To Everything (Beer, Dancing and Content Windows) There is a Season – but Content is Eternal

I was at a honky-tonk in South Texas this weekend, dancing and socializing, as I do most weekends with my boyfriend Joe, and I had a conversation with a fellow patron that convinced me that consumers have mentally jettisoned appointment TV – like, permanently. And content owners need to know that this sentiment has reached deeply and irrevocably into “Flyover Land” and take steps to not piss off the heartland further.

Joe was talking with a couple of guys at the bar while I chatted with some friends at a table. When I went to find him, I learned that Joe had told one of the guys — a sturdy-looking dude in his 30s wearing a camouflage gimme cap with his jeans, boots and pearl-snap shirt – that I wrote a book about Netflix. The guy immediately launched into a well-considered complaint about Netflix’s library – mainly that once a title disappears from the streaming service it’s a real bitch to try to find it somewhere else.

The names of several online streaming services came up as did Redbox and a couple of pirate sites, but not once did he or I mention network or cable TV or their OnDemand services, or god forbid, DVDs.

It was just too loud in the bar – and I had beers to drink and dances to dance — to explain that distributors like Netflix, Hulu, Amazon and even Redbox are just the messengers of an outdated content “windowing” system that determines where and when every movie and TV program can appear for a decade post-release. But I agreed with him that the hop scotching across platforms that the “Twilight” movies or “Scooby Doo” reruns do as a result of these agreements is ridiculous.

So get it together, content owners – the golden age of television and movies, as you knew it, is long over. It’s time to abolish content windows and do the right thing – establish a Library of Congress-style repository for content that gives consumers what we want, when and where we want it – even if we have to pay more or a la carte for the good stuff. Because when it’s time to dance, you gotta dance, not track down that missing season of “Borgia.”

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“If you tell the truth, you don’t have to remember anything.” —Mark Twain

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

GINA
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.

CHRISTINA
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.

GINA
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.

CHRISTINA
Yeah.

GINA
Okay.

CHRISTINA
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

GINA
So what about Amazon?

MARC
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

GINA
By the end of that first year you had a million dollar run rate company. So that was pretty amazing.

TE
Yeah, we were pretty proud of that.

GINA
At that time I think probably you were in talks with Amazon.

TE
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.

TE
But I’ll never forget that night.

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This Means War—Privations of a Price War

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.

Christina's Poster

The copy on this poster is pretty funny when you apply it to Blockbuster: “… a savage empire … lost a thousand years in time!” Photo Credit: Christina Kish.

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.

Lillian at Burger Joint

I snapped this shot on a day when Lillian graciously agreed to show me the environs of the Paramount Building, the funky neighborhood where Blockbuster Online lived for a couple of years before relocating to the corporate headquarters in Renaissance Tower in the posh end of downtown Dallas. Photo Credit: Gina Keating.

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?

Ben and JW in Africa

Photo Credit: Ben Cooper.

In a stateside version of this photo, Cooper engages in a little “business intelligence gathering” outside Netflix’s old University Drive headquarters.

Ben at Netflix

Photo Credit: Ben Cooper.

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.

Reed Hastings with Boxing Gloves

Photo Credit: Chris Darner.

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.

Reed Hastings with Blockbuster Card Suit

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Digging for Netflix Artifacts

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.

Netflix Retreat

Standing (L-R): Marc Randolph, Chief Technology Officer Neil Hunt, Mitch Lowe, Mike Osier, Barry McCarthy, Ted Sarandos. Sitting (L-R): Chief Talent Officer Patty McCord, Reed Hastings, Chief Marketing Officer Leslie Kilgore).

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?”

VSDA Netflix

VSDA photo. Photo Credit: Corey Bridges.

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.

First Netflix.com Home Page

First Netflix.com home page. Photo credit: Gina Keating.

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.

Santa Cruz

Reed lived in Santa Cruz and Marc lived in the adjacent town of Scotts Valley. They thought up the idea for Netflix while commuting together on Highway 17 to Sunnyvale. So I guess geography was, in this case, destiny. Photo Credit: Gina Keating.

Lulu Carpenters

Lulu Carpenter’s. Photo credit: Gina Keating.

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.

Borders

Borders. Photo Credit: Gina Keating.

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.

Card Shop in Scotts Valley

Card Shop in Scotts Valley. Photo: Gina Keating.

And… back to where they started at the Santa Cruz Post Office across the street from Lulu Carpenter’s.

Santa Cruz Post Office

Santa Cruz Post Office.

Best Western in Scotts Valley

Best Western in Scotts Valley. Photo: Gina Keating.

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.

First Netflix HQ in Scotts Valley. Photo: Gina Keating.

 

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Welcome!

Welcome to my blog, which will focus on the story of Netflixed—why I wanted to write this book and what I encountered while researching it. I have a lot of fascinating (to me, anyway) tidbits that I couldn’t quite cram into the book without taking the narrative on a Nantucket sleigh ride (whaling reference), so I decided to share them here.

First, a little background:

I joined Reuters in June 2002 as a general assignment reporter after having won a few awards for investigative stories I wrote for a Los Angeles legal newspaper. I planned to continue my investigative work at Reuters, the world’s largest news agency, but two years later was swept into the financial beat in a news room reorganization. Little did I know that what I considered a long career detour would provide the seeds for my biggest investigative project ever—my first book.

These days, the life of a wire service financial reporter consists mainly of sitting in front of a pair of computer screens, and monitoring stock movements and a constant flow of company press releases. It was fascinating to learn about the market and every day was fast paced but did not allow deep analysis of the big themes or personalities I was covering. For me, meeting and observing people, learning their stories and motivations and watching their choices and narratives across months or years imbues a life in journalism with its richness and beauty.

That’s why the Netflix-Blockbuster story, with its David-and-Goliath aspect as well as tragic elements of hubris on both sides, appealed to me so much. Although I spoke regularly with Blockbuster Chairman and Chief Executive John Antioco and Netflix Chairman and CEO Reed Hastings, the interviews (usually after quarterly earnings calls) were generally brief, rushed and centered on financial results and strategy. The subtext of the monumental struggle between the two—what was really going on inside the companies, how they managed to stay focused, what inspired them—was never revealed. The story was so tantalizing, but out of reach for a wire service reporter.

Gina's Clips

These are clippings of my stories that appeared over the years in newspapers around the world. Photo credit: Gina Keating.

I very much admired DisneyWar by James B Stewart—the Walt Disney Co was one of the companies on my beat—and I thought Stewart did a brilliant job describing how the clash of personalities at Disney affected its financial performance and by extension the dynamics of the U.S. entertainment industry. I thought I could do the same sort of narrative with Netflix.

After eight years and thousands of stories written at Reuters, I decided to risk everything, quit my job and try to write the story that had obsessed me for so long. The deciding moment was a conversation I had with my brother, John A Sopuch III, in which he told me over dinner at Morton’s in Burbank, that he was tired of listening to my echolalia over whether I should quit to write a book. “Just quit. You’ll be too scared to fail.”

He was right, and I dedicated the book to him.

John Sopuch

My brother John A Sopuch III. Charm and wine—his secret weapons. Photo credit: Gina Keating.

I knew most of my protagonists and many of them knew that I had been toying with the idea of writing a book about Netflix and Blockbuster. My first interview for the book was with Shane Evangelist, the former general manager of Blockbuster Online who had by then moved on to become CEO of US Auto Parts Network in Carson, California. It was the first of several conversations we would have over the next two years about the amazing ride he had as a 29-year-old head of the only rental company to give Netflix a real run for its money.

Shane Evangelist

Shane Evangelist, former general manager of Blockbuster Online. Photo credit: USA Auto Parts Network.

Shane persuaded former Blockbuster Chairman and CEO John Antioco to meet with me the next time Antioco came to his Southern California vacation home. Antioco, who had left Blockbuster three years earlier and was running the Red Mango yogurt chain, told me flat out that he didn’t think there was enough of a story to fill a book. He changed his mind when I reminded him of the multiple dramas—both inside Blockbuster and against Netflix—that he had dealt with during his decade at the helm of the world’s largest video rental chain.

John Antioco with Jessica Simpson

Blockbuster Chairman and Chief Executive John Antioco helmed the company during the thick of the battle with Netflix. This is John on the Hollywood Walk of Fame with Jessica Simpson, who loved to watch Blockbuster movies at home with her Maltipoo puppy, Daisy. Photo credit: Blockbuster.

Shih Tzu Jessica Simpson

This is my grumpy old lady dog, Katie, and my puppy, Jessica Simpson. I named the puppy after meeting the human Jessica Simpson at the above press conference. Shih Tzu Jessica Simpson likes to watch movies too. Katie likes to eat. Photo credit: Gina Keating.

Next, I tracked down Marc Randolph, the guy who had co-founded Netflix with its Chairman and CEO Reed Hastings. We first met at a breakfast joint in Los Gatos, where Netflix headquarters is located. When I learned about Netflix’s founding and early years from Marc, I knew I had a great story. There was no real record of the company’s early struggle to define its image and business model, so hearing about that from Marc and his founding team was thrilling. Although all of the founding team except Hastings had left Netflix before I started covering it in 2004, most of them kept mementos of their little startup. I was pretty excited when Marc showed me this sheet of yellow legal paper with the names they considered before settling on NetFlix.

Company Names

What might have been—names Marc Randolph jotted down for his new company in 1997. Photo credit: Gina Keating.

Marc Randolph with Big Ticket

Marc Randolph (at left) at a celebration of Netflix’s reaching 500,000 subscribers. The lady and kids won a Netflix subscription and that’s product manager Chris Darner (at right). Photo credit: Chris Darner.

First Netflix Envelope

Before the red Netflix mailer, there was this—purple, black and white with a swoosh and sprockets—the first Netflix mailer. Photo credit: Gina Keating.

Shane and John and Marc opened a lot of doors for me after our first meetings in the spring and summer of 2010. I subsequently met the tremendously talented teams who worked for these guys. Each person added a dimension to the story that made it live for me—and I hope for readers of my book. I’ll write more about them in coming posts. But I’ll leave you with one of my favorite photos of Netflix’s early years.

Netflix Private Jet

Reed Hastings (L), Mitch Lowe, who later went on to co-found Redbox (Center) and Netflix Chief Marketing Officer Leslie Kilgore (R) in a private jet. Photo credit: Mitch Lowe.

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