JOIN USIt’s surprising that the story of Netflix, the online movie rental company that changed the way we see movies, had not been told before.
A new book finally digs into how Netflix started, how it struggled and battled to compete and win over brick and mortar video rental companies and how it came perilously close to being derailed. More recently, Netflix has been successful in wooing millions of subscribers to its streaming plan — instant downloading of a movie on your computer, television or an app. How did it all begin? You have to first imagine a time when there were no DVDs or DVD players — a time when a DVD player cost Rs 50,000 and a single DVD disc cost Rs 2,500 to buy. Netflix began at such a time, in the late 90s.
Gina Keating, in her new book Netflixed, begins by setting the story straight: correcting and glossing on the urban legend that in 1997 its co-founder and CEO, Reed Hastings, found himself with a heavy overdue fine of $40 on an unreturned Blockbuster VHS tape.
And that out of this prickly, embarrassing situation grew the idea that there could be a market for renting videos online without late fees. Pay a flat monthly fee, get your movies through the mail, watch and return when you want to — when you return videos by mailing them back, the next lot will be shipped to you. Imagine! Hastings wanted to do this with VHS tapes — heavy things that would cost dearly to mail. But then Hastings heard about something called a DVD, a movie on a disc that looked like a CD that was just being product tested.
Eager to put his business idea to the test, he and Marc Randolph who co-founded Netflix, went to a CD shop, bought a disc, put it in an envelope and then mailed it to themselves.
Anxiously and impatiently, they waited for the mail to come the next day. When it arrived, they tore it open to check just one thing: its condition. The disc had not been damaged for having travelled as bulk mail. One of them commented that the idea might work after all. Well, it didn’t quite happen exactly like this, Keating reminds us and painstakingly traces the true origins of Netflix by speaking at length to Randolph who fell off Netflix’s radar. It was Randolph, reports Keating, who was the genius behind the start-up process. The creative, freewheeling team he put together made the technology possible to rent online by creating elegant software and intuitive user interface that rivalled anything made by Apple or Google.
On launch day, they could not handle the number of people subscribing — 150 — and it crashed. They got it up again, and again it crashed. A Netflix team member remembers wondering why subscribers didn’t realise the video store was closed for the day. But the internet, she would realise later, does not go to sleep! There are no closing hours for an online movie company! Netflix went from being a small start-up to become a three billion a year company with 25 million subscribers. This small Silicon valley start-up, Keating writes, slew the eight billion video rental giants (Blockbuster, Hollywood Video), kept Amazon at bay, and actually compelled studios into the digital age by adding the innovation of streaming movies (something Blockbuster apparently considered even before Netflix, but foolishly did not pursue) which has cable companies seriously worried now. However, Netflix’s true rival seems to be Redbox, a DVD rental kiosk. Ironically, the man who came up with the one thing to threaten Netflix worked for Netflix and brought it first to them. Lowe struck off on his own, setting up these kiosks inside grocery stores and supermarkets: it was a simple but brilliant business innovation: $1 dollar to rent a new movie.
Redbox is like one of those soda and snack dispensing machines you see where you feed in some money, press for the item you want, and it pops out. Here the machine is loaded with new release DVD titles. You choose the ones you want, swipe your credit card (does not work with cash) and it pops out. The next time you come to do grocery, you drop it off and Redbox charges you depending on now long you’ve kept the DVD out. Netflix so completely changed the landscape of how we rent and watch movies that Keating says it is hard to imagine now what was so enjoyable about taking a trip to the video store as we settle down to watch something online or a disc that came in the mail. But I can, and often do, recall what was so enjoyable about going to the video store, browsing at leisure, and picking up what I felt in the mood to watch.
When Netflix began, it was able to fulfill the wants and needs of most customers, now it seems to suffer from the same frustrating aspects that ended store rentals — long waits before you get new releases, several old and new releases that are out in the market but not on Netflix, and most annoyingly, dozens of titles from UK, Europe and Asia that are not in the Netflix vault and perhaps will never become available because they only have a PAL format. There was a time when Netflix had not only the largest DVD library in the world, but also the most obscure titles. Keating reveals something startling, even shocking: when customers and journalists looked deeper into the issue of the long wait on new releases, they discovered customers were being discriminated on the basis of those who rented a lot and those who went slower. They had been lumped into birds and pigs!
Birds were those who rented slowly, returning movies at a slower pace, while the pigs wanted more movies faster. The ones who watched rentals quickly and returned them for more had new releases on wait for a longer time, while those who asked for fewer rentals had many more newer releases shipping out from their queue. Pigs and birds! The story of Netflix, Keating notes, “is full of multiple disaster, heartbreaks, failures, untidy striving for greatness, lucky breaks and betrayals.”