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Reed Hastings
Chairman/CEO, Netflix
Age:
Years as a CEO:
Tenure: 0
Industry: Leisure & Media
CEO DOSSIER
Reed has founded not one but two successful companies, introducing the concept of mail order movie rentals and then adapting to changing technology by moving into internet streaming. But will he continue to fend off competition from rivals?
early years
Born in Boston on October 8 1960, Reed’s father was an attorney for the Department of Health, Education and Welfare in the Nixon administration. After he finished high school he spent a year as a door-to-door salesman selling vacuum cleaners. Reed graduated in 1983 from Bowdoin College in Maine where he had majored in maths before joining the Peace Corps and working in Swaziland for three years as a high school maths teacher. He then returned to America and went to Stanford University where he graduated with a master’s in artificial intelligence in 1988. He then went to work for Sclumberger and then went to work for a start-up company.
He founded Pure Software, a company which made debugging programs and tools for Unix software developers in 1991 when he was 31 years old. He said: “As the company grew from 10 to 40 to 120 to 320 to 640 employees, I found I was definitely underwater and over my head.
I was doing white-water kayaking at the time, and in kayaking if you stare and focus on the problem you are much more likely to hit danger. I focused on the safe water and what I wanted to happen. I didn’t listen to the skeptics.” As CEO though, he did experience crises of confidence and unsuccessfully tried to fire himself twice. But despite this, under his leadership it became one of the world’s largest software companies and he then sold it in 1997 to Rational Software for more than $500 million. He then became head of the California Board of Education.
That same year Reed co-founded Netflix, which was then a DVD rental by mail company, becoming its CEO. He got the idea for the firm after he borrowed the film Apollo 13 and lost the video, meaning he was six weeks late returning it, attracting a $40 fee. He then visited the gym and realised film rental could work in a similar way with a monthly subscription. He said: “I realised they had a much better business model. You could pay $30 or $40 a month and work out as little or as much as you wanted.” And by delivering DVDs to customers by post, Reed was making film watching easier and more convenient.
As ceo
Reed’s idea to ban late fees and deliver movies to people’s doors was a success and he took the company public in 2002.
One of Reed’s main challenges has been fighting off competition from rivals. In 2002 Wal-Mart started offering online movie rentals leading analysts to start predicting the demise of Netflix but Reed successfully resisted the challenge and Wal-Mart scrapped the service in 2005 and referred all its customers to Netflix.
The next challenger in the market has been Blockbuster and by 2006 Reed was trying to cope with competition from broadband distribution of films and television shows. So he started preparing the company for eventually switching to downloads and said he was planning to increase the number of Netflix customers. In 2006 it had 4.2 million U.S subscribers and a library of 42 million DVDs of 55,000 different titles. And in 2007 Reed launched a service allowing Netflix customers to stream films onto their computers.
To try and appeal to customers, Reed has pushed making improvements to Netflix’s software and the way its website looks. And he announced a move into distributing more independent films and TV shows.
In 2008 the number of subscribers to Netflix had climbed to 7.5 million and the number of titles available to rent was 90,000. Reed’s priority in 2008 was working on convincing people the future of film lay in downloads. He led Netflix to join forces with the Korean manufacturer LG Electronics to create a set top box allowing customers to stream films from the internet onto their televisions. The device was introduced in 2008. He said: "Our strategy is to get embedded in high definition DVD players that are already Internet-connected. We also want to get integrated into game consoles, Xbox and PlayStation. It's not that complex. All we're embedding is a little piece of software in these devices. And the first one will be an LG device."
He added: "I think there's a huge category of people who will watch movies on laptops," he continued. "And remember, it's not the laptop of today. Think of the laptop in five years. People will continue to want to watch movies on TV. No doubt about it. But laptop screens are improving. And young people are living on laptops."
In September 2011 Reed increased the price of Netflix’s video streaming and mail order bundle. The move was unpopular, leading to an exodus of subscribers and Reed had to act fast, separating streaming from mail order, which was to be promoted under a separate brand called Qwikster, just two weeks later. This was another unsuccessful policy so Reed did a u-turn, and decided to keep the two services together after all.
In October 2011 Reed blamed the mistakes on doing too much in too little time. He said: “We simply moved too quickly, and that’s where you get those missed execution details. It’s causing, as you would expect, an internal reflectiveness. We know that we need to do better going forward. We need to take a few deep breaths and not move quite as quickly. But we also don’t want to overcorrect and start moving stodgily.”
But Reed was determined to remain as CEO, despite the criticism. He said: “I founded Netflix. I’ve built it steadily over 12 years now, first with DVD becoming profitable in 2002, a head-to-head ferocious battle with Blockbuster and evolving the company toward streaming. This is the first time there have been material missteps. If you look at the cumulative track record, it’s extremely positive.”
Another blow came when Starz revealed it would not be renewing its four-year contract with Netflix to allow it to stream its titles – meaning it would no longer be able to offer a large number of major films, including the majority of movies from Disney and Sony Pictures, from the end of February 2012. However Reed responded by working to add other titles to its library, getting Dreamworks to agree to come online from 2013.
More recently, Reed has been responding to the rising popularity of mobile by focusing on apps.
Away from work
Married with two children, Reed’s main interest outside of work is education. He said: “After Pure Software, I had a bunch of money, and I didn't really want to buy yachts and such things.I wanted to find something important to do. And I started looking at education, trying to figure out why our education is lagging when our technology is increasing at great rates and there's great innovation in so many other areas - health care, biotech, information technology, movie-making. Why not education?”
He has been involved in charter schools, which give teachers more freedom with less red tape and fewer rules. He sits on the board of KIPP Academy, one of the U.S’s most successful charter school networks, and has funded several networks himself that are now teaching thousands of children.
From 2000 to 2004 he was president of the California State of Education.
He also enjoys snowboarding and swimming.
Leadership and philosophy
Reed is described as a charismatic boss with great attention to detail. Former Netflix director and president of the Motion Picture Association of America, Bob Pisano says that on top of the charisma, he is also very analytical, adding: “That’s a rare combination.”
He said Reed’s approach to starting and building companies draws on his engineering background as “business is essentially assembling a whole bunch of moving parts.”
Reed claims his success with Netflix was due to learning from the mistakes he made with his first start-up Pure Software. He said that as Pure expanded it became less fun to work at and more bureaucratic. This made him determined to adopt a different leadership style at Netflix.
Reed pays high salaries to his staff, lets them structure their own compensation packages and allows them to take an unlimited number of holidays. But in return he expects people to work hard and perform well. He describes his approach as “freedom and responsibility.”
Todd Yellin, who was hired by Reed to improve Netflix’s movie rating system, compared Reed to the character Danny Ocean from Ocean’s 11. He said Reed was a bright and charismatic leader who surrounds himself with the best people and then gives them the freedom to excel in working towards a common goal in return for a generous cut.
Reed tells companies recruiting staff for Netflix that money is no object. He said: “We’re unafraid to pay high.”
When Mr Yellin was recruited he was working in Los Angeles finishing his first feature film, Brother’s Shadow and had no desire to work for a publicly traded company. But once Reed decided he wanted him on board, he pursued him offering him a deal he could not turn down. Mr Yellin said: "I'm given the freedom to do what I do well without being micromanaged."
Reed said: “We’re not a family. We’re a professional sports team. Therefore, we’re going to try to have the best players at every position, and that means that folks who are B players are going to be working elsewhere.”
Our Three Questions
1. Is your original content strategy (with productions such as ‘House Of Cards’) paying off, and can you afford it given your low flat monthly service fees?
2. Is your international expansion strategy, into Europe and beyond, sustainable, given the need to negotiate streaming rights separately in each country? Can you foresee a future where content rights were more global rather than local?
3. Education is a major passion of yours and you spent some time teaching in Africa. What made you go into software and computers rather than education?
Date Written
26-04-2013Sources
New York Times
All Things Digital
USA Today
Bloomberg Businessweek
Wall Street Journal
Forbes
Netflix
CNET
New York Times
All Things Digital
USA Today
Bloomberg Businessweek
Wall Street Journal
Forbes
Netflix
CNET
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Financials
Business summary
Employees: 2,045
Netflix, Inc. provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. The Domestic Streaming segment offers access to content delivered over the Internet to various connected devices, such as PCs, Macs, game consoles, smart TVs, Blu-ray players, hone theatre systems, Internet video players, digital video recorders, and mobile devices. The International Streaming segment engages in the streaming services primarily in Canada, Latin America, the United Kingdom, Ireland, Finland, Denmark, Sweden, and Norway. The Domestic DVD segment provides DVDs-by-mail subscription services. The company also provides standard definition DVDs and Blu-ray discs to its subscribers in the United States. The company was founded in 1997 and is headquartered in Los Gatos, California.
Data supplied by Yahoo! Finance.
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