Reed Hastings

Founder of Netflix

• Born: October 8, 1960
• Place of Birth: Boston, Massachusetts

Primary Company/Organization: Netflix

Introduction

Reed Hastings cofounded Netflix, the world's most popular DVD-by-mail service, with Marc Randolph in 1998. Netflix has since transformed the movie rental business: Most brick-and-mortar competitors have gone out of business (although Blockbuster attempted a similar DVD-by-mail service for a time). Netflix's streaming service on the Internet helped drive the popularity of streaming video, which in turn greatly increased the bandwidth usage of the average Internet customer and drove the need for more robust infrastructure and higher-bandwidth connections. Despite notable missteps, Netflix's success has endured, transforming itself from a well-known novelty to a true force in the entertainment industry to one that has further balkanized the television audience and affected movie ticket sales.

Early Life

Wilmot Reed Hastings, Jr. was born on October 8, 1960, in Boston, Massachusetts. His father, W. R. Hastings Sr., was an attorney who later served in the Department of Health, Education, and Welfare during the presidency of Richard M. Nixon. Hastings attended high school in the affluent Boston suburb of Cambridge at the Buckingham Browne and Nichols private day school, which had just been created through the merger of the Buckingham School with Browne and Nichols. After graduating in 1978, Hastings majored in mathematics at Bowdoin College in Brunswick, Maine, winning two mathematics department prizes and graduating with his bachelor's degree in 1983.

Hastings underwent Marine Corps officer training during summers while in college, but he requested permission to leave when he felt he was a poor fit. He spent his time after college in the Peace Corps instead, teaching mathematics in Swaziland from 1983 to 1985. Turned down at the Massachusetts Institute of Technology (MIT), he attended graduate school at Stanford University, earning a master's degree in computer science in 1988.

After graduate school, he briefly worked for Adaptive Technology until founding Pure Software in 1991. The company initially developed troubleshooting software packages but grew quickly, and Hastings found he had difficulty managing it and was ill-prepared for the business world. The business went through a series of mergers, first with Atria Software in 1996 and then an acquisition by Rational Software in 1997. Although Hastings was made chief technical officer of the merged company, he soon left. His next business venture was Netflix, which began in 1998.

Life's Work

Hastings has said that the idea for Netflix came to him when he was obligated to pay a late fee upon returning a movie to a video store. The core concept of Netflix is its flat-fee pricing. Customers are charged a specific fee on a monthly basis by means of a debit from an account (a credit card) for their participation in the Netflix service. Hastings compares the model to a membership fee at a gym, which is the same regardless of how much a customer uses the service. The nature of that service, however, has evolved and continues to evolve. Initially, it was limited to DVD rentals by mail. Small, thin, flat, and light, DVDs could be mailed inexpensively in special envelopes so that customers were not charged separately for shipping the discs back to Netflix's distribution center; when Netflix became especially popular, the US Postal Service responded by developing specific techniques for processing its easy-to-spot red rental envelopes.

While the lack of late fees benefited customers who were only occasional movie watchers or might not have a chance to watch a movie right away—busy people who knew they wanted to watch the movies they had rented as soon as they had time but were not sure when that time would be—other features benefited hard-core movie fans, particularly as studios capitalized on the superior quality of the DVD over the videocassette and released special editions of movies, curated collections like the Criterion Collection, and other products for movie buffs. Netflix's online queue functioned like a combination wish list and shopping cart—movies could be queued at any time, the queue could be reordered at any time, and movies were sent in order as availability allowed. Despite a five-hundred-movie limit, this allowed fans to build wish lists of films they want to see without risking that they would forget the name of a movie that was recommended to them.

While Pure floundered because of Hastings's inexperience in business management, Netflix benefited from his concern for corporate culture. His goal was to grow the company without growing it into something unmanageable, which Pure had become. Salaries were a little higher than was common, and at the same time so were severance packages. The first incentivized prospective employees; the latter kept managers from being too reluctant to fire employees who were not a good fit. Employees were also given the choice of taking their compensation in cash or stock options. The personal talk that Hastings gave each new employee was eventually recorded as a PowerPoint presentation and posted online (by Hastings) in 2009 in an effort to keep the company's policies transparent.

As chief executive officer (CEO), Hastings made two major missteps in the second decade of the twenty-first century. The first, in July 2011, was his handling of the announcement that Netflix would begin charging for streaming video. It had originally been offered as a free feature that accompanied subscriptions, with a limit on the number of hours each customer could stream. The limit was removed, and people began to treat the free extra as part of the service they were paying for—which meant that they wanted the bugs eliminated and more options added. This cost money—especially since, unlike DVDs, streaming video rights were not a finite, countable commodity. Negotiating the cost of a thousand DVDs was easier for movie studios to manage than negotiating the cost of letting an unknown number of people (whether ten, a thousand, or 10 million could not be tracked) stream a movie. For that reason, streaming rights were typically contracted for a finite amount of time and required frequent renegotiations. The Hastings solution was to treat streaming as a service: to both improve it and charge for it. However, stock values dropped as the service's power users fumed that their cost would increase by more than half as much.

Two months later, Netflix announced that it would split its services between two companies, spinning its DVD rental service off as Qwikster. Customers were outraged and mocked the new company's name, and stock prices plunged again. The company reversed its decision in a matter of weeks, but the public image of Netflix, and especially its stock, was tarnished far worse than it had been by an earlier class-action suit filed by subscribers whose rentals had been “throttled” because of their rapid use.

In 2013, Hastings brought Netflix to another level of innovation when it premiered one of its first original television series, House of Cards. The show would go on to be immensely successful both critically and commercially, allowing the company to continue adding to its family of original series. Netflix also went on to expand into original films and additional countries. Over the next decade, Netflix's streaming service expanded exponentially. By 2021, the company had become the leading streaming service in the world, with more than 200 million members in almost every country in the world. Its critically acclaimed television series have included The Crown (2015–23), Stranger Things (2016–), and Orange Is the New Black (2013–19), among many others. It has also produced successful original films; following the 2024 Academy Awards ceremony, Netflix had won twenty-three Oscars total. In 2020, Hastings co-authored a book about the culture at Netflix, titled No Rules Rules: Netflix and the Culture of Reinvention, which was on the New York Times Best Sellers list. In 2023, Hastings stepped down as CEO and became the company's executive chair.

Personal Life

Hastings is married with two children. He is active in education reform, particularly the funding of charter schools. He has also served on the boards of directors of Microsoft, Dreambox, Facebook, the Hispanic Foundation of Silicon Valley, and the Pahara Institute. He was also president of the California State Board of Education from 2000 to 2004. In 2020, Hastings donated $120 million to two historically black colleges and universities (HBCUs) in the US and the United Negro College Fund—making the single largest individual donation to support scholarships at HBCUs in American history. In 2023, he became the majority owner of Powder Mountain Ski Resort in Utah.

Bibliography

Anderson, Chris. The Long Tail: Why the Future of Business Is Selling Less of More. New York: Hyperion, 2006. Print.

Goldfayn, Alex L. Evangelist Marketing: What Apple, Amazon, and Netflix Understand about Their Customers. Dallas: BenBella, 2012. Print.

Jackson, Amber. "Lifetime of Achievement: Reed Hastings." Technology Magazine, 1 May 2024, technologymagazine.com/articles/lifetime-of-achievement-reed-hastings. Accessed 25 Sept. 2024.

Kaplan, Saul. The Business Model Innovation Factory: How to Stay Relevant When the World Is Changing. New York: Wiley, 2012. Print.

Mullin, Benjamin and Nicole Sperling. "Netflix's Reed Hastings Will Cede Co-Chief Executive Role." The New York Times, 23 Jan. 2023, www.nytimes.com/2023/01/19/business/media/netflix-reed-hastings.html. Accessed 25 Sept. 2024.

"Reed Hastings." Netflix Investors, 2024, ir.netflix.net/governance/Leadership-and-directors/person-details/default.aspx?ItemId=647a7890-0da4-4adf-9e69-d34483629bb8. Accessed 25 Sept. 2024.

Stanley, Alessandra. "Political Animals That Slither." Rev. of House of Cards, dir. James Foley. New York Times. New York Times, 31 Jan. 2013. Web. 28 Sept. 2015.

Togoh, Isabel. "Netflix CEO Reed Hastings Donates $120 Million to HBCUs: 'We Hope This Will Help More Black Students Follow Their Dreams.'" Forbes, 17 June 2020, www.forbes.com/sites/isabeltogoh/2020/06/17/netflix-ceo-reed-hastings-donates-120-million-to-hbcus-we-hope-this-will-help-more-black-students-follow-their-dreams/?sh=3348d7326e3a. Accessed

25 Sepr. 2024.