Postcards

How the power players do it - by Fortune senior editor at large Patricia Sellers

Netflix CEO focuses on the future

July 22, 2009: 3:20 PM ET
Reed Hastings, the founder and CEO of Netflix, came by our Fortune offices yesterday. He's one of the most likeable CEOs you'll meet. Bowdoin grad like my boss, Andy Serwer. Post-college, Hastings joined the Peace Corps and taught school in Swaziland, He eventually landed back in Silicon Valley, WHERE HE GREW UP, started a couple of tech companies, and eventually struck gold with his movies-by-mail idea that resolved the hassle of in-store drop-offs and late fees.
And, as Hastings pointed out yesterday, he didn't call his company "Movies by Mail" or any name that would limit its evolution--which helps explain why Netflix is continuing to grow briskly, even in this brutal environment. Netflix stock, at $TK, isn't far below its all-tim high.
Netflix, which is due to announced TK-quarter earnings on THURSDAY, is riding the rough economy and the digital revolution quite nicely. Talking about subscribers, Hastings told us yesterday, "We were growing 25% when the economy was growing. We're growing 25% now."
Today, Netflix has more than 10 million subscribers, up from 700,000 in 2002, when the company went public, at $7.50 a share.
Hastings and his team are doing a lot of things right, but first and foremost, they're choosing what they don't want to be. That's right, as Hastings told me yesterday, he learned from Jim Collins, the well-known management guru, that it's just as important to decide what not to do strategically as it is to determine what to do. Especially in these head-spinning times when change is happening so fast and unpredictably.
So it's more critical than ever to prioritize. For Hastings, this has meant not competing with Blockbuster at retail--wise, given that video-rental stores industrywide are down to some 10,000 from 20,000 at the peak.."In five or 10 years, video stores will be gone," Hastings predicted.
Another choice Hastings made--"really hard," he admiited"--was deciding not to enter the ad-supported web video fray against Hulu, YouTube (GOOG), and CBS.com (CBS). (At least Google hopes YouTube will someday earn good money from ads.) "Commercial-free subscription is where we can compete. It's our best shot," says Hastings. Netflix offers unlimited DVDs by mail and unlimited instant streaming to computers and TVs for $8.99 a month.
He decided early on not to compete with pay-per-view purveyors like HBO (TWX)  and the and the cable companies. And recently, he decided not to go head to head against Redbox. That's the fast-growing startup, owned by COINSTAR, that places kiosks--15,000 TO DATE--in supermarkets and other heavy-traffic locales. Videos cost $1.
Despite the disruption and confusion around media distribution--or maybe because of it--Hastings is clear on his game. An engineer by training and a Microsoft (MSFT) board member, he's determined, he says, to make video-watching more personal and more satisfying, via technology, of course.
He looks forward to the day when an Internet browser is built into every television--TK years from now, he believes. We'll be calling up movies and channels and websites with a click of a button or just a word: "Wizard of Oz." OR "ESPN." Or "Netflix."
VIDEO.....
.

by Patricia Sellers

Reed Hastings, the founder and chief executive of Netflix (NFLX), came by our offices on Monday. He's one of the more down-to-earth CEOs you'll ever meet.

He's a Bowdoin grad like my boss, Fortune managing editor Andy Serwer. Post-college, Hastings joined the Peace Corps and taught school in Swaziland. Then he played Silicon Valley start-up guy for a stretch and eventually struck gold with his movies-by-mail idea, aimed at easing the hassle of in-store drop-offs and pesky late fees.

He didn't name his start-up "Movies by Mail" or anything like that to limit the company's evolution -- which helps explain why Netflix continues to grow briskly, even in this brutal environment. The guy had vision when he launched Netflix in 1999. The company went public in 2002 at $7.50 a share, and today the stock, at $45, isn't far below its all-time high.

Netflix is due to announce quarterly earnings tomorrow after the closing bell, so we'll see how well it's riding the the digital revolution, as well as the bad economy. But the ride seems to be pretty smooth. Referring to subscribers, which today total more than 10 million, Hastings, 48, told us, "We were growing 25% when the economy was growing. We're growing 25% now."

Among the things that he and his team are doing right, the smartest may be choosing what they don't want to be. As Hastings told me on Monday, he learned from Jim Collins, the renowned management guru, that it's just as important to decide what not to do in business as it is to determine what to do.

Especially today, when change is happening so fast and unpredictably,  it's critical to prioritize. For Hastings, this has meant not competing with Blockbuster at retail. That was smart, given that video-rental stores industry-wide are down to some 10,000, from 20,000 at the peak. "In five or 10 years, video stores will be gone," Hastings predicts.

A more recent choice he made -- "really hard," he admitted -- was deciding not to enter the ad-supported web-video fray against Hulu, YouTube (GOOG), and CBS.com (CBS). "Commercial-free subscription is where we can compete. It's our best shot," Hastings says. Netflix offers unlimited DVDs by mail and unlimited instant streaming to computers and TVs for a flat $8.95 a month.

Hastings decided not to compete with pay-per-view purveyors like HBO (TWX)  and cable companies. And recently, he opted not to go head to head against Redbox. That's the fast-growing start-up that places kiosks--more than 15,000 to date -- in McDonald's (MCD), supermarkets and other heavy-traffic locales. Videos cost $1 a day.

Despite inordinate disruption and confusion around distribution -- or maybe because of it -- Hastings is clear about his game. An engineer by training and a Microsoft (MSFT) board member, he's determined  to make video-watching more personal and satisfying -- via advancing technology, of course.

Hastings looks forward to the day, a decade or less from now, when an Internet browser will be built into every television, he says. We'll be calling up movies and channels and websites with a click of a button or just a spoken word: "Wizard of Oz." Or "ESPN." Or "Netflix."

Take a look at my conversation with Hastings for more about how he sees the future...

Join the Conversation
Fortune's Most Powerful Women
Fortune's Most Powerful Women For the latest on the most influential women in business, philanthropy, government, and the arts, like us on Facebook.
Guest Posts
Fortune Most Powerful Women Fortune Most Powerful Women The rolodex that redefined power
Profile in The Washington Post
Sheryl Sandberg: Sheryl Sandberg: Don't leave before you leave
COO of Facebook
Wendy Clark Wendy Clark Exec learns firsthand how the homeless live
SVP of the Global Sparkling Brand Center at Coca-Cola
Video
Marissa Mayer's 3 biggest decisions as Yahoo CEO With company stock up over 100% since she began running the company 16 months ago, Mayer reflects on her choices to date. Watch
Chelsea Clinton on running for office: 'I don't know' The vice chairman of the Clinton Foundation talks about her diverse career path and growing up in the spotlight. Watch
About This Author
Pattie Sellers
Pattie Sellers
Senior Editor at Large, Fortune
Executive Director of MPW/Live Content, Time Inc.

Pattie Sellers has written more than 20 Fortune cover stories including "Marissa Mayer: Ready to Rumble at Yahoo," "Muhtar Kent's New Coke," "Oprah's Next Act", "The $100 Billion Woman" (Melinda Gates), and "Gone with the Wind" (Ted Turner). She co-founded Fortune Most Powerful Women and oversees the Fortune MPW Summit, the preeminent gathering of women leaders in business and beyond—and programs such as Fortune MPW Entrepreneurs and the Fortune-U.S. State Department Global Women Leaders Mentoring Partnership. Pattie also develops Live Content across Time Inc. Her blog, Postcards, is about how power players lead and navigate their careers. Pattie won Time Inc.'s prestigious MVP award for her performance in 2012.

Email Pattie Sellers | Welcome to Postcards.
Follow Pattie | email newsletter
MPWomen go Global

The Fortune/U.S. State Department Global Women Leaders Mentoring Partnership brings rising-star women from countries around the world to the U.S. for three-week mentorships with participants of the annual Fortune Most Powerful Women Summit - among them Ursula Burns of Xerox, Laura Lang of Time Inc., Marissa Mayer of Yahoo, and Tory Burch.

Read more

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.