ROOM TO GROW
REED HASTINGS, THE BILLIONAIRE FOUNDER OF NETFLIX, IS A TECHIE WHO SEES THE WORLD IN NUMBERS & ALGORITHMS, AND NETFLIX IS THE ‘LEAST LUCKY’ PART OF HIS CAREER.
tap. Tap. rattle-rattle. Clang. “This,” my guest blurts out. “This is a problem.” reed Hastings is the billionaire founder of Netflix, the crusher of blockbuster, and the one who turned Hollywood upside down with streaming tech. but, right now, his main concern is pizza.
Slightly out of shot, Hastings is on his knees with a roccbox portable oven. I can hear the clatter of the pizza peel, a metal implement roughly the shape of a beach bat. my screen looks to a garden just outside Silicon Valley, the horizon only interrupted by a couple of trees. Hastings’ white sneakers peek into view, soles facing up to the misty sky.
“Argh! It’s stuck, it’s sticking,” he says, without sounding too panicked. A moment later, he pops back into view with a broad grin. He is wearing a sage-green shirt and has freshly combed hair.
“So it is too early in the morning for pizza, clearly,” he says (it’s mid-afternoon for me in London). “Just how a brilliant fried egg can turn into a scrambled egg, we may be dealing with a scrambled pizza here.”
Hastings lets out a long, wheezy laugh. He is no chef, but he is game. With a laidback air and a goatee that almost pre-dates the internet, Hastings is one of the Valley’s improbable survivors, and now the miscast impresario behind a Hollywood institution. A techie who admits to seeing the world in “numbers and algorithms”, the 59-year-old hails from the generation of bill Gates and Jeff bezos. In the mid80s he served coffee at Symbolics.com — the world’s first dotcom — and tried to patent a computer “foot mouse” at Stanford (a device as daft as it sounds). He eventually made a small fortune with Pure, a listed software business, while still in his thirties. Then came Netflix.
It is hard to overstate the change that company symbolizes for Hollywood and the old media empires. Netflix
launched in 1997 as a service offering dvd hire by post, aiming to bring internet savvy to the ever-frustrating, damn-the-late-fees world of video rental. Given a new mission by Hastings about a decade ago, it has been in the driving seat of an era-defining streaming revolution. For the media incumbents of the old world — spinning profits through advert breaks, cinema release windows and cable bundles — all that was solid began to melt into Netflix.
It could easily have been snuffed out by blockbuster or lost in the dotcom crash. Then there was Hastings’ hapless attempt in 2011 to split the business and create Qwikster, an aborted move that combined a price rise, a rebrand and a crime against spelling. Some basic foresight from big media might have also thwarted Netflix’s streaming ambitions; instead rivals licensed its shows, taking money for old rope. most of them are now flailing in its wake.
Netflix has amassed almost 200 million subscribers worldwide. It made its mark with series such as House of Cards and Orange Is the New black. but its us$15 billion annual content budget is now bankrolling half of Hollywood. It is not just movies such as martin Scorsese’s The Irishman or extraction, a thriller watched by 99 million in its first month, but countless hours of middling fare to suit any taste. Netflix is borrowing more (long-term debts of us$15 billion) its profits are relatively thin (pre-tax profits of us$2.1 billion last year), and the pandemic hit production. but that doesn’t worry Wall Street. even crises seem to make it stronger.
“COVID could have been an internet virus taking down all the routers of the world and our business would be out and restaurants would be in,” Hastings says. “And instead tragically it is a biological one, so everybody is locked up and we had the greatest growth in the first half of this year that we ever had.” With a market capitalization of around us$230 billion, it has been vying with Walt disney since march for the title of the world’s most valuable entertainment group.
“Can you see OK?” Hastings is back in his kitchen working dough for “crust number two”. The room is spacious but unflashy, with a timber-beamed ceiling that seems as high as a church.
NO RULES RULES
“So,” Hastings asks, as he prepares to spread tomato sauce with his fingers. “did you read the book?”
In his recently-released book No rules rules: Netflix and the Culture of Invention, Hastings admits to his “general incompetence at people management,” hiding his virginity at college, and sobbing before Netflix staff. but this book isn’t a confessional. Part memoir, part business manual, it alternates between Hastings and co-author erin meyer, a professor at Insead, who interviewed dozens of Netflix staff. What it explains — and debates — is Netflix’s smash-the-conventions culture, which Hastings sees as central to its extraordinary success. To outsiders it might also capture the libertarian spirit, and dark edges of dystopia, that mark our internet age.
Netflix hates rules. Staff face no limit on holiday, nor do they need expenses approved. everyone is deliberately paid more than their market rate — much more. “brilliant jerks” are sacked. big risk-taking is encouraged. Openness and transparency — “sunshining” — applies to almost everything, at least internally. market-sensitive earnings data is shared with 700 staff (most companies treat them like nuclear codes). Individual salaries are searchable too. It is, in theory, the antithesis of bureaucracy described by the sociologist max Weber: “Nothing but those little cogs, little men clinging to little jobs”. At Netflix “F&r” — freedom and responsibility — is the creed.
but there is a hard edge. This company’s mantra is being “a team, not a family”. So good employees are subject to the so-called “keeper test”, where adequate performance is rewarded with “a generous severance package”. radical candour extends to near-constant discussion of whether employees are a Netflix fit. It smacks of non-stop group therapy, with the risk of eviction at any moment, pour décourager les autres. “If your people choose to abuse the freedom you give them, you need to fire them and fire them loudly,” Hastings writes.
The book airs plenty of criticism. “Hypermasculine ... and downright aggressive” was co-author meyer’s first reaction to Netflix’s culture. but for all the self-reflection, readers still might feel something is amiss. The system has an unfalsifiable quality, an answer to every flaw. but all systems have a fundamental weakness, don’t they?
“Well, in a classic theory it won’t really be seen to be a good system until it has been practised for a decade or two after me,” Hastings says, as he flicks basil on to the mozzarella. We might have a long wait. Hastings made his longtime deputy Ted Sarandos “co-ceo” in July, but pledged to stay at Netflix until at least 2030.
Out on the porch, Hastings explains that the Netflix approach suits places where innovation trumps the need for consistency or safety. “At Netflix it has really been about, you know, tolerating some level of chaos and error, so that you stimulate more innovation ... but then the question is, as we went from 200 people to 500 to 1,000 to 5,000, how do you not have the chaos overwhelm you?”
Netflix’s safety net is an indefinable thing: judgment. It’s fine for bets to go wrong so long as they were pursued in a Netflix way. but that, of course, is entirely subjective. doesn’t it just allow the powerful within the company to define what success is to suit them?
“If you just say no rules, then it is kind of anarchy,” he replies. “The question is, can you manage through values and context, so everyone is doing the right thing without central co-ordination? It’s the jazz metaphor versus the orchestra.”
CRITICISM BY POWER POINT
Hastings hails from a family of achievers. His polymath great-grandfather Alfred Loomis made an unlikely fortune during the Wall Street crash, then invented a navigation forerunner to GPS. Hastings, though, describes himself as “a pretty average kid with no particular talent”. He grew up in the boston suburbs, joined marine officer training, then dropped out, heading to Swaziland with the Peace Corps. After MIT turned him down, his break was a place on Stanford’s computer science graduate program.
In business he fell into being a “people leader” without many people skills. He acknowledges a “rough” transition. marc randolph, the co-founder of Netflix, has compared him to Spock from Star Trek and, in his book on the early Netflix, describes the unforgettable one-toone meeting where he was ousted as chief executive. Hastings walked in, straddled a chair, then laid out randolph’s weaknesses in a Powerpoint presentation.
“I would probably, kind of, not use Powerpoint now,” admits Hastings. “but there is an overarching thing: it is difficult to take your cofounder and then slide them out. I wanted to have a really clear rationale and explain why it was right for the business. And at that time I thought in Powerpoint.
“It is not an unrepresentative symbol,” he adds, as I concentrate on cutting my pizza without it flying off the plate. “I was big on clarity of thought, you know, on being precise.”
Hastings sees Netflix as the “least lucky” part of his career. He leaned on Sarandos as the “entertainment savant”. When Sarandos paid us$100 million for House of Cards, he didn’t consult Hastings beforehand. Hastings proudly takes “very few decisions”.
It begs the question: why keep going? Why not become chairman rather than coceo? “I don’t feel we have entertained the world!” declares Hastings. “The simple answer is lack of success, internationally.” beyond the u.s., Hastings calls Netflix “small fry”. most of its growth is outside America, and its business model depends on keeping that expansion going. “We are very much still in challenger status,” he says.
Hastings has long stopped eating, and never took a drink. Our time is running out. We end by discussing the u.s.’s summer of protests. As Hastings talks about social injustice, I recall his mini-forays into politics, from tech lobbying to spending millions promoting charter schools in California. Would he consider going into politics?
“I’ve realized I like speaking truth. I am like an aspiring intellectual that way. That’s the opposite of the skillset, right? The leaders who get elected are leaders who are facile or a liar.”
“Surely it is time for a disruptive force,” I reply, which prompts another wheezy Hastings chuckle. “do you remember that old New yorker cartoon?” he asks. “There is a movie theatre with a long line in front of the title: The reassuring Lie. Then there is The Inconvenient Truth — and there are two people standing in line.”
After he has gone, bidding me farewell with a chirpy smile, I tuck into my secret salad and look up the cartoon.
Hastings, it turns out, remembered it slightly wrong. It was in the Christian Science monitor. And there is actually nobody queuing for The Inconvenient Truth.
AT NETFLIX IT HAS REALLY BEEN ABOUT, YOU KNOW, TOLERATING SOME LEVEL OF CHAOS AND ERROR, SO THAT YOU STIMULATE MORE INNOVATION ... BUT THEN THE QUESTION IS, AS WE WENT FROM 200 PEOPLE ... TO 5,000, HOW DO YOU NOT HAVE THE CHAOS OVERWHELM YOU? — REED HASTINGS
I DON’T FEEL WE HAVE ENTERTAINED THE WORLD!