The simplified story of Netflix’s founding starts with Reed Hastings grumbling over a $40 late charge from Blockbuster, and ends with the brick-and-mortar giant going bankrupt as customers came to prefer online rentals from Netflix, with streaming providing the final coup de grâce.
Netflix was the idea of Marc Randolph, Netflix’s actual founder and first CEO; Randolph was eager to do something in e-commerce, and it was the just-emerging DVD form factor that sold Hastings on the idea. He would fund Randolph’s new company and be chairman, eventually taking over as CEO once he determined that Randolph was not up to the task of scaling the new company.
Blockbuster, meanwhile, mounted a far more serious challenge to Netflix than many people remember; the company started with Blockbuster Online, an entity that was completely separate from Blockbuster’s retail business for reasons of both technology and culture: Blockbuster’s stores were not even connected to the Internet, and store managers and franchisees hated having an online service cannibalize their sales. Still, when a test version went live on July 15, 2004 — the same day as Netflix’s quarterly earnings call — Netflix’s stock suffered its first Blockbuster-inspired plunge.
Three months later Netflix cut prices and referred to Amazon’s assumed imminent entry to the space; Netflix’s stock slid again. Hastings, though, said the increased competition and looming price war was actually a good thing. Gina Keating relayed Hastings’ view on that quarter’s earnings call in Netflixed: