How I Did It: Reed Hastings, Netflix

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Look at the all-time Netflix Top 100 list of rentals and you'll see it's not just the studio blockbuster movies. Mystic River was No. 1 for a long stretch. Oscar winners do very well for us. We approached the producers of Born Into Brothels at the Sundance Film Festival and they signed an exclusive deal with Netflix. The movie went on to win an Academy Award. Born Into Brothels is a rough digital-video documentary, but it's a great story. It's been a big winner.

When Wal-Mart started a DVD subscription service in November 2002, Netflix stock dropped to $2.50. I was surprised they entered the market, but I knew that they wouldn't be as focused as we are. We competed in 2003 and 2004, but last spring, Wal-Mart realized it had such a huge opportunity to sell DVDs that a rental service didn't make much sense. I had dinner with the CEO of Walmart.com, and eventually we came to an arrangement where basically the companies promoted one another. We're not celebrating victory at Netflix, though, because Wal-Mart never gave its best shot. Whereas Blockbuster is spending hundreds of millions of dollars, so when we beat them, it will be celebratory.

One mistake I made was waiting until 2002 to open regional warehouses for local distribution centers. Overnight delivery is so exciting to our customers and we were getting way too many complaints from subscribers that they had to wait too long. I learned from our mistake. We now have 36 warehouses spread out around the country.

Our focus is on getting to five million, 10 million, 20 million subscribers and becoming a company like HBO that transforms the entertainment industry. We want producers and directors to be able to find the right audience, to change the experience of helping people find movies they love. Netflix has customer loyalty; it's a passion brand. I've always thought trying to change consumer behavior is scary, and most companies that promote that fail. But when it works, like iPod, it works big.

"We want to be ready when video-on-demand happens. That's why the company is Netflix, not DVD-by-mail."

DVDs will continue to generate big profits in the near future. Netflix has at least another decade of dominance ahead of it. But movies over the Internet are coming, and at some point it will become big business. We started investing 1% to 2% of revenue every year in downloading, and I think it's tremendously exciting because it will fundamentally lower our mailing costs. We want to be ready when video-on-demand happens. That's why the company is called Netflix, not DVD-by-Mail.

I joined the Peace Corps after graduate school and went to teach high school math in Swaziland, out of a combination of service and adventure. It was an extremely satisfying experience. Taking smart risks can be very gratifying. Guessing right is a skill developed over time. Not all smart risks work out, but many of them do.

I got back into education after leaving Pure Software, helping the passage of California Proposition 39, which lowered the threshold for voters to pass a school bond from two-thirds to a 55% majority. I also spent three years as president of the state board of education. I'm currently funding a study at Stanford of 300 schools, examining why there are so many variants in similar student demographics. It's not a level playing field in K through 12 and we have to make it more equitable and successful to enhance what should be the strength of society, public education. I am an active supporter of the charter school movement. California is steadily adding 60 to 80 a year, which is healthy.

I have a home theater and watch a lot of movies, but my wife and I still go to the theater a couple of times a month because I like to get the popcorn and sit in the dark with an audience.

I don't want to get into production. There are passionate, talented filmmakers out there and I would pollute the craft.

I'm happy where I am. It's been eight years at Netflix and I feel it's just beginning. I have no need or desire to be acquired. We're making money, haven't used cash for three years, and have no problem with scale sufficiency. Being an entrepreneur is about patience and persistence, not the quick buck, and everything great is hard and takes a long time. If we can transform the movie biz by making it easier for people to discover movies they will love and for producers and directors to find the right audience through Netflix, and can transform public education through charter schools, that's enough for me.

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