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There's a story that I've heard.
You guys tried to sell the business or to try to merge with Blockbuster to become Blockbuster's digital arm.
Tell me, what is the story?
Roughly, the idea was, did they want to bet on us to do the online?
If we could have become Blockbuster.com, we'd grow a lot faster.
I mean, it's amazing to imagine that that could have happened.
Like, you were prepared for Netflix to become Blockbuster's digital arm in 2000.
Like, you would have been happy with that outcome.
Yeah, no, exactly.
We had not much confidence that we could grow, period, and then particularly grow against them.
We were probably feeling pretty desperate.
Welcome to How I Built This a show about innovators entrepreneurs, idealists and the stories behind the movements they built.
I'm Guy Raz and on the show today how Reed Hastings built Netflix, a business that began as a DVD rental service and wound up transforming home entertainment forever.
Netflix should not have survived.
In fact, it should have been crushed within the first few years because when it launched in 1997, Blockbuster dominated the home entertainment market in the US.
The basic outlines of the story are pretty well known.
Netflix bet on DVDs when Blockbuster was still all in on VHS tapes.
Netflix believed people would rather pick their movies at home rather than go out and fetch them.
And Netflix also knew that most people hated the late fees that Blockbuster charged.
But still, four years into the business, Netflix was on the ropes.
And in fact... would have been happy for Blockbuster to just buy them out.
What happened next seems almost predictable from today's vantage point.
But wasn't so clear cut back then?
Netflix adopted streaming video much faster than Blockbuster.
And by 2010, Blockbuster filed for bankruptcy.
At its height in the early 2000s, Blockbuster had 9,000 stores around the world.
Today, there is just one single store left in Bend, Oregon.
Now, one of the reasons Netflix prevailed was because of the decisions its leadership made and, in particular, the culture of high performance that its founder, Reed Hastings, put in place.
Reed saw the company almost like a championship basketball team that everyone needed to be performing at peak level.
And for those who didn't?
Well, they were swiftly let go, with no lengthy paperwork, no second chances and a generous severance package to soften the blow.
Now, a lot has been written about this culture over the years.
Some people see it as cutthroat and ruthless.
But others, most importantly Reed Hastings himself, argue that it's actually transparent and honest and well humane.
In fact, Netflix has an incredibly high employee retention rate, despite the fact that around 9 of its employees are reportedly asked to leave each year.
But no matter what you might think of the work culture, Netflix changed how we consume entertainment.
And the person widely credited with making Netflix what it is today is Reed Hastings.
What's interesting, among many things about Reed, is that he isn't a film buff at all.
He's not that guy who talks about Fellini and Truffaut and Akira Kurosawa.
In fact, when he started Netflix in 1997...
He and his co-founder, Mark Randolph, had spent nearly a year brainstorming a bunch of different business ideas.
Video rentals just happened to be the one they thought had the most potential.
But running Netflix didn't come easy.
And, as he will describe in this interview, Reed learned, sometimes painfully, how to become a better leader and a better manager.
Reed Hastings grew up in Boston in the 1960s and 70s.
His dad was a lawyer for the federal government.
And as a teenager, it took him a while to find his footing.
I was a late bloomer kind of kid.
So no JV or varsity sports.
You know, we had to play sort of freshman stuff.
No girlfriend, no big academic achievements, not that high a GPA.
So in high school, nobody would have looked at you and said, oh, this kid, watch out.
This kid's going to go places.
Correct.
No one would have said that.
So I know you went, you studied at Bowdoin College in Maine and and you describe yourself as an unexceptional high school student.
What happened there?
I mean, you I mean, you majored in math, right?
Did you sort of all of a sudden kind of just everything opened up?
My guess is what happened is physical brain maturity and the kinds of abstractions that we deal with in math came quite easily to me.
The moment that I was surprised at was taking in a advanced algebra class.
And the professor showed us in some kind of graphic, you know, all the scores of the class unnamed.
And I had gotten 100.
And like the nearest other score was 80.
So that really built my confidence that I could do math well.
And I think that after you graduated college, you went right into the Peace Corps, right?
This was like 1982-ish around then, right?
Yep.
They signed me up as a high school math teacher.
And the country they sent me to was Swaziland, which is between South Africa and Mozambique.
And this was all pre-internet.
And so I went off to the Encyclopedia Britannica to try to learn something about Swaziland.
And it is and was a very small place, 500,000 people.
So, I mean, early 1980s in Swaziland, God, I mean, no internet.
And I can't even imagine like you probably talked to your parents, your family, like once a month, maybe if you were lucky, like if there was a payphone around.
I think once a year.
Yeah, there was no pay phones.
You have to travel to the capital to do that, to call.
So yeah, very isolated, beautiful country.
Came home once during that for my sister's wedding.
And that was very hard because you get to Johannesburg and you fly I don't know 18 hours to Boston.
And then it's a three-day wedding that's elaborate and champagne and dress-up and a lot of just magic.
And then you jump back on the plane another 18 hours back and then you're in the classroom and the wind's blowing and it's quiet.
There was no electricity.
Yeah, the contrast was hard.
And when I came back from that week...
I came close to quitting, but I you know you make your incredible connection with your kids and I ended up sticking it out.
But that was the only real hard time in it.
Yeah.
So I guess after a couple of years there you decide to come back to the US and you went and did a degree at Stanford.
You did a degree in computer science.
That's correct.
And then I guess pretty soon after that, you got a job at a startup in the Bay Area.
What was it?
What did you do?
Yeah, we were doing AI for customer support systems.
And I was working on the underlying operating system essentially for this.
And we had a super compelling CEO and he had a great vision.
And I was the 28 29-year-old engineer who worked all the time, loved doing all-nighters and was prolific in writing lots of code.
And ultimately, one customer ever bought the software and that customer never installed it.
So it was this scarring lesson, because I had worked so hard and written all this beautiful code that basically, was now getting thrown away.
But the CEO I learned a lot from.
The thing I learned from him most was humility and the value of that.
One day I came in very early four or five in the morning and I used to have a lot of coffee cups spread around my cubicle from the last four or five days.
Every now and then the janitor would wash them all and leave them cleaned on my desk.
I didn't think much of it.
And then that morning I came in early, 4 or 5.
I go into the toilet and I see my CEO there, also in early, and I see a lot of coffee cups and I realize suddenly he's been the one washing them all year.
This was Barry Plotkin, I think, that was his name, right?
Correct, yep.
And I said, you know, Barry, have you been washing my coffee cups all year?
And he said, yes.
And I said, why?
And he said, you do so much for us, and this is the one thing I can do for you.
And, you know, I would never have discovered it but for coming in so early that morning.
And That just made me feel like I want to follow this guy to the ends of the earth, because he was so admirable personally,
And unfortunately, he led us to the ends of the earth, i.e. to build a product that nobody wanted.
And so I realized in leadership there's both being trustworthy and admirable, which he was in spades, And also astute about where the markets were.
That if the team builds the thing that you think they should build, that there will indeed be a successful path there.
And so you have to both not lead all these great troops into a box canyon where you all get killed, but you also need to set a great personal example, and that those were sort of the big aspects of leadership.
Okay.
So I guess after the startup failed, you decide to start your own company.
You called it Pure Software.
And I'm wondering, I mean, did you feel ready to do that at that point?
I mean clearly you'd made connections at previous startups and maybe in your previous job and at Stanford.
But how did you start to build a team and to start to build a company?
I was underprepared for sure.
But I would say one of the things about being around Stanford is all these pretty normal people create companies and you meet them.
And so it doesn't seem so impossible at all.
But I didn't know specifically how to do it.
I didn't understand what incorporation was or how to get a lease or anything.
The first year was trying to do a proof of concept.
So I spent a year in a cold cabin in the Santa Cruz mountains in La Honda, where we just had a wood fireplace and had bought a Sun Microsystems computer.
And at the time, that was like as expensive as a car.
Like eight megabytes of RAM or something or more.
Exactly.
And, you know, it was a cutting edge computer that only corporations bought.
And not connected to any internet at that time.
No, you could do a little bit of dial-up, but it was like 9.6 kilobits.
It was just plugged into the power in the wall.
Yep.
And I spent a year prototyping and learning how to do the software and do the proof of concept.
So that was the beginning of Pure Software.
And we released a product within a year, year and a half of starting.
And that product was a debugging product, basically.
That's right.
It was sort of like inventing an X-ray machine and no one had been able to see a broken bone before and suddenly they could.
And so it exploded across the industry, and everybody wanted it, and so it was a small breakthrough.
Yeah.
And you went from like you to like five people, and then 10 people, and then eventually hundreds of people.
Tell me about how you, because you were a young guy when you started this, you were like 31, 32.
How did you start to manage that that side of the business?
Because you were making this thing and writing a paper explaining it, thinking deeply about it.
But there's another whole other side to it, which is a business, which is the people that you bring in and then that you have to manage.
Yeah, that was my MBA is essentially was pure software.
And luckily, the products were amazing because my management was not.
I only really had one gear, which was work hard.
And so whenever things got harder, you know, difficult or challenging, I would just work more.
So I would, you know, be coding at night um, and then, you know, trying to be CEO in the day, but I looked haggard.
You know, I smelled I hadn't showered.
Uh, you know, it was sort of not a very inspiring look.
Typically, your sales force and that kind of business is very important.
And unfortunately, I had little grasp of who's the right type of person to run the sales force.
And so I kept hiring the wrong people and then taking a year to figure that out.
And so we had a new head of sales every year, five years in a row, which is chaos in enterprise software.
And yet, despite that, we doubled sales every year in that time.
So again, that was the strength of the products.
But to say it was unevenly managed would be generous.
The product was so good that you were actually able to kind of get away with not being a great manager, because everybody was happy, the sales were growing, people were making money.
And so maybe it kind of inadvertently allowed you to not have to like, figure that out, that part of the job out.
I don't think, first of all, it was not that everyone was happy.
So it was a lot of chaos.
And I looked at a company like a semiconductor manufacturing plant.
And when you find an error, you put a process in to avoid that error happening again.
And the challenge of that is, in the field we were in and in most tech fields, you have to be very creative and constantly changing.
The product of five years ago is not going to sell in the current climate.
And what we did is kind of systematically drive out the mavericky people who didn't follow process or rules.
And we were always trying to organize processes.
Do you think at that time you had an opportunity to kind of reflect on what it meant to be a good manager?
Or was it just so crazy and the growth was so fast that there wasn't time to just stop and breathe?
There's a management phrase that someone's too busy chopping wood to sharpen the axe.
Yeah.
And I was definitely guilty of that.
I never took time to reflect that.
As a small example, I was invited during that time to join YPO, the Young Presidents Organization, which is a very mentor-oriented organization which, in hindsight, would have been very valuable now that I know about it well.
But at the time, I thought, oh, it's way too indulgent, a day a month not doing the work.
That's crazy.
So this business eventually merges and then is acquired.
And so you're in your late 30s, and you know that you're not going to stay on with this company.
And you're not going to sit around for the rest of your life and just go from vacation hotspot to vacation hotspot like you want to do something else.
It's 1997.
Tell me a little bit about – take me back to that – place in your life?
So I had more money than I knew what to do with.
And I didn't think I would do another tech thing.
I did think the guy who had been the chairman of Netscape was Jim Clark.
He had carved out a life doing seed investing.
And I thought, okay, that's what I'll do is I'll be an angel investor.
So along from a commercial standpoint, I started making seed investments of which one was Netflix.
Okay.
So we'll get to that in just a moment.
But I'm curious when you were around some of the you know, particularly VCs and some that I know, I think their talent in many ways is their charisma.
You know their ability to create relationships and forge bonds and get people to like them and trust them.
And you may have all of those characteristics, but you strike me as a bit more introverted in And maybe I'm wrong, but is that right?
I mean, how did you kind of interact with that world of like, more sort of extroverted and more?
I would say it's an astute observation, but I would say my skills are sort of analysis rather than connecting and relationship all the time.
But people saw that I was sincere, and so they kind of forgave me the awkwardness.
So you wouldn't – because you don't strike me as a small talk person, that that doesn't come easily to you.
Correct.
I would say the – I don't know if it's easy or not.
It's just not that interesting if we're talking about the weather or the superficialities.
I find that in certain circles or topics, I find them incredibly exciting and that's very engaging.
But in terms of flattering people and making them feel listened to like the politicians do, that's definitely a different skill set.
Yeah.
All right.
So let's jump into Netflix.
There are many apocryphal stories about how it came about.
But let's start with a guy named Mark Randolph.
Who is Mark Randolph?
Who was he and how did you know him?
He was VP of marketing at one of the companies that Pure acquired.
So that's how I got to know him.
He's a very fresh thinker, creative.
And then we made him head of marketing of the whole company.
And then the whole company got acquired.
Right.
So suddenly we were both freed up and we said let's look at some interesting things to work on together.
From what I understand, he lived in Santa Cruz as well.
And one of the ways you connected was you would commute together into work sometimes.
Yeah, absolutely.
So it was a half hour drive, maybe 45 minutes.
So, you know, we got a bunch of time just brainstorming on different ideas.
What do you start to talk about?
So the general thing was e-commerce.
So that was the hot story.
Amazon had gotten public.
There was everything from pets.com, which sold pet food online, to 50 other.
There was the CD Now.
Oh, yeah.
I remember that.
I bought CDs from them.
Exactly.
So there was every new category.
You kind of got the URL.
So think of it as e-commerce was like AI is today, which is everyone's doing.
Everyone's throwing everything at it.
Yeah.
Yeah.
And, like everyone of the era, I had my frustrations with video rental, partially by living when we lived in La Honda, far away from video stores, and had gotten a big late fee.
And again, it's not that remarkable because lots of people had them.
But it always bugged me and seemed a painful consumer experience.
And if it could be done by mail, like Amazon, then it could be improved.
But it turns out that VHS cassettes, which was the way movies were distributed, weighed about a pound and cost about 4 to ship.
So if you got shipped a VHS cassette and then shipped it back, that was 8 on top of the 3 or 4 rental.
So that didn't make a lot of sense.
So it ruled it out as an interesting category.
Yeah.
Why did you think video rentals was like a blue ocean?
I mean, and Blockbuster, you know, I remember going to Blockbuster.
It sucked.
You know you go to Blockbuster and there'd be, like you know, a hundred boxes for a movie you don't want to see.
And the movie you want to see, you couldn't get.
And then you'd pay late fees.
They had out of stock and various problems.
One advantage is that, relative to Amazon, the nice thing about rental is because you got to return the good.
It's a very different logistic path than selling things.
So then it makes less sense for Amazon to invest in because it's only one category that does this.
You know you don't rent computers or bicycles or other things, where they get shipped and shipped back.
And it was a large enough business to be interesting.
Blockbuster was about $5 billion in revenue, but not so large as to attract Amazon and others.
So you know it was – that crosshairs made it potentially interesting from an e-commerce standpoint.
All right.
But VHS tapes were not going to work because – and that was what everybody used well into the 2000s.
But that wasn't going to work because the shipping costs and also they could get damaged and they were very expensive.
But in the middle of 97 or fall of 97 –
A mutual friend of Mark's and mine, Steve Kahn, who was an audiophile and up on all the latest things, said hey, there's this thing DVD coming out.
That was like a CD format but held a movie.
Okay, and that was interesting to you?
I would say it was an instant, like, oh my gosh, reaction.
Because at the time, AOL was mailing around startup discs everywhere and so on.
I was well aware of AOL discs in the mail.
And so I thought, okay, they must be tough enough to go through the mail.
And I rushed out and bought a bunch of CDs.
You couldn't buy DVDs at that time and started mailing them to myself afterwards. um, to see, you know, would they arrive, uh, broken, uh, you know, in pieces or altogether.
And uh, remember we were living in Santa Cruz by then.
You know the next day getting the five discs in various types of envelopes.
Um, you know, and if you put enough padding and packaging on it, of course it's going to make it, but the question is how little?
Um, And this was like practically an airmail envelope.
So, you know, very thin paper and all five CDs arrived at my house in good shape.
And so at that moment, that was for me the like, this can work.
Why did you have any confidence in the viability of DVDs?
I mean, the LaserDiscs existed.
There were Betamax tapes before.
There'd be Blu-ray later.
I didn't.
So I thought there's some chance the DVD will take off across the industry.
And if it does, then there's a dislocation which makes it viable to build a business around.
But it may be that DVD will fail, in which case the business is dead.
So it was not a guarantee at all.
But we said, if this is successful, then there's an opportunity.
Because when three people in a city have the DVD players, it doesn't make sense for Blockbuster to carry them.
Yeah.
And so that they will be late to the game.
And so that's where the buy mail for their early DVD adopters would make sense.
And then we had to race to get good enough so that once Blockbuster carried rental DVDs in the store that we could sustain ourselves.
So there was many challenges.
Yeah.
And tell me a little bit about just the kind of the basic, you know, nuts and bolts here.
Did you get a warehouse?
How did you acquire the DVDs?
Was it hard to just buy a ton of DVDs?
Because I think in the first year, most of your money came from selling DVDs.
You weren't actually making as much renting them.
Let's see.
We started in the fall of 97.
And so I put in the initial $2 million and was chairman.
And then the site launched in like May of 98, roughly.
And it may have been selling at the time, but the real focus was on rental.
And, you know, was there a consumer demand for rental by mail?
So how were you going to I mean, this is pre search engine optimization.
It was people would discover websites.
I mean, there's a time where a new website would generate like an article or like a story on CNN.
So did you get attention when this website went public?
We did.
But at that time, maybe one percent of U.S. households had a DVD player.
Yeah.
In hindsight, we were too early.
Okay, we should have waited a couple of years to launch.
So it was a very small business and we were okay with that.
And you asked earlier, where do we buy DVDs from?
Costco.
We just go down to Walmart, Costco, et cetera, and buy 20 DVDs of a given title.
And there weren't many titles on DVD because the studios were tentatively publishing the catalog.
Yeah.
So, I mean, if you want to screen a movie, right?
Like, let's say I want to screen a... you know, on Golden Pond.
I just first thing came to mind.
I don't know why.
And I set up a screen in my local park and I charge people five bucks to come see it.
I have to get a license to do that, right?
What were the regulatory hurdles?
To like buying DVDs at Costco and then putting them in an envelope and mailing them to people, but getting paid a fee to borrow them.
Did you have to get permission from the studios?
Like, was that... tricky?
Did they just not even notice?
What did you have to do to make that work?
In the U.S., you can buy and sell DVDs like you can buy and sell a car.
So I can buy a car and I can use it as a taxi service so that I don't have to tell GM.
In the US, it was treated that way.
The public display which is charging like running a movie theater.
That was not a right that came with the DVD.
But we could ship them, we could buy them, sell them, resell them.
They were not treated as intellectual property.
They were treated as a physical good.
And you could rent them.
Yeah.
You couldn't copy them.
Yeah.
Right?
That's copyright.
Right.
You couldn't do public display.
Right.
But you could buy them and sell them.
So you could basically buy a film, any film in 1990, Good Will Hunting, and send it out for rental.
And the studio couldn't say, hey, you're making money off the film.
You've got to give us a cut of that rental.
Yep.
I mean, mostly DVD.
There weren't that many titles on DVD.
Yeah.
Yeah. because they had to go through and remaster them one by one.
And the best titles they wanted to save for, when 50 million homes had a DVD player and then more people would buy it or rent it.
Did anybody in 1997 or 1998 think this was a viable business that you knew?
Very few, you know, but that was more tied to we weren't streaming.
So the threat there was when are you going to deliver over the internet?
You know, Cosmo and other people were doing amazing things, overnight delivery or same day delivery.
But that was food, right?
Cosmo was doing food and snacks and stuff.
That's right.
But in their plans and in their conversations, they talked about being blockbuster also, right?
Uh-huh.
So that was perceived to be an internet-based threat.
And then the other is just downloading the movie was going to take over.
Right.
Okay.
But that – I mean we're still – real audio and real video was just starting and streaming was still – I mean, people didn't have –.
Some people had fast connections.
Very few people did in 1999.
I mean, that's true.
But the model back then was downloading.
Downloading it and then you watch it.
Because people downloaded music.
But it would still take forever.
Like, you know, bit by bit would be going floating through.
Sure.
We were asking about or talking about barriers to people investing.
So the biggest barrier for them was, you know, it seems like a temporary business.
Right.
Yeah.
And I wasn't sure that it was going to work.
But I think, you know, it had the advantage of I wanted to use it.
And so you hope there's other people like me, because I was living an e-commerce life, you know, buying a lot of things on Amazon.
Now I could do movie rental, you know, online.
So it was kind of a natural extension.
I was pretty confident the business would exist renting movies online, but I wasn't sure that we were going to win.
When we come back in just a moment, a brief flirtation with Blockbuster and a merger that thankfully does not happen.
Stay with us.
I'm Guy Raz and you're listening to How I Built This.
Hey, welcome back to How I Built This.
I'm Guy Raz.
So it's 1999, and Netflix has been in business for about two years.
And since launch, Mark Randolph has been CEO, but that's about to change because Reed is starting to think he could do a better job.
You decide to take over and run the company.
Mark has talked about this, that you had approached him with a pitch deck to explain why.
It's very matter of fact and he described it in a very generous way, not like he's mad about it, but just very matter of fact way a pitch deck explaining why he wasn't the right person to run the company the company, which I think is that radical candor.
Tell me about that approach you took.
You know, I don't remember how we talked about it.
So, whether it was a pitch deck or a memo or something, I would have done it in person, not just send them an email or text.
But I may have written it out, you know, on some slides or on a memo or something.
So for you, it's not personal.
It's just a very kind of because a lot of people and I have I've had, you know, some of the best known founders in the world on this show.
They still have a hard time demoting people or firing people or letting them go.
It seems like you see it in a very different way that it's not it's not about feelings or emotions.
It's just it's really about facts and data.
And that's it.
Well, definitely that's true now.
But I would say at Pure Software, I was very bad at letting people go.
And I introduced a lot of my own emotions.
It's natural for the manager to feel guilty or you like the people generally.
Yeah.
And then in letting them go, they're upset.
You don't like hurting people.
So I had gotten better, I think, by the time of early Netflix.
But I would say I'm much better now than I am then.
So, you know, it's an evolution of something you get from practice.
And in 1998, right or 1999, when you really start, you know running operation.
How many employees are working in Netflix now?
30?
30, okay.
And it was based in Santa Cruz or was it already in?
It was in Scotts Valley where Mark lives, which is partway between Santa Cruz and Silicon Valley.
I guess I'm trying to figure out.
Given your background and everything you had done up until that point, which had nothing to do with consumers or consumer products, this was going to be a brand, a consumer products business, right?
What was attractive about that to you?
What do you remember about thinking this is the company I'm going to drop everything and I'm going to run this thing?
So I think you're phrasing the question like an MBA would, which is sort of what are the properties of the business that made you think you had a differential advantage, and how did this come about?
More like what's interesting about it to you.
I think fill in the picture, which is I realized in myself, oh, I'm a crossword puzzle solver.
So I like an interesting challenge with a bunch of challenge and constraint and then seeing if I can figure out the crossword puzzle.
Got it.
And Netflix was a big crossword puzzle in many ways for 25 years.
So I think that's the underlying theme.
It almost doesn't matter what the domain is.
It's mostly, is it a puzzle to figure out?
A hard problem to solve.
Yeah.
But that implies that it's like 20 little problems.
It's not a hard problem like fusion.
That's a hard problem.
Yeah.
But it's a hard problem with many different aspects of the puzzle.
Okay.
And so the business model was different. going to be based on a monthly subscription, right?
Like a fixed monthly fee.
No, in the early days when Mark was running it, you pay four bucks for a rental and that was for five days.
And then if you kept it longer, you paid another, essentially a late fee.
So you could return it by mail to make it convenient to avoid the late fee, because you didn't have to go to the store but you still had late fees.
And just getting on this, late fees I mean Blockbuster.
At this time I read something like 15 or 20 of their revenue came from late fees.
Like this was a huge part of their business model.
Yeah, just think of it as an extended rental.
I mean, you know, in other words, if you rent a car and then you extend it for three more days, You know you can call that a late fee, but and their marketing was poor so it got named as a late fee, like you're supposed to.
That's, you know, like it's a moral issue.
Yeah.
And it should have been, if they had just gotten it to be called a double rental or an extended rental.
Instead of making it punitive, right, right, yeah.
Yeah.
Yeah.
So in any case, so the initial Netflix model was a single rental.
It was a $4 rental.
And what we found is that there was less and less repeat business.
So people did it for a little while, three, four, five rentals, and then didn't really come back.
And then when I came in, I wanted to convert us to subscription and to this idea that when you returned a DVD, we automatically sent you the next one from your list.
And so in September 23rd of 99, we launched the subscription service.
20 bucks a month for unlimited DVDs.
Got it.
And we had no idea what would the retention be.
In other words, once you started it, how long would you stay with it?
You know, we waited day by day to see who would cancel.
And you have to proactively cancel, right?
Yeah.
And then it was unbelievable, the elation, because the first two days came in it was like 85 retention.
And we were like, oh my God, this is going to work.
Did you have trouble raising money?
Well, yes, but the internet bubble was expanding and expanding.
In early 2000, we closed a round with LVMH.
With LVMH, the consumer luxury brand.
Correct.
So we closed that round of them investing $50 million.
I don't remember the valuation, but it was a good valuation.
And that was February of 2000.
And then March of 2000 is when the bubble broke.
And, you know, it was a shitstorm of everybody retrenching.
No more investment for anybody.
So, you know, by pure luck, we got that deal done.
By pure luck for you and LVMH.
So right before the dot-com bubble burst, you get this funding.
And you're not a public company, so you're not going through the same challenges.
But it means that you know at that point – you're not going to be able to raise more money for a while.
Yeah.
Mark and I had to think through, okay, how do we give ourselves the best chance of success?
You know, how can we get enough customers in that we become cash flow positive?
And so that was the crucial thing is getting to cash flow positive.
Do you remember how much revenue you were doing in 2000 or 99?
Like a few million?
A few million.
So when we went public two years later, we were at 50 million.
Right.
So I'm going to guess it was sort of 10 million of revenue and 10 or 20 million of losses, of cash losses.
And were the losses in those early years mainly because of marketing costs, or was it literally just the cost of –.
All of the above.
So we had to pay to acquire customers and marketing.
We had to pay to acquire DVDs.
And then we had our fixed cost, which was all the people.
And then we had the mailing cost.
How much did it cost to package something?
So we lost money on every shipment. because we were inefficient at packaging.
We knew we could fix that, but we had to do a lot of scale to fix that.
There's a story that I've heard and it might be apocryphal, maybe your memory of it is different, but something to the effect of in 2008, You guys tried to sell the business or to try to merge with Blockbuster to become Blockbuster's digital art.
I don't exactly know, but tell me what is the story?
Oh, we had been wanting to talk to them for a while and roughly, the idea was did they want to bet on us to do the online?
I see.
Because if we could have become Blockbustercom we'd grow a lot faster.
We talked to them and they were, you know, pretty gracious.
But we were kind of naive about you know, we wanted the blockbustercom brand right.
Because if we had that brand, everyone, we wouldn't have to build our brand, you know?
Um, And I think they looked at us as... We're a flyspeck.
Curious, yeah.
And I don't remember them actually making an offer, but I think we probably would have taken any offer, but it didn't result in any deal transaction.
Probably all we did is make them watch us more.
I mean, it's amazing to imagine that that could have happened.
Like, you were prepared for Netflix to become Blockbuster's digital arm in 2000.
Like, you would have been happy with that outcome.
Yeah, no, exactly.
We had not much confidence that we could grow, period, and then particularly grow against them.
I mean, it sounds like it was a Hail Mary in a way like, OK, it's a dotcom bubbles burst.
You're not going to get any new funding.
You've got this 50 million in cash, but you're you're watching that run rate you know pretty closely.
You can see where things are headed if you can't bring money in.
And Blockbuster could be the savior.
Yeah, we had a similar thing with Amazon, but I think it was earlier.
I think that was like in 99.
But in both cases, you know, they, particularly Amazon, have 100 companies they could buy.
And Blockbuster had like 14,000 stores in the U.S.
I mean, I think that year alone, it made $800 million in just late fees.
Right.
We were the size of one store.
Yeah.
Also, they could have looked at you and said, we can do this ourselves.
We don't need you.
We can replicate your business and put you out of business.
Yeah, I'm not sure their exact thought process, but I agree with you that it was naive of us to think that there was possibly a deal.
But we were probably feeling pretty desperate.
All right.
So that doesn't happen.
And you are surviving the dot-com crash because you're not a public company.
And do you remember being really disciplined about conserving cash?
I mean, you were losing money every month, but was it – did it become top of mind?
Well, we did a big layoff, you know, shortly after the crash.
So yes, we were conscious on that.
You know, we had this amazing 50 million in from LVMH and – then we're going to have to make that last.
All right.
So today, when a startup goes public, you know they do a roadshow and people look for profitability and there are all kinds of things that happen.
You took Netflix public in 2002.
It was still an uncertain business.
Did you take it public because that was the only way to raise money as far as you were concerned?
I would say we took it public because that's what companies did.
We didn't really question it that much.
We took it public as soon as we possibly could.
But in hindsight I tell other entrepreneurs that don't be in a hurry to go public, because it gives your competitors a lot of information.
Yeah.
And that was certainly the moment, I think, that Blockbuster said oh, that's bigger and more profitable than we thought.
And we should go start competing.
That was 2002.
Yeah.
And in 2004, they launched against us.
So, you know, in perfect hindsight, I wish we had stayed private for another two or three years.
Yeah.
I mean, that year you went public based on my reading.
Walmart also announced that they were going to do a subscription DVD service.
In November of that year, your stock was down to like two and a half dollars, $2.50.
Yeah.
The big storyline is we went public.
It was fine for a quarter.
Walmart announced, Walmart.com, that they were going to do DVD rental. which made no real sense.
And then Blockbuster had bought a tiny little DVD rental company.
And so they were clearly interested.
And so those two facts created a lot of fear about our revenue.
But our revenue never dipped in that time frame.
It was only once Blockbuster did the big launch in 2004 2005 that there was a real competitive battle.
Okay, so now you've got the biggest brand, you know, in the rental business getting into this space.
You have a leg up.
You guys have been doing this for six years.
Blockbuster was the main one we were worried about, because for them it was, you know, kill us or die.
And we knew the biggest companies like Walmart were not going to focus on this tiny little business.
They had a big competition with Amazon.
Yeah.
So they never worried us.
And we, in fact, played up David versus Goliath relative to Walmart to get us more attention.
And I remember New York Times articles in 2002 about what's with Netflix.
And it's got the biggest company in the world Walmart, you know the biggest rental, you know blockbuster, coming after it, amazon's lurking um, but it was the little engine that could, and so that got us kind of more press um, and with amazon we're always kind of worried because they have such high confidence, but it just was too niche a business uh, for them.
And What's remarkable is that Blockbuster launches this service in 2005, right to compete with Netflix.
And in 10 years, Blockbuster is going to be dead, right?
And did anybody know that?
Oh, we knew it.
But they were a very good store operator.
They had rolled up the whole business.
They'd beaten everybody else.
They were highly skilled at running stores.
And I think that selective intelligence can blind you to other models.
You take away 20% of the revenue from every store, and that takes away the profit.
And our customer base was highly distributed across the US.
So we knew that if we got to a certain size that it was like a billion it was very painful for the store-based model.
And we always anticipated the store-based model would collapse if online got large enough.
And then it was who's online, ours or Blockbuster's.
But the inevitability of stores going away was pretty clear.
So as Netflix hits profitability and is growing and is really dominating by 2005, is dominating the sort of the male rental market right.
And everybody remembers those red envelopes.
Not everybody.
Everybody a certain age.
I certainly do binge watching The Wire.
I remember those red envelopes.
I just send them back and get more and send them back.
Tell me about your – sort of involvement in the branding right, like the red envelope and the, the sort of the just building the brand of Netflix right.
Because it that was also part of its success.
So Mark, bless his heart, put his ego aside when I came in.
And then he was head of marketing and merchandising up until the IPO.
And just before then, we got in a head of marketing, Leslie Kilgore. who was out of Amazon, but before that was Procter & Gamble and, you know, central casting for marketing.
And she really drove the red envelope and the iconic branding that we had.
And, you know, I, at that by then was articulating the freedom and responsibility model.
And so it was very consistent for me that I was not involved in the branding, the iconography, all of that, and that she ran it, and ran it incredibly well.
And now, 20 years later, she's a board member at Netflix.
Okay, let's talk about the freedom and responsibility model here, because this is a reference to what's known as the Netflix culture deck.
And I want to dive in here because you make this public in 2009 and it would eventually become the basis for a book that you wrote a few years later.
But when it was released, it was released to mixed reviews.
Some people were just blown away.
And for people who don't know what this is, it's 127 slides.
It explains Netflix culture and how they – how the company motivates performance and – and evaluates employees.
And some people saw it and were just sort of recoil at this, because basically it demands high performance.
And also it shows how you, when people aren't performing, you push them out.
Tell me about developing this model, because you know I asked you earlier about your previous companies.
You said sometimes, you know, when you're chopping wood, you can't sharpen the axe.
In this case, clearly, you took the time to sharpen the axe.
So how did this sort of approach to building culture and building an environment around –
Excellent, some people would say, mercenary culture.
How did you develop that?
The core of it was if you had incredibly talented people, you didn't need a lot of process and rules.
Netflix was anti-process and rules and pro-talent density.
And then to get talent density, we modeled it on a championship sports team.
And they had to swap out players.
And that was a normal part of the ethos.
And so that contrasted with the notion of company as family.
You're all like my family, that kind of CEO talk.
But then you go and lay someone off which, if you were on hard times, you wouldn't say we're going to lay off your sons.
Your daughters get to eat.
Our ethos in family is around undying loyalty.
That's what we admire.
And so I realized oh, it's really that we want to organize as a professional sports team and not a family.
And lots of people were operating their Silicon Valley business that way, but none of them admitted it, or not many.
And so the shock was.
It resonated because it was the truth of what we aspired in much of the competitive ecosystem of team, not family.
But no one had said it so directly.
And that not only did that run counter to the direction that that corporate America was heading in, it still does.
Right.
I think it's changing a little bit.
But for the last 20 years many companies, certainly tech companies, were talking about their employees like family.
And that model can work and it can work really well.
But you think that that model is it sort of naturally results in inefficiency, and inefficiency in in just waste and lack of productivity.
Well um, families are dysfunctional in many ways and so yes, i think it's a inferior model.
And again, team is not cold.
You know, a good team really has highly functional people with good relationships between each other.
They pass the ball well, sacrificing their own opportunity to score because the other person's got a slightly better shot.
So you need incredible cooperation.
And we said, today, many people want to be team players.
But not everybody has the skills to do a blind pass.
So a blind pass in soccer or basketball is throwing the ball without looking at the player.
Because you've worked so well together, you have a high confidence where they're going to be.
And so we would talk about that as the skill of teamwork, which is building trust, proactively letting each other know about things, all kinds of close cooperation that we're a joy to be part of.
I think people did focus – we had a line in there that adequate performance gets a generous severance package.
Mm-hmm.
So that was sort of the acid line.
The typical model is the job is a property right and you have to screw up and the company has to prove that to take away that property right.
And what we were saying is no.
On a sports team, it's very clear that adequate performance generates a cut and someone else gets a chance to try to be extraordinary in that position.
What's so interesting about that model?
It's like when you think about, let's say, a professional baseball player and they are on a team that wins a World Series.
They're committed to the mission of the team winning the World Series and they're playing as hard as they can and they celebrate it.
And then the offseason, they get traded.
And the thing that you hear again and again from a player is, look, that's business.
That's the business, you know.
Very rarely do players take it personally.
Sometimes they do, but very rarely do they take it personally.
They're traded to another team.
They're not needed in that position anymore.
And so how do you find a star who's also understands that you know business is business and that at some point they might be cut loose?
I mean broadly.
There's two types of people one for whom job security is very important and they're willing to tolerate uneven quality of colleagues.
That's just an acceptable price to pay.
Yeah.
And then there's others who are willing to tolerate job insecurity.
Nobody likes it.
Okay.
But they're willing to tolerate it because all of their colleagues are amazing at what they do.
And it's so much fun to work in that high talent dense environment.
So I would say the original deck was in hindsight didn't balance enough the love and the care that we have for each other.
So it came across as competitive, that we were internally competitive for the positions, which really was not the experience of employees inside.
So we should have warmed up that deck. with a lot of intense positive emotions about teamwork.
In fact, the story behind publishing that deck was too many people were surprised when they came into the company, the way we operate, and it wasn't fair to them.
We wanted to be really clear about who we were so that we differentially attracted the second type, who was willing to tolerate job insecurity to get talent density.
How would you make that assessment, though?
It has to be sort of coldly rational, right?
No, it's not rational when you let someone go.
I mean you want to think it through, but it's an instinct that you could get someone better for that role.
So the test we use is called the keeper test.
Would you fight to keep that employee if they were leaving on their own?
Like if I worked for you and I said, hey, if I was going to leave, would you fight to keep me?
And if your answer was no, then I would know I'm not probably, you know, the right fit.
Then it's time for a generous severance package.
That's right.
The generous severance package helps in a couple ways.
If there's a generous severance package, it hurt less because the person had a backstop.
And then second, then we didn't have to do like performance improvement plans and document that we had tried and all those things which eats up a lot of time and energy and money anyway,
Yes.
So I don't think it actually cost us money because it got managers to act more quickly.
And it made it easier on the person who was let go, because they got what they perceived as a generous severance package.
So then we could be letting go of hundreds of people and have no lawsuits.
Reed, how did you make sure that people were honest with you?
Because you presumably are expecting people to also evaluate you based on this model.
Now, you had a great record, you built Netflix, but so maybe you're you know, you sort of are kind of it doesn't apply to you, but I guess to be consistent it has to.
It had to.
Yes.
I mean, I would ask the board if I were quitting or retiring, would you want to change their mind?
You might need to stay.
So yes, it applies to me also.
But I have to imagine that if I'm...
You know an employer, a manager of Netflix, and there's Reed Hastings, the guy who you know, who went up against Blockbuster and believed in this thing when the stock price was a quarter.
And, wow, look where we are now.
Like, I would probably be intimidated to give you feedback.
And that actually, I think, in part, did happen, right?
Like, there was...
You've described this kind of debacle that happened around 2011.
Maybe it's time to talk about this.
Yeah.
Because I think part of at least from your view part of the reason why that happened is because nobody really pushed back on your idea.
Let's set that one up because it's a good one.
I became in 2010 with the rise of Hulu, which was a straight streaming play by the industry.
I became obsessed.
If we cling to DVDs despite the fact that it's growing and it's profitable, we may not succeed in streaming.
And that we should wean ourselves from the DVD business.
DVDs, oh, rentals was still growing in 2011.
Yeah.
Okay.
And streaming was quite small.
But it was clearly the future.
You saw that that's what it was going to be.
That's right.
And one step in that was to separate the businesses into.
The old DVD business was going to get spun out as Quickster.
And then Netflix was going to be the streaming business, like Hulu, that this was going to be the dramatic you know painful in the short term but you know important in the long term thing to do.
And there'd be two sites, quickster.com and netflix.com.
Okay.
That's right.
And two pricings and two, yeah, you just separate the business.
And it was more expensive if you wanted access to DVDs and streaming.
Correct.
Okay.
But both were good deals, but it was more expensive.
So everyone knew it was scary.
But as you said, everyone said, well, Reid's been right so many times before.
Let's do this.
We did it.
We got a number of things wrong, in particular, the pricing.
We should have grandfathered in the existing base.
But big picture, it was too early.
So most of the customers didn't care that much about streaming.
And they didn't want all this change and the split.
So we were ahead of the customers by several years.
So it was a blow-up.
Customers very upset.
Stock drops by two-thirds.
We did a layoff.
We had to reset our revenue expectations.
It was a disaster.
When we come back in just a moment, Quickster gets demolished and a house of cards gets built.
Stay with us.
I'm Guy Raz and you're listening to How I Built This.
Hey, welcome back to How I Built This.
I'm Guy Raz.
So when we left off, Netflix was in the middle of a crisis.
Reed had launched a spinoff company strictly for DVD rentals, which raised prices and made everyone really, really mad.
By the way, how long did this disastrous period last?
It was more than a year, right?
Oh, it was probably three years really.
The launch of House of Cards and Arrested Development, that kind of got us out of it in 2013, so two years.
Right.
Because you had to eventually—
I'm only smiling because I've seen the Saturday Night Live parody, but you had to apologize for it.
I'm sorry.
Which did only made it worse.
So, you know, that didn't – that was a desperate technique that didn't work.
You went on – you did a video sort of acknowledging that this was –
Jason Sudeikis.
Yeah, exactly.
It's quite funny.
It's quite funny.
Exactly.
A bit of history.
Okay.
So we dug our way out and that's good.
So a year later, roughly, we spent some real time analyzing, okay, what went wrong?
How do we avoid it?
And that's when I realized that many of the executives top 50 people thought this was very risky and unwise.
But they all deferred to me because they thought, well, Reid's gotten so much right before.
And they didn't know that the other people in the room were also scared.
And if they had known that, they would have spoken up more forcefully.
And we probably would have taken a slower, more cautious approach.
So the thing we instituted on big decisions is everybody publicly weighing in.
You know, on a 10 to negative 10, is this a wise decision?
So that would affect, like going into Europe, going into original content pricing changes so that everyone knows where everyone else stands.
Who got to vote on that?
Like if you were to make a big decision or wanted to, who got to vote on whether that was the right decision?
Roughly the top 50 people.
Sometimes it was top 100, but, you know, something like that.
And so negative 10 to positive 10 and you would use – you would sort of use their responses to guide your decision.
Like let's say you were really convicted that this was right.
We talked about it as the informed captain.
The leadership model is to be the informed captain.
So the captain of a ship is the absolute ruler of that ship and makes decisions.
Right.
We want our leaders to feel like they're the captain.
It's not a democracy, but they needed to know what everybody else thought.
If you knew that there was... discomfort or uncertainty about this Quickster idea.
Do you think it would have changed?
I mean, you wanted to shift the business.
Absolutely.
It absolutely would have changed if everybody was like, well, we can figure this out in two steps.
If we do it here, we'll say grandfathering the price.
Okay.
So, you know, there was no price hit.
And then if it works well, then we can, you know, raise prices over time.
So just as an example, there are many ways to do it less aggressively and still do it.
And ultimately, we did it.
The thing that was DVD became DVD.com.
And so, you know, it happened.
It just happened less dramatically.
And then we eventually closed down the DVD business in roughly 24.
Did you – I mean, given that Hulu was going to start streaming stuff –
They started in 2007.
Yeah, they started streaming.
That also probably created a potential threat in that some of these content creators would not give you the rights to stream stuff.
DVDs was one thing.
Nobody ever gave us rights.
We bid for them.
So it was an open market in buying the rights.
And if we paid enough more than Hulu, we would win the bid.
Yeah.
But Hulu was a pure play.
It was all about streaming.
That's all it did.
That was.
The risk was that they would become the symbolic center, rather than Netflix, which had the DVD heritage.
So how did the idea to make original content come about?
Was that, in response to where you saw this sort of whole industry headed, that if you didn't do that – and you were just a streaming rental service then your business wouldn't survive?
Well, every cable network which is a subscription business had started on other people's content, build some audience and then start to add their own content.
HBO was built on other people's content and then got good at original programming.
So, again, it was a very well-trod path.
And when Ted Sarandos came in, which he joined us in 2000, he was the one who sort of articulated you know, eventually we're going to want to do original content.
And then we actually started in 2005 doing original content on DVD.
And we didn't have a big enough subscriber base.
And so after two years, we closed that down.
That was Red Envelope Entertainment.
We closed that down in 2007, and then we reopened it essentially with House of Cards.
I believe we commissioned that, Ted did, in 2010, and then it came out in 2013.
And was a huge success, massive success. which is all Ted's programming judgment.
There was many scripts floating around, and then he swung for the fences.
We had to bid against HBO.
This was not kind of junior content.
This was first league content.
HBO was thinking of it and we came in with a higher financial bid, even though we couldn't justify it at the time.
And in the hopes that this would be our breakthrough, and indeed it was.
And you, like you personally, would you say that you had a good eye or like a good sort of the ability to judge what was going to be good?
Or did you kind of defer that to people who had a better instinct for it?
I don't, and I still don't.
When I read a script, it's very hard for me to translate to why one won and one didn't.
I would say that's a unique skill which Ted and his team were very strong in.
And let's talk about Ted now for a moment because you would serve as co-CEOs.
I mean, you have a very strong point of view.
You also like feedback.
You also give it.
Right.
What was it about him – because you were running the business for so long.
What was it about him that you thought oh, this is somebody I could split this job with and actually totally work really closely with?
You know, by the time I did that, which was, I'm going to guess 2020, we'd been working together for 20 years.
So, we grew up together.
You know, we were both quite young in doing Netflix and...
At every place in the growth, you know, we learned more and relied on each other.
So it was a pretty easy, non-traumatic thing that only changed the business slightly.
I mean 2013.
You've got this original content really starts to become a huge part of of Netflix's business model.
And by you know 2018 2019 2020, really there's a, There's now just a ton of money coming into this, into content, with the other big players competing in that space.
Tell me a little bit about how that sort of impacted what you guys put bets on, because I mean there were – I think in 2018 spending on content was like 12 billion just that year alone.
What we did in original content was very well executed, but it was conventional wisdom that that's what we needed to do.
So it wasn't that radical.
It was just you got to do it well.
The thing that was radical is being direct to consumer around the world.
So every other network, let's take HBO as an example, but FX the same.
They built shows for the U.S. market.
They had their own distribution here.
And then they sold the shows off to the BBC or Canal Plus or different networks in different countries.
They were not direct to consumer outside of the US.
And we were the first to say hey.
With the internet, We can be direct-to-consumer in India, in Japan, in South Africa, in Brazil, in France.
And this was seen as ludicrous in the industry that we would never be able to break in, that we would never get successful.
Our first market was Canada in 2010.
And that didn't have DVDs, right?
So that was streaming only.
And that's part of what gave us confidence that streaming only could work.
Then we did Latin America and then country by country in Europe.
And then in 2016, we did the whole world ex-China.
And we gained increasing confidence year by year because the markets that we had gone into early continued to grow and eventually became profitable.
When do you remember thinking OK, we're going to win or be near or at the top of this competitive environment?
I mean over time.
You know there's who you mentioned Hulu, and then Disney gets into this and HBO and Paramount and Apple and Amazon.
Were you always?
Do you always remember while you ran Netflix?
Do you always remember being on like a war footing and always paranoid about you could actually be defeated, or you know?
Or were you confident that you guys were going to emerge victorious, or whatever word you want to use?
Well, if you look today at TV viewing in the United States as an example, Disney's ahead of us.
YouTube, this is combining linear and on-demand.
YouTube's ahead of us.
They're the largest.
Disney's ahead of us.
Even Paramount's ahead of us because they all have big linear capabilities.
So we still have a long way to go.
We're less than 10% of U.S. television watching.
But that includes terrestrial television.
Yeah.
In other words, the television viewing is television viewing.
You know, you pick up your remote control and you choose where you're going.
That's the moment of truth that we're battling for.
And do you choose Netflix or do you choose YouTube?
And I would say the big challenger is YouTube, because they have doubled in the last four years their share of television viewing, somewhat in the US but dramatically around the world.
People call it user-generated, but it's not really users.
It's kind of semi-pro.
It's people putting all kinds of different content on.
There's a little bit of user-gen too, but it's the incredibly broad selection.
Podcasts everything that's on YouTube is very popular.
So we're definitely a surprisingly small player in the US and around the world, again being less than 10 of television viewing and having YouTube be the past us and be the fastest growing.
So we're, you know, again, trying to win more share by having better and better programming.
I know that you stepped away from the operational side.
You're still the chairman of the board.
And I...
And so you may have a, I don't know, sort of outsider insider perspective on it.
But how does a brand like Netflix, you know, maintain even maintain its position when you've got all this competitive pressure?
And for years, people were saying people are not going to want multiple subscriptions.
They're not going to want to pay for Apple and Disney and Paramount and Hulu and YouTube and Netflix.
In fact, many people do.
Yeah.
I mean, you're right that it's a market structure of individual subscriptions that's very fluid.
And so competing for it is having the best content.
So this summer we had an amazing movie K-pop Demon Hunters.
That, for eight-year-olds, became the stunning thing.
It's insane.
Adults could watch it two or three times, kind of like Shrek was when we were growing up.
And so it's our first big animated hit.
After, you know, maybe 40 different animated movies, we finally had a monster hit.
So it's an artistic execution business.
And you know, if we can improve those ratios from one in 40 to one in 20, to one in 10, to one in five, we'll be a monster.
But it's hard.
Netflix has invested tons of money in content over the last 10 years, right?
And there's all of this technology.
I'm sure you've seen Sora 2 and all this technology.
And, you know, just as you could see that the world is going to go streaming.
Can you look at do you look at AI?
Because I look at it and I think I don't see how I can imagine a future where there aren't human actors, where it's all done, you know, using AI actors.
Do you think that is a realistic scenario?
Well, think about sports.
Do you think if there's two teams of robots playing basketball, it's going to be interesting?
I think some people would say yes.
I think a lot of people would.
I think that will be a very small market.
So I'll take the under on that.
And there's something about watching humans compete that makes it interesting.
I think we humans care about what other humans do, and that kind of puts some limits.
And that's why we have anti-steroid rules, because we don't want to change the competition too much.
And I think in the same way films will have human actors, not because it can't be something else, but because other humans won't be that interested.
So think of it as the Booker Prize is a big prize for the best novel of the year.
The year that AI wins the Booker Prize, then it's starting to really change the entertainment business.
But up until then, it's kind of tactical about what's on screen.
It would be irresponsible of me not to ask you this.
I mean, when this airs, this whole thing may be an old story, because this won't air – we're talking now, in December of 2025.
This will air in 2026.
But obviously there's a lot of news around Netflix and acquiring Warner's streaming service or their film division, I should say, and then – paramount coming in with a another offer and there's a lot of, there's a whole you know sort of i don't know if i should say mess, but there's a whole big story here.
Um, tell me about just your.
You're kind of and there may be things you can't talk about, but what?
What's your overall impression of the acquisition offer?
And then now sort of the challenge from paramount.
Well, I'm super excited that my replacement CEOs, Greg and Ted, which have been running the business for two and a half years, they've tripled the stock since I left.
So they've been fantastically successful.
And I'm thrilled to be supporting them in this next chapter in acquiring Warner Brothers.
But that's about all I can say about it as a board member.
All right.
As you mentioned, Ted Sarandos and Greg Peters now share the CEO job and you've moved on to become the chairman of the board.
And in 2023, the year you stepped down, I think.
I think that year you acquired a ski resort in Utah which I have skied at before years ago.
It's a beautiful place near Ogden in Utah called Powder Mountain.
I think it's called Powder Haven now.
Tell me about that.
I mean, you had plenty of money to do it, obviously.
I'm assuming you like skiing.
So probably a lot of people just assume, oh, you know, this is a fun little side project for Reed.
I mean, can you explain this?
What was the motivation to manage a ski resort?
We had a home there, so we were skiers there, but we were one-acre customers.
And I had noticed that the resort was not very successful.
And so I started to get to know that spring the owners to see where I might be able to help.
And in April, one of the two owners sold to me and in November, the other one did.
For me, it's a passion play of creating a real estate place of beauty.
Real estate's a different skill set.
You build a neighborhood, you put in roads and sewers, and then you try to sell the lots.
That's the basic play.
This year, we had a big success and we sold out.
So think of it as a big resort like Heavenly in Tahoe for only 650 families and their guests.
And then we're also running the public resort, which is a normal public ski mountain with season passes and et cetera.
The public ski resort's good, but it's not an exciting business.
It's a hard – it's like running a restaurant or something.
The private side is much higher revenue, much more exciting.
And so I think of it like my friend Steve Ballmer, who bought the Clippers.
It's kind of like buying a sports team.
It's a passion, but it's not fundamentally around the profits.
It's around competing and winning and succeeding.
And for me, this is totally different than running Netflix.
But, you know, it has a lot of interesting puzzles.
When you think about the journey you took, right?
And, I mean, at age 35 already, you were very successful financially.
But then, of course, it would go on to build Netflix, which is not just a – company.
I mean, it's one of the it's one of the, you know, one of the things, right?
It's a it's, it's a huge technology stock.
It's a huge brand.
It's a cultural touchstone.
How much of what happened to you?
Do you do you attribute to the work that you put in and your your skill and your approach?
And how much do you think had to do with with getting lucky?
Well, I wouldn't put them opposed to each other.
So we got lucky at a number of places.
We talked about the LVMH 50 million investment.
It could have easily been bankrupt.
We got lucky that DVD came along and lots of people worked on that.
And then it won.
We got lucky that a lot of competitors did or didn't do certain things.
But there was a lot of hard work for 25 years.
I was always trying to be the first one up in the morning, the first one reading the metrics.
And it was a very wonderful, intensive time.
So I would say we made the best of what the luck offered.
And it might not have worked out, like you said.
And if it hadn't, I'd like to think we would feel like this.
I would feel like the same person and that the success of Netflix hasn't changed me.
That's probably a little bit naive, but I think it's fundamentally true that you can't underestimate the role the luck plays.
That's Reed Hastings, co-founder of Netflix.
By the way, and this will come as no surprise to many of you, the most watched original Netflix film of all time is K-pop Demon Hunters.
As of last December, it had amassed more than 500 million views worldwide.
Hey, thanks so much for listening to the show this week.
This episode was produced and researched by Sam Paulson with music composed by Ramteen Arablui.
It was edited by Neva Grant.
Our engineers were Patrick Murray and Robert Rodriguez.
Our production staff also includes Alex Chung, Elaine Coates, Nora Gill, Casey Herman, John Isabella, Catherine Seifer, Chris Messini, Carrie Thompson and Rommel Wood.
I'm Guy Raz, and you've been listening to How I Built This.
