212.2 - The Birth of Netflix and the Fall of Blockbuster

Now with Loads, Faster Quotes started the Loads ProDesk. Got a material list handwritten on a sticky note or saved as a photo? Perfect. Bring it to us and get a quote in minutes. And if you don't see what you need on the shelf, we'll help you get it. You can access thousands of products beyond what's available in store or on Loads.com, right from the Loads ProDesk. Build Quotes Faster and source the materials you need to keep your jobs moving. Just like that, and Loads. Hello and welcome back. When I started this episode, I thought it was going to be purely about the birth of Netflix. But partway through, I realized how personal everything felt. So I changed this very factual episode, hardcore Netflix story into a personal story. And I hope that by doing that, you can actually reflect on your own experience. I want you to think about the transition from movie rental stores to entertainment online. It's an interesting topic, and I hope you enjoy it. Hi everybody. My name is Shawna, and this is the American English podcast. My goal here is to teach you the English spoken in the United States through common expressions, pronunciation tips, and interesting cultural snippets or stories. I hope to keep this fun, useful, and interesting. Let's do it. Can you remember what you did on Friday and Saturday nights when you were a kid? I grew up in a very normal middle-class family in suburban California. My family was close. So for me, Friday and Saturday nights were very special because we spent time together. We'd often order pizza from round table and then play card games or board games. Other nights, we watched movies. Movie nights were my jam. Back then, and this was the '90s, our family movie nights took place on our couch, and they involved lots of pillows, blankets, and of course, popcorn. We had cable TV, like most people, and relied heavily on the TV guide to know what was playing. The TV guide was a weekly publication that came in the mail with all of the show times. When there was nothing worth watching on TV, we'd all jump in the car and drive to Blockbuster. If you don't know what Blockbuster is, it was a massive movie rental company in the US that at its peak had over 9,000 stores across all 50 states. It gained popularity in the late 80s when people got VCRs at home. Just for clarity, a VCR is a machine that can play a VHS. The VHS was the video cassette tape with the movie recorded on it. It came before DVDs. With a VCR, people didn't need to go to the movie theater or wait for a movie to start at 8 p.m. on cable TV. They could just head to Blockbuster, grab a VHS, pop it in the player, and press play. For about two and a half decades, leading up to the creation of Netflix, Blockbuster, Hollywood video, and I just remembered that one, oh my gosh. And family video, which was popular in the Midwest, were the main stores people would go to rent movies. There were some independent stores also, you know, with the adult section and the curtain, but I digress. We were a Blockbuster family. And Blockbusters everywhere were similar. Inside was bright with a lot of fluorescent lights. And they had a huge movie selection and games. By the registers, they sold popcorn and candy, basically everything you needed to have a special movie night. So I remember going there with my family and walking up and down the aisles, weed brows. To browse means to look around casually, usually without a specific plan or goal. We would browse the aisles looking for good movies. And it would take forever because my parents limited us to two movies and we all had an opinion. My brother and I would argue, he'd be like, let's get men in black or Jurassic Park. And I'd be like, no, come on, let's get the parent trap or Matilda or maybe a Disney movie right? Because Disney was in its prime. Oh man, we disagreed. We could not come to an agreement because we liked different genres. My dad and my brother loved Westerns and action films. My mom and I liked dramas and later on rom-coms. My brother and I liked animated movies, like Toy Story. My parents preferred live action. So with real people, we were not on the same page. The only thing we agreed on was that none of us were crazy about horror films and that we all liked comedy and adventure. To make a long story short, we'd usually end up with a family movie or something with Jim Carrey from Dumb and Dumber to Ace Ventura and the Mask. Yeah, we were always happy with his movies. Deciding what to watch is difficult. While today we scroll up and down on the TV to find something, back then we just went up and down the aisles and usually ended up talking to a knowledgeable employee at Block Buster who could tell us what to watch. Which is kind of funny now that I think of it. Maybe this is just my impression, but I feel like the employees at the movie rental stores saw every movie and then worked. So like that's how they spent all their time, but maybe that's just my impression. Anyway, Block Buster in the 90s wasn't just a movie rental store. It felt like an activity for people that was equivalent to going to the grocery store. We'd usually run into other families from school or neighbors. It was fun, but there was one thing that nobody liked, the fees or the fines. And this is important in this story, so pay attention. All over the store, all over Block Buster, there were signs that said be kind, rewind. That meant, you know, be nice, take your VHS, put it in your VCR and rewind it. Bring the movie back to the beginning, right? Because before DVDs, that's what you had to do. You had to rewind. So our store used to charge us $1 every time you returned a film without rewinding. The main fine was the late fee. To give you an idea, you could rent a movie for $3.99, and if you turned it in past the due date, you'd have to pay a late fee, which was $1 to $3 a day depending on the movie. If you were five days late, you might pay $10 to $15 in fees. Crazy, right? I bet you guys are familiar with this, I have a feeling this was a global thing. But you'd think at a certain amount, you'd own the movie. Like I paid $15 and I still don't own this thing. No, you'd still have to return it. Block Buster made billions of dollars as a company, and a lot of that money came from people failing to return their movies on time. This is where Netflix enters the picture. I'd like to first point out that Netflix is a portmanteau. Net comes from the word "internet" and "flick" is a synonym. an M for movie or film. I probably should note though that it's slightly old-fashioned. Although my dad still calls rom-coms, romantic comedies, chick-flicks. In other words, girl movies. Oh, okay, you're going to the movies? What are you going to watch? A chick-flick? In other words, a girl movie? A rom-com? Anyway, Netflix was an attempt to make movie rentals happen on the internet. But why? If Blockbuster and Hollywood video were so successful, why bother creating Netflix? Because it was different. Enter Read Hastings and Mark Randolph, the founders of Netflix. Now, it loads. Faster quotes started the Loes Pro Desk. Perfect. You can access thousands of products beyond what's available in store or on Loes.com, right from the Loes Pro Desk. The quotes faster and source the materials you need to keep your jobs moving. Just like that. Add Loes. Read Hastings, like most people, hated the Blockbuster late fees. As the story goes, he rented a VHS version of Apollo 13 and ended up paying a $40 late fee because he brought it in six weeks late. $40. It was infuriating because he had misplaced the tape. According to him, quote, "It was all my fault. I didn't want to tell my wife." But fundamentally, that fee felt wrong. Everybody loves watching movies and yet nobody likes being punished for returning them past the due date. He wondered, "What if we change the business model? What if instead of charging people per movie and then having late fees, if they paid a subscription and could keep the movie for as long as they wanted?" Hmm. Reads idea required the Internet and physical movies, right? Because streaming was not available back then. So how would it work? To make sense of this story, I think it's important to understand what the environment was like at that time. In the late '90s, Silicon Valley was rapidly growing. Silicon Valley is the area in California where there are still a lot of startups. So startups were popping up left and right. Google was speeding ahead, and as tech was becoming more advanced, more and more people were getting computers at home. More people were gaining access to the Internet. Do you remember that sound, don't you? Dial up. Good times. At the same time, DVDs came out. From 1998 to 2002, DVDs pretty much replaced VHSs. Now this transition was hugely important for the success of Reads idea. A DVD was essentially a CD, a compact disk. They were small and thin, and they could fit in envelopes. An envelope is a flat paper container used for milling letters or documents. She'd wondered if people would be willing to order movies on the Internet and receive them in envelopes in the mailbox. So he'd ship them with USPS, United States Postal Service. Sounds crazy, right? Maybe some of you are not familiar with DVD by mail, but that was Netflix before streaming. Right? He was thinking outside the box. He was thinking unconventionally. He was pushing the envelope. Literally. And why? Well, up until that point, renting a movie from the Internet was unheard of. Receiving it by mail? Well, for many people, that was far fetched. Could it work? Now, I'm going to bring this story back to my personal life. Around that time, around the year 2000, Netflix was in Scott's Valley. Not too far from where I grew up. So my family heard about it pretty early on. At first, my parents were skeptical. Ordering movies online? Waiting for them to arrive in our mailbox? It sounded strange. But once my friends at school started using it, we jumped on the bandwagon too. In other words, we followed the trend. We jumped on the bandwagon. And this is how it worked. We would create a list online of all the movies you wanted to see. They would arrive by first-class mail in two to four days. And you could keep them for as long as you wanted. You could keep up to three. And then you returned the movie in the prepaid envelope that was inside the original envelope. After you returned yours, you would get a new one from the list. So it was an ongoing, automatic system. And for just 20 bucks a month, you could rent all the movies you wanted with no late fees. You just watch and return and watch and return. Fairly simple. I remember being about 13 years old and going to the mailbox to check if that red envelope from Netflix was there. And when it was, oh my gosh, it was a great day. I would get so excited to open it up and see what film was inside. Because half the time, I forgot what was on the list. My whole family managed it. So there was that surprise element, which was really fun. By the year 2000, Netflix had 300,000 subscribers. And with that traction, they went to the executives of Blockbuster. What happened next? Well, it went down in history as one of the worst played business meetings ever. Read Hastings and Mark Randolph, the founders of Netflix, met with the heads of Blockbuster and offered to sell Netflix for 50 million dollars. The idea was simple. Netflix would help Blockbuster build its online movie business and digital catalog. Blockbuster rejected the offer. According to Mark Randolph, the executives at Blockbuster basically laughed them out of the room. At the time, Blockbuster was a beast with around 9,000 stores. Netflix on the other hand was just a small DVD by mail company. Think about it. I mean, it's all a timing thing. To give Blockbuster a bit of grace, did they know that DVDs were going to be so widespread? That internet was going to also take over? I don't know. But as DVDs became more widespread, Netflix grew rapidly. In 2002, the company went public on the stock market. And just one year later, it reached 1 million subscribers. Then came one of the biggest turning points in entertainment history. In 2007, Netflix launched streaming, allowing people to watch movies and TV shows instantly over the internet instead of waiting for DVDs in the mail. That's when binge watching exploded. To binge means to consume something without control. Some people might binge drink. It means they can't control their alcohol intake. If they have one beer, they might drink 20. We'd call that person a binge drinker. And others, binge watched TV shows. I binge watched multiple episodes of the White Lotus a few weeks ago. In any case, streaming completely changed viewing habits. People could suddenly watch entire seasons in a single weekend instead of waiting each week. Although I have to mention my parents still do watch cable TV. Obviously, cable TV still exists nowadays. The point is, what started as a small DVD by Mail Company was transforming the entire entertainment industry. Poor Blockbuster failed to adapt. About 10 years after rejecting Netflix, the company filed for bankruptcy. Hollywood video, the second biggest movie rental company, also filed for bankruptcy in 2010. So they went broke, they went out of business and so did the other big movie rental stores. Meanwhile, Netflix soared. More than 20 years later, Mark Randolph reflected on his experience with Blockbuster and shared this very important business lesson. Quote, "If you are unwilling to disrupt yourself, there will always be someone willing to disrupt your business for you." Yep, that's the truth of capitalism. You can only be an industry leader if you're willing to adapt. Today, Netflix is worth roughly 400 to 450 billion dollars, and employs around 16,000 people worldwide. One of my friends actually works at Netflix in Los Angeles, and I asked her what it's like. She told me that no two days are exactly the same. Her work involves problem-solving, coordinating between teams, troubleshooting technical issues, and helping productions run more efficiently. She also said something interesting about the entertainment industry. It sits right at the intersection of creativity and technology. So one moment you're dealing with storytelling and creative ideas. The next, you're solving technical or logistical problems behind the scenes. What surprised her most about Netflix was the amount of responsibility employees are given. She said the company really treats people like adults and expects them to make decisions independently, which as she notes, comes with high expectations. One point she mentioned really fits in perfectly with the story today. She said that you're always learning and adapting. I like to say that for a lot of us, our role is to innovate ourselves out of our current roles so we can focus on the next thing. If that's not adapting, I don't know what is. I think it's really cool to have that type of company culture. But yeah, I don't work there, so I hope it's as nice as it sounds. Now I feel like I can't wrap this story up without commenting on movie rental stores closing. This was hard for a lot of people, including myself. I think back to this and I get really nostalgic. The idea of my whole family browsing the aisles and running into neighbors and friends, like rental stores, movie rental stores, felt like they were part of our culture and that chapter closed. Do you get nostalgic thinking about this? But then at the same time, I remember the limitations of the physical stores. As a child, I was only exposed to Hollywood films. Well, mostly Hollywood films. The independent and foreign film section at Blockbuster was small. One of the things I appreciate about entertainment online is access to a wide variety of shows from different countries. If in five minutes from right now, I want to watch a popular documentary from Japan, I can. And there's the access to watch it in the original language with subtitles or with overdubbing. So I think that's the natural way to end this episode. Change is better sweet, isn't it? In any case, I hope this got you thinking about your experience with movie rental shops and yeah, the first time you were introduced to online streaming or Netflix, when was it? Is it popular where you are? If you're interested in the transcript for this episode, so you can read along and see all of the vocabulary you did not catch the first time listening, be sure to sign up to the academy with each episode you get the transcript, a quiz, and the opportunity to speak and write so that your learning experience is full circle. You can find the link in the episode notes or on the website at americanenglishpodcast.com. Until next time, bye. Thank you for listening to this episode of the American English podcast. Remember, it's my goal here to not only help you improve your listening comprehension, but to show you how to speak like someone from the States. If you want to receive the full transcript for this episode, or you just want to support this podcast, make sure to sign up to premium content on americanenglishpodcast.com. Thanks and hope to see you soon.