --> 00:05:04,279 Speaker 1: the big offer that Blockbuster should have jumped at. In 80 00:05:04,320 --> 00:05:07,520 Speaker 1: the year two thousand, Read and Mark flight to Dallas 81 00:05:07,560 --> 00:05:13,040 Speaker 1: to meet with Blockbuster's CEO. They suggest a partnership. Netflix 82 00:05:13,160 --> 00:05:18,200 Speaker 1: becomes Blockbuster's online arm in their vision, and Blockbuster handles 83 00:05:18,240 --> 00:05:21,440 Speaker 1: the brick and mortar stores together, said Read and Mark, 84 00:05:21,600 --> 00:05:26,520 Speaker 1: we will dominate. It was simple, perfect balanced. The guys 85 00:05:26,560 --> 00:05:30,719 Speaker 1: wanted fifty million dollars for the Netflix Blockbuster partnership, though, 86 00:05:31,279 --> 00:05:34,440 Speaker 1: and Blockbuster's CEO takes one look at him and says, 87 00:05:34,920 --> 00:05:38,120 Speaker 1: you gotta be joking. No way, the Internet is just 88 00:05:38,160 --> 00:05:41,960 Speaker 1: a fad. It's overblown. He literally laughs them out of 89 00:05:42,000 --> 00:05:45,240 Speaker 1: the room. What he doesn't know is that the world 90 00:05:45,279 --> 00:05:49,680 Speaker 1: is about to change and Netflix is already building the future. 91 00:05:50,400 --> 00:05:54,120 Speaker 1: By two thousand and one, Netflix is reworking their business model. 92 00:05:54,560 --> 00:05:57,719 Speaker 1: Instead of renting one DVD at a time, instead of 93 00:05:57,839 --> 00:06:02,440 Speaker 1: charging late fees, they introduce something new, a monthly subscription, 94 00:06:02,839 --> 00:06:07,000 Speaker 1: unlimited rentals, nodw dates, no late fees, just mail it 95 00:06:07,040 --> 00:06:10,440 Speaker 1: back when you're done. The movies arrive in what becomes 96 00:06:10,800 --> 00:06:15,039 Speaker 1: iconic red envelopes, They show up in mailboxes promising a 97 00:06:15,120 --> 00:06:19,880 Speaker 1: really fun Friday night. Customers love it, word spreads, and 98 00:06:20,000 --> 00:06:24,520 Speaker 1: suddenly Netflix is everywhere. Now it's two thousand and four 99 00:06:25,080 --> 00:06:29,720 Speaker 1: and Blockbuster panics. They eliminate late fees, but it's too late. 100 00:06:30,120 --> 00:06:36,800 Speaker 1: The damage is done. Blockbuster eventually declares bankruptcy. Netflix, meantime 101 00:06:36,880 --> 00:06:41,320 Speaker 1: takes off, going from DVDs to streaming, to original content, 102 00:06:41,800 --> 00:06:45,720 Speaker 1: to becoming the company that pretty much defines modern entertainment, 103 00:06:46,480 --> 00:06:51,599 Speaker 1: but the entire empire binge watching, streaming, Wars, Stranger Things, 104 00:06:51,640 --> 00:06:56,719 Speaker 1: Squid Game. Everything all traces back to that one unbelievably 105 00:06:56,800 --> 00:07:01,200 Speaker 1: simple test, a CD in a paper on sent through 106 00:07:01,240 --> 00:07:06,599 Speaker 1: the US postal service. As for Blockbuster, yes, they declared bankruptcy. 107 00:07:07,080 --> 00:07:10,440 Speaker 1: At its peak in two thousand and four, Blockbuster had 108 00:07:10,480 --> 00:07:14,720 Speaker 1: more than eighty four thousand employees at over nine thousand stores, 109 00:07:15,080 --> 00:07:19,600 Speaker 1: with revenue topping six billion dollars a year. Today, there's 110 00:07:19,640 --> 00:07:23,800 Speaker 1: only one video store still operating in the entire world. 111 00:07:24,240 --> 00:07:28,360 Speaker 1: It is a Blockbuster that it's in Bend, Oregon. What's 112 00:07:28,400 --> 00:07:33,720 Speaker 1: fascinating about this story is its simplicity. Sometimes innovation isn't 113 00:07:33,760 --> 00:07:37,880 Speaker 1: from some billion dollar lab or some incredibly genius idea 114 00:07:38,640 --> 00:07:42,480 Speaker 1: sometimes it's just two guys in a store asking each other, 115 00:07:42,960 --> 00:07:44,880 Speaker 1: do you think the CD is going to break if 116 00:07:44,920 --> 00:07:48,800 Speaker 1: we mail it? Hope you're enjoying the Backstory with Patty Steele. 117 00:07:49,000 --> 00:07:53,240 Speaker 1: Follow or subscribe for free to get new episodes delivered automatically, 118 00:07:53,600 --> 00:07:55,320 Speaker 1: and feel free to dm me if you have a 119 00:07:55,320 --> 00:07:58,080 Speaker 1: story you'd like me to cover. On Facebook, It's Patty 120 00:07:58,160 --> 00:08:05,840 Speaker 1: Steele and on Instagram Real Patty Steele. I'm Patty Steele. 121 00:08:06,160 --> 00:08:10,400 Speaker 1: The Backstories a production of iHeartMedia, Premiere Networks, the Elvis 122 00:08:10,480 --> 00:08:14,640 Speaker 1: Durand Group, and Steel Trap Productions. Our producer is Doug Fraser. 123 00:08:14,880 --> 00:08:18,520 Speaker 1: Our writer Jake Kushner. We have new episodes every Tuesday 124 00:08:18,560 --> 00:08:21,080 Speaker 1: and Friday. Feel free to reach out to me with 125 00:08:21,200 --> 00:08:25,120 Speaker 1: comments and even story suggestions on Instagram at Real Patty 126 00:08:25,160 --> 00:08:28,640 Speaker 1: Steele and on Facebook at Patty Steele. Thanks for listening 127 00:08:28,640 --> 00:08:31,920 Speaker 1: to the Backstory with Patty Steele. The pieces of history 128 00:08:32,120 --> 00:08:33,800 Speaker 1: you didn't know you needed to know.