The Netflix Boss: 9 Fascinating Truths About Reed Hastings
By John Reeves
The Motley Fool
Netflix (Nasdaq: NFLX) CEO Reed Hastings has an emotional IQ of zero, according to Gina Keating, author of Netflixed: The Epic Battle for America's Eyeballs. She also believes, however, that he's one of the smartest CEOs she has ever met.
So the picture of Hastings that emerges from "Netflixed" is complex, to say the least. Personally, I came away thinking of him as an incredibly talented leader who was able to create one of the finest companies of the last decade. Lots of great CEOs -- Steve Jobs of Apple is just one obvious example -- aren't particularly great in the emotional intelligence department. Fortunately, Hastings excels in almost every other area. After reading this book, I'm very optimistic about Netflix's future prospects.
I highly recommend this one for lovers of Netflix and students of business in general. To whet your appetite, here are nine fascinating things I learned from the book:
1. The traditional story about the founding of Netflix isn't entirely true. Many of us are familiar with the story of how Reed Hastings came up with the idea for Netflix after he paid $40 in late fees for an overdue copy of Apollo 13 at his local video store. According to Keating, this version isn't entirely accurate.
Netflix co-founder Marc Randolph calls the above story "a lot of crap." He told Keating that the Apollo 13 story was just a convenient way to explain Netflix's unique model. It didn't literally happen that way, however, according to Randolph.
2. Reed Hastings' great-grandfather founded a physics laboratory that helped develop radar, the atomic bomb, and global positioning systems. Alfred Lee Loomis, Hastings' maternal great-grandfather, made a fortune in investing, and then set up an experimental physics lab in Tuxedo Park, New York. The most brilliant scientists in the world congregated there to develop technology for military applications.
3. Hastings tried to sell Netflix to Amazon. In 1998, Randolph and Hastings met with Amazon.com (Nasdaq: AMZN) founder Jeff Bezos to discuss partnership possibilities. For the right price, Hastings would even have considered selling Netflix to Amazon, according to Keating. Ultimately, Hastings was unimpressed by Amazon's $12 million offer, and the two companies agreed to a cross-promotion arrangement instead.
4. Netflix exited from soft-core pornography when Hastings was about to be appointed to the California Board of Education. Apparently, Hastings felt that distributing adult films would hurt his political aspirations. He felt he couldn't sit on the board unless they stopped distributing the porn.
5. Hastings was the driving force behind the decision to abandon a la carte rental. At some point in late 1999 or early 2000, according to Keating, Hastings argued passionately in favor of focusing solely on the subscription service, while abandoning the a la carte sales. Keating reports that Hastings believed that Netflix "needed to focus its resources on the model that worked, even if that meant betting the company on incomplete data and a gut feeling."
6. In the dark days of 2000, Hastings tried to sell Netflix to Blockbuster for $50 million. With losses mounting, Netflix executives met up with the leadership of Blockbuster. According to Keating, Hastings suggested that Netflix become an online arm of the video giant. Blockbuster dismissed Hastings' offer.
7. Blockbuster executives shipped a kitchen sink to Hastings' office. In a conference call, Hastings once remarked that Blockbuster had thrown everything at Netflix "but the kitchen sink." The sink was soon sent as well -- a gesture that Hastings appreciated.
8. Hastings admitted that Blockbuster Online had it "in checkmate." Soon after Shane Evangelist stepped down as head of Blockbuster Online, Hastings admitted to him at a dinner that the rival service had had Netflix "in checkmate." Apparently, Blockbuster Online's Total Access plan was a value proposition that Netflix couldn't match. Luckily for Netflix, new management at Blockbuster began diverting resources from the online offering back to the main business.
9. It was Hastings' idea to announce the Qwikster initiative via a homegrown video on YouTube. Against the advice of his PR team, Hastings decided to personally announce the decision to split off the traditional DVD service as a new business called "Qwikster." Keating reports that Hastings arrived at headquarters to make the homemade video wearing a beach shirt, and refused to rehearse the message. The resulting video was universally perceived as a PR disaster for Netflix.
Netflix has come a very long way since its murky origins back in 1997. According to Keating, its subscribers now use 35% of U.S. Internet bandwidth by streaming movies in the evening, and the company claims 44% of the total online movie business, making it the world's largest Internet movie subscription service. The future, of course, remains uncertain. Amazon presents a very real threat, and it's still not clear that the streaming service will ever become as profitable as the traditional disc service once was.
I'm very confident that investors will enjoy Keating's compelling account of Netflix's remarkable rise. For additional, must-read business books, be sure to visit Amazon's Money & Markets page.