It is January of two thousand seven Reed Hastings sits impatiently in the sleek conference room at Netflix New headquarters, he's waiting for the next in a string of tech journalists to come in and see what he's up to you see these days. Reed Hastings is a big deal in Silicon Valley If he tells a reporter he's working on something he knows they'll come by to see what he's up to they always do. The door opens and a skinny thirty something reporter in black jeans and a turtleneck walks in hey, come on in hi read. So what are you up to now? Take a seat. I got something I think will knock your socks off. This is our streaming app. We call it watch instantly.

We do is load it on your laptop, an watch this, the app loads flawlessly, Hastings chooses a movie from a list of titles and clicks on play and voila you're watching a movie. The whole process takes like twenty seconds: instant high quality streaming. You don't have to wait for downloads or anything, hey, that's pretty cool, but this is just for laptops and compare he's right, but yeah for the time being, but people are putting in home, theaters and buying bigger televisions, who's going to want to watch movies on a laptop and by the way your laptops connected to a high speed internet right I mean how many people have that more young people Or watching entertainment on their computers in high speed, Wi Fi is going to be everywhere sooner than you think read. This is pretty neat, but how does this win against

cable. On demand. I mean you only have what one thousand titles here and look I mean scroll down. These are all excuse me for saying so read, but these aren't exactly the hot new releases. That's the rap on Netflix is new service cool idea, but too little content. So much of it a little were third rate. Well, thanks for having me over read and good luck with that as a journalist, leaves Hastings frowns damn he thinks to himself. He put his finger on it. How do you get used to this idea of streaming movies on a laptop instead of watching dvds or ordering them up on pay per view. Most of all Netflix needs studio, movies, even bad ones, to make.

This happened in Hastings has to accomplish all of this before the studios realize he's created his empire by piggybacking off their content and broadband network. If Reed Hastings can pull this off Netflix lives, if not the studio, Heads and cable will crush him. Business wars we make shows that we hope entertain you, but we'd love it. If you learn something too opening myself up to learning more about the world is one of the reasons that I listen to my favorite podcasts and it's so why I love reading the economist, the economist is a weekly magazine It offers insight and opinion on international and US news politics, business, finance, science, technology, arts and the, and It helps readers like you and me a little more sense of what's going on in the world around us, and it's been doing that for over one

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From Wondery. This is business wars, last episode, Netflix vaporized blockbuster with killer algorithms that anticipated what consumers wanted to watch. Before they even knew they wanted to watch it now. Reed Hastings is about to introduce viewers to something else. They didn't even know about, but would one day demand. So back in two thousand and four Hastings ordered his engineers to create an easy to use video player and a device that would let

is your stream content straight to their tv's? Now the streaming technology was ready, but they still needed good content. Hastings summoned his content chief TED Sarandos, dad we got accustomed deals with the studios to stream their stuff and get these deals locked up now. Well, wait I mean what about all the independent film makers and producers. You've been cultivating all these years Surely we got some good relationships with them right, yeah, yeah yeah, but we need mainstream stuff and lots of it or read it. I don't think they believe people want to stream movies at TED I'm willing to accept. We might not get first crack in their newest stuff, but we need something

it's two thousand and eight sarantos and pasting stand in the center of New York City's noisy Columbus circle. Looking up at the massive brand new fifty five story, Time Warner Center walking into the jaws of the media. Mammoth. This trip will, they become an annual pilgrimage for them as they enter the building for the first time. Saran doses. Definitely uneasy. Read. I gotta tell you, I don't have a good feeling about this It's easy to understand why Sarantos felt this way they're here with what they've come with some measly licensing money to spend sure but they're meeting with the big man himself

time? Warner's, smart, powerful, chairman and CEO Jeff Bukas and when I say big, how big well, let's just take a moment to review Bukas fiefdom, mucus is empire includes Warner Brothers, new line, Cinema and Turner Broadcasting, the Batman and Superman movies, the Harry Potter franchise, the Lord of the Rings, Trilogy Casablanca, an Oscar winners, like million dollar baby and driving, Miss Daisy, oh yeah and timeworn: also owns something else, the second largest cable operator in the country and, lest we forget time Warner owns HBO, so when Bukas ushers them into his office, they are eager Bukas, is wary, Hastings shows Bueche's. The demo of their new streaming platform mucus listens carefully, as Sarantos makes the sales pitch

we are offering what is essentially found money for your classic movies and tv shows that aren't. And bringing in revenue for Time Warner anymore, but as saran wraps up. Mucus is annoyed, bordering on angry gentleman, cut to the chase. Here you will never get HBO program or frankly, any of our premium content. Never it's far far too Mr Bukas, please hear us out here. We are offering to pay a flat fee, six figures up front, not revenue sharing, so we at Netflix. Be taking on all the risk that people watch it. The answer is still no well what about HBO series not in my lifetime. It's understandable, bukas, protective of HBO's content. He gambled big with the.

Programming a decade earlier when he ran HBO and scored with hits like the sopranos and sex in the city and on top that h, B o relies on subscribers. Just like Netflix now view because understands that Netflix is in many ways trying to follow in HBO's, which at start off by luring subscribers, with whatever content you can afford until you're, offering exclusive content. First rate, movies and television shows he knows

that, eventually, even with this new streaming technology, Netflix will need that high quality content to survive but he'll be damned if you'll be the one to give it to him with Bukas rejection. Hastings in Serrano's come to a cold realization. They gotta lock down every content deal they can find now or be shot out of the market. Reed Hastings pushes his sales team to get the Netflix streaming app onto any inter connected device that plays video dvd players. Game consoles smartphones, if it's online and it plays video, we gotta be there. We need to be front and center on every mobile device. Now the idea that many people would want to watch an entire movie or tv show on a tiny, smart phone screen does in fact seem a bit far fetched to a lot of folks at this point. But Hastings is adamant

This is the future Netflix launches watch instantly, but critics are asking. What's there to watch, watch instantly starts in two thousand and seven with only one thousand titles, a measly one percent the size of their dvd catalog, but Saran dose in his team work around the clock and by the following year. The list of titles has grown to ten thousand. Still their efforts to get new movies fall short Netflix is dvd. Customers are accustomed to getting the best late.

Movies just a day or two after ordering am, but when those same users try Netflix is streaming service. Let's just say this selection is a bit of a let down. The titles are neither the latest or the best and Netflix users in chat rooms. Don't pull punches either for the new arrival movies I get to select from precious the bounty Hunter Centurion, Avalon, high and exit through the gift shop. Poor, poor, poor, Reed Hastings isn't really bothered by the chat storm. I mean at least it shows customers or trying the streaming app. But you know that expression content is king. Well, it turns out. Sometimes it isn't. Sometimes it's a hard working algorithm that burrows into customers have

See it's not just viewers watching Netflix here. It's that Netflix algorithm watching the watchers. It sees not only how people search for movies but how long they watch them, even if they say they don't like them. The streaming software detects how often a person shoes or re watch is a scene or skips past one or even which actors appeal to which viewers and eventually, which groups of

with this information Netflix develops an intricate behavior profile for each subscriber. This helps them assemble micro audiences for different movies. One day, this information will be the gold Goldvein they've, been digging for by mid two thousand and eight Hastings team gotten gotten Netflix streaming app app onto dozens of devices, including Microsoft, Xbox game Console and the Roku set top box. Nintendo's Wii and Sony's playstation, followed two years later, Blu Ray DVD players come pre loaded with, subscriptions begin to soar, but something even bigger is about to have one heck is going on down here. Three, maybe more than nine hundred point, zero came back into the market in a very

The major studios in television networks watch in horror as their profits in stock prices tank amid something that will be called the great recession as it grips. The nation companies everywhere are desperate for cash, including big media and sitting pretty, amid the wreckage Reed Hastings and Netflix. This time, when TED Sarantos knocks on the studios doors with cash in hand, the studio bosses are, let's say, more negotiable.

Content deals start flowing newer, better titles too. The global economy may be in a meltdown, but Netflix is fortunes are on the rise. Saran doses, biggest breakthrough comes in late, two thousand and eight, even with more content deals. Sarantos still can't get the newest most popular blockbusters onto Netflix is streaming service. Those hot titles said long ago been locked up in exclusive deals with pre, Cable channels like HBO, Showtime and Starz entertainment surrenders knows where HBO stands. Thanks to Jeff Bukas is unsettling candor but Sarandos finds another more willing partner. A smaller pay tv movie channel called stars. Sarantos convinces the head stars to sign over the digital licensing rights for a relatively paltry sum of twenty

five million a year. Cash is cash. After all, suddenly Netflix has a huge crop of Sony and Disney blockbusters ready to stream spider man. Three pirates of the Caribbean and Pixar'S read a two week this. Yes, this is what next, has been waiting for a chance to offer customers the same movies. They can get on pay cable channels, but at a fraction of the price, for his part at least the president and c e o of Starz entertainment bill. Myers is delighted with the deal Netflix, as grown to be an innovative leader in the home video space, and we are delighted to offer their customers our unique and robust collection of movies on a subscription basis. Sure he's delighted,

he's just got a twenty five million dollars lifeline and, like most of Hollywood, Myers doesn't see Netflix as a threat. No, no! No! This is something new. This is a symbiotic relationship. But there's somebody else on the sidelines, someone who sees Netflix as a tool for his own success. You might say he's a tech guy who thinks different. One day in late, two thousand and nine Netflix Chief Reed Hastings walks into the cube farm where his engineers work clutching a print out in his hand, Folks, listen up! I just got this email from Steve Steve who Steve jobs he wants to know whether we want Netflix to be the feet streaming app on Apple's new tablet device, hey boss, that's cool and all, but we're pretty slammed getting ready for the other product launches wrong. Answer.

I don't care if you have to turn the schedule upside down folks, we do in this one. Well, when the I pad launches, you know what happens right, it's a sensation as soon as people experience watching videos on their tablet. They're hooked all those years of Netflix, focusing on having the best technology, it's finally paying off Netflix now. Has the undisputed go to streaming app for the everyday viewer? Nothing will ever be the same again. Business wars is brought to you by this is zoom, didn't invent video conferencing; they just made it better. Now, zoom is how business gets done. Zoom ties together, all of you, Communication needs into one easy app for video conferencing phone calls. Group chat, webinars and your conference rooms turn any work

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Plus hundreds of hours of original content, exclusive bonus episodes from some of your other favorite podcasts, and so So much more, you can see. Now, for a free month of Stitcher premium, by going to stitcher premium com, slash wondering and using the promo code, Wondery then, once you signed up just download the Stitcher app for Ios or Android, start enjoying the ad free wondering that work experience, that's stitcher premium com, slash wondering and promo code wondering. As the fortunes of Netflix is streaming service rise, not to mention the company's stock price the media titans of old remain sceptical time chief Jeff mucus. Is it a business conference in late two thousand and ten, when someone asks whether Netflix is a threat to Time Warner's business it's a little bit like is the

albanian army going to take over the world- I don't think so: Reid, hey, thanks, keeps his composure in public, but privately he's roasting Bukas, that albanian army comment becomes Hastings called arms, he even choose albanian army berets to his executive staff and takes to wearing albanian army dog tags under his shirt. It motivates him to work harder to bury Time Warner and HBO a year goes by and Reed Hastings is at the consumer. Electronics show in LAS Vegas sharing a stage with the pub the Huffington Post, Arianna Huffington. So are you and Jeff Bukas still Bff's? Hastings, happily pulls the dog tags from under his collar. Well, let's just say: I'm proud to wear the dog tags of the albanian army

by the end of twenty ten Hastings has a lot to crow about Netflix is spending less on marketing, but the number of subscribers explodes to more than twenty million. While cable companies are stagnating or losing customers, two little words would become cables worst nightmare cord cutter. They would also become a boon to Netflix what

Could be sweeter well for starters, fortune magazine by passes the ceo who pull general motors off the rocks to name Reed Hastings, it's a business person of the year, but employees who'd been on the journey with Hastings notice, a change the success starting to go to his head. You guys can't resist taking shots at Netflix publicly at a conference in New York. He uses his keynote speech to warn his peers to put they're content or at least cut better deals. Why should anyone subscribe to Starz when they can basically get the whole thing for just about nothing? I mean once you put it on Netflix you really at sell it anywhere else, and then just as Netflix these were retiring, their albanian bernays Bukas. Does it again

in an interview with CNBC's Julia Borsten, the time Warner Chief waves, a red flag right in Reed Hastings Direction- I would say Netflix- is like a two hundred chimp. It's not an eight hundred pound gorilla, but now Hastings makes the insult since tried with every new goal reached. He becomes more confident and less willing to listen, not just to the critics like Bukas, but to those in his inner circle too.

Over the next two years, Hastings forces out the executive team that brought him through the bloody blockbuster battle and through the early streaming years, Hastings replaces his battle hardened, no man who feel tested his earlier whims with yes, man who do what he orders. No questions asked and then Hastings does something even more dangerous. He stops listening to his customers in late. Two thousand and eleven Hastings starts charging for streaming telling customers Netflix would spin off its dvd by mail service as a separate company called quick stir. It would become a massive self inflicted wound under this new scheme. If customers wanted to use

both dvd by mail and streaming. It would cost him. Netflix would charge as much as sixty percent more this in a recession, Netflix spins off its dvd by mail service as Quickstar. Is this the worst product launch since New Coke shares plummet? It's a debacle about eight hundred thousand subscribers quit the service altogether. That quarter, and it seems like the rest of jumped on social media to complain that Sunday, after the big announcement, Hastings summons his pr team to the headquarters in LOS Gatos, Steve Swasey, the last of his battle tested, executive staff arrives to find his boss. Looking haggard and unkempt Swayze begs him to reconsider. Then Hastings tell Swayze his own idea for fixing the dibacco. I need to apologize to our subscribers personally and I want it to feel off

clinic will put it up on Youtube tonight. Read I don't think you're creating an impression of confidence by wearing that beat shirt and jeans and sitting at a patio table. Oh come on Steve. I want it to look informal, ok, ok, I get it, but can we get a professional camera crew and a little bit of rehearsal? No, no, no rehearsal, I'm going to speak from the heart! Well, it's almost painful to watch the video stars, Hastings in an uncomfortable, looking and Andy Rendic, The new head of Quickstar and almost as soon as it hits Youtube that night. It is savaged by the press, by consumers and by late night comics and by the way We know it's off putting to see the ceo of a powerful company rocking a goatee and teal shirt, but trust us. We know what we're doing

thank you for your support. It took Netflix more than a year to win back at subscribers. Reed Hastings practically went into hiding because of the anger and mockery is presence evoked for months after the quickster disaster as he waited for customers to forgive him? Hastings and his team worked on the next phase of the Netflix Revolution. Our goal is to become h b, o faster than h, b o can become that is on the next episode of business. Wars hope you enjoy. This episode of this works and we invite you to subscribe on Apple podcast, Stitcher, NPR Iheartradio, or wherever you're listening right now, you'll find a link on the episode nodes just tap or swipe over the cover art. You'll also see some offers from our sponsors and we hope you'll support our show by supporting them. Now, if you like what you heard, we'd love

to give us a five star rating and review it, and sure, to tell your friends and show them how to subscribe. To another way you can support. The show is filling out a small survey at wandrey dot com, slash survey: I'm your host David Brown, Gina, Keating, author of the book Netflix, wrote this story. Karen is our senior producer and editor sound by Jeff our exact the producers are Ben, Adair Marshall, Louis and Hernan Lopez. Four one tree