Just The Ticket

Given his fondness for movies, it's not surprising that Reed Hastings thinks about the future of home entertainment in terms that sound like they're drawn straight from "Star Wars." The story line, according to the founder of the DVDs-by-mail pioneer Netflix, goes something like this: as DVDs slowly give way to online movies, consumers will face a stark choice. Will they side with the "Forces of Control" or the "Forces of Freedom"? The Forces of Control are the cable and satellite companies, which offer 50 to 500 channels of content that's chosen by network programmers.

Opposing this bunch are the Forces of Freedom, a group of companies that includes Netflix, TiVo, Apple, AOL and Yahoo. Together the freedom fighters will offer something like 5 million channels via the Internet, giving consumers the ability to watch just about anything they'd like, whenever they'd like. "Instead of an electronic program guide that viewers scroll through with a remote control, the keyboard will be your remote control and your program guide will be Google or Yahoo," says Hastings, 44.

It's no secret which team Hastings is betting on. He built his empire on the premise that people would rather have their rental movies delivered to their mailboxes than have to haul themselves to the video store. As a tech company, Netflix was a contrarian play. Even at the height of the dot-com boom, when Silicon Valley buzzed with the promise of "transformative technologies" and "fat pipes" that would allow consumers to quickly download all manner of content, Hastings built Netflix on two disarmingly retro technologies: the DVD and the United States Postal Service. For a monthly subscription fee averaging $17.99, consumers would be treated to an unlimited number of rented DVDs, most delivered within a day of being ordered online. "People were talking about beaming movies to wristwatches," Hastings says. "We tried not to get drunk on the future, but actually to predict it accurately."

So far, so good. Today Netflix has 3.5 million members, and last quarter it did $5.7 million in profits. In the imitation-is-flattery department, last year executives at rental giant Blockbuster who once sneered that Netflix would never appeal to the masses, launched a service modeled on Hastings's creation. Earlier this year Wal-Mart pulled out of a similar effort to copy Netflix, signaling that even America's biggest retailer couldn't compete with Hastings's freedom fighters. But as far as the Netflix gang have come on old-school technology, its founder doesn't dispute the notion that before long, many people will begin watching movies at home over broadband. As that era dawns, Netflix will face a tricky pivot, requiring an overhaul of its business model.

As Silicon Valley visionaries go, Hastings has an unusually diverse resume. After graduating from Bowdoin in the early 1980s, Hastings spent three years teaching math in Switzerland. He returned to California and became a computer programmer, selling his first company, Pure Software, in the mid-1990s for $750 million. He then went back to school, getting a master's in education from Stanford before teaming up with star venture capitalist John Doerr on a ballot initiative to improve school funding in California. After that Hastings served briefly as head of TechNet, the Silicon Valley lobbying group, and became president of the California Board of Education.

His career in education ended around the time he rented "Apollo 13" from a Blockbuster store. After getting dunned for $40 in late fees, Hastings began wondering why video rentals don't work like a health club, which gives members unlimited access for a flat monthly fee. His original business plan relied on mailing VHS cassettes to customers, but in 1997 he realized that DVDs, still new at that time, would be a much easier, more durable format for mailing. In 1998, he started Netflix from a warehouse in the heart of Silicon Valley.