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00:00This is my kitchen table and also my filing system. However much of the past three decades I've been an investor. The highest quality of mankind I've often thought was private equity . And then I started interviewing my watch here. I know how to do what I've learned in doing my interviews how leaders make it to the top. I ask him how much he wanted. He said to 50. I said Fine I didn't negotiate with him. I did no due diligence . I have something I'd like to say how they stay there. How does it feel to get up in the morning and know that three hundred and thirty million Americans want to know the state of your health that time . A few weeks ago Reed Hastings surprised the corporate world when he said even though he was the CEO and the founder of Netflix he would give up that position become the CO CEO. Now I've been a co CEO of a publicly traded company for a while. It can work and it didn't work for me but it's very challenging to be the sole CEO and then become the casino. You know when you talk to Reed Hastings you realize he doesn't have a big ego. He's willing to listen. Other people. I think it can work and I think it will work. And I think it is working . The company now which went public in 2002 the market cap is up about eighty six thousand percent. Stock is up about 41000 percent since then. Did you ever think that it would become that big and that successful. Well no because then I would have never sold a share. So you never know on that. And you know honestly there's been a lot of luck along the way too . Blockbuster could have wiped us out many times when Viacom spun off Blockbuster in 2004. They saddled them with a billion dollars of debt as their goodbye kiss. And you know that the covenants on that that severely limited blockbuster when they attacked us. So that was one. Another one is Blockbuster had us on the ropes. And then Carl Icahn got elected to the board of directors by the shareholders of Blockbuster. And he fired the CEO over some silly bonus issue . And then they completely changed strategies. And so it all these things have been incredibly lucky strokes. And so you need both skill and luck which I'm sure you've experienced too . I've had a lot of luck for sure. So let me ask you though for those who may not be familiar with a new book you're coming out with called No Rules. Rules are in that book you describe that you actually at one point wanted to go to Blockbuster and sell them the company for I think some modest amount today. Fifty million dollars. Yeah really . And you know in the early days we were like Blockbuster is going to wreck us as soon as we get big . And we were almost right about that. And so we went to see them . And you know they were very polite but they were not interested and had they bought the company. Where do you think Blockbuster will be today and where do you think Netflix will be today. It's always hard to tell. But I think we could have made Blockbuster a modern brand. You have a culture you describe in your book which is very unique. And let me just go through a couple of things. You say that I found stunning as somebody who's helped to run a company myself has publicly traded for example. You have a system where people can take whatever vacation they want to take. There's no limit. People can take any time off. They want no limit. Where did you get that idea from . Well in the industrial economy like factories we measured people by how many hours they did on the job. To five to six whatever that is. And we really want people to focus on ideas on generating important work. And so you know we don't measure them during the day. We don't clock our people in. And if we're not going to tell whether someone is working five to nine or nine to five which is a 2 to 1 difference and hours why are we tracking whether they do 50 weeks or 48 weeks a year. You know what work that's in the noise. And so unlimited vacation you know is sort of like saying dress how you want. You know and then people still don't come to work naked. There's some cultural assumptions about appropriate clothing for work and we don't need to specify that. And in the same way with vacation people understand you're getting work done and they get to live more flexibly . Well you also say in your book you don't have to please at your company your boss what you can go ahead and do what you think is best and your boss doesn't agree. That's OK. Is that easy to run a company that way. You know again we're really focused on inspiration over supervision. So the traditional paradigm is that good management is close. Management sets objectives managers type. Me and all of that's appropriate and safety critical environments. Airlines producing vaccines etc. But in a creative business you don't care so much about what goes wrong . You care about enough of the right things get done . And so we really focus on inspiring inspiring our people and having it be very open and collaborative. And from that you get amazing technical innovation and you get amazing content innovation. You point out in the book that if people do a reasonably good job they still might lose their job if they haven't done a spectacular job and therefore they get a very good severance but not a continued job. Can you explain that theory. Yeah. And then again in the traditional industrial paradigm you know you have to do something wrong to get let go . You can think of a job as sort of a property. Right. You know until you lose it by abusing your position. But if you think about professional sports you know if that team is going to win a championship it has to have a mix of the right players that work well together that are the absolute best in the world. And so we try to model ourselves like a professional sports team so highly paid. But you gotta earn your position every year. And it's about performance. And you know that's not right for everybody. Some people care mostly about job security. Other people care mostly about excellent colleagues. And you know playing great team ball to achieving something important for the consumers. And we're attracting you know that group of people who care about team excellence. So I've no doubt your book will be a best seller because it's a very interesting book. But I couldn't understand exactly whether you were saying that your culture is one that if other companies adopted they would do better or it's just that you're explaining what is so unique about your company and why it's successful. So which is it or is it both. I think a certain type of company a company in a creative industry where there's a lot of change will do better by optimizing for flexibility than efficiency. And other companies like airline or a factory wants to optimize either for safety or for manufacturing yields. So again highly consistent results. And that's not for this Netflix culture but for again a company that wants to be inventive and create new things. I think this offers a lot of fresh ideas for people to rethink the traditional industrial paradigm. Recently you made an announcement that stunned the number of people which was that you were bringing in your chief content officer Ted Sandoz who's been with you for 20 plus years almost in the beginning and making him the CO CEO externally. You know it's a change and that helps on Ted's stature and ability to do big deals . Let's go back a little bit to your background. So you grew up in the Boston area is that right . Boston and D.C. and you went to college at Boden which is a great school. And after you graduated what did you do. I went in the U.S. Peace Corps and I was a high school math teacher in a very rural part of southern Africa. And after that you decided that you would go to business school at Stanford. What led you to decide to go to business school. And at Stanford I actually went into computer science and I tried to take a business class but they rejected me. So in any case being at Stanford in the mid 80s was a incredible experience because you learn so much entrepreneurial work from all your colleagues. Everyone's bubbling with ideas and that's still happening today 40 years later. So when you graduated from Stanford you decided to get into the computer industry and you were a programmer for a while. Is that right. Yeah I was a programmer at a couple of different companies. And then I was fortunate and had an idea of something that I really wanted to do . That was in 1990. So I took a year off and consulted on the side part time and then wrote a program that ultimately turned into a company which was a reasonable success. Morgan Stanley took us public in nineteen ninety five. It doubled every year and that ultimately is the company that was so much process that it got too rigid. It was a great learning lesson. Right. So when you ultimately left that company after taking a public and ultimately merging with somebody else you had the idea of starting what is now on Netflix. That's right. Yeah. I mean the timing was shortly thereafter that a colleague of mine from Pure Marc Randolph and I were brainstorming on different ideas . And then you know like many people at that point I had had this terrific lazy and so was you know thinking it has to be a better way. And then it's when this friend told me about DVD that I realized oh you could mail those cheaply and that you could potentially build a business there that was not in Amazon's direct interest because of the return route that you constantly return these DVD which was unlike Amazon's core. So it was e commerce. But you know smaller market than what Amazon was going after. The story is that you took out some DVD I guess from Blockbuster. You found out that you had kept them too long . You didn't like paying the late fee. And that prompted you to think of something like this. Is that fair or is that just apocryphal. No that's accurate. But you know it sort of says every time something goes wrong the idea didn't pop into my head right then. It was later you know when I was debating ideas that you know that the sting of that stock because it was a 40 dollar late fee. So you know and it was all my fault of just not breaking it back. So originally you're at your mailing DVD back and forth. But the idea of streaming who came up with the idea that that would be better and was streaming that prevalent down or that common or people knew what it was. Yeah. People know what it was. And you know I had had the good fortune the year I came back from the Peace Corps. So that's mid 80s now . I got a job serving coffee at a company. And it turned out that that company computer lab was the very first dot.com. So there you were no dotcoms at all. And then there was the first one and that was this company symbolic dot com. And so this was a company out of M.I.T. that was like the hotbed of the Internet . But nobody knew the Internet . And so there I was serving coffee soaking up the culture and how they thought. And so when I eventually went on to Stanford you know I was in the Internet thing and then had been part of that and tracking that for a decade when it was a decade when Netscape went public and everyone else tuned into it. So I mean some of that again is just incredible serendipity of you know what's the company that I got a job serving coffee in the computer lab or originally you would take programming that's a Disney or NBC or ABC or somebody had and you would. Or movies and you would put it up and people would pay for it and you would pay the the people who produced it. I assume some royalty. When did the light bulb go off. And you said no we need to have original programming. Well Ted was intimately familiar with the history of cable television. And right from the beginning he educated us on. HBO was passed which their first 20 years in the 80s and 90s. They just had recycled programming. And then with shows like Soprano's and The Wire they moved into original programming. And what a difference it made for them. So we were very aware of that history. And then it was just a matter of biding time to make up big enough. So today the original programming that you have is that more popular than the non original that you're in effect renting from somebody else. Yeah that's right. The original programming Driving the Old Guard are our newest movie Kissing Booth to an amazing movie. Our series like India Matchmaking or Raila Academy are all driving both the viewing and the membership growth. So we're fundamentally an original content business that supplements with license content around the world . Why is it that on Netflix your content is very popular but you don't do things like news or sports. How come you haven't done those yet . Well those are great areas but they're well covered by other companies and we have so much more we want to do on series and films and we're breaking into animated films and series now . We've done really well with unscripted reality programming like India matchmaking that I mentioned that Love is blind Tiger Gang . So our hands are just full. And again there's other companies doing other things and we just want to focus on entertainment . And when House of Cards was on Netflix did you suggest themes for it or plotlines or did you ever get involved in that or you stay away from what they're actually going to do when they're on the show. Our book really talks about don't please the boss do what's right for Netflix. And because of that Ted Serrano's when he was negotiating with House of Cards with Kevin Spacey and David Fincher he was willing to do very bold things because he was convinced it was right . And so we paid a fortune and guaranteed two seasons which at that point no one had done. And he only told me about it later . And so his willingness to make big independent decisions . It's what led to us getting House of Cards. And of course he could have been wrong and it could have been a disaster. But it was a great series. Put us on the map. And that's again somewhat testament to Ted's personal skill but also to the culture that allowed him to make those decisions. And so when you started winning Academy Awards and Emmy Awards and other things like that was that a surprise to you that you were getting that kind of recognition. No I we've always wanted to work with great talent. And right from the beginning we knew that flight with House of Cards that the talent that was involved in that Robin Wright and Kevin Spacey you know were potential to win Emmy nominations for that. So if you if you back great talent take they will win awards. And it's very life changing for them for consumers. You know it doesn't matter as much. They're not as visible. But in the talent ecosystem it's very significant. Recently you made an announcement that stunned the number of people which was that you were bringing in your chief content officer Ted Sandoz who's been with you for 20 plus years almost in the beginning and making him the CO CEO . Usually people who are CEOs and founders don't all of a sudden give up a lot of power. So why did you decide to do that. And were you surprised that the reaction was a bit of a surprise . You know Ted and I have worked together for 20 years and we've been virtual co CEOs for the last several years. So we've been paid the same. You know we don't do really do anything material without checking in with each other. So this was just acknowledging and formalizing you know what has been. And so externally you know it's a change. And that helps on Ted's stature and ability to do big deals. But internally it's really no change at all from how we've been operating. At the time of the announcement you said you were good for another decade. So in October I got a right. You'll turn the big 6 0 . And I don't mean by 70 you might be ready to slow down is that a fair assessment. Well you tell me how. What's your experience in that of 60 to 70. Right. I would say workaholics don't really pay much attention to age. And so as long as your health is good I don't think you'll change that much. But when you get 70 you might look around and say maybe I'll do something else . But you got a long 10 years ahead of you I'd suspect. I'm sure you'll be in great health to do it. Well I'm super excited about it. There's so much that we can do in terms of bringing the world together sharing stories from around the world . And you know there's just as the Internet grows too you know every human being. I think there's just an amazing opportunity ahead . What would you say is the key to leadership that enabled you to be what you are today. So you want to be super proud of the organization and personally humble . You and your wife recently made a contribution to the United Negro College College Fund and at Morehouse College and the Spelman College. Why did you decide to do that. Is that not your largest philanthropic contribution any one gift. No it's not the largest but it it's the loudest toward sort of the most public. We tend to mostly be very quiet about these things. But we wanted to show solidarity for black education. And black education is so critical to economic mobility political mobility and you know the sense of belonging and the challenge. You know for us as a culture is really the legacy of slavery. And it continues to be a tremendous scar across the soul of America. And it's you know awful and it's so bad that it's hard to look at and talk about and it's so hard to look away. And we really haven't come to terms with the legacy of slavery in our country. So this you know modest donation again relative to the needs is really about you know black economic gains and education. So the story that I read was that you were originally considering a gift of maybe one tenth that size. And then the last minute you increased it when you called the head of the United Negro College Fund. Was he surprised or what made you change your mind. Well I've known the head of USCF for a decade and he's taught me a lot about race in America. And we've been a donor for a number of years . But it was really the current time that got us to make such a substantial and frankly public donation to again bring attention to the role of the HBC use the historically black colleges and universities like Morehouse and Spelman and to support their work. But as they do develop you know thousands and thousands of black leaders throughout this country and the really positive part of our education system. And because white capital tends to flow to white organizations . You know there's relative capital isolation in the same way that we have social isolation. And so you know we wanted to be part of building those bridges. Now the industry that I've been in the financial service industry is not replete with as much success as it would like in terms of minority hiring. And the technology industry is probably somewhat that way as well. Is there something that you can do at Netflix to enhance your minority hiring and among the executives and other employees . Well we we publish the data and we've made every quarter and we made great progress and we've doubled our number of African-American employees over the last three years. And you know that's throughout the business. But in particular in the media side our tech side is still underrepresented. You know as is in the field. So we have a long way to go. But we're trying to make those efforts not only again for African-Americans but for many underrepresented groups both in America and frankly around the world. So people are watching this will say OK I want to be like Reed Hastings. I want to build a great company . I want to be successful. Have a great family philanthropically active. What would you say is the key to leadership that enabled you to be what you are today. It's about achievement of the company as opposed to personal achievement. So you want to be super proud of the organization and personally humble. So I assume you hear from your high school classmates your college classmates your Stanford classmates telling you they always knew you're going to be successful and they weren't surprised. And by the way they have a script for you or something like that. Do you hear from a lot of people like that. Yeah. Stay in touch with a lot of friends that way. And you know I was definitely a late bloomer. I don't think I was one of those people that was marked at an early age. And you know when you read about how at age 16 they were like unbelievable . You know I was very average run of the mill kid . And you know I'd been super fortunate with a series of events in terms of my first company doing well having that idea which then battered into being able to do Netflix . So I feel incredibly fortunate which is part of why my wife Patty and I are so dedicated on philanthropy. It's sort of you know like seems to us miraculous that we have this money. And of course we live a very comfortable life. But it's really the excitement of using that money to then help others. Let's suppose 10 years from now when you say you might hang up your spurs at Netflix you might. You're not committed to it. What might you do. Would you run for office. You want to be prison United States you want to be a senator or governor . Philanthropy teaching. What do you think you might want to do when you turn the ripe old age of 70. I want to have my own interview show . Well I'm sure you could get that anytime you want one. I know . I'm good company. You can probably get on Netflix .

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The David Rubenstein Show: Netflix Co-CEO Reed Hastings

Reed Hastings, founder and co-chief executive officer of Netflix Inc., talks about how the company was almost sold to Blockbuster, why they're not interested in news and sports, the importance of working together in an office, and why all Netflix employees get unlimited vacation time. He appears on the latest episode of "The David Rubenstein Show: Peer-to-Peer Conversations." The interview was recorded on Aug. 4. (Source: Bloomberg)

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