Business

The true story of the creation of Netflix that no one knows

Netflix

The “myth” of Netflix’s foundation dates back to the mid-1990s, when Reed Hastings, one of the two creators, found himself having to pay a $40 penalty at the cashier of a Blockbuster for returning his Apollo 13 video cassette late. Following the unpleasant episode, the current president of the streaming giant began to reflect on the possibilities offered by the DVD market, which is on the rise and still not occupied by potential competitors. In reality, the birth of Netflix was not exactly the result of a stroke of genius, as Marc Randolph, the other founder, said in a recently published book, That will Never work. and the extraordinary life of an idea ). The entertaining memoir reflects the pioneering climate of the golden years of Silicon Valley while also offering entrepreneurial education ideas for budding startuppers.

In the spring of 1997, Reed and Marc’s first business idea was to rent video games and films on DVD by post: all they had to do was connect to the NetFlix website (strictly with a capital F), choose the title and wait for the postman. All for $6, including shipping. “To see if it could work, we tested the mechanism ourselves,” Randolph says in the book. “We stuck a CD in an envelope with a 32-cent stamp and mailed it to Reed’s house. The next day he received the CD intact and that’s when we knew we could move forward.” The formula, however, was struggling to take off, so Hastings decided to switch to an unlimited monthly subscription: you could choose up to a maximum of 3 titles, return them and receive others several times in the same month. Netflix’s first home was an old bank office in Santa Cruz, California, whose vault was used to store and catalog all the DVDs.

The first “testimonial” of the project was unknowingly the former president of the United States, Bill Clinton, to whom an anecdote is linked which, decades later, still makes the founder and first CEO of Netflix smile. “In 1998 we were only talking about Sexgate. We were a small startup that couldn’t afford large investments for a marketing campaign and so we decided to use the Clinton-Lewinsky scandal to our advantage,” Randolph continues. “The plan was to charge customers 2 cents for a DVD containing the president’s four hours of congressional testimony. After shipping five thousand records, some of our subscribers told us they had received an adult film and not the Clinton Trial: the manufacturer had given us the wrong unmarked stock. The next day we sent a letter of apology, saying that if they wanted they could send us the wrong DVD back at our expense. Nobody did it.”

Among the pages of his entrepreneurial manifesto, the former CEO also explains the meaning of the so-called “Canada principle”, invoked by the leaders whenever the project seemed to move away from the main objective. It was coined in the early stages of the strategic plan’s development, when it was decided not to ship the DVDs to neighboring Canada. The logistical effort would have been counterproductive due to the currency difference. The principle, the company’s true waste-saving mantra, later influenced the decision to exclude non-subscribers from rentals and, even today, the reluctance to cede the exclusive rights of Netflix original films to the main cinema groups: a a move which, on the occasion of the screening of Martin Scorsese’s The Irishman , brought great profits both to the company and to the small independent theaters that showcased the film three weeks before its release on the digital platform.

In another chapter of That will Never work Randolph recounts the day of the listing on Wall Street, a watershed moment for the company, which was experienced without great celebrations by its creators: “Like most technology companies, we debuted on the Nasdaq, a fully electronic index. No  trading floors  or hysterical operators on the phone. We enjoyed the first exchange in a large room full of desks at the Merrill Lynch bank. The best memory? At the end of the day, when in many ways our idea had become our reason for living, I went to eat a pizza with my son Logan.”

Randolph left Netflix in 2003, four years before streaming represented the Californian company’s turning point. The last moves of the duo in command were the categorical rejection of Amazon’s “cannibalization” of Jeff Bezos and a meeting with John Antioco, CEO of Blockbuster, organized to propose a synergy aimed at covering the “digital” shortcomings of the former giant of the video rental. The answers were not what Hastings and his partner expected: Antioco spoke of “dot com hysteria”, mocking the web and its potential and declining an acquisition offer for 50 million, Netflix’s losses at that time . A figure that he considered “ridiculous”. Sliding doors that were fatal for Blockbuster which, torn apart by the fixed costs of physical stores and the obsolescence of DVD, declared bankruptcy a few years later. The growth of the entertainment giant, however, has changed the way we see films and TV series, reaching almost 200 million subscribers and 20 billion dollars in turnover and making available not only an online distribution platform curated in smallest details, but also a production model based on customer consumption data like Google and Facebook. Netflix’s strength is the ability to build a feeling of security around its users who, at the end of one viewing, thanks to the sophisticated algorithm hidden behind the simple interface, are encouraged to start another in line with their taste: the basic of so-called binge-watching .

Today Randolph no longer has any relationship with Netflix. He still owns some shares, “for sentimental reasons”, as he himself confesses in the book, and pays a monthly subscription fee like everyone else. Since leaving the company in 2003, he has founded a dozen other start-ups, mentored emerging entrepreneurs and invested in numerous now-established tech companies. Among the reasons for the success of Hastings’ empire, he puts first place the informal corporate culture that empowers collaborators instead of controlling them, an added value to which he himself contributed at the beginning together with Patty McCord, head of Human Resources at Netflix until 2013. Los Gatos’ 8,600 employees rate each other, are encouraged to participate in strategic decisions, and are free to manage their own vacation time, while salary information is transparent. In August 2009, Netflix decided to make its internal rules public with a 125-slide PowerPoint presentation: with 20 million views on SlideShare, Freedom and Responsibility  is still one of Silicon Valley’s most important manifestos today. As well as Marc Randolph’s latest literary work, a precious legacy for anyone who wants to do business: “There will always be someone who will tell you that your idea won’t work. To develop it you need to dedicate your life to it, but let others put the money into it. Involving other investors, as well as family and friends, forces you to prove that your crazy idea could actually work.”

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