Netflixed

The Epic Battle for America's Eyeballs

by Gina Keating

Hardcover, 286 pages, Penguin Group USA, List Price: $26.95 | purchase

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Title
Netflixed
Subtitle
The Epic Battle for America's Eyeballs
Author
Gina Keating

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Book Summary

In Netflixed, Gina Keating traces Netflix's rise throughout a decade-long war against Blockbuster. Keating analyzes its polarizing founders while evaluating how the company has become subject to competition with and marketing by cable companies and telecoms.

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Excerpt: Netflixed

from the Prologue

I wasn't sure what to expect when we met for the first time at a breakfast joint in Los Gatos in August 2010— no one else had been able to tell me the circumstances that had led to Marc Randolph's departure from the company he helped found.

The fit, animated man who walked up to my outdoor table dressed in a fleece pullover and jeans showed every sign of enjoying a rather footloose life since leaving Netflix. He sat down, ordered eggs Benedict, and plunged into a tale that upended a lot of what I thought I knew— starting with the story of how Hastings's late fee for Apollo 13 resulted in the founding of the company.

"That's a lot of crap," Randolph told me. "It never happened."

He explained that the Apollo 13 story started as "a convenient fiction" to describe how Netflix's rental model works and became confused with its origins, because people wanted "a rage against the machine– type story."

Six months and several conversations later I persuaded Randolph to show me where the true Netflix founding took place, which was on a quiet stretch of downtown Santa Cruz.

At Randolph's suggestion I took a commuter bus from Silicon Valley "over the hill," on winding Highway 17 to simulate the drive he and Hastings made each day from their homes to and from the Sunnyvale offices of Hastings's soft ware company, Pure Atria. On that commute in early 1997, they tossed around ideas for a new business that Randolph planned to start when he left Pure Atria, then in the process of merging with its largest rival, Rational.

Randolph, then head of corporate marketing, had long been particularly fascinated by how consumers respond to direct mail—catalogs, mail-in offers, coupons—or what most people, including Hastings, considered junk mail. Randolph saw in the Internet an instant way to monitor consumer response to such sales pitches, adjust the online "store" to make it more inviting, and theoretically boost sales. "Direct mail on steroids," he called it.

The drive on the two- lane mountain road through fog and forest was nerve-racking, and I felt as though I had arrived in a quaint Alpine ski town when the bus stopped to let off passengers.

Randolph picked me up in his immaculate Volvo station wagon at the tiny bus station in Scotts Valley, an affluent bedroom community in the foothills of the Santa Cruz Mountains where he had lived for about fifteen years. His Victorian farmhouse, tucked away on fifty acres of forest, is about three miles from Hastings's former home, a square yellow Victorian about a block from the ocean in Santa Cruz.

We drove to a nearly empty faux Mediterranean office park off Highway 17, where he and a team of about a dozen marketing specialists, programmers, and operations staff launched the Netflix Web site on April 14, 1998.

Hastings, who was studying for a master's degree in education at Stanford University and running a tech industry lobby group at the time, came that day to wish them luck. The one-room space of about a thousand square feet, where Randolph ran Netflix for nearly two years, was at the back of the complex.

Next we headed three miles south, toward Santa Cruz. Randolph followed the coastal road and pointed out a wide, neatly groomed path curving along cliffs overlooking Monterrey Bay, where prosperous looking adults strode along in pairs and threesomes, wearing baseball caps and fleece jackets bearing tech company logos.

What looked to me like groups of stay-at-home moms and dads taking exercise and sanity breaks actually could have been staff meetings of homeless tech start-ups. Randolph told me that many business plans and deals are hammered out along this stretch of road.

Santa Cruz, especially the section populated by well-to-do residents on the west side of the San Lorenzo River, is vehemently antigrowth and antimansion, and even fought a widening of Highway 17 that would have shortened the hourlong commute to Silicon Valley. The town's east siders share their wealthy neighbors' isolationism— not so much to keep out potential vulgarian McMansion builders but to preserve a surf- shack culture reminiscent of a 1960s beach party movie.

We turned north toward the center of town, near where the Pacific Coast Highway runs inland for a few blocks through a tony little business district, before it heads back toward the California coastline. Randolph parked the Volvo at a meter on Pacific Avenue, and we begin to walk— past a vintage movie theater, a few upscale chain stores, and local boutiques.

He pointed out a cafe called Lulu Carpenter's, a hip coffee joint where people sat out front at sidewalk tables in the weak morning sunshine. He and Hastings oft en met at this cafe to discuss business— and formed the plan that brought Netflix to fruition.

One particular day their debate centered on how to distribute the movies they hoped customers would rent via a hypothetical e-commerce Web site, and they decided they had to test whether the new DVD format that Randolph had heard of could travel across the country on a first-class stamp and survive the hazards of bulk mailing.

They couldn't get their hands on a DVD, then available in only a half-dozen test markets, but a used book and music store called Logos Books & Records a couple of blocks down the street sold compact disks. When we drove up that day a giant Borders bookstore was liquidating its stock and preparing to shut down, another casualty of the inexorable move to online distribution of media that its parent company embraced too late. I wondered if Logos's staff had any idea of the role their iconic indie store played in helping Netflix bring down another huge bricks-and-mortar entertainment chain.

A few doors down from the record store was the gift shop where Randolph and Hastings bought a greeting card with an envelope large enough to accommodate the CD after they stripped off its packaging.

They threw away the card, stuffed the CD into the envelope, and addressed it to Hastings's home. They then walked to the central Santa Cruz post office, where they paid for first- class postage and sent the CD on its short but crucial journey.

They would later learn, through close collaboration with the U. S. Postal Service, that local mail was hand-canceled in Santa Cruz and not sent through postal service sorters—a fact that could have changed everything had they known it then, Randolph told me.

A day or two later, the two met up for their morning commute to Sunnyvale.

"It came," Hastings told Randolph, as he climbed into the car. "It's fine."

"And I thought, 'Huh, this might work after all,' " Randolph said, as he drove me back to the bus station. "If there was an 'a-ha moment' in the story of Netflix, that was it."

Excerpted from Netflixed: The Epic Battle for America's Eyeballs by Gina Keating, by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright Gina Keating, 2012.