1 00:00:02,167 --> 00:00:04,000 - [Narrator] Today with just a click of their remote, 2 00:00:04,000 --> 00:00:06,625 Americans have access to an endless array 3 00:00:06,625 --> 00:00:08,375 of home entertainment options. 4 00:00:08,375 --> 00:00:10,458 - It doesn't matter where it's from or when it's from, 5 00:00:10,458 --> 00:00:13,042 you can have it on your TV instantly. 6 00:00:13,042 --> 00:00:15,292 - This generation, our kids, 7 00:00:15,292 --> 00:00:17,583 they can scroll from the comfort of their couch. 8 00:00:17,583 --> 00:00:20,667 - I have every streaming service there is. 9 00:00:20,667 --> 00:00:21,958 I'm in deep. 10 00:00:21,958 --> 00:00:23,042 - [Narrator] And it's become an industry worth 11 00:00:23,042 --> 00:00:25,500 a whopping $500 billion. 12 00:00:25,500 --> 00:00:26,625 [suspenseful music] 13 00:00:26,625 --> 00:00:29,458 - The television is sort of the modern hearth. 14 00:00:29,458 --> 00:00:31,208 - [Narrator] But up until the 1980s, 15 00:00:31,208 --> 00:00:32,917 most people were limited to watching 16 00:00:32,917 --> 00:00:34,917 what was on a handful of networks 17 00:00:34,917 --> 00:00:36,583 or going to the movies. 18 00:00:36,583 --> 00:00:38,250 - If you didn't catch the movie in the theater, 19 00:00:38,250 --> 00:00:41,500 the odds are you'd never see the movie. 20 00:00:41,500 --> 00:00:43,250 - [Narrator] Until an unlikely visionary 21 00:00:43,250 --> 00:00:44,625 sees an opportunity. 22 00:00:44,625 --> 00:00:45,917 - David Cook saw an industry 23 00:00:45,917 --> 00:00:48,167 that needed an infusion of technology. 24 00:00:48,167 --> 00:00:49,333 - [Narrator] And what starts with an idea 25 00:00:49,333 --> 00:00:51,667 for a store in Texas, 26 00:00:51,667 --> 00:00:53,250 quickly becomes a phenomemon. 27 00:00:53,250 --> 00:00:55,042 - The idea that you were going to watch a movie 28 00:00:55,042 --> 00:00:57,792 at your home unedited without commercials, 29 00:00:57,792 --> 00:00:58,792 that was a big deal. 30 00:00:58,792 --> 00:01:00,542 - It was playing on this special 31 00:01:00,542 --> 00:01:01,792 event of going out to the movies. 32 00:01:01,792 --> 00:01:03,625 - Well, I remember always wanting to 33 00:01:03,625 --> 00:01:06,125 buy the overpriced candy that was there. 34 00:01:06,125 --> 00:01:08,417 - "Make it a Blockbuster night" was a real thing. 35 00:01:08,417 --> 00:01:10,500 They were almost too big to fail. 36 00:01:10,500 --> 00:01:13,083 - [Narrator] But two friends have a revolutionary plan 37 00:01:13,083 --> 00:01:15,167 to take the video giant down. 38 00:01:15,167 --> 00:01:18,125 - Why do customers prefer going to Blockbuster? 39 00:01:18,125 --> 00:01:19,542 - Convenience. 40 00:01:19,542 --> 00:01:22,875 - So we make going to Blockbuster less convenient. 41 00:01:22,875 --> 00:01:26,458 - An online video rental service gets rid of the need 42 00:01:26,458 --> 00:01:28,625 to go to the store to rent the video. 43 00:01:28,625 --> 00:01:31,833 - [Narrator] As Netflix stays one step ahead... 44 00:01:31,833 --> 00:01:34,208 - No one even has a DVD player. 45 00:01:34,208 --> 00:01:36,458 - The company was in a death spiral. 46 00:01:36,458 --> 00:01:39,208 - [Narrator] A cutthroat battle for dominance ignites. 47 00:01:39,208 --> 00:01:40,875 - How much you looking for? 48 00:01:40,875 --> 00:01:42,125 - Fifty million. 49 00:01:42,125 --> 00:01:43,708 - Not for something we don't need. 50 00:01:43,708 --> 00:01:45,375 [dramatic music] 51 00:01:45,375 --> 00:01:48,250 - Blockbuster passes up on the opportunity to buy Netflix. 52 00:01:48,250 --> 00:01:51,958 - It's like if Burger King had the chance 53 00:01:51,958 --> 00:01:55,000 to buy out McDonald's and blinked. 54 00:01:55,000 --> 00:01:55,917 [tense dramatic music] 55 00:01:55,917 --> 00:01:57,417 - [Narrator] That redefines 56 00:01:57,417 --> 00:01:59,583 the way Americans have fun at home. 57 00:01:59,583 --> 00:02:01,708 - Could there ever be a, "Netflix and chill", 58 00:02:01,708 --> 00:02:04,250 if there wasn't a, "Make it a Blockbuster night?" 59 00:02:04,250 --> 00:02:07,208 [striking dramatic music] 60 00:02:08,292 --> 00:02:12,208 [suspenseful theatrical music] 61 00:02:28,000 --> 00:02:29,667 [dramatic music] 62 00:02:29,667 --> 00:02:31,042 - [Narrator] In 1975, 63 00:02:31,042 --> 00:02:34,208 U.S. box office sales hit an all-time high 64 00:02:34,208 --> 00:02:36,500 with over one billion tickets purchased. 65 00:02:37,583 --> 00:02:39,625 But a new invention is on the cusp of creating 66 00:02:39,625 --> 00:02:43,000 a seismic shift in how we watch movies. 67 00:02:43,000 --> 00:02:44,833 [dramatic bass drop] 68 00:02:44,833 --> 00:02:46,333 The VCR. [dramatic music] 69 00:02:46,333 --> 00:02:50,667 - The VCR was intended to be a time-shifting device 70 00:02:50,667 --> 00:02:55,583 where people could record TV shows or maybe movies 71 00:02:56,458 --> 00:02:58,167 and watch them at a convenient time. 72 00:02:58,167 --> 00:03:00,375 - [Narrator] But as VCR ownership grows, 73 00:03:00,375 --> 00:03:02,625 the movie industry goes on the defensive. 74 00:03:02,625 --> 00:03:04,583 - The thing is the movie companies didn't want 75 00:03:04,583 --> 00:03:06,208 people not to go to the movies, 76 00:03:06,208 --> 00:03:09,125 so they priced these VHS tapes very high, 77 00:03:09,125 --> 00:03:11,417 like $90 a piece. 78 00:03:11,417 --> 00:03:14,208 This is a time when families, whole families, 79 00:03:14,208 --> 00:03:16,833 could go to the movies for about 15 bucks. 80 00:03:16,833 --> 00:03:18,208 - [Narrator] The exorbitant cost 81 00:03:18,208 --> 00:03:21,250 makes buying movies out of reach for most Americans, 82 00:03:21,250 --> 00:03:23,917 but gives rise to a new more economical option, 83 00:03:23,917 --> 00:03:24,792 [dramatic bass drop] 84 00:03:24,792 --> 00:03:26,333 the video rental store. 85 00:03:26,333 --> 00:03:27,292 [dramatic music] 86 00:03:27,292 --> 00:03:28,167 - You could come in. 87 00:03:28,167 --> 00:03:29,375 You could rent a video. 88 00:03:29,375 --> 00:03:30,833 It's much better to rent something 89 00:03:30,833 --> 00:03:32,083 for seven or eight bucks a night 90 00:03:32,083 --> 00:03:33,708 than spend a hundred dollars for something 91 00:03:33,708 --> 00:03:35,625 you're probably only going to watch once. 92 00:03:35,625 --> 00:03:37,208 - The idea that you were going to watch a movie 93 00:03:37,208 --> 00:03:40,125 at your home unedited without commercials, 94 00:03:40,125 --> 00:03:41,208 that was a big deal. 95 00:03:41,208 --> 00:03:42,792 [dramatic music] 96 00:03:42,792 --> 00:03:44,125 [light dramatic music] 97 00:03:44,125 --> 00:03:45,708 - [Narrator] Something a Dallas software engineer 98 00:03:45,708 --> 00:03:49,500 hopes will help take his mind off of problems at work. 99 00:03:49,500 --> 00:03:52,917 - David Cook got his start originally developing software 100 00:03:52,917 --> 00:03:55,542 for gas and oil companies 101 00:03:55,542 --> 00:03:58,292 in the Texas area in the late 1970s. 102 00:03:59,583 --> 00:04:02,417 - Really, David, this is your idea of a date night? 103 00:04:02,417 --> 00:04:03,708 - [David] Don't get me started. 104 00:04:03,708 --> 00:04:07,708 - He was a computer whiz and had built a business 105 00:04:07,708 --> 00:04:11,875 that sold data processing products to oil companies, 106 00:04:11,875 --> 00:04:13,583 and that was a pretty good size business, 107 00:04:13,583 --> 00:04:16,375 but the oil business fell on hard times 108 00:04:16,375 --> 00:04:20,500 in the mid 80s because of Middle East OPEC issues. 109 00:04:20,500 --> 00:04:23,375 - I waited in line for over 20 minutes just to have 110 00:04:23,375 --> 00:04:26,000 the clerk take 10 more minutes to check the back. 111 00:04:26,000 --> 00:04:27,083 [Sandy sighs] 112 00:04:27,083 --> 00:04:28,750 - It's fine. 113 00:04:28,750 --> 00:04:31,375 - There's another video store 20 minutes away. 114 00:04:31,375 --> 00:04:33,375 Let me see if they have it. 115 00:04:33,375 --> 00:04:34,292 - [Sandy] Okay. 116 00:04:34,292 --> 00:04:35,583 [tense dramatic music] 117 00:04:35,583 --> 00:04:38,292 - The video industry had not gone mainstream yet. 118 00:04:38,292 --> 00:04:40,625 It's mainly small stores 119 00:04:40,625 --> 00:04:43,458 that are not in good retail locations. 120 00:04:43,458 --> 00:04:44,542 A lot of people don't even see them, 121 00:04:44,542 --> 00:04:47,625 because they're hidden in secondary sites. 122 00:04:47,625 --> 00:04:50,208 They're not very well managed, 123 00:04:50,208 --> 00:04:51,875 and they're not built for volume. 124 00:04:51,875 --> 00:04:53,000 - You'd ask the employee, 125 00:04:53,000 --> 00:04:54,667 "Hey, do you have this?" 126 00:04:54,667 --> 00:04:56,542 The employee would have to go into the backroom, 127 00:04:56,542 --> 00:04:58,292 look and see if they had it. 128 00:04:58,292 --> 00:05:00,167 They'd be searching in there for quite some time, 129 00:05:00,167 --> 00:05:01,250 and then come back and be like, 130 00:05:01,250 --> 00:05:03,542 "I don't know. I can't find it." 131 00:05:03,542 --> 00:05:06,417 - Hi, I'm wondering if you have "Romancing the Stone". 132 00:05:08,125 --> 00:05:09,792 [dramatic music] He's checking the back. 133 00:05:09,792 --> 00:05:11,042 - As you can imagine, 134 00:05:11,042 --> 00:05:12,292 you were normally beat to the punch, 135 00:05:12,292 --> 00:05:14,125 and so you were picking the 18th movie 136 00:05:14,125 --> 00:05:15,542 you actually wanted to see. 137 00:05:15,542 --> 00:05:17,625 - On top of that there was always the risk 138 00:05:17,625 --> 00:05:20,292 that your parents could veto your choice 139 00:05:20,292 --> 00:05:22,125 when you got up to the counter. 140 00:05:22,125 --> 00:05:24,542 - You'd take a box up to the counter. 141 00:05:24,542 --> 00:05:26,667 They would go find the video and bring it back, 142 00:05:26,667 --> 00:05:29,292 and write it down on some sort of log. 143 00:05:29,292 --> 00:05:30,542 And you'd take it out. 144 00:05:30,542 --> 00:05:31,542 You'd bring it back, and they check it off it. 145 00:05:31,542 --> 00:05:34,208 It was an archaic paper system. 146 00:05:34,208 --> 00:05:35,375 - I just don't understand why 147 00:05:35,375 --> 00:05:37,500 video stores can't have databases. 148 00:05:37,500 --> 00:05:39,208 - Someone just needs to make one. 149 00:05:39,208 --> 00:05:41,958 [dramatic music] 150 00:05:44,125 --> 00:05:45,542 - And so he thought, "Wait a second. 151 00:05:45,542 --> 00:05:46,958 "We could make this a little better, 152 00:05:46,958 --> 00:05:49,292 "and maybe actually improve the process 153 00:05:49,292 --> 00:05:51,250 "of how they store, catalog, 154 00:05:51,250 --> 00:05:52,875 "and track some of these titles 155 00:05:52,875 --> 00:05:54,917 "if we brought in some technology." 156 00:05:54,917 --> 00:05:57,125 - [Narrator] Cook spends the next several weeks 157 00:05:57,125 --> 00:05:59,375 visiting video stores across Texas 158 00:05:59,375 --> 00:06:00,875 to get a broader sense of how they operate. 159 00:06:00,875 --> 00:06:02,292 - David Cook has been working in the 160 00:06:02,292 --> 00:06:05,292 gas and oil industry making databases. 161 00:06:05,292 --> 00:06:10,417 So when he comes across the movie rental model, 162 00:06:11,542 --> 00:06:13,083 he kind of sees that how it's currently built 163 00:06:13,083 --> 00:06:14,958 doesn't make a ton of sense. 164 00:06:14,958 --> 00:06:16,458 [tense dramatic music] 165 00:06:16,458 --> 00:06:19,125 - Cook comes to believe that there's a real opportunity 166 00:06:19,125 --> 00:06:22,875 here to get into this industry while it's in its infancy. 167 00:06:22,875 --> 00:06:24,083 [tense dramatic music] 168 00:06:24,083 --> 00:06:26,292 - [Narrator] So he sells his database software company 169 00:06:26,292 --> 00:06:29,125 to go all in on a new venture, 170 00:06:29,125 --> 00:06:31,042 a video store with more inventory. 171 00:06:31,042 --> 00:06:34,375 - So Cook is really trying to revolutionize the video store. 172 00:06:34,375 --> 00:06:35,917 He wants inventory for days, 173 00:06:35,917 --> 00:06:38,042 so you don't have to wait three, four days 174 00:06:38,042 --> 00:06:40,875 for the video to be returned, and he is all in. 175 00:06:40,875 --> 00:06:45,667 - He realized that he needed to have multiple copies 176 00:06:45,667 --> 00:06:49,667 of popular titles and a greater variety of movies, 177 00:06:49,667 --> 00:06:52,417 but inventory costs money. 178 00:06:52,417 --> 00:06:54,875 And David Cook spends a lot of money, 179 00:06:54,875 --> 00:06:56,208 a lot of money. 180 00:06:56,208 --> 00:07:00,417 In fact, he spends nearly $1 million 181 00:07:00,417 --> 00:07:05,458 to buy 8,000 movies across 6500 different titles. 182 00:07:06,625 --> 00:07:07,583 - [Narrator] And he'll keep track of them all 183 00:07:07,583 --> 00:07:09,250 by building a digital database. 184 00:07:09,250 --> 00:07:10,583 - David Cook saw an industry 185 00:07:10,583 --> 00:07:13,000 that needed an infusion of technology, 186 00:07:13,000 --> 00:07:15,667 and he felt like he could bring that tech. 187 00:07:15,667 --> 00:07:17,708 - He had all the titles digitally scanned, 188 00:07:17,708 --> 00:07:19,542 so you could see where it was, 189 00:07:19,542 --> 00:07:20,833 when it was coming back. 190 00:07:20,833 --> 00:07:23,708 - Keeping track of inventory in real time 191 00:07:23,708 --> 00:07:26,458 using computer technology 192 00:07:26,458 --> 00:07:28,958 was absolutely groundbreaking. 193 00:07:30,375 --> 00:07:31,875 - [Narrator] To house his massive inventory, 194 00:07:31,875 --> 00:07:35,958 Cook sets up shop in a large retail space in Dallas. 195 00:07:37,667 --> 00:07:40,083 - He literally needs a supermarket-sized 196 00:07:40,083 --> 00:07:41,333 storefront to display it. 197 00:07:41,333 --> 00:07:42,583 This is completely unheard of. 198 00:07:42,583 --> 00:07:46,708 [tense dramatic music] 199 00:07:46,708 --> 00:07:47,958 - David what's going on? 200 00:07:49,042 --> 00:07:50,167 [David sighing] 201 00:07:50,167 --> 00:07:52,208 - There's so many titles, 202 00:07:52,208 --> 00:07:54,042 and even I can't find anything, 203 00:07:54,042 --> 00:07:56,500 and I have the whole database printed out. 204 00:07:56,500 --> 00:07:59,917 [tense dramatic music] 205 00:08:01,000 --> 00:08:03,458 Maybe we went too far. 206 00:08:03,458 --> 00:08:06,667 [tense pensive music] 207 00:08:07,917 --> 00:08:10,917 - Are you having second thoughts? 208 00:08:12,958 --> 00:08:14,333 - Maybe. 209 00:08:14,333 --> 00:08:15,250 [tense pensive music] 210 00:08:15,250 --> 00:08:16,417 By the time people come in 211 00:08:16,417 --> 00:08:18,167 and find what they actually want, 212 00:08:18,167 --> 00:08:20,875 they could have just gone out to the movies. 213 00:08:20,875 --> 00:08:23,208 There they can at least have popcorn and candy. 214 00:08:24,542 --> 00:08:27,250 - So, let them get popcorn and candy here. 215 00:08:27,250 --> 00:08:29,875 [suspenseful music] 216 00:08:29,875 --> 00:08:32,042 - Cook realizes that he wants to do more than 217 00:08:32,042 --> 00:08:35,167 just give people a great movie renting experience. 218 00:08:35,167 --> 00:08:38,083 He wants to bring the whole movie-going experience home, 219 00:08:38,083 --> 00:08:39,667 and he wants to elevate it. 220 00:08:39,667 --> 00:08:42,625 - So it was both playing on this familiar experience 221 00:08:42,625 --> 00:08:45,542 of that special event of going out to the movies 222 00:08:45,542 --> 00:08:47,542 but also introducing something new, 223 00:08:47,542 --> 00:08:49,250 taking it home to your house. 224 00:08:49,250 --> 00:08:50,583 - Well, I remember always wanting 225 00:08:50,583 --> 00:08:53,167 to buy the overpriced candy that was there, 226 00:08:53,167 --> 00:08:54,667 because again it was like the movie theater. 227 00:08:54,667 --> 00:08:56,583 It kind of made this whole experience seem cooler, 228 00:08:56,583 --> 00:08:57,625 more interesting, 229 00:08:58,917 --> 00:09:01,292 and kudos to my parents for never taking the bait 230 00:09:01,292 --> 00:09:04,042 and never buying me it because it was a huge waste of money. 231 00:09:05,167 --> 00:09:07,875 [light dramatic music] 232 00:09:07,875 --> 00:09:09,125 - [Narrator] The movie theater experience 233 00:09:09,125 --> 00:09:12,542 also inspires another key innovation. 234 00:09:12,542 --> 00:09:14,250 - I have something for you, 235 00:09:14,250 --> 00:09:16,583 a belated anniversary gift. 236 00:09:16,583 --> 00:09:19,875 [light dramatic music] 237 00:09:21,500 --> 00:09:24,333 [suspenseful music] 238 00:09:24,333 --> 00:09:26,083 - David Cook's wife Sandy came up 239 00:09:26,083 --> 00:09:28,083 with the membership card and logo. 240 00:09:28,083 --> 00:09:30,542 She wanted people to feel like they were part of something 241 00:09:30,542 --> 00:09:32,583 and wanted it to feel like a movie ticket. 242 00:09:32,583 --> 00:09:34,542 - We can put one in the pocket of every customer. 243 00:09:34,542 --> 00:09:36,583 - Cook realizes if people are members, 244 00:09:36,583 --> 00:09:38,542 then they will keep coming back for more, 245 00:09:38,542 --> 00:09:39,875 and they'll return things on time 246 00:09:39,875 --> 00:09:42,458 because they don't want to risk late fees. 247 00:09:42,458 --> 00:09:43,917 - I love it. 248 00:09:44,875 --> 00:09:46,875 - [Narrator] And finally, Cook comes up with a fitting name 249 00:09:46,875 --> 00:09:48,292 for his brand new venture, 250 00:09:48,292 --> 00:09:49,125 [dramatic bass music] 251 00:09:49,125 --> 00:09:50,333 Blockbuster Video. 252 00:09:50,333 --> 00:09:52,917 - The term blockbuster actually came from World War II, 253 00:09:52,917 --> 00:09:55,833 and it was describing these massive explosives 254 00:09:55,833 --> 00:09:57,292 that literally had the ability 255 00:09:57,292 --> 00:09:59,750 to take out entire city blocks. 256 00:09:59,750 --> 00:10:02,750 - Only in 1954, did the term "blockbuster" 257 00:10:02,750 --> 00:10:04,958 begin to be used to describe films 258 00:10:04,958 --> 00:10:08,208 that grossed more than $2 million at the box office. 259 00:10:08,208 --> 00:10:10,042 - And then people started using that term 260 00:10:10,042 --> 00:10:12,583 to describe anything that was going to be big 261 00:10:12,583 --> 00:10:14,542 and maybe change the industry. 262 00:10:14,542 --> 00:10:16,083 - [Narrator] It's a term that will soon take on 263 00:10:16,083 --> 00:10:19,042 a whole new meaning when it's plastered on stores 264 00:10:19,042 --> 00:10:20,625 across the country. [dramatic rock music] 265 00:10:20,625 --> 00:10:24,208 - The Blockbuster sign was iconic. 266 00:10:24,208 --> 00:10:25,375 Blue and yellow, 267 00:10:25,375 --> 00:10:27,583 it was like a movie theater marquee, 268 00:10:27,583 --> 00:10:30,250 beckoning the audience to come inside. 269 00:10:30,250 --> 00:10:31,458 - [Narrator] Blockbuster Video 270 00:10:31,458 --> 00:10:33,542 first opens its doors in Dallas 271 00:10:33,542 --> 00:10:35,958 on October 19, 1985. 272 00:10:35,958 --> 00:10:38,917 - That first store was about 7,000 square feet. 273 00:10:38,917 --> 00:10:40,625 It had about 10,000 movies in it, 274 00:10:40,625 --> 00:10:43,375 which at the time was unheard of 275 00:10:43,375 --> 00:10:44,458 for a video store. 276 00:10:44,458 --> 00:10:46,042 - It was a very bright, glitzy, 277 00:10:46,042 --> 00:10:47,667 like just glamorous seeming thing. 278 00:10:47,667 --> 00:10:49,375 It was almost like this 279 00:10:49,375 --> 00:10:50,917 mini movie theater in a way. 280 00:10:50,917 --> 00:10:52,875 In terms of like it had that popcorn smell 281 00:10:52,875 --> 00:10:54,583 and the same kind of like carpet. 282 00:10:54,583 --> 00:10:57,292 - Cook got rid of the whole back storeroom. 283 00:10:57,292 --> 00:11:00,417 He wanted the whole inventory to be on display 284 00:11:00,417 --> 00:11:01,750 and for new releases there were 285 00:11:01,750 --> 00:11:05,708 20 or 30 copies of that same movie. 286 00:11:05,708 --> 00:11:08,542 - Everything about Blockbuster fit into a brand 287 00:11:08,542 --> 00:11:11,875 where you had a full built-in experience, 288 00:11:11,875 --> 00:11:15,042 not just, "Oh, I need to grab a movie from somewhere." 289 00:11:15,042 --> 00:11:16,625 - As soon as he opened the first Blockbuster, 290 00:11:16,625 --> 00:11:18,333 it was an immediate success. 291 00:11:18,333 --> 00:11:19,708 People loved it. 292 00:11:19,708 --> 00:11:21,208 "Make it a Blockbuster night" was a real thing. 293 00:11:21,208 --> 00:11:23,583 - So if you want to do something exciting tonight, 294 00:11:23,583 --> 00:11:26,125 make it a Blockbuster night. [upbeat music plays in video] 295 00:11:26,125 --> 00:11:27,292 [suspenseful music] 296 00:11:27,292 --> 00:11:28,833 - [Narrator] The store is such a success 297 00:11:28,833 --> 00:11:30,750 that Cook immediately expands. 298 00:11:31,542 --> 00:11:33,333 Only eight months after opening, 299 00:11:33,333 --> 00:11:36,333 he's running four thriving Blockbuster locations in Texas. 300 00:11:36,333 --> 00:11:40,000 - David Cook has a massive vision to expand this business 301 00:11:40,000 --> 00:11:42,667 quickly throughout the country by franchising. 302 00:11:42,667 --> 00:11:44,708 He wants to license the business 303 00:11:44,708 --> 00:11:46,500 as kind of a store in a box. 304 00:11:46,500 --> 00:11:49,875 So if you open a franchise, you get everything at once. 305 00:11:49,875 --> 00:11:53,000 The database, the computers, the signage, the shelving, 306 00:11:53,000 --> 00:11:55,708 everything that you need to open up your own Blockbuster. 307 00:11:55,708 --> 00:11:59,417 - But he needed more money to keep up 308 00:11:59,417 --> 00:12:01,625 with the expansion of his business. 309 00:12:01,625 --> 00:12:05,000 - [Narrator] Soon Cook is in way over his head. 310 00:12:05,000 --> 00:12:07,625 - It was costing more and more to open these stores. 311 00:12:07,625 --> 00:12:09,208 They were spending more on the store 312 00:12:09,208 --> 00:12:11,375 than the store was generating in capital, 313 00:12:11,375 --> 00:12:14,708 which is really a red flag in business. 314 00:12:14,708 --> 00:12:16,708 - [Narrator] Now David Cook is desperate 315 00:12:16,708 --> 00:12:19,917 for a way to dig himself out of a deep hole, 316 00:12:19,917 --> 00:12:22,375 even if it costs him the company. 317 00:12:22,375 --> 00:12:24,417 [tense suspenseful music] 318 00:12:28,625 --> 00:12:30,083 - [Narrator] By February of 1987, 319 00:12:30,083 --> 00:12:32,667 a mere 15 months after starting Blockbuster, 320 00:12:32,667 --> 00:12:35,875 David Cook is over $3 million in the red. 321 00:12:35,875 --> 00:12:38,042 [tense dramatic music] 322 00:12:38,042 --> 00:12:40,167 With time and resources dwindling, 323 00:12:40,167 --> 00:12:42,458 Cook meets with a potential investor, 324 00:12:42,458 --> 00:12:44,542 billionaire Wayne Huizenga. 325 00:12:44,542 --> 00:12:46,000 [dramatic bass music] 326 00:12:46,000 --> 00:12:48,958 - Wayne Huizenga was an ultra-successful entrepreneur 327 00:12:48,958 --> 00:12:53,958 that started with one garbage truck in Florida 328 00:12:55,250 --> 00:12:57,667 and built it into the largest waste management company 329 00:12:57,667 --> 00:13:00,000 in the country called Waste Management. 330 00:13:00,000 --> 00:13:02,500 And now he was looking for something else to do. 331 00:13:02,500 --> 00:13:04,292 - Huizenga isn't convinced 332 00:13:04,292 --> 00:13:06,375 when he first hears about Blockbuster. 333 00:13:06,375 --> 00:13:09,667 His associations with the video business are 334 00:13:09,667 --> 00:13:11,125 it's in sleazy neighborhoods, 335 00:13:11,125 --> 00:13:13,583 like, it's kind of a sketchy industry. 336 00:13:13,583 --> 00:13:16,000 - When they first told me about a video store investment, 337 00:13:16,000 --> 00:13:18,833 I thought, "Those sleazy shops with the pornos?" 338 00:13:18,833 --> 00:13:21,125 - No, we don't carry adult films here. 339 00:13:21,125 --> 00:13:23,875 - The video business was never regarded as a very 340 00:13:23,875 --> 00:13:26,708 well-run industry that had a longterm potential. 341 00:13:26,708 --> 00:13:28,042 - Huizenga was hesitant, 342 00:13:28,042 --> 00:13:29,542 but his business partners, they said, 343 00:13:29,542 --> 00:13:32,833 "Look this is not the typical video store, right? 344 00:13:32,833 --> 00:13:34,125 "This is something different." 345 00:13:34,125 --> 00:13:38,625 - Now the crown jewel, our database. 346 00:13:38,625 --> 00:13:40,125 As you can see, the database 347 00:13:40,125 --> 00:13:45,250 keeps track of all 8,964 titles, 348 00:13:45,958 --> 00:13:47,667 how many copies we have of each 349 00:13:47,667 --> 00:13:50,250 both in house and rented out. 350 00:13:50,250 --> 00:13:52,833 - He sees the operation that Cook has set up, 351 00:13:52,833 --> 00:13:54,375 and it's accessible. 352 00:13:54,375 --> 00:13:56,958 And it's a family- friendly destination. 353 00:13:56,958 --> 00:13:59,583 - When Huizenga goes to a Blockbuster for the first time, 354 00:13:59,583 --> 00:14:03,250 the bright lights, the rows and rows to walk down, 355 00:14:03,250 --> 00:14:04,375 and look at all the different movies, 356 00:14:04,375 --> 00:14:07,208 and the database really convinced him like, 357 00:14:07,208 --> 00:14:10,542 this is not like every other video rental shop. 358 00:14:10,542 --> 00:14:12,542 He kind of famously says, 359 00:14:12,542 --> 00:14:14,167 "Wow, what a difference." 360 00:14:14,167 --> 00:14:17,125 - And that phrase becomes the slogan for Blockbuster 361 00:14:17,125 --> 00:14:18,500 for the next several years. 362 00:14:18,500 --> 00:14:19,333 - Wow! 363 00:14:19,333 --> 00:14:20,458 - Wow! - Wow! 364 00:14:20,458 --> 00:14:23,875 ♪ What a difference Blockbuster Video ♪ 365 00:14:23,875 --> 00:14:24,708 - [Announcer On TV] Come discover 366 00:14:24,708 --> 00:14:26,375 the Blockbuster difference. 367 00:14:26,375 --> 00:14:27,583 ♪ Wow 368 00:14:27,583 --> 00:14:28,708 [light dramatic music] 369 00:14:28,708 --> 00:14:30,125 [footsteps tapping] 370 00:14:30,125 --> 00:14:33,500 - [Narrator] Huizenga agrees to invest $18.6 million, 371 00:14:35,125 --> 00:14:38,167 rendering Cook the minority partner in his own business. 372 00:14:38,167 --> 00:14:42,042 - So they both had big ambitions for success with the brand, 373 00:14:42,042 --> 00:14:44,417 but their visions were radically different. 374 00:14:44,417 --> 00:14:46,250 - Cook wanted to do it through franchising. 375 00:14:46,250 --> 00:14:48,042 He would sell that to you for a price, 376 00:14:48,042 --> 00:14:50,125 and then you paid him a royalty fee back 377 00:14:50,125 --> 00:14:51,542 for running that store. 378 00:14:51,542 --> 00:14:52,792 But, Wayne wanted to do it 379 00:14:52,792 --> 00:14:55,167 primarily through acquisitions. 380 00:14:55,167 --> 00:14:58,042 - Just like he did with Waste Management, 381 00:14:58,042 --> 00:14:59,542 he would go around the country 382 00:14:59,542 --> 00:15:01,750 buying up small video stores 383 00:15:01,750 --> 00:15:03,167 and turning them into Blockbusters, 384 00:15:03,167 --> 00:15:05,333 but if the owner wouldn't sell, 385 00:15:05,333 --> 00:15:07,750 he would open a Blockbuster across the street. 386 00:15:07,750 --> 00:15:08,958 He's basically saying, 387 00:15:08,958 --> 00:15:10,583 "You're with me or you're against me." 388 00:15:10,583 --> 00:15:12,292 You know, "Either you can work for Blockbuster, 389 00:15:12,292 --> 00:15:14,083 "or I'm putting you out of business." 390 00:15:14,083 --> 00:15:15,458 [tense dramatic music] 391 00:15:15,458 --> 00:15:18,208 - [Narrator] Cook sees Huizenga plan as high risk, 392 00:15:18,208 --> 00:15:21,000 one that could leave Blockbuster in even more debt. 393 00:15:22,083 --> 00:15:23,833 - Cook really created a business that was meant 394 00:15:23,833 --> 00:15:25,125 to disrupt this existing 395 00:15:25,125 --> 00:15:27,167 videotape rental business, right? 396 00:15:27,167 --> 00:15:29,208 His thing was all about creating a better service, 397 00:15:29,208 --> 00:15:32,083 a heightened experience for video rental. 398 00:15:32,083 --> 00:15:34,417 Huizenga, on the other hand, really saw success 399 00:15:34,417 --> 00:15:38,042 as becoming an effective monopoly for video rental. 400 00:15:38,042 --> 00:15:39,458 - Wayne, I've been thinking. 401 00:15:39,458 --> 00:15:40,750 [dramatic music] 402 00:15:40,750 --> 00:15:42,083 This just isn't for me anymore. 403 00:15:42,083 --> 00:15:43,667 [dramatic midtempo music] 404 00:15:43,667 --> 00:15:45,042 - In just under two years, 405 00:15:45,042 --> 00:15:46,917 Cook had really transformed 406 00:15:46,917 --> 00:15:48,750 the home video marketplace. 407 00:15:48,750 --> 00:15:50,125 So once he did that, 408 00:15:50,125 --> 00:15:52,583 this innovator was ready for the next challenge. 409 00:15:52,583 --> 00:15:56,167 - [Narrator] In 1987, David Cook decides to cash out, 410 00:15:56,167 --> 00:15:59,417 selling Blockbuster to Wayne Huizenga for $20 million. 411 00:16:01,667 --> 00:16:02,708 [suspenseful music] 412 00:16:02,708 --> 00:16:05,000 Now with Cook out of his way, 413 00:16:05,000 --> 00:16:08,542 Huizenga executes an aggressive expansion plan, 414 00:16:08,542 --> 00:16:13,042 and by 1992, Blockbuster has over 2,000 locations, 415 00:16:13,042 --> 00:16:15,292 with stores in every state, 416 00:16:15,292 --> 00:16:19,083 becoming the biggest national video store chain. 417 00:16:19,083 --> 00:16:20,708 - It cost about a half a million dollars 418 00:16:20,708 --> 00:16:22,000 to open up a Blockbuster, 419 00:16:22,000 --> 00:16:23,542 but each one was producing over 420 00:16:23,542 --> 00:16:25,083 a million dollars of revenue a year. 421 00:16:25,083 --> 00:16:27,125 So, when you open one store, 422 00:16:27,125 --> 00:16:28,667 it would generate enough capital 423 00:16:28,667 --> 00:16:31,333 to open up another one, and another one, and another one. 424 00:16:31,333 --> 00:16:34,708 - [Narrator] But that rapid growth comes at a price. 425 00:16:34,708 --> 00:16:38,083 - The bigger Blockbuster grew, the harder it was to maintain 426 00:16:38,083 --> 00:16:39,333 all their different locations. 427 00:16:39,333 --> 00:16:41,208 - One of the things that helped Blockbuster 428 00:16:41,208 --> 00:16:43,417 stand out at first was just their technology 429 00:16:43,417 --> 00:16:45,750 that let them keep track of tens of thousands 430 00:16:45,750 --> 00:16:47,875 of different titles and customers. 431 00:16:47,875 --> 00:16:49,208 But when Huizenga took over, 432 00:16:49,208 --> 00:16:52,042 he just wanted that fast rollout nationwide. 433 00:16:52,042 --> 00:16:54,708 He didn't really care much for the technology. 434 00:16:54,708 --> 00:16:56,250 - [Narrator] But while Blockbuster is paying 435 00:16:56,250 --> 00:16:58,708 little attention to new technology, 436 00:16:58,708 --> 00:17:00,417 other industries across America 437 00:17:00,417 --> 00:17:03,583 see potential in one on the rise, 438 00:17:03,583 --> 00:17:05,042 [computerized chirping] [light dramatic music] 439 00:17:05,042 --> 00:17:06,375 the internet. 440 00:17:06,375 --> 00:17:08,042 - I remember going online with the dial up 441 00:17:08,042 --> 00:17:10,208 and having to wait and couldn't use the phone, 442 00:17:10,208 --> 00:17:11,958 and the [imitating dial-up internet] 443 00:17:11,958 --> 00:17:13,917 all the crackle and all the things, 444 00:17:13,917 --> 00:17:15,125 and thinking it was the coolest thing 445 00:17:15,125 --> 00:17:16,625 in the world that you could have email. 446 00:17:16,625 --> 00:17:18,167 You could just send this digital message to people 447 00:17:18,167 --> 00:17:20,500 and people were doing some shopping here and there. 448 00:17:20,500 --> 00:17:22,458 - But it was very clear to people like Jeff Bezos, 449 00:17:22,458 --> 00:17:24,417 that retail would be changed forever 450 00:17:24,417 --> 00:17:26,500 with the advent of the internet. 451 00:17:26,500 --> 00:17:28,375 - Amazon had existed for a couple of years 452 00:17:28,375 --> 00:17:30,625 and was a pretty big online book retailer. 453 00:17:30,625 --> 00:17:33,833 eBay came around a couple years before that as well. 454 00:17:33,833 --> 00:17:35,417 [dramatic music] 455 00:17:35,417 --> 00:17:37,208 - [Narrator] The internet's growing popularity 456 00:17:37,208 --> 00:17:40,167 is creating a buzz over in California, 457 00:17:40,167 --> 00:17:42,208 and two software engineers 458 00:17:42,208 --> 00:17:44,917 are looking for a way to tap into it. 459 00:17:44,917 --> 00:17:46,833 - So any new website ideas? 460 00:17:46,833 --> 00:17:48,792 - Personalized shampoo. 461 00:17:48,792 --> 00:17:49,917 - [scoffs] No. 462 00:17:49,917 --> 00:17:51,833 - Reed Hastings and Marc Randolph 463 00:17:51,833 --> 00:17:54,042 would carpool to work every morning 464 00:17:54,042 --> 00:17:56,708 pitching ideas for new internet businesses. 465 00:17:56,708 --> 00:17:58,667 - Reed Hastings was an engineer by trade. 466 00:17:58,667 --> 00:17:59,542 He went to Stanford, 467 00:17:59,542 --> 00:18:01,167 was in the Peace Corps for a while. 468 00:18:01,167 --> 00:18:03,458 Launched a successful software business. 469 00:18:03,458 --> 00:18:05,458 - [Narrator] After selling his software company, 470 00:18:05,458 --> 00:18:08,042 Hastings and his colleague Marc Randolph 471 00:18:08,042 --> 00:18:10,375 are looking for their next opportunity. 472 00:18:10,375 --> 00:18:13,417 - So you have Hastings and Randolph, and they say, 473 00:18:13,417 --> 00:18:16,667 "What can we sell where we're the Amazon of X?" 474 00:18:16,667 --> 00:18:18,042 - Designer dog food? 475 00:18:18,042 --> 00:18:19,333 - Absolutely not. No way! 476 00:18:20,542 --> 00:18:21,333 Too much liability. 477 00:18:21,333 --> 00:18:22,917 What if we killed someone's dog? 478 00:18:22,917 --> 00:18:24,125 - They're really trying to figure out, 479 00:18:24,125 --> 00:18:26,000 "What can we sell that's easy to ship, 480 00:18:26,000 --> 00:18:27,417 "kind of inexpensive, 481 00:18:27,417 --> 00:18:30,292 "and that people want in their homes?" 482 00:18:30,292 --> 00:18:31,708 - Custom baseball bats? 483 00:18:31,708 --> 00:18:33,917 - No, people are only buying one of those. 484 00:18:33,917 --> 00:18:35,750 - They're trying to come up with this 485 00:18:35,750 --> 00:18:38,292 next sort of Amazon-like idea, 486 00:18:38,292 --> 00:18:39,708 and they're swinging the bat, 487 00:18:39,708 --> 00:18:41,875 but they're just not quite hitting the ball. 488 00:18:41,875 --> 00:18:44,042 [light midtempo music] 489 00:18:44,042 --> 00:18:47,208 [dramatic bass music] 490 00:18:47,208 --> 00:18:50,208 - [Narrator] Incredibly, they'll find inspiration 491 00:18:50,208 --> 00:18:52,167 in the last place they expect. 492 00:18:52,167 --> 00:18:53,208 [tense music] 493 00:18:53,208 --> 00:18:55,167 - That'll be $40. 494 00:18:55,167 --> 00:18:56,375 - Forty dollars? 495 00:18:57,208 --> 00:18:58,208 Seriously! 496 00:18:59,375 --> 00:19:01,667 - Blockbuster's late fees were not cheap. 497 00:19:01,667 --> 00:19:05,083 This was really where they made a lot of profit. 498 00:19:05,083 --> 00:19:06,208 - [Narrator] He doesn't know it yet, 499 00:19:06,208 --> 00:19:07,708 [striking dramatic music] 500 00:19:07,708 --> 00:19:11,042 but the $40 charge will spark an idea for a company 501 00:19:11,042 --> 00:19:13,750 that will one day be worth over $200 billion 502 00:19:15,208 --> 00:19:18,000 and obliterate the video rental store business. 503 00:19:18,000 --> 00:19:20,333 [suspenseful music] 504 00:19:20,333 --> 00:19:21,500 - Thanks, Mr. Hastings. 505 00:19:28,375 --> 00:19:30,167 - [Narrator] After returning his late video 506 00:19:30,167 --> 00:19:32,417 to Blockbuster in 1997, 507 00:19:32,417 --> 00:19:34,250 Reed Hastings is distracted 508 00:19:34,250 --> 00:19:36,167 during his morning commute 509 00:19:36,167 --> 00:19:37,250 with Marc Randolph. 510 00:19:38,375 --> 00:19:40,667 - You know, a $40 late fee is just criminal. 511 00:19:40,667 --> 00:19:43,542 [tense music] 512 00:19:43,542 --> 00:19:46,500 At that point, they should at least give you the movie. 513 00:19:46,500 --> 00:19:48,708 - [Narrator] Hastings' frustration gives Randolph 514 00:19:48,708 --> 00:19:52,375 an idea for a new kind of online offering. 515 00:19:52,375 --> 00:19:56,833 - Have you heard about these new movies on CDs, DVDs? 516 00:19:58,625 --> 00:20:01,333 What about a movie rental website? 517 00:20:01,333 --> 00:20:03,542 [pensive dramatic music] 518 00:20:03,542 --> 00:20:06,792 We could send people DVD movies through the mail. 519 00:20:07,958 --> 00:20:10,417 - The big selling point for why DVDs 520 00:20:10,417 --> 00:20:12,292 is you don't need to mess with boxes. 521 00:20:12,292 --> 00:20:14,917 You don't need to figure out the package. 522 00:20:14,917 --> 00:20:16,000 [pensive dramatic music] 523 00:20:16,000 --> 00:20:17,458 - Hmm. 524 00:20:17,458 --> 00:20:20,083 - A VHS tape bigger, bulkier, 525 00:20:20,083 --> 00:20:21,375 much less efficient, 526 00:20:21,375 --> 00:20:23,792 but a DVD is thin, it's light. 527 00:20:23,792 --> 00:20:27,125 You can put it in almost a regular-sized envelope, 528 00:20:27,125 --> 00:20:29,750 and it was much cheaper to ship. 529 00:20:29,750 --> 00:20:31,750 - How much is a postage stamp nowadays? 530 00:20:31,750 --> 00:20:32,875 [energetic rock music] 531 00:20:32,875 --> 00:20:34,333 - What could be easier? 532 00:20:34,333 --> 00:20:35,708 You literally just had to put it in the mailbox. 533 00:20:35,708 --> 00:20:38,792 - An online video rental service gets rid of the need 534 00:20:38,792 --> 00:20:41,208 to go to the store to rent the video. 535 00:20:41,208 --> 00:20:43,042 It also gets rid of the need to go back 536 00:20:43,042 --> 00:20:44,417 to the store to return the video. 537 00:20:44,417 --> 00:20:48,292 In fact, it gets rid of the need for a store at all. 538 00:20:48,292 --> 00:20:49,542 [tense dramatic music] 539 00:20:49,542 --> 00:20:51,000 - [Narrator] But putting video stores 540 00:20:51,000 --> 00:20:52,708 like Blockbuster out of business 541 00:20:52,708 --> 00:20:55,417 looks like an insurmountable task. 542 00:20:55,417 --> 00:20:58,792 By 1997, they have 6,000 stores 543 00:20:58,792 --> 00:21:01,458 and are bringing in close to $4 billion, 544 00:21:01,458 --> 00:21:04,208 a 10% growth since the previous year. 545 00:21:05,542 --> 00:21:07,875 - People debate which year was the best year for movies 546 00:21:07,875 --> 00:21:12,292 and a lot of movie snobs say 1939 or 1975, 547 00:21:12,292 --> 00:21:14,708 but 1997 was no slouch. 548 00:21:14,708 --> 00:21:17,375 You had a major box office success 549 00:21:17,375 --> 00:21:19,875 in the Bond installation "Tomorrow Never Dies". 550 00:21:19,875 --> 00:21:22,125 You had Barry Sonnenfeld's "Men in Black", 551 00:21:22,125 --> 00:21:23,542 which broke new ground in terms 552 00:21:23,542 --> 00:21:26,250 of special effects and prosthetics, 553 00:21:26,250 --> 00:21:28,042 and of course you had "Titanic", 554 00:21:28,042 --> 00:21:29,583 which went on to become the highest- 555 00:21:29,583 --> 00:21:32,708 grossing movie of all time up to that point, 556 00:21:32,708 --> 00:21:34,917 and you knew you could get them first 557 00:21:34,917 --> 00:21:36,333 on video at Blockbuster. 558 00:21:36,333 --> 00:21:37,583 [dramatic music] 559 00:21:37,583 --> 00:21:39,000 - So Blockbuster eventually becomes 560 00:21:39,000 --> 00:21:41,125 synonymous with renting a movie. 561 00:21:41,125 --> 00:21:42,333 There's other rental chains. 562 00:21:42,333 --> 00:21:43,708 There's smaller rental chains, 563 00:21:43,708 --> 00:21:46,292 and you may still have a ma-and-pop place you like, 564 00:21:46,292 --> 00:21:48,542 but for most people going to Blockbuster 565 00:21:48,542 --> 00:21:51,000 on a Friday night is the weekend experience. 566 00:21:51,000 --> 00:21:52,375 - Blockbuster night was great. 567 00:21:52,375 --> 00:21:53,542 Our whole family would go. 568 00:21:53,542 --> 00:21:55,458 We would try to kind of negotiate 569 00:21:55,458 --> 00:21:57,333 on which movie we were going to get. 570 00:21:57,333 --> 00:21:58,458 They had snacks. 571 00:21:58,458 --> 00:22:00,167 They had candy there. 572 00:22:00,167 --> 00:22:02,042 It was really one-stop shopping. 573 00:22:02,042 --> 00:22:03,417 It was an amazing family night. 574 00:22:03,417 --> 00:22:04,542 Then we'd bring the video home. 575 00:22:04,542 --> 00:22:05,875 We'd all gather around the TV 576 00:22:05,875 --> 00:22:08,042 and put that thing in the VHS player. 577 00:22:08,042 --> 00:22:09,333 We'd watch the movie, 578 00:22:09,333 --> 00:22:11,375 and just great memories, great times. 579 00:22:11,375 --> 00:22:13,417 - [Narrator] Blockbuster launches their iconic 580 00:22:13,417 --> 00:22:15,542 Blockbuster Tonight campaign, 581 00:22:15,542 --> 00:22:19,042 inviting Americans to make a night out of staying home. 582 00:22:19,042 --> 00:22:20,333 - Tonight? ♪ Come and see 583 00:22:20,333 --> 00:22:21,375 ♪ What show it is In about an hour? 584 00:22:21,375 --> 00:22:23,125 Sure! ♪ Blockbuster tonight 585 00:22:23,125 --> 00:22:24,375 [suspenseful music] 586 00:22:24,375 --> 00:22:26,500 - People forget that the idea of, 587 00:22:26,500 --> 00:22:28,958 "Making it a Blockbuster night" 588 00:22:28,958 --> 00:22:31,208 or using Blockbuster as sort of 589 00:22:31,208 --> 00:22:33,708 a verb to describe an activity, 590 00:22:33,708 --> 00:22:34,708 "What are you doing tonight?" 591 00:22:34,708 --> 00:22:36,542 "You know, Blockbuster, dinner." 592 00:22:36,542 --> 00:22:38,500 - [Narrator] Blockbuster continues to thrive 593 00:22:38,500 --> 00:22:41,875 with even more capital behind it to continue expansion, 594 00:22:41,875 --> 00:22:45,375 thanks to a recent merger with media giant Viacom. 595 00:22:45,375 --> 00:22:47,000 [dramatic music] 596 00:22:47,000 --> 00:22:50,708 - The merger between Viacom and Blockbuster was a huge deal, 597 00:22:50,708 --> 00:22:52,833 because they were each powerhouses in 598 00:22:52,833 --> 00:22:53,792 their own industries 599 00:22:53,792 --> 00:22:56,792 that wielded significant influence. 600 00:22:56,792 --> 00:22:59,042 - They were the only game in town. 601 00:22:59,042 --> 00:23:01,292 They were almost too big to fail. 602 00:23:01,292 --> 00:23:02,542 - [Narrator] But not for long, 603 00:23:02,542 --> 00:23:04,375 as a pair of hungry entrepreneurs 604 00:23:04,375 --> 00:23:07,292 get ready to test run their radical idea. 605 00:23:07,292 --> 00:23:08,292 [tense dramatic music] 606 00:23:08,292 --> 00:23:09,625 - They think they can elevate 607 00:23:09,625 --> 00:23:12,042 and improve the video rental experience. 608 00:23:12,042 --> 00:23:14,958 They want to do it with the new technology of DVDs 609 00:23:14,958 --> 00:23:15,958 and the internet. 610 00:23:16,875 --> 00:23:19,708 - The worry for Hastings and Randolph is 611 00:23:19,708 --> 00:23:22,542 "Are these DVDs going to immediately break 612 00:23:22,542 --> 00:23:24,708 "or get scratched if we're shipping them?" 613 00:23:24,708 --> 00:23:27,667 - DVDs are quite hard to get your hands on, 614 00:23:27,667 --> 00:23:29,417 and, in fact, Hastings and Randolph 615 00:23:29,417 --> 00:23:33,250 can't even find a DVD to mail themselves. 616 00:23:33,250 --> 00:23:36,375 So instead they mailed themselves 617 00:23:36,375 --> 00:23:40,375 a Patsy Cline CD in a greeting card envelope 618 00:23:40,375 --> 00:23:42,417 to make sure that it could arrive safely, 619 00:23:42,417 --> 00:23:45,292 unbroken, unscathed, and of course playable. 620 00:23:45,292 --> 00:23:48,417 [striking suspenseful music] 621 00:23:48,417 --> 00:23:50,125 - I think their thought was, 622 00:23:50,125 --> 00:23:51,875 "Blockbuster isn't doing this. 623 00:23:51,875 --> 00:23:54,208 "There probably isn't a huge market for it at the moment, 624 00:23:54,208 --> 00:23:55,375 "but that's why Blockbuster 625 00:23:55,375 --> 00:23:56,958 "isn't going to pay attention to it. 626 00:23:56,958 --> 00:23:59,167 "And there's a market we can exploit and have to ourself." 627 00:23:59,167 --> 00:24:01,250 [tense suspenseful music] 628 00:24:01,250 --> 00:24:02,750 - [Narrator] It's the first small step 629 00:24:02,750 --> 00:24:05,042 that will put Reed Hastings and Marc Randolph 630 00:24:05,042 --> 00:24:07,083 on a collision course with Blockbuster. 631 00:24:12,417 --> 00:24:13,583 - [Narrator] In 1997, 632 00:24:13,583 --> 00:24:15,167 Reed Hastings and Marc Randolph 633 00:24:15,167 --> 00:24:16,458 believe their online 634 00:24:16,458 --> 00:24:18,042 movie rental concept 635 00:24:18,042 --> 00:24:21,542 will change the world if they can rely on the regular mail. 636 00:24:21,542 --> 00:24:23,875 [dramatic music] 637 00:24:23,875 --> 00:24:24,667 - Mail call. 638 00:24:30,208 --> 00:24:33,083 [suspenseful music] 639 00:24:37,458 --> 00:24:39,125 - Not a single scratch. 640 00:24:39,125 --> 00:24:41,208 [Marc chuckles softly] 641 00:24:41,208 --> 00:24:42,375 - That allows them to see, 642 00:24:42,375 --> 00:24:44,292 Okay, these are hardy enough 643 00:24:44,292 --> 00:24:46,000 that it's not going to get scratched. 644 00:24:46,000 --> 00:24:46,875 It's not going to break, 645 00:24:46,875 --> 00:24:49,000 and we only need a single stamp. 646 00:24:49,000 --> 00:24:50,250 [dramatic music] 647 00:24:50,250 --> 00:24:51,208 - [Narrator] Now it's just a question 648 00:24:51,208 --> 00:24:52,458 of whether consumers will bite. 649 00:24:52,458 --> 00:24:54,375 - DVD players came out in '97, 650 00:24:54,375 --> 00:24:56,583 and they were priced between 600 651 00:24:56,583 --> 00:24:58,708 and a thousand dollars a piece. 652 00:24:58,708 --> 00:25:00,375 I mean, it was really a luxury item, 653 00:25:00,375 --> 00:25:02,708 targeting the true film aficionado. 654 00:25:03,792 --> 00:25:04,667 - [Narrator] Though the technology 655 00:25:04,667 --> 00:25:06,750 is a luxury for most Americans, 656 00:25:06,750 --> 00:25:09,875 Hastings and Randolph believe it will soon be mainstream, 657 00:25:09,875 --> 00:25:13,750 while new Blockbuster CEO John Antioco is skeptical. 658 00:25:14,833 --> 00:25:17,542 - Antioco's business roots were in 7-Eleven, 659 00:25:17,542 --> 00:25:19,583 but he left there after 20 years, 660 00:25:19,583 --> 00:25:22,667 and was CEO of Pearl Vision, 661 00:25:22,667 --> 00:25:25,083 Circle K, and then Taco Bell. 662 00:25:25,083 --> 00:25:27,542 - Now the buzz around DVDs is growing, 663 00:25:27,542 --> 00:25:28,792 and the shareholders begin to ask, 664 00:25:28,792 --> 00:25:30,167 "Look, maybe this new thing, 665 00:25:30,167 --> 00:25:31,625 "this new technology, DVDs 666 00:25:31,625 --> 00:25:34,042 "is something we need to be looking at." 667 00:25:34,042 --> 00:25:35,542 - Yeah. No, I hear you. 668 00:25:35,542 --> 00:25:37,167 [dramatic music] 669 00:25:37,167 --> 00:25:38,708 But multiply that across 670 00:25:38,708 --> 00:25:41,167 thousands of stores, it's a fortune. 671 00:25:42,375 --> 00:25:44,667 - At this point, Blockbuster has 40 million 672 00:25:44,667 --> 00:25:47,625 VHS tapes across the country in all their stores. 673 00:25:47,625 --> 00:25:50,417 He doesn't see any reason to spend significantly 674 00:25:50,417 --> 00:25:54,417 to change Blockbuster's inventory over to DVD. 675 00:25:54,417 --> 00:25:56,292 - We'd be nuts to make the switch. 676 00:25:56,292 --> 00:25:58,708 No one even has a DVD player. 677 00:25:58,708 --> 00:26:02,167 - He decides that DVDs are a passing fad, 678 00:26:02,167 --> 00:26:06,208 that this whole idea of converting all of the inventory 679 00:26:06,208 --> 00:26:11,042 from VHS to DVD is an exercise in futility, 680 00:26:11,042 --> 00:26:14,708 and is going to cost them a lot of unnecessary money. 681 00:26:14,708 --> 00:26:16,708 Let's stay the course. 682 00:26:16,708 --> 00:26:18,833 - Blockbuster, like many leaders, 683 00:26:18,833 --> 00:26:20,708 underestimated a new technology, 684 00:26:20,708 --> 00:26:22,208 and at this point that was DVDs, 685 00:26:22,208 --> 00:26:24,708 and so I do think off the first couple years 686 00:26:24,708 --> 00:26:28,333 of the explosion of DVDs Blockbuster was stumbling. 687 00:26:28,333 --> 00:26:29,542 - So he blows it off, 688 00:26:29,542 --> 00:26:32,708 and that kind of represents the trajectory 689 00:26:32,708 --> 00:26:35,833 that Blockbuster is going at this point in time 690 00:26:35,833 --> 00:26:38,167 where they are not keeping up with technology, 691 00:26:38,167 --> 00:26:41,417 and that is going to create huge problems for them. 692 00:26:41,417 --> 00:26:42,583 - Flimsy is all hell. 693 00:26:42,583 --> 00:26:46,125 [suspenseful music] 694 00:26:46,125 --> 00:26:47,292 [dramatic music] 695 00:26:47,292 --> 00:26:48,542 - [Narrator] Meanwhile, 696 00:26:48,542 --> 00:26:50,708 operations are ramping up in California 697 00:26:50,708 --> 00:26:52,875 to launch Marc Randolph and Reed Hastings' 698 00:26:52,875 --> 00:26:54,708 new online video rental service. 699 00:26:54,708 --> 00:26:56,625 - It was an internet company that 700 00:26:56,625 --> 00:26:58,417 a lot of you wouldn't recognize today 701 00:26:58,417 --> 00:26:59,792 in Silicon Valley standards. 702 00:26:59,792 --> 00:27:02,375 We're talking folding chairs, tables, 703 00:27:02,375 --> 00:27:04,708 really ragtag office culture. 704 00:27:04,708 --> 00:27:08,792 - Their original inventory consisted of 925 movies, 705 00:27:08,792 --> 00:27:10,208 and now that's not because it was like 706 00:27:10,208 --> 00:27:11,875 so incredibly well curated. 707 00:27:11,875 --> 00:27:14,500 There were only 925 movies 708 00:27:14,500 --> 00:27:16,708 available on DVD at that time. 709 00:27:16,708 --> 00:27:18,375 The offerings ranged from 710 00:27:18,375 --> 00:27:20,875 "Air Force One" to "Austin Powers" 711 00:27:20,875 --> 00:27:23,667 to classics from Disney like "Pinocchio". 712 00:27:23,667 --> 00:27:25,083 [light dramatic music] 713 00:27:25,083 --> 00:27:27,000 - [Narrator] Now all they need is the perfect name. 714 00:27:27,875 --> 00:27:29,833 - Let's do Online Cinema? 715 00:27:31,708 --> 00:27:33,667 - Online Cinema. 716 00:27:33,667 --> 00:27:36,542 - They wanted to combine the fact 717 00:27:36,542 --> 00:27:38,667 that they were online with movies. 718 00:27:38,667 --> 00:27:40,875 - Web Video. 719 00:27:40,875 --> 00:27:43,875 - Hastings and Randolph first thought about rent.com, 720 00:27:43,875 --> 00:27:46,542 because people, after all, rent videos. 721 00:27:46,542 --> 00:27:50,125 It would've been 40 grand to buy the rent.com domain, 722 00:27:50,125 --> 00:27:52,083 which at the time seemed like a fortune. 723 00:27:52,083 --> 00:27:53,333 - They wanted to get an X in there 724 00:27:53,333 --> 00:27:55,250 just to kind of have that little techy vibe, 725 00:27:55,250 --> 00:27:57,833 but they also worried that it would have a bit 726 00:27:57,833 --> 00:27:59,792 of an adult film implication. 727 00:27:59,792 --> 00:28:03,167 [tense dramatic music] 728 00:28:06,083 --> 00:28:07,292 - [Reed] Netflix. 729 00:28:08,333 --> 00:28:09,375 - Netflix. 730 00:28:09,375 --> 00:28:10,833 [suspenseful music] 731 00:28:10,833 --> 00:28:13,542 - [Narrator] On April 14, 1998, 732 00:28:13,542 --> 00:28:15,708 Netflix is ready to go live. 733 00:28:16,542 --> 00:28:17,958 - So it was about four bucks 734 00:28:17,958 --> 00:28:19,167 per DVD that you were renting. 735 00:28:19,167 --> 00:28:21,042 You would get it in about two to three days. 736 00:28:21,042 --> 00:28:22,917 You would keep it for about seven, 737 00:28:22,917 --> 00:28:25,292 and then you would mail it back in the prepaid envelope 738 00:28:25,292 --> 00:28:27,625 that they provided you all with the comfort of your home. 739 00:28:27,625 --> 00:28:30,167 - But for most people, sitting on a computer 740 00:28:30,167 --> 00:28:32,708 and ordering a DVD by mail is not the way 741 00:28:32,708 --> 00:28:34,292 they're used to thinking about their entertainment. 742 00:28:34,292 --> 00:28:36,125 Their entertainment is, "It's a Friday night. 743 00:28:36,125 --> 00:28:37,542 "We're going to stop by Blockbuster, 744 00:28:37,542 --> 00:28:39,625 "and we will get the thing that we want, 745 00:28:39,625 --> 00:28:41,292 "and we'll watch it that night." 746 00:28:41,292 --> 00:28:44,542 - This concept is a product of the information age, 747 00:28:44,542 --> 00:28:46,042 of the internet age. 748 00:28:46,042 --> 00:28:48,667 Not everyone had an email address. 749 00:28:48,667 --> 00:28:51,292 Older generations were technophobic 750 00:28:51,292 --> 00:28:52,667 and afraid of using it. 751 00:28:52,667 --> 00:28:54,875 - It was certainly a risk for Netflix. 752 00:28:54,875 --> 00:28:55,875 [dramatic bass music] 753 00:28:55,875 --> 00:28:58,208 - They're set to launch at 9:00 a.m. 754 00:28:58,208 --> 00:28:59,708 [bell ringing] 755 00:28:59,708 --> 00:29:01,375 They've even rigged up this cute little bell 756 00:29:01,375 --> 00:29:05,083 that will ring when each new order is received. 757 00:29:05,083 --> 00:29:07,417 - Los Gatos. "Beetlejuice". 758 00:29:07,417 --> 00:29:08,708 - The first movie requested 759 00:29:08,708 --> 00:29:11,542 is the Tim Burton masterpiece "Beetlejuice". 760 00:29:11,542 --> 00:29:12,708 [bell ringing] 761 00:29:12,708 --> 00:29:15,125 - Sunnyvale. "Armageddon". 762 00:29:15,125 --> 00:29:18,208 [bell ringing] 763 00:29:18,208 --> 00:29:20,292 - The bell rings, and rings, and rings, and rings, 764 00:29:20,292 --> 00:29:21,542 and they are elated. 765 00:29:21,542 --> 00:29:23,042 [bell ringing] [suspenseful music] 766 00:29:23,042 --> 00:29:25,333 They have so much traffic coming in. 767 00:29:25,333 --> 00:29:26,917 People are mobbing it. 768 00:29:26,917 --> 00:29:28,708 [bell ringing] [suspenseful music] 769 00:29:28,708 --> 00:29:29,917 And then suddenly, 770 00:29:32,167 --> 00:29:34,625 the bell goes completely silent. 771 00:29:34,625 --> 00:29:36,667 [suspenseful bass drop] 772 00:29:36,667 --> 00:29:37,708 - What just happened? 773 00:29:37,708 --> 00:29:40,667 [tense suspenseful music] 774 00:29:40,667 --> 00:29:41,875 - The server crashed. 775 00:29:42,917 --> 00:29:45,167 - They were probably researching private jets 776 00:29:45,167 --> 00:29:46,917 that they were going to go out and buy, 777 00:29:46,917 --> 00:29:49,083 and then the website crashes. 778 00:29:49,083 --> 00:29:50,833 - You're competing with Blockbuster, 779 00:29:50,833 --> 00:29:54,083 and your one store has just shut down. 780 00:29:54,083 --> 00:29:56,292 Their storefront is their website. 781 00:29:56,292 --> 00:29:59,000 Blockbuster's got lots and lots and lots of locations. 782 00:29:59,000 --> 00:30:02,625 All you have is that website and it's not functioning, 783 00:30:02,625 --> 00:30:06,542 and you only have one chance to make that first impression. 784 00:30:06,542 --> 00:30:07,833 And this first impression, 785 00:30:07,833 --> 00:30:10,375 [suspenseful bass drop] 786 00:30:10,375 --> 00:30:12,042 it rhymes with city. 787 00:30:12,958 --> 00:30:14,083 - This is bad. 788 00:30:14,083 --> 00:30:17,917 [tense suspenseful music] 789 00:30:25,208 --> 00:30:27,583 - [Narrator] On April 14, 1998, 790 00:30:27,583 --> 00:30:29,458 Reed Hastings and Marc Randolph's 791 00:30:29,458 --> 00:30:32,333 new website Netflix launches. 792 00:30:34,417 --> 00:30:35,375 - What just happened? 793 00:30:36,667 --> 00:30:38,083 [keyboard clicking] 794 00:30:38,083 --> 00:30:39,333 - The server crashed. 795 00:30:42,958 --> 00:30:44,250 [suspenseful music] 796 00:30:44,250 --> 00:30:47,375 - So, today websites are stored on hundreds 797 00:30:47,375 --> 00:30:50,042 of computers in these cooled warehouses 798 00:30:50,042 --> 00:30:52,292 with backup, after backup, after backup. 799 00:30:52,292 --> 00:30:54,625 That was not the case when Netflix launched. 800 00:30:54,625 --> 00:30:57,042 It was really bootstrapping, and it was bubble gum 801 00:30:57,042 --> 00:31:00,208 and duct tape and a few computers and that was it. 802 00:31:00,208 --> 00:31:04,208 - They literally had to send employees out that same day 803 00:31:04,208 --> 00:31:08,000 to go buy computers to get the site back up. 804 00:31:08,000 --> 00:31:10,208 - They were only expecting about 15 orders. 805 00:31:10,208 --> 00:31:13,458 They ended up getting 137 by the end of the night. 806 00:31:13,458 --> 00:31:14,667 [suspenseful music] 807 00:31:14,667 --> 00:31:16,583 - [Narrator] And despite their technical disaster, 808 00:31:16,583 --> 00:31:17,875 Hastings sees the silver lining. 809 00:31:17,875 --> 00:31:19,542 - Do you realize how much traffic it takes 810 00:31:19,542 --> 00:31:21,375 to crash a server? 811 00:31:21,375 --> 00:31:24,125 [both chuckling] 812 00:31:26,125 --> 00:31:28,458 - They now knew that they were onto something big. 813 00:31:29,875 --> 00:31:31,750 - [Narrator] Netflix's first full month of business 814 00:31:31,750 --> 00:31:34,375 sees $94,000 in revenue. 815 00:31:34,375 --> 00:31:36,000 - Their timing couldn't have been better, 816 00:31:36,000 --> 00:31:38,542 because the popularity for DVDs was rapidly growing 817 00:31:38,542 --> 00:31:39,667 across America at the time. 818 00:31:39,667 --> 00:31:41,417 - [Narrator] By 1999, 819 00:31:41,417 --> 00:31:44,083 sales of DVD players have quadrupled, 820 00:31:44,083 --> 00:31:47,333 surging from 1 million to 4 million units sold, 821 00:31:48,500 --> 00:31:50,708 a growing demand that even Blockbuster CEO 822 00:31:50,708 --> 00:31:53,500 John Antioco can't ignore. 823 00:31:53,500 --> 00:31:54,667 [light dramatic music] 824 00:31:54,667 --> 00:31:56,250 - [chuckling] He suddenly realizes, 825 00:31:56,250 --> 00:31:58,958 "I made a huge mistake," and he pivots. 826 00:31:58,958 --> 00:32:01,542 And he says, "Blockbuster is going to become 827 00:32:01,542 --> 00:32:06,208 "the industry leader in DVD rental and DVD inventory." 828 00:32:06,208 --> 00:32:07,667 [striking suspenseful music] 829 00:32:07,667 --> 00:32:11,125 - [Narrator] Blockbuster spends a whopping $450 million 830 00:32:11,125 --> 00:32:12,875 converting to DVDs. 831 00:32:12,875 --> 00:32:14,667 - So when Netflix started, 832 00:32:14,667 --> 00:32:18,083 their rental prices were pretty comparable to Blockbuster, 833 00:32:18,083 --> 00:32:20,083 but Blockbuster had the advantage, 834 00:32:20,083 --> 00:32:22,042 because they've got these physical locations 835 00:32:22,042 --> 00:32:24,042 and you didn't have to wait two to three days 836 00:32:24,042 --> 00:32:25,208 to get your movie. 837 00:32:25,208 --> 00:32:26,458 You just went in and picked it up. 838 00:32:26,458 --> 00:32:27,750 [pensive dramatic music] 839 00:32:27,750 --> 00:32:29,417 - For Netflix this is a huge problem. 840 00:32:29,417 --> 00:32:32,958 The fundamental issue for Netflix's business model is 841 00:32:32,958 --> 00:32:34,875 you don't know what you're going to want to watch 842 00:32:34,875 --> 00:32:36,208 in a few days. 843 00:32:36,208 --> 00:32:37,875 You know what you want to watch right then. 844 00:32:37,875 --> 00:32:40,833 For Netflix, you have to plan ahead. 845 00:32:40,833 --> 00:32:41,875 - Netflix started playing around 846 00:32:41,875 --> 00:32:43,542 with a ton of different promotions. 847 00:32:43,542 --> 00:32:44,583 Buy one get one free, 848 00:32:44,583 --> 00:32:46,708 bundle offers, giveaways, 849 00:32:46,708 --> 00:32:48,708 and these worked at first, 850 00:32:48,708 --> 00:32:50,167 but people weren't coming back. 851 00:32:50,167 --> 00:32:54,042 They weren't becoming loyal Netflix recurring users. 852 00:32:54,042 --> 00:32:56,375 - [Narrator] Then Randolph returns from a run 853 00:32:56,375 --> 00:32:57,750 with an epiphany. 854 00:32:57,750 --> 00:33:00,958 [Randolph gasping] 855 00:33:00,958 --> 00:33:03,667 - Why do customers prefer going to Blockbuster? 856 00:33:05,125 --> 00:33:06,208 - Convenience? 857 00:33:07,042 --> 00:33:08,500 - Exactly. 858 00:33:08,500 --> 00:33:11,958 So we make going to Blockbuster less convenient. 859 00:33:13,667 --> 00:33:15,875 [suspenseful music] 860 00:33:15,875 --> 00:33:18,750 - What's more convenient than walking to your local shop? 861 00:33:18,750 --> 00:33:21,750 Not walking anywhere. 862 00:33:21,750 --> 00:33:23,917 Way more convenient to just get something in the mail 863 00:33:23,917 --> 00:33:25,417 than walk to a store. 864 00:33:25,417 --> 00:33:27,042 - [Narrator] To do this the partners 865 00:33:27,042 --> 00:33:29,917 begin to reimagine their business structure. 866 00:33:29,917 --> 00:33:32,375 - They decided to do the subscription program. 867 00:33:32,375 --> 00:33:33,917 - I just have to pay a monthly fee, 868 00:33:33,917 --> 00:33:36,042 but I can get as many as I want in the mail. 869 00:33:36,042 --> 00:33:38,042 - You could have three DVDs at any given time, 870 00:33:38,042 --> 00:33:39,250 keep them as long as you wanted, 871 00:33:39,250 --> 00:33:40,875 and then mail them back whenever. 872 00:33:40,875 --> 00:33:43,958 - You didn't have to worry about exorbitant late fees. 873 00:33:43,958 --> 00:33:46,167 - But the problem is it's a bit risky. 874 00:33:46,167 --> 00:33:48,917 You're asking people to pay a monthly subscription 875 00:33:48,917 --> 00:33:51,708 for the chance that they might rent DVDs. 876 00:33:51,708 --> 00:33:52,875 [tense suspenseful music] 877 00:33:52,875 --> 00:33:54,792 - [Narrator] In September of 1999, 878 00:33:54,792 --> 00:33:56,917 Netflix launches their revolutionary 879 00:33:56,917 --> 00:34:00,458 online subscription plan for 19.95 a month. 880 00:34:00,458 --> 00:34:03,042 - Netflix was really one of the first companies 881 00:34:03,042 --> 00:34:04,708 to do subscription online, 882 00:34:04,708 --> 00:34:08,542 and I remember everyone being taken aback by that. 883 00:34:08,542 --> 00:34:10,958 It seems silly to think that a subscription 884 00:34:10,958 --> 00:34:12,708 is such a profound innovation. 885 00:34:12,708 --> 00:34:14,208 We're so accustomed to it, 886 00:34:14,208 --> 00:34:16,292 but at the time it was enormous. 887 00:34:16,292 --> 00:34:19,167 - Look, when I heard that you could order multiple DVDs 888 00:34:19,167 --> 00:34:22,375 directly to your house, I said, "Hey, where do I sign up?" 889 00:34:22,375 --> 00:34:24,542 - It completely flipped Blockbuster's advantage 890 00:34:24,542 --> 00:34:26,083 on its head. 891 00:34:26,083 --> 00:34:28,375 Now, if you had three or four DVDs sitting at home, 892 00:34:28,375 --> 00:34:29,542 as soon as you finished one, 893 00:34:29,542 --> 00:34:31,042 you weren't running off to Blockbuster, 894 00:34:31,042 --> 00:34:32,958 you were just moving on to the next one. 895 00:34:32,958 --> 00:34:36,042 - Once someone is in for a subscription 896 00:34:36,042 --> 00:34:38,458 that is just guaranteed money in the bank. 897 00:34:38,458 --> 00:34:40,375 So instead of being really focused on 898 00:34:40,375 --> 00:34:42,208 the late fee like Blockbuster, 899 00:34:42,208 --> 00:34:44,542 they're able to kind of have people want to 900 00:34:44,542 --> 00:34:47,583 return movies because they want new movies coming in. 901 00:34:47,583 --> 00:34:50,917 - [Narrator] Hastings and Randolph's gamble pays off. 902 00:34:50,917 --> 00:34:52,333 By the year 2000, 903 00:34:52,333 --> 00:34:56,125 they have 239,000 subscriptions, 904 00:34:56,125 --> 00:34:59,042 carry nearly 6,000 DVD titles, 905 00:34:59,042 --> 00:35:02,250 and shipped just under a million discs a month. 906 00:35:02,250 --> 00:35:03,875 - At this point they're even considering 907 00:35:03,875 --> 00:35:05,250 going public with the company. 908 00:35:05,250 --> 00:35:07,708 - [Narrator] Then disaster strikes. 909 00:35:07,708 --> 00:35:09,750 [ominous dramatic music] 910 00:35:09,750 --> 00:35:13,125 - In 2000, came the burst of the dot-com bubble. 911 00:35:13,125 --> 00:35:15,125 - The stock market was overvaluing 912 00:35:15,125 --> 00:35:17,375 these companies in the billions, 913 00:35:17,375 --> 00:35:19,542 but they weren't selling that much stuff. 914 00:35:19,542 --> 00:35:21,125 So you had stocks that were worth 915 00:35:21,125 --> 00:35:22,458 a hundred and two hundred bucks 916 00:35:22,458 --> 00:35:24,333 go all the way down to pennies. 917 00:35:24,333 --> 00:35:27,375 And the famous ones like pets.com and etoys.com, 918 00:35:27,375 --> 00:35:30,167 there was this famous Super Bowl where they all ran ads 919 00:35:30,167 --> 00:35:32,125 and by a year later they were all out of business. 920 00:35:32,125 --> 00:35:34,292 [dramatic rock music] 921 00:35:34,292 --> 00:35:36,125 - [Narrator] By September of 2000, 922 00:35:36,125 --> 00:35:38,708 Netflix is at a crossroads. 923 00:35:38,708 --> 00:35:40,208 Stay the course and fight 924 00:35:40,208 --> 00:35:43,042 for a future that's anything but certain, 925 00:35:43,042 --> 00:35:45,000 or find a deep-pocketed buyer. 926 00:35:45,000 --> 00:35:46,208 [dramatic rock music] 927 00:35:46,208 --> 00:35:50,042 And their best option is their biggest rival. 928 00:35:50,042 --> 00:35:52,000 - The only company that makes sense 929 00:35:52,000 --> 00:35:55,458 to buy Netflix is Blockbuster. 930 00:36:01,083 --> 00:36:02,458 - [Narrator] At the dawn of the new millennium, 931 00:36:02,458 --> 00:36:04,333 the stock market is in crisis 932 00:36:04,333 --> 00:36:05,958 after the dot-com bubble burst. 933 00:36:05,958 --> 00:36:08,500 - When the NASDAQ composite plummets, 934 00:36:08,500 --> 00:36:11,708 tech companies lose $5 trillion in value. 935 00:36:11,708 --> 00:36:14,292 - [Narrator] Concerned for their financial future, 936 00:36:14,292 --> 00:36:17,917 Reed Hastings and Marc Randolph offer to sell Blockbuster 937 00:36:17,917 --> 00:36:19,667 to their biggest rival. 938 00:36:19,667 --> 00:36:22,875 - So they rent a jet and fly to Dallas, 939 00:36:22,875 --> 00:36:24,792 go to a meeting with Blockbuster, 940 00:36:24,792 --> 00:36:27,375 and basically say, "We want to sell the company, 941 00:36:27,375 --> 00:36:29,958 "but we want to stay with the company 942 00:36:29,958 --> 00:36:32,292 "and run the by mail portion of it." 943 00:36:32,292 --> 00:36:33,833 [tense dramatic music] 944 00:36:33,833 --> 00:36:34,750 - Okay. 945 00:36:37,875 --> 00:36:39,375 How much you looking for? 946 00:36:40,375 --> 00:36:43,125 [suspenseful bass music] 947 00:36:43,125 --> 00:36:44,625 - Fifty million. 948 00:36:44,625 --> 00:36:46,708 [John scoffs] 949 00:36:46,708 --> 00:36:47,583 - Fifty? 950 00:36:48,417 --> 00:36:52,458 [tense suspenseful music] 951 00:36:52,458 --> 00:36:54,208 Not for something we don't need. 952 00:36:54,208 --> 00:36:55,875 [dramatic music] 953 00:36:55,875 --> 00:36:58,250 - Blockbuster passes up on 954 00:36:58,250 --> 00:37:00,833 the opportunity to buy Netflix. 955 00:37:00,833 --> 00:37:02,208 - They minimized them. 956 00:37:02,208 --> 00:37:04,000 They didn't take them very seriously. 957 00:37:04,000 --> 00:37:05,542 - Blockbuster had the chance. 958 00:37:05,542 --> 00:37:08,250 Like if Burger King had the chance 959 00:37:08,250 --> 00:37:12,375 to buy out McDonald's and blinked. 960 00:37:12,375 --> 00:37:17,250 Obviously, you know who has largely won that war. 961 00:37:17,250 --> 00:37:19,583 - It's one of the biggest missteps 962 00:37:19,583 --> 00:37:21,875 of recent business history. 963 00:37:22,167 --> 00:37:24,167 - Bad decision by Blockbuster. 964 00:37:24,167 --> 00:37:25,542 [dramatic music] 965 00:37:25,542 --> 00:37:27,375 - As the ownership for DVD players increased, 966 00:37:27,375 --> 00:37:30,083 so did the demand for actual DVDs, 967 00:37:30,083 --> 00:37:31,458 and by the end of 2001, 968 00:37:31,458 --> 00:37:34,375 Netflix reached over 500,000 subscribers. 969 00:37:34,375 --> 00:37:35,458 [striking dramatic music] 970 00:37:35,458 --> 00:37:37,625 - [Narrator] And on May 23, 2002, 971 00:37:37,625 --> 00:37:41,875 Netflix goes public at a price of $15 per share. 972 00:37:41,875 --> 00:37:44,208 - I think they raised about $80 million. 973 00:37:44,208 --> 00:37:46,042 - They were able to increase their DVD stock. 974 00:37:46,042 --> 00:37:48,458 They were able to increase their distribution centers, 975 00:37:48,458 --> 00:37:51,042 which makes their membership grow even faster. 976 00:37:51,042 --> 00:37:52,458 [fast-paced energetic music] 977 00:37:52,458 --> 00:37:55,250 - [Narrator] Now with an annual revenue of $500 million, 978 00:37:55,250 --> 00:37:58,042 Netflix is weakening Blockbuster's stranglehold 979 00:37:58,042 --> 00:37:59,500 on the video rental market. 980 00:38:00,875 --> 00:38:03,208 But Blockbuster won't go down without a fight. 981 00:38:03,208 --> 00:38:04,750 - Blockbuster decides to bite the bullet 982 00:38:04,750 --> 00:38:07,000 and come out with Blockbuster online. 983 00:38:07,000 --> 00:38:08,333 They price the service at about 984 00:38:08,333 --> 00:38:10,500 $2 cheaper than what Netflix was doing, 985 00:38:10,500 --> 00:38:13,042 and they signed up 500,000 subscribers 986 00:38:13,042 --> 00:38:14,458 within just a few months. 987 00:38:14,458 --> 00:38:18,292 - Netflix quickly reacts and lowers the price, 988 00:38:18,292 --> 00:38:20,500 and really stunts their growth significantly. 989 00:38:20,500 --> 00:38:23,042 It is not a good start for Blockbuster. 990 00:38:23,042 --> 00:38:24,792 A little late to the party. 991 00:38:24,792 --> 00:38:27,833 - [Narrator] Then in 2004, desperate to stay ahead, 992 00:38:27,833 --> 00:38:30,500 Blockbuster makes an audacious gamble. 993 00:38:32,000 --> 00:38:34,875 - Blockbuster decides they're going to eliminate late fees. 994 00:38:34,875 --> 00:38:37,125 - [Narrator] It's a questionable business plan for a company 995 00:38:37,125 --> 00:38:41,167 whose late fees net them over $800 million a year. 996 00:38:41,167 --> 00:38:44,625 [light dramatic music] 997 00:38:45,792 --> 00:38:46,750 - Good news or bad? 998 00:38:48,542 --> 00:38:49,417 - Both. 999 00:38:49,417 --> 00:38:51,250 Subscriptions are way up, 1000 00:38:51,250 --> 00:38:54,667 but we're losing on every transaction. 1001 00:38:54,667 --> 00:38:57,292 - It would be no different 1002 00:38:57,292 --> 00:39:00,542 than Hertz Rent-A-Car renting you a car, 1003 00:39:00,542 --> 00:39:02,500 and saying, "Bring it back whenever you want." 1004 00:39:02,500 --> 00:39:06,250 - Now people can hold on to movies with no repercussions. 1005 00:39:06,250 --> 00:39:11,042 So all that does is deplete their inventory even further. 1006 00:39:11,042 --> 00:39:12,250 - The brand was still big. 1007 00:39:12,250 --> 00:39:13,750 There were more stores than ever, 1008 00:39:13,750 --> 00:39:18,833 but in 2005 the company was in a death spiral. 1009 00:39:20,000 --> 00:39:22,833 - Blockbuster is spreading themselves so thin. 1010 00:39:22,833 --> 00:39:24,875 They don't have the inventory to both 1011 00:39:24,875 --> 00:39:26,708 have movies for their brick and mortar 1012 00:39:26,708 --> 00:39:28,708 and online subscription service. 1013 00:39:28,708 --> 00:39:30,250 - I think they had more than a billion dollars 1014 00:39:30,250 --> 00:39:31,333 in debt at that point. 1015 00:39:31,792 --> 00:39:33,792 - Their whole point was that if we could figure out a way 1016 00:39:33,792 --> 00:39:36,458 to do this and get more customers, 1017 00:39:36,458 --> 00:39:38,125 we'll offset the loss of the late fees. 1018 00:39:38,125 --> 00:39:40,333 Well, you can't get more customers 1019 00:39:40,333 --> 00:39:41,875 if you don't have product to lend them. 1020 00:39:41,875 --> 00:39:45,750 - On the other hand, Netflix closes the year with no debt, 1021 00:39:45,750 --> 00:39:49,917 has four times the amount of subscribers as Blockbuster, 1022 00:39:49,917 --> 00:39:53,833 and they have a value of over $1.5 billion. 1023 00:39:53,833 --> 00:39:54,500 [suspenseful music] 1024 00:39:54,500 --> 00:39:55,792 - [Narrator] But Netflix 1025 00:39:55,792 --> 00:39:58,042 is about to make a really bold move. 1026 00:39:58,042 --> 00:40:01,875 - If you talked to Reed Hastings early in Netflix's career, 1027 00:40:01,875 --> 00:40:03,542 he'd say, "Our future is going to be 1028 00:40:03,542 --> 00:40:05,542 "moving this stuff on the internet." 1029 00:40:05,542 --> 00:40:07,250 - [Narrator] Rather than continue to invest 1030 00:40:07,250 --> 00:40:09,542 in growing their DVD business, 1031 00:40:09,542 --> 00:40:12,542 Hastings puts $40 million into research 1032 00:40:12,542 --> 00:40:14,708 and development towards streaming. 1033 00:40:14,708 --> 00:40:18,500 - Streaming was initially sort of a project within Netflix 1034 00:40:18,500 --> 00:40:21,583 to help figure out how to get movies onto your screen, 1035 00:40:21,583 --> 00:40:23,750 because it was really difficult. 1036 00:40:23,750 --> 00:40:25,375 You needed to have a good connection, 1037 00:40:25,375 --> 00:40:26,542 which most people didn't have. 1038 00:40:26,542 --> 00:40:27,375 [suspenseful music] 1039 00:40:27,375 --> 00:40:28,708 - [Narrator] In 2007, 1040 00:40:28,708 --> 00:40:31,542 Netflix launches their streaming service. 1041 00:40:31,542 --> 00:40:34,708 - What happens as broadband gets more and more usable 1042 00:40:34,708 --> 00:40:36,542 and more accessible throughout most of the country, 1043 00:40:36,542 --> 00:40:39,208 it becomes easier for people to watch Netflix, 1044 00:40:39,208 --> 00:40:40,792 and there's no competition for Netflix. 1045 00:40:40,792 --> 00:40:42,875 No one has a streaming service. 1046 00:40:42,875 --> 00:40:44,708 - [Narrator] To entice even more subscribers, 1047 00:40:44,708 --> 00:40:48,750 Hastings has an idea to offer original programming. 1048 00:40:48,750 --> 00:40:51,083 - One of the first properties they're interested in 1049 00:40:51,083 --> 00:40:55,708 is an adaptation of the British show "House of Cards". 1050 00:40:55,708 --> 00:40:59,708 And it takes Netflix from becoming a video rental service 1051 00:40:59,708 --> 00:41:01,792 into an entertainment brand. 1052 00:41:01,792 --> 00:41:04,375 - Hey, listen, I loved going to the video store. 1053 00:41:04,375 --> 00:41:06,750 It was a fun time, and that was simply 1054 00:41:06,750 --> 00:41:08,375 the process you had to go through. 1055 00:41:08,375 --> 00:41:09,583 There was no other option, 1056 00:41:09,583 --> 00:41:11,958 but there's no question that you 1057 00:41:11,958 --> 00:41:14,708 just can't beat the convenience of streaming. 1058 00:41:14,708 --> 00:41:16,542 - [Narrator] Today Netflix is worth 1059 00:41:16,542 --> 00:41:19,042 an estimated $244 billion. 1060 00:41:20,333 --> 00:41:22,708 - The Disneys, the HBO Maxes of the world, 1061 00:41:22,708 --> 00:41:24,583 it's all pretty clear now they're not going 1062 00:41:24,583 --> 00:41:26,042 to catch Netflix. 1063 00:41:26,042 --> 00:41:29,833 Netflix is still leading streaming by a very long shot. 1064 00:41:29,833 --> 00:41:31,792 - [Narrator] After Netflix surpasses them, 1065 00:41:31,792 --> 00:41:36,375 in 2007 John Antioco resigns from Blockbuster. 1066 00:41:36,375 --> 00:41:38,625 - John Antioco leaves Blockbuster 1067 00:41:38,625 --> 00:41:41,458 [chuckling] and invests in Netflix. 1068 00:41:41,458 --> 00:41:42,750 Smart man. 1069 00:41:42,750 --> 00:41:44,000 - [Narrator] By the end of the decade, 1070 00:41:44,000 --> 00:41:47,333 Blockbuster closes nearly 2,000 stores, 1071 00:41:47,333 --> 00:41:50,333 filing for bankruptcy in 2010. 1072 00:41:50,333 --> 00:41:52,583 - Blockbuster has become one of the most 1073 00:41:52,583 --> 00:41:55,333 legendary cautionary tales of what happens 1074 00:41:55,333 --> 00:41:59,667 when you kind of get too big and forget to keep innovating. 1075 00:41:59,667 --> 00:42:01,250 - Blockbuster went away. 1076 00:42:01,250 --> 00:42:04,792 You had to have been there to know that Blockbuster 1077 00:42:04,792 --> 00:42:08,167 used to be just fully dominant in pop culture. 1078 00:42:08,167 --> 00:42:09,542 [dramatic music] 1079 00:42:09,542 --> 00:42:10,875 - Blockbuster paved the way for Netflix 1080 00:42:10,875 --> 00:42:14,208 and really the whole home entertainment experience 1081 00:42:14,208 --> 00:42:15,708 we know it today. 1082 00:42:15,708 --> 00:42:18,708 - Blockbuster and Netflix have created the ability 1083 00:42:18,708 --> 00:42:20,583 for Americans to enjoy entertainment 1084 00:42:20,583 --> 00:42:22,000 in their own homes, 1085 00:42:22,000 --> 00:42:24,250 what they want to watch when they get to watch it, 1086 00:42:24,250 --> 00:42:27,042 and besides what are you going to do, Monopoly and chill? 1087 00:42:27,042 --> 00:42:29,167 [dramatic bass music]