Gina Keating - Netflixed: The Epic Battle for Americas Eyeballs

PORTFOLIO / PENGUIN

NETFLIXED

Gina Keating is a freelance business journalist. She previously covered media companies, law, and government as a staff writer for Reuters and United Press International for more than a decade. Her articles have been reprinted in newspapers around the world, and her freelance work has appeared in Variety , Colloquy , Du Jour , Southern Living , and Forbes . She lives in Texas. This is her first book.

PORTFOLIO / PENGUIN

Published by the Penguin Group

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Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England

First published in 2012 by Portfolio / Penguin, a member of Penguin Group (USA) Inc.

Copyright Gina Keating, 2012

All rights reserved

LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA

Keating, Gina.

Netflixed : the epic battle for Americas eyeballs / Gina Keating.

p. cm.

Includes bibliographical references and index.

ISBN 978-1-101-60143-3

1. Netflix (Firm) 2. Video rental servicesUnited States. 3. Video recordings industry United States. 4. Internet videosUnited States. I. Title.

HD9697.V544N484 2012

384'.84dc23

2012027444

No part of this book may be reproduced, scanned, or distributed in any printed or electronic form without permission. Please do not participate in or encourage piracy of copyrighted materials in violation of the authors rights. Purchase only authorized editions.

To the people of Netflix and Blockbuster for letting me into their story
and
To John A. Sopuch III and Margaret Romero for holding me up

CAST OF CHARACTERS

NETFLIX (ALPHABETICAL)

Lisa Battaglia-Reiss Human Resources manager

Jessie Becker Marketing, vice president

James Bennett Recommendation System, vice president

Corey Bridges Marketing, Customer Acquisition

Jim Cook Finance/Operations, director

Deborah Crawford Investor Relations, vice president

Chris Darner Product Management, director

Shernaz Daver Public relations consultant

Tom Dillon Chief operating officer

Boris Droutman Web Engineering, manager

Vita Droutman Senior Systems, architect

Jonathan Friedland Corporate Communications, vice president

Reed Hastings Cofounder/chairman and chief executive

Jay Hoag Board member/investor

Neil Hunt Chief technology officer

Leslie Kilgore Chief marketing officer

Paul Kirincich Financial Planning and Analysis, vice president

Christina Kish Merchandising, director

Kirby Kish Business Development, director

Stan Lanning Cinematch, developer

Mitch Lowe Business Development and Strategic

Alliances, vice president;

Redbox, president

Barry McCarthy Chief financial officer

Patty McCord Chief talent officer

Eric Meyer Chief information officer

Joel Mier Research and Analysis, director

Marc Randolph Cofounder/chief executive

Andy Rendich Chief service and operations officer

Ken Ross Corporate Communications, vice president

Ted Sarandos Chief content officer

Therese Te Smith Corporate Communications, director

Steve Swasey Corporate Communications, director

David Wells Chief financial officer

Erich ZieglerMarketing, director

BLOCKBUSTER (ALPHABETICAL)

John Antioco Chairman/chief executive

Bryan Bevin U.S. Store Operations, senior vice president

Edward Bleier Board member

Sam Bloom Business Development, vice president

Aaron Coleman Blockbuster Online, chief technology officer

Ben Cooper Blockbuster Online, director of marketing acquisition and business development

J. W. Craft Blockbuster Online, vice president of strategic planning

Rick Ellis Blockbuster Online, operations consultant

Shane Evangelist Blockbuster Online, senior vice president and general manager

Gary Fernandes Board member

Bill Fields Chairman/chief executive before Antioco

Sarah Gustafson Blockbuster Online, senior director, customer analytics

Jules Haimovitz Board member

Lillian Hessel Blockbuster Online, vice president, customer marketing

Jim Keyes Chairman/chief executive

Karen Raskopf Corporate Communications, senior

vice president,

Nick Shepherd Chief operating officer

Michael Siftar Blockbuster Online, director, applications development

Nigel Travis President

Strauss Zelnick Board member

Larry ZineChief financial officer

COSTARS (ALPHABETICAL)

Robert Bell AT&T Laboratory, Statistics Division, researcher

Jeff Bezos Amazon.com founder/chief executive

Martin Chabbert Netflix Prize winner, French-Canadian programmer

Tom Dooley Viacom, senior vice president

Roger Enrico PepsiCo, chairman

John Fleming Walmart, chief executive

Brett Icahn Carl Icahns son

Carl Icahn Blockbuster investor/board member

Michael Jahrer Netflix Prize winner, Big Chaos team, machine learning researcher

Mike Kaltschnee HackingNetflix, founder/blogger

Gregg Kaplan Redbox, chief executive

Mel Karmazin Viacom, chief operating officer

Yehuda Koren Netflix Prize winner, AT&T Laboratory, scientist

Warren Lieberfarb Warner Home Video, president

Joe Malugen Movie Gallery, chairman/chief executive

Dave Novak Yum! Brands, chairman/chief executive

Michael Pachter Wedbush Morgan, analyst

Martin Piotte Netflix Prize winner, French-Canadian programmer

Sumner Redstone Viacom, chairman

Stuart Skorman Reel.com, founder/chief executive

Andreas Toscher Netflix Prize winner, Big Chaos team,

machine learning researcher

Chris Volinsky Netflix Prize winner, AT&T Laboratory, Statistics Division, executive director

Mark Wattles Hollywood Video, founder/ chief executive

CONTENTS

PROLOGUE

IT IS EARLY MORNING ON a workday in the spring of 1997. A dusty maroon Volvo station wagon pulls into a commuter parking lot in Scotts Valley, California, in the foothills of the Santa Cruz Mountains.

The dot-com bubble is on the rise and the parking lot is lousy with twenty-something computer geeks, male and female, gathering in carpools to take them over the hill to Silicon Valley.

They carry canvas cases with logos: Apple Computer, Sun Microsystems, Oracle Corp., and other hot technology companies. Most wear the Valley uniform of board shorts or Levis with a wrinkled T-shirt, a fleece jacket, and some form of Teva footwear. Several have bed head from not showering and a dazed look from long-term lack of sleep.

The Volvo pulls toward a space on the deserted far side of the lot, where a shining steel blue Toyota Avalon is the lone occupant. The Toyota driver sits in the drivers seat, door wide open. At the sight of the Volvo, the Toyota driver jumps out of his car.

He is Reed Hastings, a tall lean man in his midthirties, wearing pressed Levis, a white T-shirt under a worn corduroy button-down shirt, brilliant-white running shoes, and black socks. He has close-cropped brown hair, a neat goatee, intense blue eyes, and a perpetually guarded expression. His normal posture, slightly forward and a bit hunched in the shoulders, reflects years of staring at computer monitors in pursuit of beautiful mathematical algorithms to define all manner of natural and man-made phenomena.