Culture

How Netflix Took Over the World

This is a story about a company that crushed Blockbuster, took on the tech industry and revolutionised the way we consume culture.
HF
illustrated by Helen Frost
September 10, 2020, 8:00am
How Netflix Took Over the World

How many hours have you spent watching Netflix in the last year? The average person spends around two hours a day on Netflix, according to data from, well, Netflix.

This means that since the beginning of 2020, the year that Netflix turned 23 (yes, Netflix has been here for over two decades), you may have watched 480 hours of Netflix content. That's three weeks of your life. By the end of the year it will be a month.

It is increasingly hard to remember a Netflix-less world. In the last 20 years the company has gone from having 300,000 subscribers – the population of Newcastle – to having 193 million subscribers – 50 million more than the population of Russia. With “Netflix and chill”, it has entered the lexicon; it has become an Academy Award-winning filmmaker; and, more importantly, it has made its way into our homes. It is the safe, comforting, perennial answer to the question 'So – what shall we do tonight?' It is a member of the household.

Netflix CEO Reed Hastings begins his new book, No Rules Rules, with the story of how he and co-founder Marc Randolph went to meet John Antioco, the CEO of Blockbuster, to try to convince Blockbuster to buy Netflix. The story is now famous in business circles. It was 2000, and, as Hastings writes, Blockbuster – now a distant memory – “dominated the home entertainment business”.

If you wanted to watch a film in 2000, you went to your nearest Blockbuster store – there were 9,000 worldwide – and rented it on video. If you're too young to remember how Blockbuster dominated, imagine Netflix.

Netflix, who were losing money at that point, asked Antioco for $50 million to buy them and let them run blockbuster.com as an online video site. Antioco said no. Hastings imagined the 60,000 Blockbuster employees erupting in laughter at the proposal. “By 2019,” he says, “only a single Blockbuster video store remained, in Bend, Oregon.” By contrast, Netflix ended 2019 with 167 million subscribers and had amassed over $20 billion.

Netflix's rise tells us a great deal about the way that consumer habits have evolved in the 21st century, but also about how people may run successful, innovative companies in the future. Unlike the other Silicon Valley giants that continue to shape our everyday – Facebook, Apple, Google – Netflix has a “culture” particular to the company: a set of values that distinguish it from other workplaces. No Rules Rules exhaustively explains this culture, and leaves you realising it is no wonder that Netflix dominate as they do. Streaming is a war, and Netflix are training warriors.

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It was Amazon whom Marc Randolph admired when establishing Netflix, and the company followed in the footsteps of Jeff Bezos' monster, letting customers rent DVDs that would be delivered to them in the post. When the company began in earnest in May 1998, its catalogue of 925 DVDs was almost all of the DVDs that existed in the world. In 1999 the company introduced a subscription model, presciently doing away with the one-off rentals and late fees that now feel like anathema to relaxing home entertainment. In the book, Hastings says disparagingly of Blockbuster's late fees, “If your business model depends on inducing feelings of stupidity in your customer base, you can hardly expect to build much loyalty.”

In 2005 YouTube changed the game, proving the popularity of content streamed directly onto people's computers. Two years later Netflix began allowing its users to stream films and TV shows alongside receiving DVDs. This is a perfect example of one of the several storms the company has weathered: as DVD sales fell, Netflix quickly realised they had to concentrate on the area of the business that was becoming the medium of choice for its millions of customers. It was exactly the change for which Blockbuster, who effectively vanished in 2010, were not prepared.

Cameron Chapman, who is 36 and from northern Vermont, has been using Netflix since around 2006, when they were posting DVDs. “The closest Blockbuster was a 40-minute round trip drive,” she says. “And internet speeds were abysmal, so downloading movies was also a pain. But being able to get two to three new movies a week delivered was great.”

She has been a huge fan of the company's own productions. “I think it was a smart move on their part to create original content, and I've been really impressed with the quality of most of it.” A few years ago she tried to watch 1,000 movies in a year. She didn't quite manage it but she watched around 650. “I definitely couldn't have done that without Netflix.”

Even in 2010, when Netflix operated in just the US and Canada, their ambitions were obvious. “Netflix was pretty certain they were going to rule the world,” says Aimee Brown, who worked in one of the company's call centres in Oregon. She remembers management telling the Blockbuster anecdote as a “too bad for them, lol” story. By this point the company had around 18 million subscribers and were growing rapidly. In North America they were the largest source of internet streaming traffic every evening.

Morgan Bee* worked at the same call centre from 2011 to 2014. He remembers watching sport while talking to people on the phone. “The mood and overall environment in the centre was awesome.”

This was when Alex Wind* joined Netflix as a director of engineering. DVD was still the biggest game in town, and Wind was employed – on a modest salary of $200,000 – to finish automating the posting of DVDs through the post. Netflix's Hollywood office, which was negotiating directly with film studios to bulk-buy DVDs, was growing significantly. On their biggest day Wind thinks they shipped just short of five million discs.

Then there was a shift in priorities. “The growth of the subscriber base started taking off unimaginably as they branched out and let people have streaming as its own thing,” he says. In about three months they gained five million subscribers. In one meeting, shortly after they had added their 30 millionth subscriber, Hastings said he could imagine them growing to 100 million. “He's gone nuts,” Wind thought. In 2017 they celebrated 100 million subscribers.

Wind, who left the company in 2018, explains that the Netflix office is different to those of Facebook and Google. “It is by some measure the most impressive place I've ever worked,” he says, telling me that he has tried to recapture that magic in his workplaces ever since. There are boxes of free food but no canteen. There used to be beer on tap until they replaced it with kombucha. Unlike Facebook, whose Menlo Park campus boasts facilities like hairdressers and gyms, Netflix doesn't expect their employees to spend all of their time there.

Facebook's employees, who are younger than Netflix's, says Wind, boast of working long hours and sleeping under their desk. “If this was how you behaved at Netflix you were shit,” he says. “Why couldn't you get your job done in eight hours a day?”

Netflix pay handsomely to ensure they are employing the very best and most efficient. One employee is quoted in the book as likening the company to “a walled garden of excellence”. Wind says, “Netflix knew what it wanted its culture to be, and if there was someone who wasn't fitting in, they just got jettisoned.”

Hastings is upfront about this publicly and in the book. The company aim to achieve a “high talent density environment” while being clear that they do not tolerate “brilliant jerks”. As Erin Meyer, the author who co-wrote No Rules Rules with Hastings, writes, “At Netflix you might be working your hardest to do your very best, giving your all to help the company succeed, managing to deliver pretty good results, and then you walk into work one day and boom… you're unemployed.”

Netflix fire 8 percent of their staff, which is a little higher than the average American company, but this is counterbalanced by below-average (3 percent) voluntary turnover. “For people who value job security over winning championships,” Hastings says, “Netflix is not the right choice.” Rather than bothering to try to steer an employee back on track, they fire them, paying them in severance what it would have cost to go through a Personal Improvement Plan.

Hastings likes to make the point that Netflix are like a professional sports team, not a family. Instead of forgiving mistakes and sticking together no matter what, they do not tolerate mediocrity. This means that working for the company can be stressful.

Clement Vase* also worked at the Oregon call centre in 2010. He is far more critical than Aimee Brown, who describes Netflix as “easily the most accommodating, positive company I’ve ever worked for”. Vase paints a picture of an incredibly stressful working environment. “I recall during our training sessions, a woman came back literally two minutes late from lunch break,” he says. “She was let go on the spot and we were told we should take that to heart.”

At the end of every call, the caller was asked whether or not they were satisfied. As Vase says, this question did not distinguish between dissatisfaction with the employee and dissatisfaction with the Netflix product itself – principally the reason someone was calling in the first place. If a caller was frustrated that their credit card had been declined – no fault of the employee – they would answer “No”. Managers kept track of these responses, firing someone if more than 3.5 percent of their callers said they were dissatisfied. All of the “No” responses for the call centre were highlighted in yellow on each caller's screen.

“You could glance across the call centre floor and see who was having a bad night,” Vase says. “Towards the end, I stopped learning new people's names because most of them only lasted a few weeks.” He left because he felt his numbers were beginning to slip. When asked about this historic culture at Netflix, a press contact at the company told VICE that call centres, bar the Oregon branch that was run by Netflix, were looked after by contractors and pointed us towards the “culture” page on their website.

Whereas a Netflix vice-president is fired with nine months' salary as severance, workers in the call centre were not entitled to any. In addition, the policy on vacation differed. Netflix are unusual in having created a vacation policy, copied by companies like Virgin, that allows employees to take off as much or as little time as they like. It is one of the many policies that puts trust in the staff.

“But us hourly call centre people did not get any paid time off,” says Vase. “We could elect to have the company dock our pay 25 cents an hour and they would keep that in a fund we could use to take ‘paid time off’ – which is essentially the company holding onto our own money for us, and paying us back our own money.”

Netflix paid the call centre workers fairly well – $14 an hour, Brown says – but this, as with other areas of the business, meant that they were held to high standards and fired if they fell beneath them. (In the book, Hastings says that “almost all” the people who are fired agree in writing not to sue Netflix for dismissing them.)

By the time Wind left, Netflix was paying him $650,000 a year. “They understand that in order to really perform you have to have top-performing people; you shouldn't be tolerant of anything less than top-performing people. That's why they've crushed it. That's why Netflix is what it is.”

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The company's rise has been staggering. In 2014, HBO's subscribers numbered 114 million, two and half times Netflix's. Now, Netflix has 193 million subscribers, and HBO has 134 million. An analyst predicted this month that they could have 500 million by 2030. Wind remembers various milestones along the way. He remembers Hastings attending a dinner with President Barack Obama in 2011 alongside tech leaders like Mark Zuckerberg and Google CEO Eric Schmidt; he also remembers the moment that Google's search prediction assumed that if you began typing “n…” you wanted to search for Netflix.

Another way to gauge Netflix's cultural status is to look at the impact they have had on their competitors. The New Yorker said in 2014, when Netflix had just released its first original programme, House of Cards, that Apple was “not expected to develop its own content”. Such is Netflix's influence, however, that in November 2017 Apple announced the dawn of their own scripted programming. Three years later, they, Disney, Amazon and others are in a multi-billion-dollar war for people's attention. (The average person will pay for three to five streaming services.) Every year Netflix spends billions on original programming, an investment their rivals seem committed to match.

By the time Wind left in 2018, “Netflix joined the upper echelons of Silicon Valley as being one of the companies that's gonna be there for a long time and is really changing how the world works.” This change has been part of a massive culture shift away from traditional, linear television and towards a model that puts the consumer in charge.

Viewers, younger viewers in particular, now assume that their programming will arrive without advertising. They assume that they will be able to watch all of it at once, in six-hour binges – a habit that once seemed utterly alien to the way in which television should be consumed. They assume that their device will gently guide them towards shows that they may want to watch, based on what they have watched before. Netflix have irrevocably altered people's expectations.

At every turn, Netflix have managed to silence their doubters. Though they have had more time than Facebook for things to go wrong, they have not been beset by anything like the number of scandals. They have not been blamed for the election of Donald Trump; Hastings has not had to sweat through an interrogation by the Senate, as Zuckerberg did in 2018 when consulting firm Cambridge Analytica stole the data of millions of Facebook users. This is partly because even Netflix's scale is dwarfed by Facebook's, partly because they are not embroiled in the messy world of selling adverts based on users' data, and partly because everyone at Netflix is simply more experienced: Hastings is old enough to be Mark Zuckerberg's father.

There have been controversies: like every enormous tech company, Netflix have been accused of paying no tax; they have been criticised for keeping viewer numbers to themselves, only releasing them when convenient; and, in the last few weeks, they have been forced to apologise to people who thought they over-sexualised the children in the poster for Cuties, a film about a 11-year-old French girl torn between her Muslim mother and a young dance troupe.

But Netflix doesn't polarise opinion like Facebook and Twitter. Netflix is your friend. It is just there, swallowing more and more of the world in its enormous mouth. Netflix knows there is nothing you like more than watching television. Netflix knows that you're going to watch another episode.

There may come a time when the company's rise to power is arrested, its black and red rein over. Every company, even Netflix, may be due a Blockbuster moment. But at the moment it's difficult to see who'll have the power to stop them.

@OhHiRalphJones