Ken Auletta: How Netflix Killed Blockbuster
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Ken Auletta on how Blockbuster underestimated Netflix.
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Ken Auletta:

Ken Auletta has written Annals of Communications columns and profiles for The New Yorker magazine since 1992. He is the author of eleven books, including five national bestsellers: Three Blind Mice: How the TV Networks Lost Their Way; Greed And Glory On Wall Street: The Fall of The House of Lehman; The Highwaymen: Warriors of the Information Super Highway; World War 3.0: Microsoft and Its Enemies; and Googled, The End of the World As We Know It, which was published in November of 2009. His other books include: Backstory: Inside the Business of News; Media Man: Ted Turner’s Improbable Empire; The Streets Were Paved with Gold; and The Underclass.

Auletta was among the first to popularize the so-called information superhighway with his February, 1993, profile of Barry Diller's search for something new. He has profiled the leading figures and companies of the Information Age, including Google, Bill Gates, Rupert Murdoch, AOL Time Warner, John Malone, Harvey Weinstein, and the New York Times; he has dissected media meteors that fell to earth like "push" technology and inter-active TV, probed media violence, the PAC giving of communication giants, the fat lecture fees earned by journalist/pundits, and explored what "synergy" may mean to journalism. His 2001 profile of Ted Turner won a National Magazine Award as the best profile of the year. He covered the Microsoft antitrust trial for the magazine. In ranking him as America's premier media critic, the Columbia Journalism Review concluded, "no other reporter has covered the new communications revolution as thoroughly as has Auletta." New York Magazine described him as the "media Boswell." In another life, Auletta taught and trained Peace Corps volunteers; served as Special Assistant to the U.S. Under Secretary of Commerce; worked in Senator Robert F. Kennedy's 1968 campaign for the Presidency; and was Executive Editor of the weekly Manhattan Tribune.
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TRANSCRIPT:

Ken Auletta: Netflix in the early days – we’re talking about the late 1990s – was terrified that it was gonna go out of business. They were mailing DVDs and it was very expensive to do that so they weren’t making any money. And Blockbuster was this colossus and so Reed Hastings, the founder of Netflix, gets on an airplane and goes to Dallas to try and convince Blockbuster to come together and partner in some way. Ultimately what he really wanted to do was for Blockbuster to buy Netflix and for Netflix to be their long range online arm because he knew one day he would be delivering television, or video over the Internet. And Blockbuster could have its stores but he thought the stores would be in decline as, in fact, happened.

Blockbuster in retrospect stupidly declined to invest in Netflix. And within a couple of years Netflix had basically helped destroy Blockbuster. Blockbuster was an old technology. You went to a video store to rent a video. Most of the top 20 movies were already out of stock because people had rented them so there’s a lot frustration. And Netflix was basically, you know, get what you want when you want it and knew that they would move away from the DVD business to the download video business. So you could watch as many, you know, you could never run out of stock.

I think it’s very accurate to compare Netflix to a book and I think that’s part of the forward vision that Hastings had. If you think about the way – what Netflix has done with what has come to be called bingeing, it basically replicates a book because it basically says you want to watch House of Cards or Orange is the New Black, you don’t have to wait and watch it at ten o’clock on Friday nights or eight o’clock on Thursday nights. You can watch it whenever you want. And, by the way, you don’t have to watch commercials. And, by the way, which means the show is longer. And, by the way, you don’t have to watch a single episode, you can watch multiple episodes. Watch it as long as you want. Eat as much as you want. Just as when you read a book. You want to read more than chapter, you read more than one chapter. So the analogy is apt and I think he was smart about that.

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