This week Netflix announced this week that it will prepare a sitcom about the latest Blockbuster. The premise seems like a kind of cold revenge on what was the largest chain of video stores, the benchmark of the industry model that Netflix volatilized with its growth and, also, about the company that wanted to buy Netflix for just $ 50 million when it was still far from being the global brand that it is today.
But during the initial years of Netflix, those is what was still a service only to sell DVDs online, not even to rent them directly to home under subscription, much less a streaming platform, Blockbuster was not the only company interested in acquiring it. So was Amazon.
In 1998 and just two months after the official launch of Netflix; the co-founders of the then start-up, Reed Hastings and Marc Randolph, received a call from Amazon, according to the second in the book That Will Never Work: The Birth of Netflix and the Power of Big Ideas, where he narrates his beginnings on Netflix until his departure in 2004.
Randolph, who was then the CEO of the company, recalls that he and Hastings, who was a co-founder and investor, were excited to meet Amazon founder Jeff Bezos, which at that time was beginning to expand what was still an e-commerce of books to other products … Among which were DVDs.
By Back then, Amazon was also very young: It was only four years old and in 1997 it had debuted on the stock market, grossing $ 54 million.
“At that moment, [Amazon] it had almost $ 100 million in revenue from book sales, ”says Randolph, with about 600 employees, according to his book.
Randolph and Hastings knew they had to agree to the meeting and flew to Seattle to meet with Bezos and his team. But they were surprised by what they found on Amazon: “We walked into that office and it was a pigsty,” writes Randolph.
“People were crowded there. The desks were all like old wooden doors… on wooden posts, ”says the former Netflix executive. “And Jeff was in an office with four other people.”
Why the sale was cut short: Amazon only offered $ 10 million
Randolph says it didn’t take long for him and Hastings to realize that Bezos wanted to buy Netflix to jump-start Amazon’s entry into the video market. And after the meeting, Bezos’ team offered Netflix “Any figure below 8 digits” to acquire the company, Randolph confesses, which means, without getting his fingers caught, that at most Amazon offered 10 million dollars.
But considering that Netflix was only two months old, that was quite a significant figure for such a new company. Randolph then owned 30% of the company, while Reed owned 70%. Both would have left with several million dollars under their arms.
On the plane home, Randolph says they discussed the pros and cons of the sale. The biggest pros were that the company was not making any money yet; It did not have a scalable business model (which I would later find in streaming); and although they did a lot of business (mostly through the sale of DVDs), their costs were high.
Furthermore, both They knew that if they didn’t sell to Amazon, they would soon be competing with it.
But despite that, both Randolph and Hastings also knew they were at the start of something big. Netflix had a website and proposal that worked and agreements with a handful of DVD manufacturers. They had also figured out how to stock up on virtually every DVD on the market, and Netflix was “hands down the best source for DVDs on the Internet.”
Randolph and Hastings decided on the plane ride that it didn’t seem like the right time to give up, and they “politely” declined the deal as soon as they landed.
The meeting also got them thinking of new ways to get out of DVD sales and getting people to rent them instead of buying them, because they knew Amazon would be a lot of competition.
His decision paid off. Today, Netflix has more than 200 million subscribers and it has completely transformed the audiovisual distribution industry. Amazon, for its part, has become that “e-commerce of everything” that it seemed to want to be in 1998, and has Prime Video as a leg in streaming to seduce its Prime customers.