Netflix is so ubiquitous these days that it’s more of a generic term for streaming entertainment than it is a specific brand name. When something becomes such a bedrock of culture, it’s easy to forget to ask, “where did this come from?” but it can be very useful to know. Interestingly, there are two different foundation stories, depending on which founder you ask.
The first version of the story goes like this: CEO Reed Hastings got the idea when Blockbuster charged him $40 of late fees for Apollo 13. Because of this, he went on to have the idea for and found Netflix.
The second version of the story goes like this: Marc Randolph claims that he and Hastings decided they wanted to create “the Amazon.com of something,” in 1977 and decided on DVDs because they would hold up in the mail. They didn’t have a DVD, but they had a CD, which they mailed a few blocks as a trial run. When it arrived in one piece, they determined that Netflix was viable.
A great example of how changing technology can force business change is when Hastings, in 2005, was speaking about streaming video and stated that he did foresee an internet-based future. But he also expected Netflix to dominate DVD video for at least another decade. In 2007, Netflix launched their service.
To show the importance of looking ahead, Netflix started investing just a few percent of revenue each year into creating a streaming service. This was an exciting business proposition not only because of an emerging big business area, but because the mailing costs would be eliminated. Once Netflix has the rights to rent out the movie, the expenses are largely fixed. Netflix then switched over to a subscription model of business rather than a pay-per-rental service, and the rest is quite literally history.
