Hey, millionaires! It's hard to believe, but not too long ago,
we'd have to wait for our favorite shows to come on TV before we could watch them.
You'd actually have to be on the sofa at the right time, or you'd miss out. And if your parents
wanted to watch something different that was on at the same time, you had to wave goodbye to the
chance of seeing that episode. Unless there was a repeat at some weird hour of the morning.
This sounds like some ancient ritual now, but it wasn't really so long ago.
This all changed just a few years ago. And we have one company to thank - Netflix. But,
of course, they weren't always the giants they are now. In fact, our ability to binge-watch our
favorite shows whenever and wherever we want is only possible because of one $40 late fee. That's
exactly the kind of mysterious backstory we were all hoping for. This is the story of the birth
of Netflix and the war they started between some of the world's biggest companies.
Behind every business is one person with a big idea. Netflix's ideas man is Reed Hastings. He
grew up in Minnesota, joined the army, and then quickly found himself in Swaziland
teaching math for the Peace Corps. Lucky for us, he didn't stay there. When he returned to the US,
he got his Master's degree in Computer Sciences. You're probably thinking this is where things get
interesting for us and our viewing needs. But this was way back in 1991. It turns out that, before
Hastings was in charge of Netflix, he was heading up a totally different company: Pure Software.
Hastings had joined forces with two friends to create his first big business venture.
Pure Software offered debugging tools for Unix operating systems. It doesn't sound that
interesting, but it was a pretty good move. With very few competitors on the market, Pure Software
quickly became a major player in the IT world. By 1996, it had doubled its revenue every year
for four years in a row. Obviously, the company was pretty sought after with that kind of upturn,
and they finally decided to sell it to Rational Software for $700 million. I think
we can all agree that's a pretty good deal. Hastings was now in a pretty good position after
just 5 years of work. You wouldn't think that anything could worry him now that he had several
million dollars in the bank. You'd be wrong. But you'd never have guessed that the thing that would
succeed in bugging him would turn out to be an Apollo 13 video. Remember the days of videotape
rentals? Hastings sure does. He'd accidentally forgotten to take this one back to the store and
fined him $40 for it. That's not much money for a multi-millionaire, but he was pretty embarrassed
about it. In the end, it was that embarrassment that got him thinking. In a moment that sounds
like a superhero origin story, he became determined to ensure that nobody would ever
have to pay a late fee on a video ever again. Did that ever happen to you? Or were you born
after the video rental era? Let us know in the comments! Moving on...
Finally, Netflix was born. Hastings and a friend began working on their baby company for the very
first time on August 29th, 1997. Wait, 1997? But that's almost before DVDs - there's no way
anyone was streaming their shows back then! Netflix looked a little different in its early
years. This will seem old-fashioned to us, but make no mistake, it revolutionized movie rentals
at the time. Hastings had done his research - he'd tested over 200 shipping methods and found that
he could mail films to people safely for only the fee of a first-class stamp. Netflix could
ship your film of choice to you with an enclosed return mailer for pretty cheap,
and you'd never have to leave your home for a trip to Blockbusters. So, with just 30 employees
and 925 film titles to choose from, Netflix was introduced to the world on April 14th, 1998.
But surprisingly, it was a bit of a gamble. Hastings had decided that DVDs were the future,
and Netflix was 100% relying on that fact, with only DVDs offered for shipping. That sounds fine
to us looking back, but Sony had only invented the DVD player in 1994. Netflix had opened its
doors just one year after the first DVD player had sold in the US. To make matters worse,
they were selling for crazy prices. You couldn't get a player for less than $1000 back then,
so it won't surprise you that less than 1% of Americans owned one. Sure, the compact size of
DVDs probably cut down on shipping costs, but you've got to wonder what Hastings was thinking
when he made the decision to cater to such a small market. Sure, they didn't have much competition
since most video rental stores didn't offer DVDs, but that's because almost nobody wanted them.
Still, Hastings was persistent. Netflix opened with a 7-day rental offer for just $4
plus a $2 shipping fee. But that wasn't all - even back in the pre-DVD age, Hastings had harnessed
the power of suggestion algorithms. We all know Netflix is famous for that now, but back then,
algorithms almost didn't exist at all. The entire company looked like a mix of seriously bold - or
stupid - moves. But within just 48 hours, they had to upgrade their website bandwidth to keep
up with the online traffic. Things were looking good for Netflix, and they kept going.
Do you think the story behind Netflix is inspiring? Give us a like and subscribe, so you
never miss any of our inspiring stories videos! Netflix soon signed deals with Sony, Toshiba,
and Hewlett-Packard to offer free rentals to anyone who bought a new DVD player. And
just a year after opening, Groupe Arnault had given them a $30 million capital injection.
Now, they could start their Marquee Program - a subscription service that gave you as many rentals
as you could handle for just $16 per month. By this time, Netflix was receiving 10,000 orders
every day, but surprisingly, it wasn't looking great. Their revenue was stuck at just $5
million - nowhere near Blockbuster's $4.5 Billion. There were only two ways this would go - either
Blockbuster would get in on the action and crush Netflix, or Netflix would need to strike a deal.
Hastings decided to act first, but it didn't go to plan. Netflix had offered Blockbusters a
pretty sweet deal - they would become a strategic partner and investor for Netflix. And in exchange,
Netflix would become Blockbuster's online branch, dropping their Netflix name entirely to
fully integrate into the Blockbusters family. The Blockbuster people who were in that boardroom
must still have nightmares about the decision they made that day. They laughed Netflix out of
the meeting and sealed their fate. Instead, they decided to join with Enron Broadband - a division
of the infamous Enron energy company, now known worldwide for its accounting fraud scandal. Sure,
they didn't know that yet, but that was a pretty bad move looking back.
What would you have done if you were in that meeting? Tell us in the comments!
Things weren't looking great for Netflix either - they didn't have a fraudulent partner, but they
had made a loss of about $57 million. But Hastings was still determined he was on the right path - he
was sure it was just a matter of time before DVD technology took off. He was already prophetically
whispering about something new and unheard of: Video on Demand. But that was a long way off,
and he needed DVDs to work before he'd ever get that far. Miraculously, he was right. In 2001,
the price of DVD players took a nosedive, with some selling for less than $100. This combined
with the horror of the 9/11 terrorist attacks, which made Americans want to hide out indoors,
and suddenly, Netflix's subscriptions took off in a big way. 2003 was their first profitable year,
with 1 million people jumping to subscribe to their service.
But nothing in business ever runs smoothly. Just a few months after Netflix started turning a profit,
Blockbuster released their first DVD mail service, and Walmart followed close behind.
Hastings commented on the new competition at an end-of-year conference by saying,
"Blockbuster has thrown everything but the kitchen sink at us." The CEO of Blockbusters
responded by having an actual kitchen sink delivered to the Netflix office. If that's not
a declaration of war, I don't know what is. This was poised to be a battle for the ages that
could've ended Netflix. And sure enough, Netflix saw its stock prices fall by 75%. But their new
competitors were just a little bit late. Hastings still insists that Netflix would've been done for
if Blockbusters had entered the fight just two years earlier. But, as fate would have it,
Netflix continued to grow despite the downturn, and they were delivering 1 million DVDs
every day by 2005. The competitors soon realized they couldn't handle the pressure. Walmart dropped
out of the race, and the Blockbuster CEO who rejected Netflix was fired. It wasn't too long
before the company had to file for bankruptcy. Netflix, as we know, took a very different path.
In 2007, they'd just hit their 1 billionth DVD delivery when Hastings suddenly made his
own company obsolete. He'd been talking about Video on Demand for about 7 years,
and he was finally going to do it. He launched his streaming service free of charge,
but he was having a tough time getting his hands on film rights. That all changed when they signed
with Starz, who brought with them a huge library of Disney and Sony titles for just $20 million.
You can probably tell that was a pretty good deal - the success that followed means Hastings
probably carries that kind of money in his pocket these days. But then again,
they had no competition at the time. After that, it was just one big deal after the other.
Soon Netflix wasn't just dominating the new world of streaming services.
They were breaking the internet, stealing over 34% of all peak-hour broadband traffic in America.
And in 2011, it took its first step toward becoming the company we know today.
They decided to combat the increasing price of content licenses by producing their own show.
So they went into a bidding war against HBO for a little show called House of Cards. Of course,
we all know how that turned out. They even managed to survive a terrible
mistake known as Qwickster. This poorly considered spin-off DVD
service cost them 800,000 subscribers. Oops. The moment they bounced back from that terrible
idea, it was all uphill from there. It didn't take them long to become the streaming giants
we know them as today. It looks like nothing can stop them now - but only time will tell.