The New York Times - 19.09.2019

THE NEW YORK TIMES BUSINESSTHURSDAY, SEPTEMBER 19, 2019 N B5

MEDIA

as the chairman backing the oper-
ation. Possible names for the com-
pany included TakeOne, Now-
Showing and NetPix. Finally, they
settled on NetFlix, which later be-
came Netflix.
The tale of how the company
managed to take on Blockbuster
Video and survive the bursting of
the dot-com bubble is the subject
of Mr. Randolph’s “That Will
Never Work,” a book to be re-
leased on Tuesday by Little,
Brown. Part memoir, part guide
for the budding entrepreneur, it’s
the story of Netflix as scruffy
start-up, from those brainstorm-
ing sessions to the height of its
red-envelope days, before it spent
billions on original content and
had 151 million subscribers world-
wide.
“That Will Never Work” also
does away with the handy origin
story that has been mythologized
by Netflix since its inception: that
Mr. Hastings founded the com-
pany out of frustration over the
$40 late fee charged by Block-
buster for his return of “Apollo 13.”
“People want me to be mad at
Reed’s story,” Mr. Randolph said
in an interview, “and I go, ‘No, not
at all, it’s a good story.’ I’m sure it’s
the same as Newton, who didn’t
really come up with gravity when
an apple fell on his head.”
On a warm summer day, he was
on the porch of his house in Santa
Cruz, part of a 50-acre estate with
its own vineyard. Seated with him
were his wife of 32 years, Lor-
raine, and a spirited black lab,
Indi. The Audi Q7 in the driveway
has a vanity plate that reads NT-
FLX, and the Toyota Tacoma in
the garage has one that says NET-
FLIX.
Mr. Randolph, 61, left Netflix in
2003, five years after Mr. Hastings
had taken a hands-on role. In the
book he says his skills were more
suited to a company’s start-up
days than its period of success.
“Unlike me,” Mr. Randolph
writes, “Reed is not only a phe-
nomenal early-stage C.E.O. — he’s
as good (or better) as a late-stage
C.E.O.”
Employees at Netflix in its early
days had no set hours and no va-
cation allotments. The same is
true today. There was also a cor-
porate culture of “radical hon-
esty” that also perseveres. Em-
ployees evaluate one another and

are encouraged to weigh in on

strategic decisions. Salary infor-

mation is transparent.

Mr. Randolph went to Silicon

Valley in the 1980s after growing

up in Chappaqua, N.Y. His father

was a nuclear engineer-turned-fi-

nancial adviser. His mother ran

her own real estate firm. Market-

ing was in his blood. His great-un-

cle is Edward Bernays, a nephew

of Sigmund Freud and a man often

called “the father of public rela-

tions.” Bernays is Mr. Randolph’s

middle name.

Mr. Randolph describes an

evening in 1998 when he got a big

dose of Netflix’s radical honesty. It

happened after a botched investor

pitch and a promotion deal with

Sony that went horribly wrong.

Mr. Hastings asked to see Mr. Ran-

dolph alone and subjected him to a

PowerPoint presentation detail-

ing the reasons he was no longer

fit to remain chief executive.

In the book, Mr. Randolph de-

scribes what he said in reaction to

the surprise presentation:

“ ‘There is no way I’m sitting here

while you pitch me on why I

suck.’ ”

Mr. Hastings closed his Dell lap-

top. By the end of the talk, Mr. Ran-

dolph was bumped down to presi-

dent, and Mr. Hastings was the

new chief executive. As part of the

demotion, Mr. Hastings per-

suaded Mr. Randolph to give up

some 650,000 stock shares, which

reduced his Netflix stake to 15 per-

cent.

“Doing it with a PowerPoint

slide show perhaps wasn’t the

most empathetic gesture,” Mr.

Randolph said with a laugh. “But

he was right.”

The episode, as described in the

book, helps form a portrait of Mr.

Hastings as someone whose

bluntness results more from a

sure sense of what a business

needs than from an inner ruthless-

ness.

“What I really want from the

book is to paint Reed as a real per-

son,” Mr. Randolph said. “I hope it

comes through that I have this

tremendous respect and affection

for him, as opposed to bitterness.

Most people wouldn’t have had

the strength to say that. But he

recognized it was the right thing

for the company.”

Mr. Hastings declined to com-

ment for this article, beyond this

statement: “Marc’s a terrific writ-

er and storyteller and he was an

even better co-founder and part-

ner.”

Mr. Randolph also devotes

many paragraphs to an in-house

catchphrase at Netflix, “The Can-

ada Principle,” which he and oth-

ers invoked whenever the com-

pany seemed in danger of getting

distracted from its main focus.

The principle stemmed from an

early decision not to mail DVDs to

Canada. Mr. Randolph and others

argued that the effort would be

more of a headache than it was

worth, partly because of complica-

tions brought on by having to deal

with two currencies.

The Canada Principle also fig-

ured into the company’s later de-

cision to scuttle DVD sales, al-

though they were profitable, in fa-

vor of rentals, which seemed like

the future. It came into play once

again in 2000, when Netflix

stopped allowing nonsubscribers

to rent DVDs.

Today the principle seems to

have guided Netflix’s reluctance

to give in to the demands of major

theater owners, who demand ex-

clusive rights to the movies they

show for roughly 90 days. Last

month, Netflix showed that it was

keeping its focus on its sub-

scribers when it decided to re-

lease one of its biggest films, Mar-

tin Scorsese’s “The Irishman,” in

independent theaters and those

run by small chains, a move that

enables the company to stream it

three and a half weeks after the

movie’s premiere.

“It fits with that pattern of say-

ing you pick what you’re good at

and you focus on that,” Mr. Ran-

dolph said. “You pick what your

customers want, not what your

entrenched business model may

require you to do.”

Mr. Randolph no longer has any

connection to Netflix. He still

owns some shares, mainly for sen-

timental reasons, he said, and he

pays a monthly subscription fee

just like everybody else. He said

he’s partial to “Ozark” and “Nar-

cos,” and insisted that he had no

opinions on Netflix’s relationship

to Hollywood, its debt load or its

path to profitability.

His estate, which he bought for

under a million dollars in 1997, ac-

cording to his book, now serves as

the informal headquarters for his

corporate coaching business, al-

lowing him to keep a hand in the

next possible big thing. Seven

years ago, he joined the Santa

Cruz data analytics firm Looker

as employee No. 3 with the title

ABC — Anything But Coding. In

June, Google bought Looker for

$2.6 billion.

Does he ever miss the old job?

“Probably the way you miss be-

ing on vacation in Hawaii,” he

said. “There are elements you are

extremely fond of, but if you had to

do it all the time, you might say,

‘This isn’t exactly what I dreamed

about.’ ”

Pushing the Red Envelope: A Netflix Founder Looks Back

FROM FIRST BUSINESS PAGE

Marc Randolph, a founder of Netflix, wrote that his skills were better

suited to a company’s start-up days than to its period of success.

IAN C. BATES FOR THE NEW YORK TIMES

In his book, “That Will Never Work,” Mr. Randolph does away with the origin story that Reed Hastings, above,

Netflix’s chief executive, created the company out of frustration over a $40 late fee Blockbuster charged him.

EDGARD GARRIDO/REUTERS

‘You pick what your

customers want, not

what your

entrenched business

model may require

you to do.’

Marc Randolph, former chief

executive of Netflix.