Netflix CEO Confesses He Tried To Sell The Company To Blockbuster … But Blockbuster Wasn’t Interested

Netflix CEO Confesses He Tried To Sell The Company To Blockbuster … But Blockbuster Wasn’t Interested

RYAN BUSHEY

JAN. 31, 2014, 5:22 PM 2,028 1

The New Yorker’s Ken Auletta wrote a profile of Netflix CEO Reed Hastings and revealed that the now-shuttered video chain Blockbuster missed out on a great chance to purchase the fledgling company in 2000.

Netflix CEO Reed Hastings flew out to Dallas that spring to meet with Blockbuster execs, who had 7,700 stores open at the time.

Netflix was losing money, had only 300,000 subscribers and relied on the U.S. postal service to deliver its movies to customers.

Reed wanted to form an alliance. Essentially, Netflix was willing to become Blockbuster’s own streaming service. Hastings was going to sell a 49% stake in the company and take on the Blockbuster name … but they decided to pass on it.

The 2000 tech bubble bursting was still fresh in Blockbuster’s mind. And the impending threat of digital media was not yet obvious — most Americans still used dial-up access at home.

Fast forward to 2004, and Blockbuster’s downward spiral began. The conglomerate had tried to launch its own subscription service but it was too late. By 2005, Netflix had 4.2 million subscribers and membership was steadily growing. Also, Hollywood studios began offering Netflix more movies for its library, and that hurt Blockbuster’s video archive revenue.

Reed admitted to Auletta that Netflix would have been in trouble if Blockbuster launched their service two years earlier.

 

Netflix and the future of television.

by Ken AulettaFEBRUARY 3, 2014

In the spring of 2000, Reed Hastings, the C.E.O. of Netflix, hired a private plane and flew from San Jose to Dallas for a summit meeting with Blockbuster, the video-rental giant that had seventy-seven hundred stores worldwide handling mostly VCR tapes. Three years earlier, Hastings, then a thirty-six-year-old Silicon Valley engineer, had co-founded Netflix around a pair of emerging technologies: DVDs, and a Web site from which to order them. Now, for twenty dollars a month, the site’s subscribers could rent an unlimited number of DVDs, one at a time, for as long as they wished; the disks arrived in the mail, in distinctive red envelopes. Eventually, Hastings was convinced, movies would be rented even more cheaply and conveniently by streaming them over the Internet, and popular films would always be in stock. But in 2000 Netflix had only about three hundred thousand subscribers and relied on the U.S. Postal Service to deliver its DVDs; the company was losing money. Hastings proposed an alliance.

“We offered to sell a forty-nine-per-cent stake and take the name Blockbuster.com,” Hastings told me recently. “We’d be their online service.” Hastings, now fifty-three, has a trimmed, graying goatee and a slow, soft voice. As he spoke, he was drinking Prosecco at an outdoor table at Nick’s on Main, a favorite Italian restaurant of his, in Los Gatos, an affluent community in the foothills of the Santa Cruz Mountains. The sounds of Sinatra carried across the patio.

Blockbuster wasn’t interested. The dot-com bubble had burst, and some film and television executives, like those in publishing and music, did not yet see a threat from digital media. Hastings flew home and set to work promoting Netflix to the public as the friendly rental underdog. By the time Blockbuster got around to offering its own online subscription service, in 2004, it was too late. “If they had launched two years earlier, they would have killed us,” Hastings said. By 2005, Netflix had 4.2 million subscribers, and its membership was growing steadily. Hastings had rented a house outside Rome for a year with his wife, Patty Quillin, and two children and was commuting to his Silicon Valley office two weeks each month. Hollywood studios began offering the company more movies to rent; the licensing arrangements presented a new way to make money from their libraries and provided leverage against Blockbuster. . . .