12 Nov 2019

The birth of Netflix

From Nine To Noon, 10:05 am on 12 November 2019
Marc Randolph

Marc Randolph Photo: Flickr

Netflix co-founder and its first CEO Marc Randolph talks to Nine to Noon about the origins of one of the world's largest media companies, which began life renting and selling DVDs in the post.

Randolph says an idea is worth nothing unless it’s been proven to work in real life.

This ‘get out and do it’ philosophy is the most important lesson he’s learned in business, he says.

Randolph is now a veteran Silicon Valley entrepreneur with a career spanning more than four decades, but when he first mooted the idea of Netflix in its original form as a DVD mail rental company, few believed it would work.  

“This was back in 1997 and back then people were just starting to think about selling things on the internet, Amazon at that point only sold books, if you can imagine a time like that.

“Back then video rental was done with VHS cassettes – expensive and fragile … our lucky break came maybe six seven weeks later when we read about this new technology called the DVD.”

He and his Netflix co-founder Reed Hastings decided to test the idea. Unable to get a copy of a DVD, they posted a CD to Hasting’s address in a gift card envelope.

“Twenty-four hours later he had an unbroken CD at his house for the price of a postage stamp.”

Having established a very basic proof of concept, Hastings wrote a cheque for almost $2 million and they got to work,

“I hired a dozen people, rented a dingy little office, we built the website and off we went.” Randolph says.

After six months they were ready to launch their embryonic e-com start-up.

“It’s April 1998 and we’ve been working for six months on getting this thing off the ground.

“We had it rigged up so that a bell would ring if an order came in, and we turned it on about 8 o’clock in the morning and all stood around expectantly.

“And it didn’t take too long and finally ding! That first order, cheers all-around of course, and then a few minutes later Ding! Ding! Ding! and then we got up to I think seven orders – we were still excited, and we were clapping each other on the back.

“Then someone noticed it had been a while since the bell had rung last and it turns out that 15 minutes in we’d crashed both of our servers.”

Randolph says his memories of launch day were of pushing a shopping cart up and down the aisles of an electronics store buying components to keep the groaning servers going.

It took a while to sort out the server problem, he says.

“On one hand we were saying wow people want this that was encouraging, the discouraging thing of course was is we couldn’t for the life of us to keep our site open more than 20 minutes in a row.”

Coming up with name also proved problematic, Randolph says. Options discussed included Take Two, Replay and Cinema Center.

“And we had Netflix, but people didn’t like it. Back in 1998 a pornographic film was sometimes called a skin flick, or plural skin flicks and then of course Netflix had that big X at the end.”

Eventually, he says, the name grew on them.

“Eventually we decided you know Netflix does sound a little porny but let’s go with it.”

After about a year of operation Amazon came calling, Randolph says. Jeff Bezos called them up to Seattle hinted he would pay $US14 to $16 million for Netflix.

“That’s a pretty good return for a year’s work, but at the same time we had just launched, we had just started we had gotten our website to work and we weren’t quite ready to hand over the keys.”

In 2000 Netflix had customers flooding in but was losing money, so they decided to approach video store company Blockbuster.

“This was 2000 at the very bottom of the dotcom bust and we were going to go out of business and we decided to be prudent entrepreneurs and try and sell the company and the obvious person was Blockbuster.”

But Blockbuster baulked at the price Netflix wanted - $50 million.

“They basically laughed at us.”

Randolph left Netflix in 2002 after helping guide the company through its initial public offering. He has since been an angel investor and mentor, and says the time between idea and validation is dizzyingly fast now compared to the six months it took to get a Netflix ready for market launch.

That disruption is still likely to catch existing business, just as it did Blockbuster, napping Randolph says.

“The problems facing the entrenched leaders is the same which is that they don’t want to change, they like the way the world is they don’t want to cannibalise their past and their future.

“So, they’re still lumbering, they’re still vulnerable. I think it’s a great, great time to be an entrepreneur. It’s perhaps less great to be the person running the big $6 billion blockbuster-type company.”

And his rule for success?

“Stop thinking and start doing. when I look at the people who are successful, who I want to work with as a mentor or an angel investor, I’m looking at the people who have a pre-disposition to action, who recognise an idea’s nothing until it’s been tried.”