1 00:00:04,120 --> 00:00:07,160 Speaker 1: Get in touch with technology with tech Stuff from how 2 00:00:07,200 --> 00:00:13,840 Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff. 3 00:00:13,880 --> 00:00:16,520 Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer with 4 00:00:16,560 --> 00:00:19,640 Speaker 1: how Stuff Works and I love all things tech. And 5 00:00:19,680 --> 00:00:26,000 Speaker 1: we are continuing our four part series about Netflix and uh, 6 00:00:26,280 --> 00:00:29,520 Speaker 1: you know. In the previous episode, I covered the founding 7 00:00:29,800 --> 00:00:32,600 Speaker 1: of the company and the challenges that they face just 8 00:00:32,640 --> 00:00:37,200 Speaker 1: getting it up and running, going from the ideation of 9 00:00:37,240 --> 00:00:40,839 Speaker 1: what Netflix would be to building an actual working business, 10 00:00:41,159 --> 00:00:43,880 Speaker 1: and today we're going to continue that story. Less than 11 00:00:44,240 --> 00:00:47,920 Speaker 1: half a year after Netflix's website went live in the 12 00:00:47,960 --> 00:00:51,840 Speaker 1: spring of the company was making about a hundred thousand 13 00:00:51,920 --> 00:00:55,760 Speaker 1: dollars in revenue per month. Now that's not profit, that 14 00:00:55,880 --> 00:00:59,080 Speaker 1: was just revenue, but it did push Netflix into being, 15 00:00:59,120 --> 00:01:02,240 Speaker 1: at least in theory, a million dollar company. You know, 16 00:01:02,280 --> 00:01:04,880 Speaker 1: if they bring in a hundred thousand dollars per months, 17 00:01:04,880 --> 00:01:07,920 Speaker 1: you multiply that by twelve months, you realize, oh, that's 18 00:01:07,959 --> 00:01:10,760 Speaker 1: one point two million dollars. That's pretty impressive. And the 19 00:01:10,760 --> 00:01:14,119 Speaker 1: company wasn't even six months old yet. The model Netflix 20 00:01:14,240 --> 00:01:17,360 Speaker 1: used meant customers would rent films for four or five 21 00:01:17,440 --> 00:01:19,880 Speaker 1: dollars per title, and then they would keep them for 22 00:01:19,920 --> 00:01:22,880 Speaker 1: a week. They could also opt to purchase a title 23 00:01:22,920 --> 00:01:25,760 Speaker 1: that they liked. They could end up buying it for 24 00:01:25,800 --> 00:01:30,399 Speaker 1: a thirty PC discount and just keep the DVD. The 25 00:01:30,400 --> 00:01:33,800 Speaker 1: company had rented out about twenty thousand DVDs in the 26 00:01:33,880 --> 00:01:36,919 Speaker 1: first four months alone, so things were going pretty well. 27 00:01:37,400 --> 00:01:40,360 Speaker 1: The development team was hard at work building new features 28 00:01:40,400 --> 00:01:43,280 Speaker 1: for the company. The big one was what would become 29 00:01:43,319 --> 00:01:48,040 Speaker 1: called the Q as in the line, the que that 30 00:01:48,040 --> 00:01:51,560 Speaker 1: would order titles customers had expressed interest in but had 31 00:01:51,640 --> 00:01:55,280 Speaker 1: not yet rented, so they could create a list of 32 00:01:55,360 --> 00:01:59,680 Speaker 1: titles that they were interested in and even prioritize that list, 33 00:01:59,720 --> 00:02:02,120 Speaker 1: put a movies they more they wanted to see more 34 00:02:02,240 --> 00:02:04,200 Speaker 1: towards the front of the queue and the ones that 35 00:02:04,240 --> 00:02:06,360 Speaker 1: they wanted to see, but there wasn't as big a 36 00:02:06,360 --> 00:02:09,240 Speaker 1: sense of urgency towards the back. That would be something 37 00:02:09,760 --> 00:02:13,120 Speaker 1: that the development team would work on for a couple 38 00:02:13,160 --> 00:02:16,119 Speaker 1: of years before it was really ready to roll out 39 00:02:16,160 --> 00:02:20,600 Speaker 1: in full form, but it became a foundational element of 40 00:02:20,600 --> 00:02:23,480 Speaker 1: what Netflix would be, and that The work on the 41 00:02:23,560 --> 00:02:25,920 Speaker 1: queue dates all the way back to the late nineties. 42 00:02:26,040 --> 00:02:30,120 Speaker 1: Right after Netflix was founded. Programmer Eric Meyer built in 43 00:02:30,200 --> 00:02:33,240 Speaker 1: features in search that would lead users to movies that 44 00:02:33,280 --> 00:02:36,880 Speaker 1: were in stock, and it would exclude movies that were 45 00:02:36,880 --> 00:02:40,239 Speaker 1: either not yet in Netflix's library and that they didn't 46 00:02:40,240 --> 00:02:43,000 Speaker 1: have a copy of that DVD yet, or they were 47 00:02:43,080 --> 00:02:46,839 Speaker 1: in Netflix's library, but we're currently rented out to all customers. 48 00:02:46,880 --> 00:02:49,320 Speaker 1: So that way, when you come to Netflix and you 49 00:02:49,360 --> 00:02:52,280 Speaker 1: start searching around for a movie, not a specific film maybe, 50 00:02:52,280 --> 00:02:56,359 Speaker 1: but maybe a movie featuring a specific actor or actress 51 00:02:56,480 --> 00:02:59,720 Speaker 1: or directed by a certain person, you would get results 52 00:02:59,760 --> 00:03:04,080 Speaker 1: back that only reflected available films. On the business side 53 00:03:04,120 --> 00:03:08,520 Speaker 1: of things, Netflix began to feature older films and uh 54 00:03:08,560 --> 00:03:12,360 Speaker 1: that was far more prevalent than new releases, and this 55 00:03:12,440 --> 00:03:16,080 Speaker 1: was largely because the company wasn't able to yet negotiate 56 00:03:16,880 --> 00:03:21,560 Speaker 1: with movie studios for DVD prices, and new releases tend 57 00:03:21,680 --> 00:03:24,760 Speaker 1: to cost the most money. So while the prices for 58 00:03:24,880 --> 00:03:28,400 Speaker 1: DVDs were significantly lower than what it would cost to 59 00:03:28,440 --> 00:03:31,880 Speaker 1: buy the same title on vhs. Remember DVDs when they 60 00:03:31,880 --> 00:03:36,120 Speaker 1: came out, they were priced typically between fifteen and twenty dollars. 61 00:03:36,280 --> 00:03:39,080 Speaker 1: VHS tapes if you were buying a copy for a 62 00:03:39,120 --> 00:03:44,200 Speaker 1: rental place like like a Blockbuster or something, those tended 63 00:03:44,200 --> 00:03:46,480 Speaker 1: to be between sixty five and eighty dollars if you 64 00:03:46,520 --> 00:03:49,560 Speaker 1: didn't have the leverage to ask for a lower amount 65 00:03:49,720 --> 00:03:54,080 Speaker 1: and do sort of a royalties approach. So building out 66 00:03:54,080 --> 00:03:59,120 Speaker 1: an inventory at scale was prohibitively expensive if you wanted 67 00:03:59,160 --> 00:04:02,080 Speaker 1: to go with all new releases, so Netflix opted to 68 00:04:02,080 --> 00:04:06,080 Speaker 1: go for deeper cut films that weren't typically listed at 69 00:04:06,120 --> 00:04:10,680 Speaker 1: full price. Then they would run promotions on the website 70 00:04:10,880 --> 00:04:15,280 Speaker 1: that would feature these deeper cuts and leverage those titles, 71 00:04:15,520 --> 00:04:18,320 Speaker 1: and they would tie it into things like holidays or 72 00:04:18,600 --> 00:04:22,120 Speaker 1: news events, or maybe it's an actor's birthday and they say, 73 00:04:22,240 --> 00:04:26,320 Speaker 1: to celebrate so and so's birthday, why not rent this movie? 74 00:04:26,880 --> 00:04:31,120 Speaker 1: And that helped keep the business going even when they 75 00:04:31,279 --> 00:04:35,520 Speaker 1: weren't able to have all the latest new releases in stock. 76 00:04:36,080 --> 00:04:39,080 Speaker 1: The programmers built out a feature that would group similar 77 00:04:39,120 --> 00:04:43,160 Speaker 1: film buffs together in mentor groups through a process called 78 00:04:43,200 --> 00:04:46,719 Speaker 1: collaborative filtering, and the idea was that these users with 79 00:04:46,800 --> 00:04:50,240 Speaker 1: similar tastes might end up directing each other to new 80 00:04:50,279 --> 00:04:54,479 Speaker 1: films that fit those shared interests. So you might say, oh, 81 00:04:54,640 --> 00:04:59,479 Speaker 1: you really like, uh, you know, martial arts films, Well, 82 00:04:59,680 --> 00:05:03,200 Speaker 1: have you seen Fatal Flying Guillotine here? You should check 83 00:05:03,240 --> 00:05:06,479 Speaker 1: it out. Netflix has it that kind of thing. Netflix 84 00:05:06,520 --> 00:05:10,760 Speaker 1: also began building out a larger inventory of foreign cinema 85 00:05:10,839 --> 00:05:16,480 Speaker 1: titles speaking of Fatal Flying Guillotine, particularly Bollywood films, Chinese movies, 86 00:05:16,560 --> 00:05:20,640 Speaker 1: Japanese movies. It became a place where you could get 87 00:05:20,720 --> 00:05:25,160 Speaker 1: hold of this foreign cinema much more easily. And in California, 88 00:05:25,320 --> 00:05:31,320 Speaker 1: where you had a lot of immigrants from countries like China, Japan, India, 89 00:05:31,680 --> 00:05:34,880 Speaker 1: it was very popular, and of course that's where Netflix 90 00:05:34,920 --> 00:05:38,880 Speaker 1: was based, so it ended up being a very uh 91 00:05:39,200 --> 00:05:42,920 Speaker 1: lucrative or at least a very active part of Netflix's library. 92 00:05:43,320 --> 00:05:49,279 Speaker 1: The one genre Randolph decided not to carry was hardcore pornography, 93 00:05:49,320 --> 00:05:51,240 Speaker 1: and that was more out of a business concern than 94 00:05:51,279 --> 00:05:54,800 Speaker 1: anything else. It wasn't that he was necessarily morally opposed 95 00:05:54,920 --> 00:05:58,720 Speaker 1: to that content, but rather he was worried about it 96 00:05:58,800 --> 00:06:03,240 Speaker 1: from a political standpoint. The complicated nature of obscenity laws 97 00:06:03,279 --> 00:06:05,880 Speaker 1: in the United States meant that it would be very 98 00:06:05,880 --> 00:06:10,080 Speaker 1: difficult to make sure that Netflix was complying with laws 99 00:06:10,160 --> 00:06:13,480 Speaker 1: on a state by state basis, because what is permitted 100 00:06:13,520 --> 00:06:16,119 Speaker 1: in one state might be against the law in another state. 101 00:06:16,160 --> 00:06:19,360 Speaker 1: And when you are a company that is trying to 102 00:06:19,440 --> 00:06:24,120 Speaker 1: have a uh, you know, a country wide presence, a 103 00:06:24,240 --> 00:06:28,159 Speaker 1: nationwide presence, it just didn't make any sense to carry 104 00:06:28,200 --> 00:06:32,120 Speaker 1: that kind of content. On the marketing side, Netflix reached 105 00:06:32,120 --> 00:06:36,159 Speaker 1: out to early Internet influencers like Harry Knowles, who was 106 00:06:36,200 --> 00:06:38,880 Speaker 1: the founder and still is the founder of Ain't Cool 107 00:06:39,000 --> 00:06:42,159 Speaker 1: dot com or Ain't It Cool News, And in those days, 108 00:06:42,200 --> 00:06:46,040 Speaker 1: Ain't It Cool was growing beyond being a niche film 109 00:06:46,160 --> 00:06:48,880 Speaker 1: fans site where you know, it kind of started out 110 00:06:48,920 --> 00:06:50,120 Speaker 1: as a bunch of a place where a bunch of 111 00:06:50,160 --> 00:06:53,680 Speaker 1: film geeks would get together and argue about movies and 112 00:06:53,839 --> 00:06:58,240 Speaker 1: read various articles about upcoming films and rumors and things 113 00:06:58,320 --> 00:07:01,800 Speaker 1: like that. And at this point it was growing beyond that. 114 00:07:01,839 --> 00:07:05,040 Speaker 1: It was getting attention from directors and movie studios because 115 00:07:05,040 --> 00:07:09,520 Speaker 1: the industry, the film industry had seen that Knowles and 116 00:07:09,640 --> 00:07:12,840 Speaker 1: his staff that we're writing for and it Cool had 117 00:07:12,960 --> 00:07:17,240 Speaker 1: enormous reach, and so for a relatively modest investment on 118 00:07:17,280 --> 00:07:20,640 Speaker 1: the part of the studio, those companies could get a 119 00:07:20,680 --> 00:07:22,840 Speaker 1: lot of marketing benefits. It was like a lot of 120 00:07:22,920 --> 00:07:28,000 Speaker 1: word of mouth marketing through this website. So just by 121 00:07:28,200 --> 00:07:30,160 Speaker 1: doing a little bit of investment in the website they 122 00:07:30,160 --> 00:07:33,400 Speaker 1: could get a big payoff. So Netflix followed suit and 123 00:07:33,480 --> 00:07:36,400 Speaker 1: invested money in and at cool dot com, and in return, 124 00:07:36,840 --> 00:07:40,200 Speaker 1: Noels and his crew would frequently mention the service. Another 125 00:07:40,240 --> 00:07:43,720 Speaker 1: clever move that Netflix made early on was they negotiated 126 00:07:43,760 --> 00:07:48,080 Speaker 1: with DVD manufacturers to include a coupon for a free 127 00:07:48,120 --> 00:07:52,400 Speaker 1: Netflix rental with new DVD players. So if you went 128 00:07:52,440 --> 00:07:54,840 Speaker 1: out you bought a DVD player back in those days, 129 00:07:55,040 --> 00:07:57,680 Speaker 1: inside the box would be a little coupon that would 130 00:07:57,680 --> 00:08:01,680 Speaker 1: allow you to get a free rental off Netflix. So 131 00:08:01,880 --> 00:08:05,960 Speaker 1: these promotions were drawing attention, but they were also costing 132 00:08:06,080 --> 00:08:10,320 Speaker 1: Netflix money. The company was losing cash on every transaction. 133 00:08:10,680 --> 00:08:13,920 Speaker 1: For one thing, the labor costs were very high, and 134 00:08:13,960 --> 00:08:17,600 Speaker 1: the promotions were also cutting into revenue. They also had 135 00:08:17,680 --> 00:08:24,520 Speaker 1: made a pretty terrible rookie mistake, so they didn't spend 136 00:08:24,560 --> 00:08:27,440 Speaker 1: the money to build out a way to handle unique 137 00:08:27,520 --> 00:08:30,880 Speaker 1: coupon codes. They had no system in place to create 138 00:08:30,960 --> 00:08:35,400 Speaker 1: a sequential coupon code so that each code was unique 139 00:08:35,400 --> 00:08:37,880 Speaker 1: and could only be used once, so they shipped out 140 00:08:37,920 --> 00:08:42,000 Speaker 1: coupons that did not have unique identifiers on them. That 141 00:08:42,040 --> 00:08:46,840 Speaker 1: meant that if you were unscrupulous, you could duplicate those 142 00:08:46,880 --> 00:08:50,400 Speaker 1: coupons and use coupons multiple times, because you could just 143 00:08:50,480 --> 00:08:54,679 Speaker 1: keep making copies and said each coupon appeared to be legitimate. 144 00:08:54,760 --> 00:08:57,760 Speaker 1: Netflix would ship out rentals each time they got a coupon, 145 00:08:57,960 --> 00:09:02,640 Speaker 1: so people were essentially scaming Netflix, and Netflix was losing 146 00:09:02,640 --> 00:09:06,600 Speaker 1: money in the process. In August, Randolph was able to 147 00:09:06,640 --> 00:09:09,960 Speaker 1: secure six million dollars in venture capital to keep the 148 00:09:10,040 --> 00:09:15,319 Speaker 1: company afloat, but that would only managed to save Netflix 149 00:09:15,559 --> 00:09:17,800 Speaker 1: until the end of ninety eight. Something else was going 150 00:09:17,840 --> 00:09:21,160 Speaker 1: to have to happen. The one part in Netflix's business 151 00:09:21,280 --> 00:09:26,319 Speaker 1: that was doing fairly well was in DVD sales, not rentals. 152 00:09:26,760 --> 00:09:29,959 Speaker 1: There weren't enough customers who would return to rent a 153 00:09:30,080 --> 00:09:33,720 Speaker 1: DVD after they had used up their free rentals they 154 00:09:33,960 --> 00:09:36,720 Speaker 1: go through, They'd rent a couple of top titles for free, 155 00:09:37,160 --> 00:09:41,840 Speaker 1: and then they wouldn't use the service anymore. So that 156 00:09:42,040 --> 00:09:46,680 Speaker 1: was not really a revenue starter, but the sales were 157 00:09:46,679 --> 00:09:50,440 Speaker 1: working better. However, that was a short term win, and 158 00:09:50,559 --> 00:09:52,840 Speaker 1: Randolph knew it. He knew that it was not going 159 00:09:52,880 --> 00:09:56,800 Speaker 1: to be long until you saw other big companies, established 160 00:09:56,840 --> 00:10:00,000 Speaker 1: companies things like Amazon dot Com get into that space 161 00:10:00,000 --> 00:10:04,920 Speaker 1: ace and start selling DVDs, and the retail business would 162 00:10:05,000 --> 00:10:08,240 Speaker 1: be very crowded and Netflix, being a small time player, 163 00:10:08,280 --> 00:10:12,600 Speaker 1: would be unable to uh to compete in that space, 164 00:10:13,040 --> 00:10:15,080 Speaker 1: so he knew that that was not a way to 165 00:10:15,280 --> 00:10:20,760 Speaker 1: build the future of a business. In early Read, Hastings 166 00:10:20,800 --> 00:10:24,360 Speaker 1: began to become more involved in Netflix. Remember, up to 167 00:10:24,400 --> 00:10:27,920 Speaker 1: that point, he had largely been hands off. He had 168 00:10:27,960 --> 00:10:31,240 Speaker 1: provided the initial seed money for the company, and he 169 00:10:31,280 --> 00:10:35,160 Speaker 1: had brainstormed with Mark Randolph when they were first talking 170 00:10:35,160 --> 00:10:37,840 Speaker 1: about what Netflix would be and how it would be 171 00:10:37,880 --> 00:10:40,920 Speaker 1: the Amazon dot Com of video rental, but apart from that, 172 00:10:40,960 --> 00:10:45,640 Speaker 1: he really hadn't beencome very involved. Not long after Read, 173 00:10:45,679 --> 00:10:48,560 Speaker 1: Hastings decided he was going to get his hands dirty 174 00:10:48,559 --> 00:10:51,160 Speaker 1: and Netflix. He announced that he and Randolph would become 175 00:10:51,320 --> 00:10:55,160 Speaker 1: co chief executives of the company, a move that apparently 176 00:10:55,240 --> 00:10:59,400 Speaker 1: didn't please Mark Randolph very much. Hastings immediately set the 177 00:10:59,440 --> 00:11:02,760 Speaker 1: tone for his style at this meeting, as he then 178 00:11:02,920 --> 00:11:08,280 Speaker 1: fired the brand new HR manager, Lisa Battalia Rice. He 179 00:11:08,400 --> 00:11:10,760 Speaker 1: announced that he was going to bring in his own 180 00:11:11,000 --> 00:11:14,920 Speaker 1: HR manager, Patty McCord. And McCord had previously worked with 181 00:11:14,960 --> 00:11:19,560 Speaker 1: Hastings at Pure Atria to run the human resources department there, 182 00:11:19,960 --> 00:11:23,040 Speaker 1: according to the book Netflix, which was a great resource. 183 00:11:23,520 --> 00:11:26,800 Speaker 1: This may have been because McCord was seen as someone 184 00:11:26,840 --> 00:11:29,800 Speaker 1: who could act as kind of a liaison between Hastings 185 00:11:29,800 --> 00:11:33,959 Speaker 1: and staff, because Hastings took a very engineering approach to 186 00:11:34,120 --> 00:11:37,840 Speaker 1: problems and was very blunt and could be quite critical, 187 00:11:38,280 --> 00:11:41,400 Speaker 1: so she would sort of soften the edges a little bit. 188 00:11:42,200 --> 00:11:46,640 Speaker 1: According to again people within the company, Randolph in Hastings 189 00:11:47,000 --> 00:11:51,400 Speaker 1: were very different kinds of leaders. Mark Randolph was more 190 00:11:51,679 --> 00:11:56,760 Speaker 1: empathetic and more outgoing. Read Hastings was more concerned with 191 00:11:56,800 --> 00:12:01,439 Speaker 1: efficiency and performance, and if you weren't performing to expectations, 192 00:12:01,760 --> 00:12:06,480 Speaker 1: you were alerted to that fact pretty quickly. Hastings was 193 00:12:06,760 --> 00:12:11,560 Speaker 1: more quantitative, Randolph more qualitative. Hastings was said to have 194 00:12:11,640 --> 00:12:15,280 Speaker 1: an engineering approach to pretty much any problem, including people problems, 195 00:12:15,440 --> 00:12:18,640 Speaker 1: whereas Randolph was more about allowing people to explore creative 196 00:12:18,640 --> 00:12:23,360 Speaker 1: approaches to challenges. And Hastings was a big hit over 197 00:12:23,440 --> 00:12:26,959 Speaker 1: on the software engineering side of the business. Mark Randolf 198 00:12:27,000 --> 00:12:29,680 Speaker 1: was more of a hero on the marketing and public 199 00:12:29,720 --> 00:12:33,800 Speaker 1: relations and business plans side. By the end of the year, 200 00:12:34,440 --> 00:12:38,880 Speaker 1: Read Hastings would assume the position of Soul CEO and 201 00:12:38,960 --> 00:12:42,480 Speaker 1: bomp Mark Randolf down to president. Then a little later, 202 00:12:42,520 --> 00:12:45,440 Speaker 1: Read Hastings would also take on the role of president 203 00:12:45,840 --> 00:12:49,720 Speaker 1: and Mark Randolph became an executive producer. Hastings was also 204 00:12:49,800 --> 00:12:53,240 Speaker 1: the chairman of the board. Mark Randolph had a position 205 00:12:53,400 --> 00:12:56,600 Speaker 1: on the board that Read Hastings originally wanted to free 206 00:12:56,720 --> 00:13:01,080 Speaker 1: up to UH to grant to an investor. Mark Randolph refused, 207 00:13:01,120 --> 00:13:05,720 Speaker 1: said he absolutely insisted on maintaining his seat at the board, 208 00:13:05,800 --> 00:13:10,080 Speaker 1: and Read Hastings relented at that point. Now, in part, 209 00:13:11,600 --> 00:13:17,520 Speaker 1: Randolph kind of accepted this fate because he knew that 210 00:13:17,600 --> 00:13:20,800 Speaker 1: Read Hastings was important. He knew that he needed Hastings 211 00:13:20,840 --> 00:13:24,640 Speaker 1: in order to keep Netflix afloat. Because investors knew who 212 00:13:24,679 --> 00:13:29,559 Speaker 1: Hastings was. Hastings had founded Pure Software. Pure Software had 213 00:13:29,600 --> 00:13:32,160 Speaker 1: merged with a company called Atria, and the company Pure 214 00:13:32,240 --> 00:13:36,400 Speaker 1: Atria was a huge success for investors. It got acquired 215 00:13:36,920 --> 00:13:40,640 Speaker 1: for a massive deal that netted investors a huge amount 216 00:13:40,640 --> 00:13:43,320 Speaker 1: of money. So Hastings was really popular with these guys. 217 00:13:43,880 --> 00:13:46,960 Speaker 1: They said, this guy has made me money before, and 218 00:13:47,000 --> 00:13:48,920 Speaker 1: if he says this company is worth investing in, I'm 219 00:13:48,920 --> 00:13:51,520 Speaker 1: going to pay attention. So I gave Netflix a better 220 00:13:51,640 --> 00:13:54,640 Speaker 1: chance at getting investment money if Hastings was the one 221 00:13:54,720 --> 00:13:58,520 Speaker 1: in the spotlight. Hastings made a couple of controversial decisions 222 00:13:58,640 --> 00:14:02,000 Speaker 1: in those early months, he declared that Netflix would stop 223 00:14:02,000 --> 00:14:04,600 Speaker 1: selling DVDs and would have to find a way to 224 00:14:04,679 --> 00:14:08,880 Speaker 1: make renting DVDs online profitable or the company would just 225 00:14:08,920 --> 00:14:11,320 Speaker 1: have to close up shop. Then he reached out to 226 00:14:11,440 --> 00:14:15,679 Speaker 1: Amazon dot Com and he suggested that Netflix direct customers 227 00:14:15,720 --> 00:14:18,640 Speaker 1: to Amazon if they were interested in buying a film, 228 00:14:18,960 --> 00:14:22,800 Speaker 1: and in return, Amazon dot Com would display ads for Netflix. 229 00:14:23,440 --> 00:14:25,720 Speaker 1: So this was a deal that was struck up, and 230 00:14:25,800 --> 00:14:28,400 Speaker 1: some of the folks over at Netflix, over in marketing, 231 00:14:28,560 --> 00:14:32,200 Speaker 1: thought this was a colossal mistake because they thought that 232 00:14:32,280 --> 00:14:37,040 Speaker 1: Netflix was effectively handing customers over to a competitor. Netflix 233 00:14:37,080 --> 00:14:40,840 Speaker 1: also had early meetings with Hollywood Video and Blockbuster, the 234 00:14:40,920 --> 00:14:45,320 Speaker 1: two big names in video rental VHS rental, and they 235 00:14:45,360 --> 00:14:47,840 Speaker 1: were kind of feeling things out to see if either 236 00:14:47,880 --> 00:14:52,000 Speaker 1: company might be interested in purchasing Netflix. Because again, one 237 00:14:52,000 --> 00:14:54,200 Speaker 1: way that startups make a lot of money is not 238 00:14:54,360 --> 00:14:57,560 Speaker 1: through creating a sound business plan, but by getting acquired 239 00:14:57,560 --> 00:15:02,840 Speaker 1: by a larger company. Uh. Now, if those companies were 240 00:15:02,880 --> 00:15:06,880 Speaker 1: at all interested in acquiring Netflix, it certainly wasn't at 241 00:15:06,920 --> 00:15:12,280 Speaker 1: the price that Hastings and Randolph were willing to entertain. Uh. 242 00:15:12,320 --> 00:15:14,600 Speaker 1: They were asking for a price much higher than what 243 00:15:14,760 --> 00:15:19,160 Speaker 1: either company would be willing to to meet, and neither 244 00:15:19,240 --> 00:15:23,360 Speaker 1: companies seemed particularly interested in any sort of collaborative efforts. 245 00:15:23,400 --> 00:15:26,680 Speaker 1: Both companies turned down Netflix's offer. At the end of 246 00:15:27,680 --> 00:15:31,720 Speaker 1: Netflix posted a loss of eleven million dollars and there 247 00:15:31,720 --> 00:15:35,320 Speaker 1: were tons of free redual coupons still out there to 248 00:15:35,600 --> 00:15:38,920 Speaker 1: do more damage to the company. So something was going 249 00:15:38,960 --> 00:15:41,920 Speaker 1: to have to change. What was it? I'll tell you 250 00:15:41,960 --> 00:15:44,280 Speaker 1: in a minute, but first let's take a quick break 251 00:15:44,520 --> 00:15:55,000 Speaker 1: to thank our sponsor Read Hastings was able to keep 252 00:15:55,080 --> 00:15:59,520 Speaker 1: Netflix going largely by getting investments from venture capitalists. Over 253 00:15:59,840 --> 00:16:02,320 Speaker 1: the year and a half period, he would raise more 254 00:16:02,360 --> 00:16:06,800 Speaker 1: than one hundred million dollars in investments. At the same time, 255 00:16:07,400 --> 00:16:11,960 Speaker 1: he was changing the corporate culture. They company had started 256 00:16:12,000 --> 00:16:15,640 Speaker 1: as sort of this chaotic creative environment with all these 257 00:16:15,680 --> 00:16:18,000 Speaker 1: different people trying to figure out, how can we make 258 00:16:18,000 --> 00:16:20,720 Speaker 1: a business plan that makes sense, how can we market it, 259 00:16:20,800 --> 00:16:24,040 Speaker 1: how can we attract customers, how can we actually create 260 00:16:24,160 --> 00:16:27,840 Speaker 1: the infrastructure that will allow it to happen. And it 261 00:16:28,000 --> 00:16:32,320 Speaker 1: was uh sort of a crazy but really energetic place 262 00:16:32,480 --> 00:16:36,600 Speaker 1: to work, and Hastings was changing things and buttoning things 263 00:16:36,640 --> 00:16:39,760 Speaker 1: down and making it more hierarchical. Many of the founding 264 00:16:39,760 --> 00:16:44,880 Speaker 1: team members for Netflix left the company in including Jim Cook, 265 00:16:45,000 --> 00:16:49,920 Speaker 1: the the finance and operations director, Christina Kish left, Terse 266 00:16:50,040 --> 00:16:53,920 Speaker 1: Smith left, and more. Joining the company was a guy 267 00:16:54,000 --> 00:16:58,080 Speaker 1: named Tom Dylan, who took over operations from the outgoing 268 00:16:58,160 --> 00:17:01,920 Speaker 1: Jim Cook. Dylan had actually worked at a company called 269 00:17:02,080 --> 00:17:06,280 Speaker 1: c Gate, and he headed up an international operations division 270 00:17:07,240 --> 00:17:13,080 Speaker 1: magnitudes larger than Netflix, huge h division compared to what 271 00:17:13,160 --> 00:17:17,160 Speaker 1: Netflix was doing. Uh. Netflix presented a new challenge at 272 00:17:17,200 --> 00:17:21,399 Speaker 1: a tiny scale in comparison, but Dylan needed to do 273 00:17:21,440 --> 00:17:24,400 Speaker 1: some dramatic changes to really turn things around for the company. 274 00:17:24,520 --> 00:17:28,320 Speaker 1: When he came on board, it cost Netflix six dollars 275 00:17:28,400 --> 00:17:31,679 Speaker 1: to as symbol and ship and order. Now, most orders 276 00:17:31,960 --> 00:17:35,359 Speaker 1: would actually include three discs at a time, so it 277 00:17:35,440 --> 00:17:38,800 Speaker 1: wasn't just six dollars per disc. It was six dollars 278 00:17:38,800 --> 00:17:42,879 Speaker 1: per order, but still was not an efficient system if 279 00:17:42,920 --> 00:17:46,760 Speaker 1: you think like four dollars per disk, and so that's 280 00:17:46,760 --> 00:17:49,840 Speaker 1: like twelve dollars per order and it costs you six 281 00:17:49,880 --> 00:17:52,440 Speaker 1: dollars to send the order out. That's not great. So 282 00:17:52,640 --> 00:17:54,760 Speaker 1: Dylan wanted to get the order cost down to a 283 00:17:54,880 --> 00:17:58,280 Speaker 1: third of what it was. One thing he did was 284 00:17:58,320 --> 00:18:01,200 Speaker 1: to change the shipping process so that each envelope would 285 00:18:01,200 --> 00:18:03,760 Speaker 1: hold only one disc at a time. And that seems 286 00:18:03,760 --> 00:18:06,960 Speaker 1: counterintuitive if you think, wait, if it costs six dollars 287 00:18:06,960 --> 00:18:10,880 Speaker 1: to fill an envelope, but this actually cut down on costs. 288 00:18:10,960 --> 00:18:14,520 Speaker 1: For one, it would let Netflix send out disks when 289 00:18:14,560 --> 00:18:17,400 Speaker 1: they were available, instead of holding an order for all 290 00:18:17,520 --> 00:18:19,960 Speaker 1: three discs to be ready at the same time. So 291 00:18:20,320 --> 00:18:23,360 Speaker 1: if a customer is waiting on three different titles, then 292 00:18:23,440 --> 00:18:26,200 Speaker 1: you can at least send one title out ahead while 293 00:18:26,240 --> 00:18:29,560 Speaker 1: the other two are either coming back to Netflix or 294 00:18:29,600 --> 00:18:33,080 Speaker 1: haven't yet been processed, and you can get orders in 295 00:18:33,119 --> 00:18:36,520 Speaker 1: people's hands faster. Secondly, it brought the cost down on 296 00:18:36,600 --> 00:18:40,480 Speaker 1: individual shipping. The individual envelopes were cheaper to send than 297 00:18:40,520 --> 00:18:43,439 Speaker 1: the larger ones that would hold three disks, and he 298 00:18:43,480 --> 00:18:46,280 Speaker 1: included a barcode system to help sort orders in the 299 00:18:46,320 --> 00:18:51,320 Speaker 1: warehouse and increase efficiency. The next bit is particularly interesting 300 00:18:51,359 --> 00:18:54,800 Speaker 1: to me. Dylan and his team discovered that people living 301 00:18:54,880 --> 00:18:58,920 Speaker 1: within a one day delivery zone were far more likely 302 00:18:58,960 --> 00:19:02,000 Speaker 1: to recommend the serve as to friends. So if you 303 00:19:02,119 --> 00:19:05,920 Speaker 1: live someplace where you would get your order a day 304 00:19:05,960 --> 00:19:10,120 Speaker 1: after you ordered it, you were more likely to be 305 00:19:10,760 --> 00:19:14,199 Speaker 1: a loyal customer and to bring other people into the fold. 306 00:19:14,800 --> 00:19:17,720 Speaker 1: So this helped with customer attraction and retention. And so 307 00:19:18,280 --> 00:19:21,800 Speaker 1: Dylan got hold of a c D that held information 308 00:19:22,800 --> 00:19:26,160 Speaker 1: about US Post Office delivery data for ZIP codes across 309 00:19:26,200 --> 00:19:29,280 Speaker 1: the United States, and he headed up the creation of 310 00:19:29,320 --> 00:19:34,080 Speaker 1: software that could identify the ideal locations to establish a 311 00:19:34,119 --> 00:19:38,480 Speaker 1: distribution center in various regions across the US. And that way, 312 00:19:38,680 --> 00:19:41,360 Speaker 1: he would say, all right, well, we see that there's 313 00:19:41,400 --> 00:19:45,639 Speaker 1: a very dense population in let's say New York City. 314 00:19:45,880 --> 00:19:49,840 Speaker 1: Where can we put a distribution center where we can 315 00:19:49,880 --> 00:19:53,119 Speaker 1: guarantee one day delivery to as many people in that 316 00:19:53,200 --> 00:19:56,360 Speaker 1: region as possible. And so they started taking all these 317 00:19:56,440 --> 00:19:58,560 Speaker 1: data points and they started to look at maps, and 318 00:19:58,560 --> 00:20:01,400 Speaker 1: they started to actually plan out the physical locations where 319 00:20:01,400 --> 00:20:04,760 Speaker 1: distribution centers should be to be able to get one 320 00:20:04,840 --> 00:20:07,720 Speaker 1: day delivery to the largest number of potential customers for 321 00:20:07,800 --> 00:20:11,400 Speaker 1: any given region. Dylan also figured out that in order 322 00:20:11,440 --> 00:20:15,240 Speaker 1: to support a distribution center, each center would need about 323 00:20:15,320 --> 00:20:21,320 Speaker 1: fifteen thousand customers two to justify the existence of that center. 324 00:20:21,440 --> 00:20:25,119 Speaker 1: So using these different points of data and this data 325 00:20:25,160 --> 00:20:28,240 Speaker 1: analysis approach, they were able to point out a map 326 00:20:28,280 --> 00:20:30,960 Speaker 1: and say here's where we need to build our next 327 00:20:31,200 --> 00:20:34,399 Speaker 1: distribution center, and then they could guarantee one day delivery 328 00:20:34,440 --> 00:20:36,760 Speaker 1: to customers in that region and build up the base 329 00:20:36,800 --> 00:20:39,679 Speaker 1: of users they would need to generate regular revenue. And 330 00:20:39,720 --> 00:20:42,720 Speaker 1: it's that kind of data analysis that I find really interesting. 331 00:20:42,720 --> 00:20:45,639 Speaker 1: It's a very innovative approach to figuring out where to 332 00:20:45,760 --> 00:20:49,480 Speaker 1: put your operations as a company. In the summer of 333 00:20:51,160 --> 00:20:54,480 Speaker 1: Netflix began to experiment with a couple of different business 334 00:20:54,520 --> 00:20:58,720 Speaker 1: models to get away from the per title rental approach 335 00:20:58,760 --> 00:21:02,359 Speaker 1: the company had been using up to that point. So remember, 336 00:21:02,440 --> 00:21:04,159 Speaker 1: up to this point, if you wanted to run a 337 00:21:04,160 --> 00:21:07,600 Speaker 1: moview in Netflix, you're paying on a per title basis. 338 00:21:07,600 --> 00:21:09,320 Speaker 1: It might be four dollars per title. It might be 339 00:21:09,359 --> 00:21:11,840 Speaker 1: five dollars per title if you're running three movies, and 340 00:21:11,920 --> 00:21:15,239 Speaker 1: that's twelve bucks or fifteen bucks, depending on you know, 341 00:21:15,440 --> 00:21:19,399 Speaker 1: how how expensive each title was, and they were looking 342 00:21:19,400 --> 00:21:23,040 Speaker 1: at alternatives to this approach. One of these was called 343 00:21:23,080 --> 00:21:26,480 Speaker 1: the home Rental Library, So for twenty dollars per month, 344 00:21:26,880 --> 00:21:29,520 Speaker 1: customers would be able to rent up to six movies 345 00:21:29,600 --> 00:21:31,520 Speaker 1: at a time and keep them for as long as 346 00:21:31,600 --> 00:21:34,200 Speaker 1: they wanted. There'd be no late fees, so if you 347 00:21:34,280 --> 00:21:36,840 Speaker 1: kept them for three months, that's fine, and when you 348 00:21:36,880 --> 00:21:39,920 Speaker 1: return them, and if you're paying the membership fee month 349 00:21:39,960 --> 00:21:43,240 Speaker 1: to months, then you could get six more movies. The 350 00:21:43,280 --> 00:21:47,399 Speaker 1: other approach was called serialized delivery. Now, in that version, 351 00:21:47,520 --> 00:21:52,159 Speaker 1: a customer would first receive whatever the next available film 352 00:21:52,240 --> 00:21:54,960 Speaker 1: is in his or her Q. I talked about the 353 00:21:55,000 --> 00:21:58,440 Speaker 1: queue in the previous episode. That's the list of movies 354 00:21:58,480 --> 00:22:01,760 Speaker 1: you've expressed interest in. And the more interested you are 355 00:22:01,800 --> 00:22:03,480 Speaker 1: in a movie, the higher up you should put it 356 00:22:03,560 --> 00:22:06,600 Speaker 1: in your queue. And so what would happen is you 357 00:22:06,680 --> 00:22:09,359 Speaker 1: get a film, you'd watch your movie, you return it 358 00:22:09,400 --> 00:22:13,760 Speaker 1: to Netflix. Netflix would scan the returning disk, they would 359 00:22:13,800 --> 00:22:17,000 Speaker 1: register that you had returned your movie. They would look 360 00:22:17,040 --> 00:22:20,280 Speaker 1: at your queue, and whatever the next available title in 361 00:22:20,359 --> 00:22:23,440 Speaker 1: theory was that was on your queue, they would send 362 00:22:23,480 --> 00:22:28,000 Speaker 1: that one to you next and uh. Then these both 363 00:22:28,040 --> 00:22:33,480 Speaker 1: were really popular. Hastings ordered actually, that both serialized delivery 364 00:22:33,520 --> 00:22:36,359 Speaker 1: and the home rental library and the new queue feature 365 00:22:36,600 --> 00:22:39,600 Speaker 1: should all be tested at the same time, which drove 366 00:22:39,640 --> 00:22:42,920 Speaker 1: marketing nuts because they wanted to be able to isolate 367 00:22:43,480 --> 00:22:47,359 Speaker 1: these different approaches and to measure them against each other. 368 00:22:47,960 --> 00:22:51,000 Speaker 1: It turned out the customers loved all three features, so 369 00:22:51,119 --> 00:22:55,080 Speaker 1: Randolph decided that they should combine them into a single offering. 370 00:22:55,960 --> 00:22:59,679 Speaker 1: Customers would pay a monthly subscription fee. This was an 371 00:22:59,680 --> 00:23:03,760 Speaker 1: alter her native to the per title rental fee. It 372 00:23:03,960 --> 00:23:08,520 Speaker 1: was not mandated originally, it was an alternative. These subscriptions 373 00:23:08,560 --> 00:23:11,880 Speaker 1: would be in tears different levels that would allow customers 374 00:23:11,880 --> 00:23:15,320 Speaker 1: to choose how many DVDs they could rent at a time, 375 00:23:15,359 --> 00:23:18,520 Speaker 1: and each tier would cost a different amount. You know, 376 00:23:18,560 --> 00:23:20,200 Speaker 1: the more movies you wanted to be able to check 377 00:23:20,240 --> 00:23:22,480 Speaker 1: out at once, the higher you would pay per month. 378 00:23:23,440 --> 00:23:26,200 Speaker 1: Then there would be no late fees, and upon returning titles, 379 00:23:26,240 --> 00:23:30,040 Speaker 1: you would get the next available DVD from your queue 380 00:23:30,600 --> 00:23:32,560 Speaker 1: that would be the next one to be sent along again. 381 00:23:32,600 --> 00:23:37,120 Speaker 1: In theory, it's probably from this point that Hastings decided 382 00:23:37,160 --> 00:23:40,720 Speaker 1: to go with the version of Netflix's history that was 383 00:23:40,720 --> 00:23:44,560 Speaker 1: passed around as gospel for several years, and that was 384 00:23:44,680 --> 00:23:46,880 Speaker 1: the version that I talked about in the last episode 385 00:23:46,880 --> 00:23:49,560 Speaker 1: where he had said he got the idea for Netflix 386 00:23:49,600 --> 00:23:53,560 Speaker 1: after he got a late fee for keeping Apollo thirteen 387 00:23:53,720 --> 00:23:57,600 Speaker 1: from a blockbuster for too long. In reality, Netflix didn't 388 00:23:57,680 --> 00:24:00,119 Speaker 1: go with this no late fee approach until it was 389 00:24:00,119 --> 00:24:03,199 Speaker 1: about a year and a half old, so that was 390 00:24:04,000 --> 00:24:08,359 Speaker 1: not a a key part of Netflix from day one. 391 00:24:08,480 --> 00:24:12,840 Speaker 1: It was well after they had begun to do business 392 00:24:12,880 --> 00:24:17,480 Speaker 1: that they adopted that philosophy. The new model that they 393 00:24:17,560 --> 00:24:22,359 Speaker 1: used would debut on September. The plan would allow a 394 00:24:22,359 --> 00:24:25,760 Speaker 1: customer to receive up to four titles simultaneously for the 395 00:24:25,840 --> 00:24:30,360 Speaker 1: monthly subscription rate of fifteen dollars and nine cents, which 396 00:24:30,400 --> 00:24:34,480 Speaker 1: I think is too low to qualify as a princely sum, 397 00:24:34,520 --> 00:24:38,760 Speaker 1: but the rollout was targeted. Most visitors would not see 398 00:24:38,880 --> 00:24:41,800 Speaker 1: this offer at all. They would just see the normal 399 00:24:41,920 --> 00:24:45,760 Speaker 1: per title rental structure. But a few people did see 400 00:24:45,760 --> 00:24:48,719 Speaker 1: the offer, and the people who saw it tended to 401 00:24:48,800 --> 00:24:51,639 Speaker 1: sign up, so it's proven to be a hit. It 402 00:24:51,720 --> 00:24:56,000 Speaker 1: was if a customer were presented the opportunity to use 403 00:24:56,040 --> 00:24:59,160 Speaker 1: that particular model, they were more likely to do so, 404 00:24:59,720 --> 00:25:03,120 Speaker 1: and so it became pretty clear that this was a 405 00:25:03,240 --> 00:25:06,920 Speaker 1: solid business plan. In late September and Netflix rolled out 406 00:25:07,000 --> 00:25:10,440 Speaker 1: this new plan at large, so everyone had a chance 407 00:25:10,480 --> 00:25:13,200 Speaker 1: to see it and enroll in it. But they still 408 00:25:13,280 --> 00:25:16,159 Speaker 1: also offered up the a la carte approach as an alternative, 409 00:25:16,200 --> 00:25:18,239 Speaker 1: so they didn't get rid of that yet. But the 410 00:25:18,240 --> 00:25:21,280 Speaker 1: new subscription model was much more popular, pushing the number 411 00:25:21,320 --> 00:25:25,320 Speaker 1: of weekly shipments up to one hundred thousand discs per week. 412 00:25:26,240 --> 00:25:29,920 Speaker 1: Now that didn't mean the company was magically profitable. In fact, 413 00:25:30,400 --> 00:25:34,240 Speaker 1: it would close out nine with a twenty nine point 414 00:25:34,359 --> 00:25:38,760 Speaker 1: eight million dollar loss. Good thing Hastings had gotten all 415 00:25:38,760 --> 00:25:42,040 Speaker 1: that venture capital earlier in the year, they were running 416 00:25:42,080 --> 00:25:44,639 Speaker 1: into new challenges, and one of those was that the 417 00:25:44,720 --> 00:25:48,920 Speaker 1: subscription models were making it difficult to keep titles in stock. 418 00:25:49,560 --> 00:25:52,000 Speaker 1: For one thing, Netflix was getting a lot more customers, 419 00:25:52,080 --> 00:25:55,120 Speaker 1: and for another, those customers could keep movies for as 420 00:25:55,160 --> 00:25:57,640 Speaker 1: long as they liked. Not everyone was watching a movie 421 00:25:57,640 --> 00:26:00,240 Speaker 1: and then immediately returning it, some of them were holding 422 00:26:00,240 --> 00:26:02,200 Speaker 1: onto the movies for a long time. If you talk 423 00:26:02,280 --> 00:26:07,520 Speaker 1: to anyone who was a Netflix customer who rented DVDs back, 424 00:26:07,720 --> 00:26:10,200 Speaker 1: you know there's still people who do, but back when 425 00:26:10,200 --> 00:26:12,960 Speaker 1: that was more common, you could ask them what's the 426 00:26:12,960 --> 00:26:17,119 Speaker 1: most expensive DVD you ever rented? Because if you rented 427 00:26:17,160 --> 00:26:20,240 Speaker 1: a DVD and it arrives and it just sits on 428 00:26:20,320 --> 00:26:23,440 Speaker 1: your table and you never watch it, you're still paying 429 00:26:23,440 --> 00:26:26,000 Speaker 1: the monthly subscription fee month to month to month. There's 430 00:26:26,040 --> 00:26:29,400 Speaker 1: no late fee. But if you think part of this 431 00:26:29,440 --> 00:26:32,639 Speaker 1: monthly subscription is just going to the fact that I 432 00:26:32,720 --> 00:26:36,040 Speaker 1: have this DVD in my possession even though I've never 433 00:26:36,080 --> 00:26:41,080 Speaker 1: watched it, then those prices would rack up pretty high. Um, 434 00:26:41,160 --> 00:26:44,240 Speaker 1: I want to say that Kiss Kiss Bang Bang was 435 00:26:44,280 --> 00:26:47,760 Speaker 1: a really expensive one for me for a while. Anyway, 436 00:26:48,520 --> 00:26:51,639 Speaker 1: that that was an issue, And because that was an issue, 437 00:26:51,760 --> 00:26:54,720 Speaker 1: it meant that no one else could rent that particular 438 00:26:54,760 --> 00:26:57,359 Speaker 1: copy of the movie because it was not in Netflix's hands. 439 00:26:57,359 --> 00:27:01,320 Speaker 1: It was in some Yahoo's hands like myself, so that 440 00:27:02,119 --> 00:27:07,040 Speaker 1: complicated matters. Meanwhile, Hollywood Video was taking an even bigger 441 00:27:07,080 --> 00:27:10,760 Speaker 1: loss after supporting a competing format. There was actually a 442 00:27:10,800 --> 00:27:14,520 Speaker 1: format that Netflix had entertained carrying for a short while. 443 00:27:15,200 --> 00:27:18,040 Speaker 1: That format was out of circuit city. It was called 444 00:27:18,320 --> 00:27:23,679 Speaker 1: Divis d I v X. The Divis format was super 445 00:27:23,840 --> 00:27:26,760 Speaker 1: heavy on the d r M front, So the concept 446 00:27:27,320 --> 00:27:30,520 Speaker 1: was that you could rent a movie on the Divis format. 447 00:27:30,600 --> 00:27:33,879 Speaker 1: So it's essentially an optical disc, very similar to a DVD. 448 00:27:34,480 --> 00:27:37,880 Speaker 1: But these discs had heavy encryption on them, so if 449 00:27:37,880 --> 00:27:40,920 Speaker 1: you put them in your Davis player and you did 450 00:27:40,960 --> 00:27:46,199 Speaker 1: not have authorization to watch the content, you couldn't actually 451 00:27:46,200 --> 00:27:49,199 Speaker 1: see anything. So the reason the way this works is 452 00:27:49,200 --> 00:27:51,680 Speaker 1: that your player would actually have to have a modem connection. 453 00:27:51,680 --> 00:27:56,160 Speaker 1: It would connect back to a home computer home base 454 00:27:56,280 --> 00:28:00,399 Speaker 1: computer like a server essentially, and it would check to 455 00:28:00,440 --> 00:28:03,959 Speaker 1: make sure that you had that authorization, that you had 456 00:28:03,960 --> 00:28:07,719 Speaker 1: paid a rental fee to watch that particular content, and 457 00:28:07,760 --> 00:28:12,639 Speaker 1: if you had, it would decrypt the signal and you 458 00:28:12,640 --> 00:28:15,119 Speaker 1: would actually be able to watch whatever it was you 459 00:28:15,119 --> 00:28:18,520 Speaker 1: had rented. And then once your rental agreement expired, maybe 460 00:28:18,560 --> 00:28:21,840 Speaker 1: it's like for three days, then you would no longer 461 00:28:21,880 --> 00:28:24,399 Speaker 1: be able to decrypt that information on your player and 462 00:28:24,400 --> 00:28:27,719 Speaker 1: you wouldn't be able to see it anymore. Randolph had 463 00:28:27,760 --> 00:28:31,560 Speaker 1: actually decided not to support that particular format, mostly because 464 00:28:32,240 --> 00:28:36,320 Speaker 1: it wasn't logistically feasible for Netflix to stuck every title 465 00:28:36,600 --> 00:28:40,360 Speaker 1: in both the DVD and the DVICS format, and they 466 00:28:40,360 --> 00:28:43,840 Speaker 1: had already committed to the DVD format, so they were 467 00:28:43,960 --> 00:28:47,000 Speaker 1: kind of they had pushed their chips into the DVD 468 00:28:47,240 --> 00:28:50,640 Speaker 1: hot but since dvis as a format essentially died, in 469 00:28:52,320 --> 00:28:55,880 Speaker 1: turned out that Netflix had backed the right horse, that 470 00:28:56,120 --> 00:28:59,160 Speaker 1: it was a good thing they didn't do this. Hollywood Video, however, 471 00:28:59,560 --> 00:29:02,760 Speaker 1: had really gone in on DVICS and they took a 472 00:29:02,880 --> 00:29:08,600 Speaker 1: huge bath when that format lost support. In January two thousand, 473 00:29:09,040 --> 00:29:11,840 Speaker 1: Netflix rolled out a new feature called cent a match, 474 00:29:12,120 --> 00:29:14,240 Speaker 1: and the idea was to find films that would please 475 00:29:14,320 --> 00:29:16,720 Speaker 1: couples who were trying to figure out what films they 476 00:29:16,720 --> 00:29:20,400 Speaker 1: should rent based on their own individual likes and dislikes. 477 00:29:20,440 --> 00:29:22,560 Speaker 1: So the company had found it challenging to build out 478 00:29:22,560 --> 00:29:26,320 Speaker 1: algorithms that could suggest movies to users that people actually 479 00:29:26,360 --> 00:29:28,800 Speaker 1: wanted to see. They thought at first that this was 480 00:29:28,800 --> 00:29:31,600 Speaker 1: going to be easy, right that you just look at 481 00:29:31,640 --> 00:29:34,560 Speaker 1: somebody and you say, oh, well, they really like movies 482 00:29:34,600 --> 00:29:39,280 Speaker 1: that feature horror and they like slashers, so we're going 483 00:29:39,360 --> 00:29:44,280 Speaker 1: to send them, uh, the you know, Friday the Thirteenth series, 484 00:29:44,320 --> 00:29:46,440 Speaker 1: and it turns out that the person doesn't like that 485 00:29:46,520 --> 00:29:50,560 Speaker 1: at all. That was that was that seemed to fly 486 00:29:50,640 --> 00:29:55,239 Speaker 1: in the face of the cold logic approach. Right, you 487 00:29:55,360 --> 00:29:58,160 Speaker 1: like X, so you must like why because Why has 488 00:29:58,200 --> 00:30:01,280 Speaker 1: stuff in it that X also has. That turned out 489 00:30:01,280 --> 00:30:05,959 Speaker 1: to not be as reliable. So Cinematch was more about 490 00:30:06,040 --> 00:30:11,120 Speaker 1: sorting people into like minded groups, groups of users who 491 00:30:11,360 --> 00:30:15,440 Speaker 1: had rated movies in a similar way, and then looking 492 00:30:15,480 --> 00:30:18,440 Speaker 1: at their various histories behind the scenes, not sharing that 493 00:30:18,520 --> 00:30:21,600 Speaker 1: out in the open, but making recommendations based on that, 494 00:30:21,760 --> 00:30:26,000 Speaker 1: and those seemed to be much more um successful than 495 00:30:26,040 --> 00:30:29,360 Speaker 1: the algorithm based approach that had previously been in place. 496 00:30:30,000 --> 00:30:33,640 Speaker 1: Cinematch also took into account the films and Netflix's inventory 497 00:30:33,680 --> 00:30:37,120 Speaker 1: before making any recommendations, so it wasn't about to recommend 498 00:30:37,160 --> 00:30:39,560 Speaker 1: a movie that was not in stock, because that would 499 00:30:39,600 --> 00:30:43,880 Speaker 1: just become a frustrating experience. The board of directors was 500 00:30:43,920 --> 00:30:45,960 Speaker 1: starting to get itchy. They wanted to move toward an 501 00:30:46,040 --> 00:30:49,760 Speaker 1: initial public offering to take the company public, but at 502 00:30:49,800 --> 00:30:52,600 Speaker 1: that point the company was still losing money. So read 503 00:30:52,640 --> 00:30:56,479 Speaker 1: Hastings had a big decision to make. I'll explain more 504 00:30:56,520 --> 00:30:58,640 Speaker 1: in a second, but first let's take another quick break 505 00:30:58,760 --> 00:31:09,720 Speaker 1: to thank our sponsor. On Valentine's Day two thousand, Netflix 506 00:31:09,800 --> 00:31:14,680 Speaker 1: officially ditched the alakrt rental model and went to subscription only. 507 00:31:14,960 --> 00:31:18,000 Speaker 1: Hastings had argued it was the only way toward profitability. 508 00:31:18,200 --> 00:31:21,840 Speaker 1: In addition, the cost of a subscription increased to nineteen 509 00:31:21,880 --> 00:31:25,080 Speaker 1: dollars cents per month, so it went up by four 510 00:31:25,120 --> 00:31:27,720 Speaker 1: bucks per month, with the first month of rentals being free, 511 00:31:28,160 --> 00:31:30,880 Speaker 1: but customers would have to submit their credit card numbers 512 00:31:30,920 --> 00:31:34,760 Speaker 1: to get that free month. That was a strategy that 513 00:31:35,320 --> 00:31:38,400 Speaker 1: would help protect Netflix in the case of DVDs never 514 00:31:38,440 --> 00:31:41,320 Speaker 1: getting returned, but it also made it easier to convert 515 00:31:41,360 --> 00:31:45,560 Speaker 1: people into full members from trial to full members because 516 00:31:45,920 --> 00:31:49,040 Speaker 1: they had already inserted their credit card information, you weren't 517 00:31:49,080 --> 00:31:51,520 Speaker 1: asking them to do that after the month was over. 518 00:31:51,600 --> 00:31:54,120 Speaker 1: That would have acted as another barrier to entry. So 519 00:31:54,200 --> 00:31:57,280 Speaker 1: by ripping off the band aid right at the very beginning, 520 00:31:57,760 --> 00:32:01,920 Speaker 1: you were more likely to keep people on as a 521 00:32:01,920 --> 00:32:05,280 Speaker 1: as a subscribed member. In the spring of two thousand, 522 00:32:05,600 --> 00:32:09,240 Speaker 1: Hastings hired on Leslie Kilgore to become part of the 523 00:32:09,280 --> 00:32:13,440 Speaker 1: marketing department, and Mark Randolph, the co founder of Netflix, 524 00:32:13,640 --> 00:32:18,960 Speaker 1: saw his role decrease yet again. Kilgore tackled redesigning the 525 00:32:18,960 --> 00:32:23,240 Speaker 1: company logo and colors. She also campaigned successfully to have 526 00:32:23,360 --> 00:32:27,800 Speaker 1: the marketing and public relations departments consolidated into a single entity, 527 00:32:27,920 --> 00:32:30,880 Speaker 1: and Hastings would say in an executive meeting that he 528 00:32:30,960 --> 00:32:34,560 Speaker 1: considered kill Gore a potential successor to the position of 529 00:32:34,640 --> 00:32:37,840 Speaker 1: CEO in the future, which more than ruffled a few 530 00:32:37,880 --> 00:32:42,280 Speaker 1: feathers among executives at Netflix who had hopes of one 531 00:32:42,360 --> 00:32:45,080 Speaker 1: day maybe getting that position. She's the one who kind 532 00:32:45,120 --> 00:32:48,760 Speaker 1: of led the way to redeveloping Netflix's logo so that 533 00:32:48,800 --> 00:32:53,600 Speaker 1: it would have that red and black and white appearance, 534 00:32:54,360 --> 00:32:58,360 Speaker 1: so the color read the theatrical color. That's largely due 535 00:32:58,360 --> 00:33:03,360 Speaker 1: to her her leadership. Something else was going on that 536 00:33:03,440 --> 00:33:07,280 Speaker 1: created an existential threat to Netflix, and that was the 537 00:33:07,320 --> 00:33:12,120 Speaker 1: infamous dot com crash, when the speculative bubble that formed 538 00:33:12,160 --> 00:33:16,800 Speaker 1: around the dot com industry imploded. Startups that had tons 539 00:33:17,000 --> 00:33:19,800 Speaker 1: of investment money but not much to show for it 540 00:33:19,880 --> 00:33:24,760 Speaker 1: apart from some flashy offices and ridiculous recruitment strategies began 541 00:33:24,800 --> 00:33:28,680 Speaker 1: to fold as investor confidence would collapse around them. The 542 00:33:28,680 --> 00:33:32,479 Speaker 1: stock market took a huge bump, and employees who on 543 00:33:32,600 --> 00:33:36,800 Speaker 1: paper were millionaires before the dot com crash because they 544 00:33:36,800 --> 00:33:41,840 Speaker 1: had received ginormous numbers of stock options, suddenly had to 545 00:33:41,880 --> 00:33:45,240 Speaker 1: deal with a reality where those same stock options weren't 546 00:33:45,280 --> 00:33:48,480 Speaker 1: worth the paper they were printed on. It became a 547 00:33:48,560 --> 00:33:53,800 Speaker 1: point where everything when you're when you're awarded a hundred 548 00:33:53,840 --> 00:33:57,200 Speaker 1: thousand stock options, but then every stock option is worth 549 00:33:57,280 --> 00:34:00,600 Speaker 1: less than a penny, it suddenly is not that big 550 00:34:00,680 --> 00:34:06,040 Speaker 1: of a reward. Netflix had luckily secured additional investments just 551 00:34:06,240 --> 00:34:09,920 Speaker 1: before this dot com collapse, and they were doing so 552 00:34:10,000 --> 00:34:13,520 Speaker 1: in anticipation of holding their own initial public offering, but 553 00:34:13,600 --> 00:34:17,120 Speaker 1: they held off on that obviously because the dot com 554 00:34:17,280 --> 00:34:19,799 Speaker 1: had so destabilized the market that it was not the 555 00:34:19,880 --> 00:34:22,680 Speaker 1: right time to try and to clear going from a 556 00:34:22,680 --> 00:34:25,160 Speaker 1: private company to a public company, but it did have 557 00:34:25,280 --> 00:34:27,960 Speaker 1: enough money to get through this initial slump. It was 558 00:34:28,000 --> 00:34:30,680 Speaker 1: around this time that Hastings and a couple of executives, 559 00:34:30,680 --> 00:34:34,680 Speaker 1: including Mark Randolph, met with Blockbuster executives, and this was 560 00:34:34,760 --> 00:34:40,000 Speaker 1: the infamous meeting during which Blockbuster had the opportunity to 561 00:34:40,120 --> 00:34:44,760 Speaker 1: acquire Netflix. Netflix's asking price was somewhere in the fifty 562 00:34:44,840 --> 00:34:49,600 Speaker 1: million dollar range, and that was considered way too high 563 00:34:49,680 --> 00:34:52,120 Speaker 1: by the executives over a Blockbuster. They said, there's no 564 00:34:52,200 --> 00:34:55,840 Speaker 1: way you haven't demonstrated that you have this value, especially 565 00:34:56,280 --> 00:34:59,240 Speaker 1: in today's market where we're seeing internet companies go belly 566 00:34:59,360 --> 00:35:04,640 Speaker 1: up left right. So John Antiocho, the CEO of Blockbuster 567 00:35:04,680 --> 00:35:07,680 Speaker 1: at the time, said, no, Dice, you don't have the 568 00:35:07,760 --> 00:35:10,200 Speaker 1: staying power. You probably won't even be in business in 569 00:35:10,239 --> 00:35:14,160 Speaker 1: a year, and so Blockbuster walked away from that deal. Now, 570 00:35:14,400 --> 00:35:17,600 Speaker 1: while that was a setback for Netflix, the team decided 571 00:35:17,640 --> 00:35:21,560 Speaker 1: to push even harder to get to profitability. The customer 572 00:35:21,600 --> 00:35:25,719 Speaker 1: retention numbers were looking promising, and Hastings said in interviews 573 00:35:26,080 --> 00:35:28,120 Speaker 1: that he expected by the end of two thousand one, 574 00:35:28,600 --> 00:35:32,200 Speaker 1: that Netflix would have five hundred thousand paying subscribers and 575 00:35:32,320 --> 00:35:35,680 Speaker 1: that they would become cash flow positive as a result, 576 00:35:35,719 --> 00:35:39,080 Speaker 1: they ended up being a little ambitious. The executive team 577 00:35:39,200 --> 00:35:42,040 Speaker 1: also made some other big predictions, some of which have 578 00:35:42,160 --> 00:35:44,720 Speaker 1: sort of proven to be true, but in a different 579 00:35:44,719 --> 00:35:47,279 Speaker 1: way than what they had necessarily intended back in two 580 00:35:47,320 --> 00:35:50,200 Speaker 1: thousand one. One of those predictions was that Netflix will 581 00:35:50,239 --> 00:35:54,120 Speaker 1: become such a popular platform that independent filmmakers would use 582 00:35:54,200 --> 00:35:58,880 Speaker 1: Netflix as their production studio. Essentially, they would create films 583 00:35:58,880 --> 00:36:03,239 Speaker 1: meant to go straight to Netflix's service and bypass studios 584 00:36:03,239 --> 00:36:07,080 Speaker 1: and movie theaters entirely, to go a different direction than 585 00:36:07,120 --> 00:36:09,799 Speaker 1: what typically you would see in the industry. And you 586 00:36:09,800 --> 00:36:12,160 Speaker 1: could argue that we're seeing a lot of that today, 587 00:36:12,280 --> 00:36:15,160 Speaker 1: only now we're looking at it from digital delivery, you know, 588 00:36:15,320 --> 00:36:20,160 Speaker 1: broadband delivery as opposed to DVDs, but the same principle 589 00:36:20,239 --> 00:36:23,200 Speaker 1: seems to apply. So it was a very forward thinking prediction. 590 00:36:23,680 --> 00:36:26,520 Speaker 1: The web designers. Meanwhile, we're working to identify ways to 591 00:36:26,560 --> 00:36:30,080 Speaker 1: make the online experience more intuitive for new web users, 592 00:36:30,719 --> 00:36:34,839 Speaker 1: because up to this point, Netflix's customer base consisted primarily 593 00:36:34,920 --> 00:36:39,840 Speaker 1: of technologically savvy young men, it was not a diverse group, 594 00:36:40,239 --> 00:36:43,400 Speaker 1: but more and more Americans were getting online, more people 595 00:36:43,400 --> 00:36:47,080 Speaker 1: were getting computers, more people were getting Internet service providers 596 00:36:47,200 --> 00:36:50,440 Speaker 1: or online service providers like a O L Online, and 597 00:36:50,520 --> 00:36:53,719 Speaker 1: so the potential to reach a broader audience was there. 598 00:36:54,280 --> 00:36:56,880 Speaker 1: So research was looking into ways to make the process 599 00:36:57,000 --> 00:37:01,440 Speaker 1: easier for newbies to navigate the website. Meanwhile, Hastings and 600 00:37:01,480 --> 00:37:04,560 Speaker 1: the executive team decided one way to make Netflix look 601 00:37:04,600 --> 00:37:07,560 Speaker 1: like a legit player in the space would be to 602 00:37:07,560 --> 00:37:10,880 Speaker 1: pick a fight, and so they began to compare Netflix 603 00:37:11,000 --> 00:37:14,640 Speaker 1: favorably against Blockbuster, which was the big dog and home 604 00:37:14,719 --> 00:37:19,000 Speaker 1: video rentals. Hastings would say that Netflix's inventory was many 605 00:37:19,040 --> 00:37:22,960 Speaker 1: times larger than even the biggest Blockbuster store, saying, we 606 00:37:23,040 --> 00:37:26,320 Speaker 1: have more titles in our inventory then you'll find in 607 00:37:26,480 --> 00:37:31,719 Speaker 1: any Blockbuster location. Now, granted, you're looking at two different things, right, 608 00:37:31,840 --> 00:37:34,439 Speaker 1: because Blockbuster as a whole, if you looked at all 609 00:37:34,480 --> 00:37:38,879 Speaker 1: the different stores, had way more copies of way more 610 00:37:38,960 --> 00:37:42,360 Speaker 1: titles than what Netflix had. But on an individual shop basis, 611 00:37:42,440 --> 00:37:45,120 Speaker 1: if you lived in a community that had one and 612 00:37:45,200 --> 00:37:48,640 Speaker 1: only one Blockbuster, you would have greater variety if you 613 00:37:48,680 --> 00:37:51,839 Speaker 1: went to Netflix. That was hastings argument and the team 614 00:37:51,880 --> 00:37:54,520 Speaker 1: really hammered home the idea that there were no late fees, 615 00:37:54,960 --> 00:37:59,319 Speaker 1: something that was one of the chief revenue generators for Blockbuster. 616 00:38:00,000 --> 00:38:01,879 Speaker 1: But it was clear that Netflix wasn't going to make 617 00:38:01,880 --> 00:38:05,960 Speaker 1: the goals Hastings had originally said he wanted to hit 618 00:38:06,080 --> 00:38:09,160 Speaker 1: in two thousand one. There was little chance for an 619 00:38:09,160 --> 00:38:12,440 Speaker 1: I p O in that time, and to look viable 620 00:38:12,520 --> 00:38:15,319 Speaker 1: in investors eyes, the company was going to need to 621 00:38:15,320 --> 00:38:19,239 Speaker 1: cut costs and prove that the subscription based model was 622 00:38:19,280 --> 00:38:23,120 Speaker 1: a viable one. So to do this, Hastings would cut 623 00:38:23,160 --> 00:38:28,080 Speaker 1: about forty percent of the workforce at Netflix. In September 624 00:38:28,080 --> 00:38:31,719 Speaker 1: two thousand one, the remaining members of the original founding 625 00:38:31,800 --> 00:38:34,920 Speaker 1: team of Netflix were either laid off or they chose 626 00:38:34,920 --> 00:38:37,880 Speaker 1: to quit. With the exception of Mark Randolph, the co 627 00:38:38,080 --> 00:38:41,520 Speaker 1: founder of Netflix, he was the only one of that 628 00:38:41,719 --> 00:38:45,200 Speaker 1: initial team who would put Netflix together to remain at 629 00:38:45,200 --> 00:38:49,360 Speaker 1: the company after September two thousand one. Profitability would have 630 00:38:49,400 --> 00:38:52,200 Speaker 1: to wait, because at this point Hastings was focused on 631 00:38:52,280 --> 00:38:55,000 Speaker 1: getting the company lean and nimble enough to gain the 632 00:38:55,040 --> 00:38:59,040 Speaker 1: confidence of investors and finally have that initial public offering. 633 00:38:59,400 --> 00:39:02,160 Speaker 1: He and his executives spent late two thousand one and 634 00:39:02,239 --> 00:39:04,799 Speaker 1: early two thousand two, laying the groundwork for this I 635 00:39:04,880 --> 00:39:07,239 Speaker 1: p O, and they were able to hold it on 636 00:39:07,320 --> 00:39:11,320 Speaker 1: May twenty three, two thousand two. Mark Randolph had resigned 637 00:39:11,360 --> 00:39:14,080 Speaker 1: from the board of directors before that point, but he 638 00:39:14,160 --> 00:39:17,200 Speaker 1: did remain with the company, and the fact that Netflix 639 00:39:17,239 --> 00:39:19,879 Speaker 1: had survived the dot com crash when so many other 640 00:39:19,960 --> 00:39:23,960 Speaker 1: companies had folded helped Netflix quite a bit. There was 641 00:39:24,040 --> 00:39:28,080 Speaker 1: a message saying, we don't have the same problems as 642 00:39:28,080 --> 00:39:30,600 Speaker 1: those other companies had. We are going to stick around. 643 00:39:31,080 --> 00:39:33,920 Speaker 1: So the idea was a success. It raised more than 644 00:39:34,000 --> 00:39:37,800 Speaker 1: eighty million dollars and shares were trading at around fifteen 645 00:39:37,840 --> 00:39:41,600 Speaker 1: dollars apiece. Mitch Lowe started testing out an idea in 646 00:39:41,600 --> 00:39:45,920 Speaker 1: two thousand two called Netflix Express. He and Mark Randolph 647 00:39:46,080 --> 00:39:49,560 Speaker 1: landed a pilot program. They talked to a chain of 648 00:39:49,560 --> 00:39:53,080 Speaker 1: grocery stores called Smith's and they got the agreement to 649 00:39:53,160 --> 00:39:57,000 Speaker 1: put in a video rental kiosk in a Las Vegas 650 00:39:57,000 --> 00:40:01,359 Speaker 1: grocery store. Now, unlike the vending machine style kiosks low 651 00:40:01,480 --> 00:40:05,200 Speaker 1: had wanted to create, this one actually had an employee 652 00:40:05,320 --> 00:40:09,400 Speaker 1: who would fill customer rental orders manually. And the test 653 00:40:09,440 --> 00:40:13,000 Speaker 1: went very well. But Hastings wouldn't get on board with it. 654 00:40:13,040 --> 00:40:15,920 Speaker 1: He didn't see this as being a viable business, and 655 00:40:15,960 --> 00:40:18,640 Speaker 1: he had his sights set on the future of digital 656 00:40:18,640 --> 00:40:22,000 Speaker 1: distribution and anticipated that such a move was going to 657 00:40:22,000 --> 00:40:25,640 Speaker 1: require a substantial investment on the part of Netflix to 658 00:40:25,680 --> 00:40:29,080 Speaker 1: make it possible, and that creating a new means of 659 00:40:29,120 --> 00:40:33,200 Speaker 1: renting out DVDs would require an investment on the company 660 00:40:33,239 --> 00:40:36,359 Speaker 1: that would take away from the money he saw as 661 00:40:36,400 --> 00:40:41,240 Speaker 1: being necessary to pursue this digital download or digital rental 662 00:40:41,280 --> 00:40:44,239 Speaker 1: experience in the future. So he said, that's going to 663 00:40:44,280 --> 00:40:46,920 Speaker 1: be a distraction. We're not going to do it. So 664 00:40:47,000 --> 00:40:50,359 Speaker 1: Mitch Lowe wouldn't end up leaving Netflix. In January two 665 00:40:50,360 --> 00:40:53,879 Speaker 1: thousand three, he met with an executive from McDonald's who 666 00:40:53,880 --> 00:40:57,200 Speaker 1: had previously expressed interest in a partnership with Netflix, but 667 00:40:57,440 --> 00:41:00,680 Speaker 1: Hastings had nixed that idea, so this negative. A guy 668 00:41:00,760 --> 00:41:03,759 Speaker 1: named Greg Kaplan had a similar vision too, low and 669 00:41:03,800 --> 00:41:07,120 Speaker 1: together they ended up heading a new venture that would 670 00:41:07,120 --> 00:41:10,960 Speaker 1: be called red Box. As for Mark Randolph, when that 671 00:41:11,120 --> 00:41:14,960 Speaker 1: Kiosk experiment was deemed unworkable by Hastings, he bowed out 672 00:41:15,120 --> 00:41:18,480 Speaker 1: he left Netflix. In fact, he and Hastings had already 673 00:41:18,480 --> 00:41:22,680 Speaker 1: discussed severance conditions before the Kiosk experiment began, the message 674 00:41:22,680 --> 00:41:25,360 Speaker 1: being if this doesn't work out, you should probably just 675 00:41:25,400 --> 00:41:28,080 Speaker 1: pack up and leave. So in two thousand three, Mark 676 00:41:28,200 --> 00:41:30,799 Speaker 1: Randolph would leave the company he had co founded. He 677 00:41:30,840 --> 00:41:33,759 Speaker 1: had been the original CEO of Netflix. It was his 678 00:41:33,800 --> 00:41:36,880 Speaker 1: ambition to become the Amazon dot Com of something, and 679 00:41:36,920 --> 00:41:40,080 Speaker 1: while Netflix's biggest days were ahead of the company, he 680 00:41:40,120 --> 00:41:42,279 Speaker 1: would no longer be a part of them. So what 681 00:41:42,400 --> 00:41:44,480 Speaker 1: is Randolph up to these days? While he sits on 682 00:41:44,520 --> 00:41:48,680 Speaker 1: the boards of numerous companies, he's also a frequent speaker 683 00:41:48,760 --> 00:41:51,799 Speaker 1: at technology, business and leadership conferences. He acts as a 684 00:41:51,840 --> 00:41:55,480 Speaker 1: mentor to entrepreneurs, so he's still doing pretty well for himself. 685 00:41:55,800 --> 00:41:59,960 Speaker 1: As for Read Hastings and Netflix, their journey was just beginning. 686 00:42:00,520 --> 00:42:04,240 Speaker 1: In our next episode, we'll look at the following adventures 687 00:42:04,280 --> 00:42:10,480 Speaker 1: of Netflix, especially it's massive battle with Blockbuster Online. If 688 00:42:10,520 --> 00:42:13,640 Speaker 1: you have any suggestions for future topics for me to 689 00:42:13,719 --> 00:42:17,000 Speaker 1: cover in episodes of tech Stuff, send me an email. 690 00:42:17,560 --> 00:42:20,359 Speaker 1: The address is tech Stuff at how stuff works dot com, 691 00:42:20,480 --> 00:42:22,800 Speaker 1: or you can drop me a line on Facebook or Twitter. 692 00:42:23,080 --> 00:42:25,320 Speaker 1: The handle of both of those is text Stuff h 693 00:42:25,680 --> 00:42:29,000 Speaker 1: s W. Make sure you dropped by our merchandise store 694 00:42:29,080 --> 00:42:32,120 Speaker 1: over at t public dot com slash tech stuff. That's 695 00:42:32,160 --> 00:42:35,399 Speaker 1: t e e Public dot com slash tech stuff. Check 696 00:42:35,400 --> 00:42:38,200 Speaker 1: out the designs over there. Order something nice for yourself 697 00:42:38,320 --> 00:42:41,920 Speaker 1: or someone you love, or order something bad for someone 698 00:42:41,960 --> 00:42:45,919 Speaker 1: you hate. Order something, is what I'm saying. Also, don't 699 00:42:45,960 --> 00:42:48,920 Speaker 1: forget Follow us over on Instagram and I'll talk to 700 00:42:48,920 --> 00:42:57,920 Speaker 1: you again. Really send for more on this and thousands 701 00:42:57,920 --> 00:43:00,279 Speaker 1: of other topics. Is it how stuff works that come 702 00:43:04,480 --> 00:43:04,520 Speaker 1: w