There were some interesting tidbits in Netflix’s Q1 earnings call yesterday:
- the idea that the $1 billion writedown Time Warner is expected to take on its broadcast rights to LA Dodgers games could chill Netflix (and other streaming services’) spending on content prices
- that international piracy acts as a “governor” on Netflix subscription prices in international markets where piracy is rife
- that Ted Sarandos unabashedly said Netflix will keep pushing movie studios to release films day-and-date with theatrical releases
… but by far my favorite thing that anybody said on the call was Reed Hastings repeatedly mentioning Poland when talking about Netflix’s determination to get global rights to all content.
He was probably referring teasingly to reports that the company was readying its infrastructure for a Poland launch but the mention of the country that saw the start of another push for world domination made me laugh.
The Netflix juggernaut will keep rolling across the landscape of Europe until it has encompassed all by the end of 2016 — but in this case the conquerer is welcomed and heralded, especially by all the disappointed VPN users the company shut down earlier this year.
I think I need to get out more.
It has been four years and change since Netflix launched in its first international market — Canada — with much fanfare and a minor but embarrassing episode involving paid extras who were sprinkled into the crowd at a company-sponsored street party in Toronto. Then came the 2011 Latin American barnstorm-style rollout — Netflix’s most complicated — in which it confronted issues with weak broadband penetration, fewer digital devices, language and credit card processing issues. Great Britain and Ireland followed — with much jockeying from established competitors. Last year’s European launches looked like a snap and those markets, according to the company, been a bigger-than-expected success. And we learned last week that Netflix is fixin’ to take over the world. In two years.
Netflix’s fourth quarter earnings presentation contained the startling statement that the company can complete its international expansion– while staying profitable — in two years. That means growing from about 50 international markets to 200. And even more delightfully, it means that Content Chief Ted Sarandos soon will have the might to negotiate global content deals that enrich selection — opening new worlds of international content to U.S. subscribers and creating a new reality in which Netflix subscribers around the world are watching the same “channel.” Imagine the water cooler talk.
The company’s discovery that its original content – Marco Polo, Orange Is the New Black, House of Cards — performs more efficiently than the stuff it licenses has led to its decision to triple its spending on originals, from 100 hours in 2014 to 320 hours this year. This lovely explosion of films, documentaries, original series and comedy specials presumably will further minimize the importance of “windowing” — distribution deals that cause TV shows and movies to hopscotch aggravatingly across pay-per-view and broadcast services.
Here’s the relevant information from the earnings presentation.
So much for easing the sting of back-to-school with a new fall TV schedule. Netflix said at the Television Critics Association press tour that it will debut a bunch of new original series over the U.S. spring break season. The new series will debut simultaneously in all international markets. These are the new series and debut dates:
Unbreakable Kimmy Schmidt – Friday, March 6
A half-hour comedy series by “30 Rock” co-creator Tina Fey stars Ellie Kemper of “The Office” as Kimmy, who escaped a doomsday cult and started life over in New York City. The 13-episode series (also starring Jane Krakowski, Tituss Burgess, and Carol Kane) was written for NBC’s 2014 fall schedule but never aired.”Kimmy” will get a second season on Netflix, and it’ll be interesting to see how Fey and Carlock write the series for streaming.
Bloodline – Friday, March 20
Netflix describes this show, starring Kyle Chandler, Ben Mendelsohn, Linda Cardellini, Norbert Leo Butz, Sissy Spacek and Sam Shepard, as a combination family drama and psychological thriller. The teaser looks cool and very dark.
Marvels Daredevil – Friday, April 10
“Daredevil,” the first of a four part series planned by Marvel and Netflix, stars Charlie Cox as Matt Murdock, the blind superhero who battles injustice by day as a lawyer and takes on villains, including Vincent D’Onofrio’s character Wilson Fisk, by night in modern day Hell’s Kitchen. The 13 one-hour episodes debut simultaneously, of course, at 12:01 a.m. Pacific Time on Netflix. The four-part epic begins with 13 0ne-hour “Daredevil” episodes and continues with at least three more 13-episode seasons featuring “Jessica Jones,” “Iron Fist” and “Luke Cage” in coming years. The series culminates in Marvel’s “The Defenders” mini-series.
Grace and Frankie – Friday, May 8
Jane Fonda and Lily Tomlin star in a 13-episode comedy about a pair of frenemies (Martin Sheen, Sam Waterston) who are thrown together after their husbands run off with each other.
And for the kiddos — The Adventures of Puss in Boots debuts Jan. 16.
I don’t really agree with the premise that Amazon Instant Video is within striking distance of Netflix, not just because the two services are still so far apart by the only measure that counts — hours streamed — but because consumers use the two so differently.
Yes, you can binge-watch TV shows on Amazon Instant Video — I watched almost an entire season of Rome last weekend while nursing a cold. But the hybrid subscription/pay-per-view Amazon Prime model inhibits you from surfing the catalog and sampling content in a way that racks up significant viewing hours or consumer attachment.
In my mind, consumers turn to Amazon — and to Apple’s iTunes for that matter — when they want to watch a specific movie or TV show, sort of how we used to go to Blockbuster (and now Redbox) for newly released titles. We use Netflix to find something to watch, the way we used to channel surf.
This is what Reed Hastings calls “different use occasions” that make up the spectrum of the home entertainment market. Hastings used this concept to dismiss speculation that Apple would kill Netflix when iTunes began selling movies and TV shows. It sounded like wishful thinking at the time but — he was right.
Anyway, this Motley Fool note contains a lot of interesting stats about streaming that remind me of the adoption curve for online DVD rental:
Netflix recently launched in France, and Germany, Belgium, and Switzerland will soon follow suit. The move has been expected for a while, and CEO Reed Hastings has named Spain, Korea, and Japan as possible future markets.
As the next phases of the expansion unfold, Netflix will be pressed to add significant content and make other investments before it starts to see a profit. The large data center built by Netflix in Paris has enabled Netflix to get off to a fast start, unlike the company’s slower expansion in Latin America.
Netflix is already backing the making of an original French series, “Marseille,” a move toward content creation that took much longer in the U.S.
This expansion could also give Netflix a powerful new ally in the fight for net neutrality – the European Union, which is currently considering reforms that would solidify net neutrality in law. “The advantage of net neutrality is that it allows new Internet services to grow without needing the permission of network operators,” said Hastings. “I think it needs to be inscribed in European law.”
Read more here: Netflix will focus on ramping up in Europe over next year
Memory is an interesting and crucial factor when you’re writing a book about events that moved quickly and were not well documented contemporaneously—a situation that commonly occurs at Silicon Valley startups. The conditions—long working hours, a blistering pace and less formal communication than at an established or public company—lend themselves to a bit of haziness when trying to pinpoint, more than a decade later, how a particular decision was arrived at, who made it and what the actual details were.
In documenting Netflix’s pre- and immediate post-launch era, I relied on the accounts of the eight founding team members to get a clear picture of what actually happened. I interviewed them separately—most had not spoken to each other in years—and fact checked with each the narrative I came up with based on their information. I also gave Netflix’s management access to the manuscript to fact check and comment on it.
Thankfully, the memories of my interviewees were pretty consistent about big picture issues—how they derived the business model, the thinking behind the back-end processes and consumer interface, the major events leading up to and following the launch and how the culture changed as the company grew.
Like most startups, Netflix had very little hierarchy in the early days—everyone put in their two cents about most decisions, partly because they were working together in one room and could overhear every conversation. Because there was not a lot of formal documentation in the form of emails, reports, etc, of Netflix’s first couple of years, I had—in some cases—to find common ground on details in which accounts were close but not identical and to decide who had the best recall and access to the most accurate information.
For example, the founding team members independently told me about a meeting that occurred in 1998 between Amazon founder Jeff Bezos and Netflix founders Marc Randolph and Reed Hastings at which Bezos offered to buy Netflix.
What was remarkable and wonderful about this process was seeing both the overlap and distinct impressions of each team member of similar events—it gave such richness to the story. So take a look at these transcripts from Randolph, Christina Kish and Te Smith about their recollection of the moment they could have lost their startup to Amazon.
Christina Kish Interview with Gina Keating
Oh-h-h. Okay. So basically you were sort of diverted from the rental, from refining the re-, rental model because Reed felt that you had to stave off this challenge from purchasers? Okay.
Right. Right. So then, that’s why ninety-nine basically killed me off. [LAUGH] Um, so what happened this is Eric, you know, working on recommend-, working on, on cue, working on recommendations. Mark and I, you know, working these three different models and then on top of it, Reed coming in and saying we have, you know, we have to sell. And so he went and made a deal with Amazon that we would do a click through to Amazon so if they didn’t wanna rent it, they would buy it from them.
Okay. So he thought he was gonna stave off Amazon by doing this. By becoming, because he tried this a couple other ways too. Like, okay we’re gonna go to Blockbuster and sell it to, and become the white box for Blockbuster to do their online service. And then he tried it again with Amazon, so this is the, and I see what’s going on here. Okay.
So, so he made this deal with Amazon that um, there would be two buttons. Yeah. This is what finally did me in. Um, yeah, there’d be two buttons. And so you know, they had their choice and what we would receive income from Amazon based on how much would click through.
Marc Randolph Interview with Gina Keating
So what about Amazon?
Amazon was way earlier. Yeah, ’98 maybe early ’99. It was the same thing, we got on their radar—they were going to enter video so they were interested in whether they could leverage us to jumpstart themselves into video. Because they were going to buy us to start their video wing and we flew up and they were still in the old book depository—in some weird warehouse building—all sawhorses and doors and this little room and Jeff ran the meeting. He was there. And it was really cute—I really remember it because I was describing our first day and I go, I’m kind of embarrassed, it was only 100 orders that first day. And he said, don’t, I remember it so clearly. We used to have a bell that rang, Jeff was telling me this. He goes, every time a book got ordered a bell rang and we’d all get all excited. It was so cute and he was much sweeter and he was saying yeah we think we can buy you—it would only be $6-8 million something like that and he was interested in the people and we went back and we were going well do we fold it now—that’s not a bad return but then we said, nah! The problem with all these people, whether Amazon or Blockbuster or Wal-Mart, is that it looks so easy. The idea is extremely simple. Doing it for were it costs less than someone is willing to pay for it is extremely hard and no one realizes that. They, we were a software company, not a video rental company, not a retailer. We were a software company and everything went into how to optimize it—that’s extremely hard.
Te Smith Interview with Gina Keating
By the end of that first year you had a million dollar run rate company. So that was pretty amazing.
Yeah, we were pretty proud of that.
At that time I think probably you were in talks with Amazon.
There were talks, early, early on. I remember Mark coming and saying, because he was out all one day and we didn’t know where he went. And he came back and said, I think they’re on a private plane, and Pete’s flying commercial. And we were all, we hadn’t even launched yet. I don’t even think we had launched because, or we had barely launched. Because we were all like, but we just did it. They can’t buy it. I think Reed decided that he didn’t want to sell it yet, which was the right decision for sure. There’s a lot more potential there.
But I’ll never forget that night.
There was one very consistent element to every interview I did for Netflixed: every member of the Blockbuster and Netflix teams expressed the sentiment that the paradigm-shattering fight between the two companies had been the highlight of their professional careers. The urgency and absorption with which they had approached the five-year-long battle had unleashed their creativity and had shown them what they were capable of as executives and as combatants.
It was clearly exhilarating and my interviewees described a sort of wartime camaraderie that developed at each company. Christina Kish, head of marketing for Netflix, was legendary for keeping insane hours at the Scotts Valley headquarters in the company’s startup days. Her husband Kirby, who worked as a consultant for Netflix, described how she would often crawl under her desk and sleep if it got too late to drive back over the hill to their home in Silicon Valley. In recognition for her mighty competitive spirit, Marc Randolph found this poster and hung it on the door of the office Kish shared with Netflix’s PR chief, Te Smith.
In addition to their all-consuming schedules, both teams endured quite a bit of privation, as this next photo of Lillian Hessel, vice president of customer marketing for Blockbuster Online, illustrates. Hessel came to Blockbuster Online from a posh corporate job at AT&T where she had enjoyed expense account lunches and first-class business travel, assistants to handle the scut work, and a large corner office. She traded it for regular lunches at this extremely greasy hamburger joint down the street from the Paramount Building, where she shared a tiny office that smelled like the sandwich shop downstairs with several co-workers. She told me it was the most exciting work she had ever done.
As Netflix and Blockbuster Online settled in for the long years of the price war, you might say their executives became a bit obsessed with each other—as this photo of Blockbuster Online’s Ben Cooper and JW Craft shows. I mean, who but the truly obsessed brings a Blockbuster Online mailer to an African safari?
In a stateside version of this photo, Cooper engages in a little “business intelligence gathering” outside Netflix’s old University Drive headquarters.
Over at Netflix, CEO Reed Hastings drew on pop culture and the classics to rally his troops for the battle against the much larger, better-funded Blockbuster. The press and market sentiment against Netflix was pretty negative as soon as Blockbuster Online launched, so keeping the company focused was a constant challenge.
In this photo, Hastings dons a bathrobe and boxing gloves in a patio outside Netflix headquarters to deliver a rousing speech that invoked Muhammad Ali and his signature line about butterflies and bees.
Among the costumes and props Hastings used to prod his team forward against a formidable foe were harpoons (with Blockbuster as Moby Dick) and this fabulous tuxedo sprinkled with cut-up Blockbuster cards. In public, he learned to be very circumspect about his rival but in the privacy of Netflix events he was a keen competitor.
Leave a Comment / Posted in Barry McCarthy, Blog Post, Christina Kish, Corey Bridges, Founding Team, Leslie Kilgore, Marc Randolph, Mitch Lowe, Netflix History, Patty McCord, Reed Hastings, Te Smith, Ted Sarandos
One of the coolest things about researching Netflixed was the abundance of blackmail-worthy photos I discovered, and this leavened the excruciating task of reviewing thousands (literally) of pages of transcripts of earnings calls and analyst presentations that I had sat through once when they actually happened.
My first thought when I saw this particularly hilarious specimen—taken during an executive retreat at the Alisal Guest Ranch in Santa Ynez, California—was that I wished I had come across it years ago. Visualizing Netflix CEO Reed Hastings in a cheerleader skirt and CFO Barry McCarthy dressed like a fraternity punk definitely would have relieved the pressure of those rapid-fire post-earnings interviews.
This one of Netflix’s founding team, including (Redbox co-founder) Mitch Lowe, Te Smith, Corey Bridges, Christina Kish and Marc Randolph, is another favorite. It was taken at their first trip to the Video Software Dealers Association convention in Las Vegas. Here’s how Corey describes it:
“This is from the 1998 VSDA trade show, Netflix’s first big public outing. The five of us went to the show and had a hell of a time, personally and professionally. It was one of the high points, where we got face-to-face industry feedback (admittedly from a minority of people) communicating we were onto something big. This picture was at the Playboy Wet & Wild Party, which took place at a damn water slide park. So this is an evening party, and you’ll notice that we three guys were in our ‘okay, we can get into water slides’ outfits. The ladies were obviously having none of that.
“You’ll also notice that Marc and I are holding martinis. What a good idea that was, to mix water slides and martinis. But what else can you do but accept it graciously, when a bunny hands you one?”
Although this screen shot of Netflix’s first home page would be embarrassingly cluttered by today’s standards, it was pretty cutting edge to the 1997 e-commerce customer—still unsure what a “shopping basket” was and nervous about putting his credit card number into the Internet’s vasty depths.
I traveled a lot to dig up the story of Netflix because I wanted to see the places I planned to describe in my book, since the setting in Silicon Valley—its new Gold Rush ethos and uber casual atmosphere—was so important to how Netflix developed and what it became as a brand. The most important journey I took was a trip “over the hill” on Highway 17 to meet Marc Randolph at the place where it all began—Santa Cruz.
The narrative for this trip is in the prologue, which you can read on the Sample Chapter page so I won’t reiterate, but for those of you who wanted to know what that journey down Pacific Avenue looked like (15 years later, that is), this is for you:
The rich aroma of coffee provokes the strongest memory I have of this day and of Lulu Carpenter’s, where Marc and Reed talked over ideas for starting an e-commerce business and started the fateful stroll that climaxed with the mailing of a naked compact disc to Reed’s house to test whether the new DVD format could survive postal sorting equipment.
This Borders bookstore was going out of business the day Marc and I retraced his steps leading to the “A-ha” moment that marked Netflix’s birth as an idea for a business. Initially I thought Marc and Reed bought the CD they mailed to Reed’s house at this place but it was actually down the street at the indie Logos Books & Records. Very fitting but sadly, I don’t have a pic of that.
Here’s the card shop where they bought the envelope (along with the gift card they threw away) to mail the disc.
And… back to where they started at the Santa Cruz Post Office across the street from Lulu Carpenter’s.
We next drove inland toward Scotts Valley so Marc could show me the first “office” Netflix used—what is now the breakfast room at this Best Western.
Am I a complete geek to feel thrilled to see the actual first headquarters of Netflix, in this very generic-looking office park? Probably yes. One of the most poignant moments I had on this trip was watching Marc walk through these halls and relate how scared he was in the early days.
He sent me back via Highway 17 bus, spellbound, to relate what was fast becoming a strongly narrative and emotionally rich story over Ghiradelli-laced brownies and wine with my sister Alicia and brother-in-law Mike.