This week Reed Hastings’ Netflix announced they were 36% ahead of forecast, following a 12 month expansion into 130 countries. Netflix shares hit an all-time high.
Today, Netflix is globally recognized for being the leader in streaming TV. What is less know is the part Blockbuster (which was America’s leading video rental company) played in creating Netflx.
Here are the 3 Steps Blockbuster took to make Netflix a $60 billion company:
STEP 1 – Get your customers upset:
Blockbuster’s first step was to get customers upset by charging huge late fees for not returning their videos. As Reed remembers, “The genesis of Netflix came in 1997 when I got this late fee, about $40, for ‘Apollo 13’. I remember the fee because I was embarrassed about it. That was back in the VHS days, and it got me thinking that there’s a big market out there.”
“So I started to investigate the idea of how to create a movie-rental business by mail. I didn’t know about DVDs, and then a friend of mine told me they were coming. I ran out to Tower Records in Santa Cruz, Calif., and mailed CDs to myself, just a disc in an envelope.”
“It was a long 24 hours until the mail arrived back at my house, and I ripped them open and they were all in great shape. That was the big excitement point.”
STEP 2 – Ignore opportunities:
Reed grew Netflix from a DVD mail rental company to a subcription service. He then went to Blockbuster in 2000 and offered to sell Netflix to them for $50 million.
A Blockbuster exec recalls “We had the option to buy Netflix for $50 million and we didn’t do it. They were losing money. They came around a few times.”
If they had simply said “yes” instead of “no”, Blockbuster would own Netflix. But instead, rejected by Blockbuster, Reed decided to keep growing Netflix himself, and it has now grown x1,000 in value from that $50 million price to its $60 billion valuation today.
STEP 3 – Give up:
A decade after, in 2010, Blockbuster filed for bankruptcy protection. It went from the leading video rental company with 60,000 employees and 8,000 stores at its peak to zero, with its assets being bought by Dish Network. They failed to get on the online streaming wave, and so were wiped out by it.
Famed investor, Carl Icahn, called Blockbuster “the worst investment I ever made”.
Reed Hastings, on the other hand, continues to see Netflix grow because the three steps he follows are the exact opposite of Blockbuster’s: He focuses at the customer experience instead of upsetting them. He takes opportunities instead of ignoring them. And he perseveres while others give up.
Which path are you taking?
Each has consequences. And neither is wrong. After all, if Blockbuster hadn’t upset and then rejected Reed in the first place, we wouldn’t have Netflix today.
“”Even if you’re on the right track, you’ll get run over if you just sit there.” ~ Will Rogers