- [Narrator] Today with just a click of their remote,
Americans have access to an endless array
of home entertainment options.
- It doesn't matter where it's from or when it's from,
you can have it on your TV instantly.
- This generation, our kids,
they can scroll from the comfort of their couch.
- I have every streaming service there is.
I'm in deep.
- [Narrator] And it's become an industry worth
a whopping $500 billion.
[suspenseful music]
- The television is sort of the modern hearth.
- [Narrator] But up until the 1980s,
most people were limited to watching
what was on a handful of networks
or going to the movies.
- If you didn't catch the movie in the theater,
the odds are you'd never see the movie.
- [Narrator] Until an unlikely visionary
sees an opportunity.
- David Cook saw an industry
that needed an infusion of technology.
- [Narrator] And what starts with an idea
for a store in Texas,
quickly becomes a phenomemon.
- The idea that you were going to watch a movie
at your home unedited without commercials,
that was a big deal.
- It was playing on this special
event of going out to the movies.
- Well, I remember always wanting to
buy the overpriced candy that was there.
- "Make it a Blockbuster night" was a real thing.
They were almost too big to fail.
- [Narrator] But two friends have a revolutionary plan
to take the video giant down.
- Why do customers prefer going to Blockbuster?
- Convenience.
- So we make going to Blockbuster less convenient.
- An online video rental service gets rid of the need
to go to the store to rent the video.
- [Narrator] As Netflix stays one step ahead...
- No one even has a DVD player.
- The company was in a death spiral.
- [Narrator] A cutthroat battle for dominance ignites.
- How much you looking for?
- Fifty million.
- Not for something we don't need.
[dramatic music]
- Blockbuster passes up on the opportunity to buy Netflix.
- It's like if Burger King had the chance
to buy out McDonald's and blinked.
[tense dramatic music]
- [Narrator] That redefines
the way Americans have fun at home.
- Could there ever be a, "Netflix and chill",
if there wasn't a, "Make it a Blockbuster night?"
[striking dramatic music]
[suspenseful theatrical music]
[dramatic music]
- [Narrator] In 1975,
U.S. box office sales hit an all-time high
with over one billion tickets purchased.
But a new invention is on the cusp of creating
a seismic shift in how we watch movies.
[dramatic bass drop]
The VCR. [dramatic music]
- The VCR was intended to be a time-shifting device
where people could record TV shows or maybe movies
and watch them at a convenient time.
- [Narrator] But as VCR ownership grows,
the movie industry goes on the defensive.
- The thing is the movie companies didn't want
people not to go to the movies,
so they priced these VHS tapes very high,
like $90 a piece.
This is a time when families, whole families,
could go to the movies for about 15 bucks.
- [Narrator] The exorbitant cost
makes buying movies out of reach for most Americans,
but gives rise to a new more economical option,
[dramatic bass drop]
the video rental store.
[dramatic music]
- You could come in.
You could rent a video.
It's much better to rent something
for seven or eight bucks a night
than spend a hundred dollars for something
you're probably only going to watch once.
- The idea that you were going to watch a movie
at your home unedited without commercials,
that was a big deal.
[dramatic music]
[light dramatic music]
- [Narrator] Something a Dallas software engineer
hopes will help take his mind off of problems at work.
- David Cook got his start originally developing software
for gas and oil companies
in the Texas area in the late 1970s.
- Really, David, this is your idea of a date night?
- [David] Don't get me started.
- He was a computer whiz and had built a business
that sold data processing products to oil companies,
and that was a pretty good size business,
but the oil business fell on hard times
in the mid 80s because of Middle East OPEC issues.
- I waited in line for over 20 minutes just to have
the clerk take 10 more minutes to check the back.
[Sandy sighs]
- It's fine.
- There's another video store 20 minutes away.
Let me see if they have it.
- [Sandy] Okay.
[tense dramatic music]
- The video industry had not gone mainstream yet.
It's mainly small stores
that are not in good retail locations.
A lot of people don't even see them,
because they're hidden in secondary sites.
They're not very well managed,
and they're not built for volume.
- You'd ask the employee,
"Hey, do you have this?"
The employee would have to go into the backroom,
look and see if they had it.
They'd be searching in there for quite some time,
and then come back and be like,
"I don't know. I can't find it."
- Hi, I'm wondering if you have "Romancing the Stone".
[dramatic music] He's checking the back.
- As you can imagine,
you were normally beat to the punch,
and so you were picking the 18th movie
you actually wanted to see.
- On top of that there was always the risk
that your parents could veto your choice
when you got up to the counter.
- You'd take a box up to the counter.
They would go find the video and bring it back,
and write it down on some sort of log.
And you'd take it out.
You'd bring it back, and they check it off it.
It was an archaic paper system.
- I just don't understand why
video stores can't have databases.
- Someone just needs to make one.
[dramatic music]
- And so he thought, "Wait a second.
"We could make this a little better,
"and maybe actually improve the process
"of how they store, catalog,
"and track some of these titles
"if we brought in some technology."
- [Narrator] Cook spends the next several weeks
visiting video stores across Texas
to get a broader sense of how they operate.
- David Cook has been working in the
gas and oil industry making databases.
So when he comes across the movie rental model,
he kind of sees that how it's currently built
doesn't make a ton of sense.
[tense dramatic music]
- Cook comes to believe that there's a real opportunity
here to get into this industry while it's in its infancy.
[tense dramatic music]
- [Narrator] So he sells his database software company
to go all in on a new venture,
a video store with more inventory.
- So Cook is really trying to revolutionize the video store.
He wants inventory for days,
so you don't have to wait three, four days
for the video to be returned, and he is all in.
- He realized that he needed to have multiple copies
of popular titles and a greater variety of movies,
but inventory costs money.
And David Cook spends a lot of money,
a lot of money.
In fact, he spends nearly $1 million
to buy 8,000 movies across 6500 different titles.
- [Narrator] And he'll keep track of them all
by building a digital database.
- David Cook saw an industry
that needed an infusion of technology,
and he felt like he could bring that tech.
- He had all the titles digitally scanned,
so you could see where it was,
when it was coming back.
- Keeping track of inventory in real time
using computer technology
was absolutely groundbreaking.
- [Narrator] To house his massive inventory,
Cook sets up shop in a large retail space in Dallas.
- He literally needs a supermarket-sized
storefront to display it.
This is completely unheard of.
[tense dramatic music]
- David what's going on?
[David sighing]
- There's so many titles,
and even I can't find anything,
and I have the whole database printed out.
[tense dramatic music]
Maybe we went too far.
[tense pensive music]
- Are you having second thoughts?
- Maybe.
[tense pensive music]
By the time people come in
and find what they actually want,
they could have just gone out to the movies.
There they can at least have popcorn and candy.
- So, let them get popcorn and candy here.
[suspenseful music]
- Cook realizes that he wants to do more than
just give people a great movie renting experience.
He wants to bring the whole movie-going experience home,
and he wants to elevate it.
- So it was both playing on this familiar experience
of that special event of going out to the movies
but also introducing something new,
taking it home to your house.
- Well, I remember always wanting
to buy the overpriced candy that was there,
because again it was like the movie theater.
It kind of made this whole experience seem cooler,
more interesting,
and kudos to my parents for never taking the bait
and never buying me it because it was a huge waste of money.
[light dramatic music]
- [Narrator] The movie theater experience
also inspires another key innovation.
- I have something for you,
a belated anniversary gift.
[light dramatic music]
[suspenseful music]
- David Cook's wife Sandy came up
with the membership card and logo.
She wanted people to feel like they were part of something
and wanted it to feel like a movie ticket.
- We can put one in the pocket of every customer.
- Cook realizes if people are members,
then they will keep coming back for more,
and they'll return things on time
because they don't want to risk late fees.
- I love it.
- [Narrator] And finally, Cook comes up with a fitting name
for his brand new venture,
[dramatic bass music]
Blockbuster Video.
- The term blockbuster actually came from World War II,
and it was describing these massive explosives
that literally had the ability
to take out entire city blocks.
- Only in 1954, did the term "blockbuster"
begin to be used to describe films
that grossed more than $2 million at the box office.
- And then people started using that term
to describe anything that was going to be big
and maybe change the industry.
- [Narrator] It's a term that will soon take on
a whole new meaning when it's plastered on stores
across the country. [dramatic rock music]
- The Blockbuster sign was iconic.
Blue and yellow,
it was like a movie theater marquee,
beckoning the audience to come inside.
- [Narrator] Blockbuster Video
first opens its doors in Dallas
on October 19, 1985.
- That first store was about 7,000 square feet.
It had about 10,000 movies in it,
which at the time was unheard of
for a video store.
- It was a very bright, glitzy,
like just glamorous seeming thing.
It was almost like this
mini movie theater in a way.
In terms of like it had that popcorn smell
and the same kind of like carpet.
- Cook got rid of the whole back storeroom.
He wanted the whole inventory to be on display
and for new releases there were
20 or 30 copies of that same movie.
- Everything about Blockbuster fit into a brand
where you had a full built-in experience,
not just, "Oh, I need to grab a movie from somewhere."
- As soon as he opened the first Blockbuster,
it was an immediate success.
People loved it.
"Make it a Blockbuster night" was a real thing.
- So if you want to do something exciting tonight,
make it a Blockbuster night. [upbeat music plays in video]
[suspenseful music]
- [Narrator] The store is such a success
that Cook immediately expands.
Only eight months after opening,
he's running four thriving Blockbuster locations in Texas.
- David Cook has a massive vision to expand this business
quickly throughout the country by franchising.
He wants to license the business
as kind of a store in a box.
So if you open a franchise, you get everything at once.
The database, the computers, the signage, the shelving,
everything that you need to open up your own Blockbuster.
- But he needed more money to keep up
with the expansion of his business.
- [Narrator] Soon Cook is in way over his head.
- It was costing more and more to open these stores.
They were spending more on the store
than the store was generating in capital,
which is really a red flag in business.
- [Narrator] Now David Cook is desperate
for a way to dig himself out of a deep hole,
even if it costs him the company.
[tense suspenseful music]
- [Narrator] By February of 1987,
a mere 15 months after starting Blockbuster,
David Cook is over $3 million in the red.
[tense dramatic music]
With time and resources dwindling,
Cook meets with a potential investor,
billionaire Wayne Huizenga.
[dramatic bass music]
- Wayne Huizenga was an ultra-successful entrepreneur
that started with one garbage truck in Florida
and built it into the largest waste management company
in the country called Waste Management.
And now he was looking for something else to do.
- Huizenga isn't convinced
when he first hears about Blockbuster.
His associations with the video business are
it's in sleazy neighborhoods,
like, it's kind of a sketchy industry.
- When they first told me about a video store investment,
I thought, "Those sleazy shops with the pornos?"
- No, we don't carry adult films here.
- The video business was never regarded as a very
well-run industry that had a longterm potential.
- Huizenga was hesitant,
but his business partners, they said,
"Look this is not the typical video store, right?
"This is something different."
- Now the crown jewel, our database.
As you can see, the database
keeps track of all 8,964 titles,
how many copies we have of each
both in house and rented out.
- He sees the operation that Cook has set up,
and it's accessible.
And it's a family- friendly destination.
- When Huizenga goes to a Blockbuster for the first time,
the bright lights, the rows and rows to walk down,
and look at all the different movies,
and the database really convinced him like,
this is not like every other video rental shop.
He kind of famously says,
"Wow, what a difference."
- And that phrase becomes the slogan for Blockbuster
for the next several years.
- Wow!
♪ What a difference Blockbuster Video ♪
- [Announcer On TV] Come discover
the Blockbuster difference.
♪ Wow
[light dramatic music]
[footsteps tapping]
- [Narrator] Huizenga agrees to invest $18.6 million,
rendering Cook the minority partner in his own business.
- So they both had big ambitions for success with the brand,
but their visions were radically different.
- Cook wanted to do it through franchising.
He would sell that to you for a price,
and then you paid him a royalty fee back
for running that store.
But, Wayne wanted to do it
primarily through acquisitions.
- Just like he did with Waste Management,
he would go around the country
buying up small video stores
and turning them into Blockbusters,
but if the owner wouldn't sell,
he would open a Blockbuster across the street.
He's basically saying,
"You're with me or you're against me."
You know, "Either you can work for Blockbuster,
"or I'm putting you out of business."
[tense dramatic music]
- [Narrator] Cook sees Huizenga plan as high risk,
one that could leave Blockbuster in even more debt.
- Cook really created a business that was meant
to disrupt this existing
videotape rental business, right?
His thing was all about creating a better service,
a heightened experience for video rental.
Huizenga, on the other hand, really saw success
as becoming an effective monopoly for video rental.
- Wayne, I've been thinking.
[dramatic music]
This just isn't for me anymore.
[dramatic midtempo music]
- In just under two years,
Cook had really transformed
the home video marketplace.
So once he did that,
this innovator was ready for the next challenge.
- [Narrator] In 1987, David Cook decides to cash out,
selling Blockbuster to Wayne Huizenga for $20 million.
[suspenseful music]
Now with Cook out of his way,
Huizenga executes an aggressive expansion plan,
and by 1992, Blockbuster has over 2,000 locations,
with stores in every state,
becoming the biggest national video store chain.
- It cost about a half a million dollars
to open up a Blockbuster,
but each one was producing over
a million dollars of revenue a year.
So, when you open one store,
it would generate enough capital
to open up another one, and another one, and another one.
- [Narrator] But that rapid growth comes at a price.
- The bigger Blockbuster grew, the harder it was to maintain
all their different locations.
- One of the things that helped Blockbuster
stand out at first was just their technology
that let them keep track of tens of thousands
of different titles and customers.
But when Huizenga took over,
he just wanted that fast rollout nationwide.
He didn't really care much for the technology.
- [Narrator] But while Blockbuster is paying
little attention to new technology,
other industries across America
see potential in one on the rise,
[computerized chirping] [light dramatic music]
the internet.
- I remember going online with the dial up
and having to wait and couldn't use the phone,
and the [imitating dial-up internet]
all the crackle and all the things,
and thinking it was the coolest thing
in the world that you could have email.
You could just send this digital message to people
and people were doing some shopping here and there.
- But it was very clear to people like Jeff Bezos,
that retail would be changed forever
with the advent of the internet.
- Amazon had existed for a couple of years
and was a pretty big online book retailer.
eBay came around a couple years before that as well.
[dramatic music]
- [Narrator] The internet's growing popularity
is creating a buzz over in California,
and two software engineers
are looking for a way to tap into it.
- So any new website ideas?
- Personalized shampoo.
- [scoffs] No.
- Reed Hastings and Marc Randolph
would carpool to work every morning
pitching ideas for new internet businesses.
- Reed Hastings was an engineer by trade.
He went to Stanford,
was in the Peace Corps for a while.
Launched a successful software business.
- [Narrator] After selling his software company,
Hastings and his colleague Marc Randolph
are looking for their next opportunity.
- So you have Hastings and Randolph, and they say,
"What can we sell where we're the Amazon of X?"
- Designer dog food?
- Absolutely not. No way!
Too much liability.
What if we killed someone's dog?
- They're really trying to figure out,
"What can we sell that's easy to ship,
"kind of inexpensive,
"and that people want in their homes?"
- Custom baseball bats?
- No, people are only buying one of those.
- They're trying to come up with this
next sort of Amazon-like idea,
and they're swinging the bat,
but they're just not quite hitting the ball.
[light midtempo music]
[dramatic bass music]
- [Narrator] Incredibly, they'll find inspiration
in the last place they expect.
[tense music]
- That'll be $40.
- Forty dollars?
Seriously!
- Blockbuster's late fees were not cheap.
This was really where they made a lot of profit.
- [Narrator] He doesn't know it yet,
[striking dramatic music]
but the $40 charge will spark an idea for a company
that will one day be worth over $200 billion
and obliterate the video rental store business.
[suspenseful music]
- Thanks, Mr. Hastings.
- [Narrator] After returning his late video
to Blockbuster in 1997,
Reed Hastings is distracted
during his morning commute
with Marc Randolph.
- You know, a $40 late fee is just criminal.
[tense music]
At that point, they should at least give you the movie.
- [Narrator] Hastings' frustration gives Randolph
an idea for a new kind of online offering.
- Have you heard about these new movies on CDs, DVDs?
What about a movie rental website?
[pensive dramatic music]
We could send people DVD movies through the mail.
- The big selling point for why DVDs
is you don't need to mess with boxes.
You don't need to figure out the package.
[pensive dramatic music]
- Hmm.
- A VHS tape bigger, bulkier,
much less efficient,
but a DVD is thin, it's light.
You can put it in almost a regular-sized envelope,
and it was much cheaper to ship.
- How much is a postage stamp nowadays?
[energetic rock music]
- What could be easier?
You literally just had to put it in the mailbox.
- An online video rental service gets rid of the need
to go to the store to rent the video.
It also gets rid of the need to go back
to the store to return the video.
In fact, it gets rid of the need for a store at all.
[tense dramatic music]
- [Narrator] But putting video stores
like Blockbuster out of business
looks like an insurmountable task.
By 1997, they have 6,000 stores
and are bringing in close to $4 billion,
a 10% growth since the previous year.
- People debate which year was the best year for movies
and a lot of movie snobs say 1939 or 1975,
but 1997 was no slouch.
You had a major box office success
in the Bond installation "Tomorrow Never Dies".
You had Barry Sonnenfeld's "Men in Black",
which broke new ground in terms
of special effects and prosthetics,
and of course you had "Titanic",
which went on to become the highest-
grossing movie of all time up to that point,
and you knew you could get them first
on video at Blockbuster.
[dramatic music]
- So Blockbuster eventually becomes
synonymous with renting a movie.
There's other rental chains.
There's smaller rental chains,
and you may still have a ma-and-pop place you like,
but for most people going to Blockbuster
on a Friday night is the weekend experience.
- Blockbuster night was great.
Our whole family would go.
We would try to kind of negotiate
on which movie we were going to get.
They had snacks.
They had candy there.
It was really one-stop shopping.
It was an amazing family night.
Then we'd bring the video home.
We'd all gather around the TV
and put that thing in the VHS player.
We'd watch the movie,
and just great memories, great times.
- [Narrator] Blockbuster launches their iconic
Blockbuster Tonight campaign,
inviting Americans to make a night out of staying home.
- Tonight? ♪ Come and see
♪ What show it is In about an hour?
Sure! ♪ Blockbuster tonight
[suspenseful music]
- People forget that the idea of,
"Making it a Blockbuster night"
or using Blockbuster as sort of
a verb to describe an activity,
"What are you doing tonight?"
"You know, Blockbuster, dinner."
- [Narrator] Blockbuster continues to thrive
with even more capital behind it to continue expansion,
thanks to a recent merger with media giant Viacom.
[dramatic music]
- The merger between Viacom and Blockbuster was a huge deal,
because they were each powerhouses in
their own industries
that wielded significant influence.
- They were the only game in town.
They were almost too big to fail.
- [Narrator] But not for long,
as a pair of hungry entrepreneurs
get ready to test run their radical idea.
[tense dramatic music]
- They think they can elevate
and improve the video rental experience.
They want to do it with the new technology of DVDs
and the internet.
- The worry for Hastings and Randolph is
"Are these DVDs going to immediately break
"or get scratched if we're shipping them?"
- DVDs are quite hard to get your hands on,
and, in fact, Hastings and Randolph
can't even find a DVD to mail themselves.
So instead they mailed themselves
a Patsy Cline CD in a greeting card envelope
to make sure that it could arrive safely,
unbroken, unscathed, and of course playable.
[striking suspenseful music]
- I think their thought was,
"Blockbuster isn't doing this.
"There probably isn't a huge market for it at the moment,
"but that's why Blockbuster
"isn't going to pay attention to it.
"And there's a market we can exploit and have to ourself."
[tense suspenseful music]
- [Narrator] It's the first small step
that will put Reed Hastings and Marc Randolph
on a collision course with Blockbuster.
- [Narrator] In 1997,
Reed Hastings and Marc Randolph
believe their online
movie rental concept
will change the world if they can rely on the regular mail.
[dramatic music]
- Mail call.
[suspenseful music]
- Not a single scratch.
[Marc chuckles softly]
- That allows them to see,
Okay, these are hardy enough
that it's not going to get scratched.
It's not going to break,
and we only need a single stamp.
[dramatic music]
- [Narrator] Now it's just a question
of whether consumers will bite.
- DVD players came out in '97,
and they were priced between 600
and a thousand dollars a piece.
I mean, it was really a luxury item,
targeting the true film aficionado.
- [Narrator] Though the technology
is a luxury for most Americans,
Hastings and Randolph believe it will soon be mainstream,
while new Blockbuster CEO John Antioco is skeptical.
- Antioco's business roots were in 7-Eleven,
but he left there after 20 years,
and was CEO of Pearl Vision,
Circle K, and then Taco Bell.
- Now the buzz around DVDs is growing,
and the shareholders begin to ask,
"Look, maybe this new thing,
"this new technology, DVDs
"is something we need to be looking at."
- Yeah. No, I hear you.
[dramatic music]
But multiply that across
thousands of stores, it's a fortune.
- At this point, Blockbuster has 40 million
VHS tapes across the country in all their stores.
He doesn't see any reason to spend significantly
to change Blockbuster's inventory over to DVD.
- We'd be nuts to make the switch.
No one even has a DVD player.
- He decides that DVDs are a passing fad,
that this whole idea of converting all of the inventory
from VHS to DVD is an exercise in futility,
and is going to cost them a lot of unnecessary money.
Let's stay the course.
- Blockbuster, like many leaders,
underestimated a new technology,
and at this point that was DVDs,
and so I do think off the first couple years
of the explosion of DVDs Blockbuster was stumbling.
- So he blows it off,
and that kind of represents the trajectory
that Blockbuster is going at this point in time
where they are not keeping up with technology,
and that is going to create huge problems for them.
- Flimsy is all hell.
[suspenseful music]
[dramatic music]
- [Narrator] Meanwhile,
operations are ramping up in California
to launch Marc Randolph and Reed Hastings'
new online video rental service.
- It was an internet company that
a lot of you wouldn't recognize today
in Silicon Valley standards.
We're talking folding chairs, tables,
really ragtag office culture.
- Their original inventory consisted of 925 movies,
and now that's not because it was like
so incredibly well curated.
There were only 925 movies
available on DVD at that time.
The offerings ranged from
"Air Force One" to "Austin Powers"
to classics from Disney like "Pinocchio".
[light dramatic music]
- [Narrator] Now all they need is the perfect name.
- Let's do Online Cinema?
- Online Cinema.
- They wanted to combine the fact
that they were online with movies.
- Web Video.
- Hastings and Randolph first thought about rent.com,
because people, after all, rent videos.
It would've been 40 grand to buy the rent.com domain,
which at the time seemed like a fortune.
- They wanted to get an X in there
just to kind of have that little techy vibe,
but they also worried that it would have a bit
of an adult film implication.
[tense dramatic music]
- [Reed] Netflix.
- Netflix.
[suspenseful music]
- [Narrator] On April 14, 1998,
Netflix is ready to go live.
- So it was about four bucks
per DVD that you were renting.
You would get it in about two to three days.
You would keep it for about seven,
and then you would mail it back in the prepaid envelope
that they provided you all with the comfort of your home.
- But for most people, sitting on a computer
and ordering a DVD by mail is not the way
they're used to thinking about their entertainment.
Their entertainment is, "It's a Friday night.
"We're going to stop by Blockbuster,
"and we will get the thing that we want,
"and we'll watch it that night."
- This concept is a product of the information age,
of the internet age.
Not everyone had an email address.
Older generations were technophobic
and afraid of using it.
- It was certainly a risk for Netflix.
[dramatic bass music]
- They're set to launch at 9:00 a.m.
[bell ringing]
They've even rigged up this cute little bell
that will ring when each new order is received.
- Los Gatos. "Beetlejuice".
- The first movie requested
is the Tim Burton masterpiece "Beetlejuice".
[bell ringing]
- Sunnyvale. "Armageddon".
[bell ringing]
- The bell rings, and rings, and rings, and rings,
and they are elated.
[bell ringing] [suspenseful music]
They have so much traffic coming in.
People are mobbing it.
[bell ringing] [suspenseful music]
And then suddenly,
the bell goes completely silent.
[suspenseful bass drop]
- What just happened?
[tense suspenseful music]
- The server crashed.
- They were probably researching private jets
that they were going to go out and buy,
and then the website crashes.
- You're competing with Blockbuster,
and your one store has just shut down.
Their storefront is their website.
Blockbuster's got lots and lots and lots of locations.
All you have is that website and it's not functioning,
and you only have one chance to make that first impression.
And this first impression,
[suspenseful bass drop]
it rhymes with city.
- This is bad.
[tense suspenseful music]
- [Narrator] On April 14, 1998,
Reed Hastings and Marc Randolph's
new website Netflix launches.
- What just happened?
[keyboard clicking]
- The server crashed.
[suspenseful music]
- So, today websites are stored on hundreds
of computers in these cooled warehouses
with backup, after backup, after backup.
That was not the case when Netflix launched.
It was really bootstrapping, and it was bubble gum
and duct tape and a few computers and that was it.
- They literally had to send employees out that same day
to go buy computers to get the site back up.
- They were only expecting about 15 orders.
They ended up getting 137 by the end of the night.
[suspenseful music]
- [Narrator] And despite their technical disaster,
Hastings sees the silver lining.
- Do you realize how much traffic it takes
to crash a server?
[both chuckling]
- They now knew that they were onto something big.
- [Narrator] Netflix's first full month of business
sees $94,000 in revenue.
- Their timing couldn't have been better,
because the popularity for DVDs was rapidly growing
across America at the time.
- [Narrator] By 1999,
sales of DVD players have quadrupled,
surging from 1 million to 4 million units sold,
a growing demand that even Blockbuster CEO
John Antioco can't ignore.
[light dramatic music]
- [chuckling] He suddenly realizes,
"I made a huge mistake," and he pivots.
And he says, "Blockbuster is going to become
"the industry leader in DVD rental and DVD inventory."
[striking suspenseful music]
- [Narrator] Blockbuster spends a whopping $450 million
converting to DVDs.
- So when Netflix started,
their rental prices were pretty comparable to Blockbuster,
but Blockbuster had the advantage,
because they've got these physical locations
and you didn't have to wait two to three days
to get your movie.
You just went in and picked it up.
[pensive dramatic music]
- For Netflix this is a huge problem.
The fundamental issue for Netflix's business model is
you don't know what you're going to want to watch
in a few days.
You know what you want to watch right then.
For Netflix, you have to plan ahead.
- Netflix started playing around
with a ton of different promotions.
Buy one get one free,
bundle offers, giveaways,
and these worked at first,
but people weren't coming back.
They weren't becoming loyal Netflix recurring users.
- [Narrator] Then Randolph returns from a run
with an epiphany.
[Randolph gasping]
- Why do customers prefer going to Blockbuster?
- Convenience?
- Exactly.
So we make going to Blockbuster less convenient.
[suspenseful music]
- What's more convenient than walking to your local shop?
Not walking anywhere.
Way more convenient to just get something in the mail
than walk to a store.
- [Narrator] To do this the partners
begin to reimagine their business structure.
- They decided to do the subscription program.
- I just have to pay a monthly fee,
but I can get as many as I want in the mail.
- You could have three DVDs at any given time,
keep them as long as you wanted,
and then mail them back whenever.
- You didn't have to worry about exorbitant late fees.
- But the problem is it's a bit risky.
You're asking people to pay a monthly subscription
for the chance that they might rent DVDs.
[tense suspenseful music]
- [Narrator] In September of 1999,
Netflix launches their revolutionary
online subscription plan for 19.95 a month.
- Netflix was really one of the first companies
to do subscription online,
and I remember everyone being taken aback by that.
It seems silly to think that a subscription
is such a profound innovation.
We're so accustomed to it,
but at the time it was enormous.
- Look, when I heard that you could order multiple DVDs
directly to your house, I said, "Hey, where do I sign up?"
- It completely flipped Blockbuster's advantage
on its head.
Now, if you had three or four DVDs sitting at home,
as soon as you finished one,
you weren't running off to Blockbuster,
you were just moving on to the next one.
- Once someone is in for a subscription
that is just guaranteed money in the bank.
So instead of being really focused on
the late fee like Blockbuster,
they're able to kind of have people want to
return movies because they want new movies coming in.
- [Narrator] Hastings and Randolph's gamble pays off.
By the year 2000,
they have 239,000 subscriptions,
carry nearly 6,000 DVD titles,
and shipped just under a million discs a month.
- At this point they're even considering
going public with the company.
- [Narrator] Then disaster strikes.
[ominous dramatic music]
- In 2000, came the burst of the dot-com bubble.
- The stock market was overvaluing
these companies in the billions,
but they weren't selling that much stuff.
So you had stocks that were worth
a hundred and two hundred bucks
go all the way down to pennies.
And the famous ones like pets.com and etoys.com,
there was this famous Super Bowl where they all ran ads
and by a year later they were all out of business.
[dramatic rock music]
- [Narrator] By September of 2000,
Netflix is at a crossroads.
Stay the course and fight
for a future that's anything but certain,
or find a deep-pocketed buyer.
[dramatic rock music]
And their best option is their biggest rival.
- The only company that makes sense
to buy Netflix is Blockbuster.
- [Narrator] At the dawn of the new millennium,
the stock market is in crisis
after the dot-com bubble burst.
- When the NASDAQ composite plummets,
tech companies lose $5 trillion in value.
- [Narrator] Concerned for their financial future,
Reed Hastings and Marc Randolph offer to sell Blockbuster
to their biggest rival.
- So they rent a jet and fly to Dallas,
go to a meeting with Blockbuster,
and basically say, "We want to sell the company,
"but we want to stay with the company
"and run the by mail portion of it."
[tense dramatic music]
- Okay.
How much you looking for?
[suspenseful bass music]
- Fifty million.
[John scoffs]
- Fifty?
[tense suspenseful music]
Not for something we don't need.
[dramatic music]
- Blockbuster passes up on
the opportunity to buy Netflix.
- They minimized them.
They didn't take them very seriously.
- Blockbuster had the chance.
Like if Burger King had the chance
to buy out McDonald's and blinked.
Obviously, you know who has largely won that war.
- It's one of the biggest missteps
of recent business history.
- Bad decision by Blockbuster.
[dramatic music]
- As the ownership for DVD players increased,
so did the demand for actual DVDs,
and by the end of 2001,
Netflix reached over 500,000 subscribers.
[striking dramatic music]
- [Narrator] And on May 23, 2002,
Netflix goes public at a price of $15 per share.
- I think they raised about $80 million.
- They were able to increase their DVD stock.
They were able to increase their distribution centers,
which makes their membership grow even faster.
[fast-paced energetic music]
- [Narrator] Now with an annual revenue of $500 million,
Netflix is weakening Blockbuster's stranglehold
on the video rental market.
But Blockbuster won't go down without a fight.
- Blockbuster decides to bite the bullet
and come out with Blockbuster online.
They price the service at about
$2 cheaper than what Netflix was doing,
and they signed up 500,000 subscribers
within just a few months.
- Netflix quickly reacts and lowers the price,
and really stunts their growth significantly.
It is not a good start for Blockbuster.
A little late to the party.
- [Narrator] Then in 2004, desperate to stay ahead,
Blockbuster makes an audacious gamble.
- Blockbuster decides they're going to eliminate late fees.
- [Narrator] It's a questionable business plan for a company
whose late fees net them over $800 million a year.
[light dramatic music]
- Good news or bad?
- Both.
Subscriptions are way up,
but we're losing on every transaction.
- It would be no different
than Hertz Rent-A-Car renting you a car,
and saying, "Bring it back whenever you want."
- Now people can hold on to movies with no repercussions.
So all that does is deplete their inventory even further.
- The brand was still big.
There were more stores than ever,
but in 2005 the company was in a death spiral.
- Blockbuster is spreading themselves so thin.
They don't have the inventory to both
have movies for their brick and mortar
and online subscription service.
- I think they had more than a billion dollars
in debt at that point.
- Their whole point was that if we could figure out a way
to do this and get more customers,
we'll offset the loss of the late fees.
Well, you can't get more customers
if you don't have product to lend them.
- On the other hand, Netflix closes the year with no debt,
has four times the amount of subscribers as Blockbuster,
and they have a value of over $1.5 billion.
[suspenseful music]
- [Narrator] But Netflix
is about to make a really bold move.
- If you talked to Reed Hastings early in Netflix's career,
he'd say, "Our future is going to be
"moving this stuff on the internet."
- [Narrator] Rather than continue to invest
in growing their DVD business,
Hastings puts $40 million into research
and development towards streaming.
- Streaming was initially sort of a project within Netflix
to help figure out how to get movies onto your screen,
because it was really difficult.
You needed to have a good connection,
which most people didn't have.
[suspenseful music]
- [Narrator] In 2007,
Netflix launches their streaming service.
- What happens as broadband gets more and more usable
and more accessible throughout most of the country,
it becomes easier for people to watch Netflix,
and there's no competition for Netflix.
No one has a streaming service.
- [Narrator] To entice even more subscribers,
Hastings has an idea to offer original programming.
- One of the first properties they're interested in
is an adaptation of the British show "House of Cards".
And it takes Netflix from becoming a video rental service
into an entertainment brand.
- Hey, listen, I loved going to the video store.
It was a fun time, and that was simply
the process you had to go through.
There was no other option,
but there's no question that you
just can't beat the convenience of streaming.
- [Narrator] Today Netflix is worth
an estimated $244 billion.
- The Disneys, the HBO Maxes of the world,
it's all pretty clear now they're not going
to catch Netflix.
Netflix is still leading streaming by a very long shot.
- [Narrator] After Netflix surpasses them,
in 2007 John Antioco resigns from Blockbuster.
- John Antioco leaves Blockbuster
[chuckling] and invests in Netflix.
Smart man.
- [Narrator] By the end of the decade,
Blockbuster closes nearly 2,000 stores,
filing for bankruptcy in 2010.
- Blockbuster has become one of the most
legendary cautionary tales of what happens
when you kind of get too big and forget to keep innovating.
- Blockbuster went away.
You had to have been there to know that Blockbuster
used to be just fully dominant in pop culture.
[dramatic music]
- Blockbuster paved the way for Netflix
and really the whole home entertainment experience
we know it today.
- Blockbuster and Netflix have created the ability
for Americans to enjoy entertainment
in their own homes,
what they want to watch when they get to watch it,
and besides what are you going to do, Monopoly and chill?
[dramatic bass music]