Reed Hastings, CEO of Netflix, killed the video store. Now he is winning the digital revolution.

The most innovative and practical thinkers of our time.
July 18 2011 11:59 AM

Reed Hastings, CEO of Netflix

First, he killed the video store. Now he's winning the digital revolution.

Reed Hastings, CEO of Netflix
Reed Hastings, CEO of Netflix

In Internet years, Netflix is practically an old-age pensioner. Reed Hastings, now 50 years old, founded the company all the way back in 1998 after racking up $40 in fees from a video-store rental of Apollo 13. By all rights, given its age, success, and the persistence of the innovator's dilemma, the company should be in the throes of corporate obsolescence: The digital revolution should have killed it, just as it killed the video store. Instead, Hastings' firm has defied the models and kept innovating—and remaining successful. How has he done it?

Netflix started off as a challenger to, and ultimately a victor over, video stores. Who would bother with Blockbuster if they could get a DVD via Netflix's flat-rate, by-mail service in a single day—with no evil late fees, either? But DVDs themselves were a rapidly aging technology. Glitch-free, instant streaming became a reality in the mid-aughts, and it became a threat to Netflix's business.

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In 2007, Hastings recognized that the future of media consumption lay not in a black box below a television set but online. "What we're finding is that young people, under 25, are watching our streaming on their PCs in huge numbers," he said. The company responded, and fast, developing Netflix Instant, its much-emulated streaming service.

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The company now holds a whopping 61 percent share of the streaming and downloads market, according to NPD, the market research firm. Nobody else comes close. Comcast has an 8 percent share, followed by DirecTV, Time Warner Cable, and Apple at just 4 percent each.

The company is now doubling down on the digital shift. Last week, it announced its new pricing plan, requiring customers to pay separately for streaming and by-mail services. Customers and tech columnists howled. The Atlantic, for instance, called the move "boneheaded." But it means that consumers can no longer pay for a single-DVD-per-month plan and expect to get unlimited free streaming with it. The change might cause some temporary pain, but it sets the company up for the future, and whatever media revolutions come with it.

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Annie Lowrey is a contributing editor for New York magazine. She can be reached at annie.lowrey@gmail.com.

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