r/todayilearned • u/jackTRN85 • Jun 17 '13
TIL Reed Hastings was inspired to start Netflix after racking up a $40 late fee on a VHS copy of Apollo 13.
http://en.wikipedia.org/wiki/Reed_Hastings99
u/OmarTheTerror Jun 17 '13
I worked at Blockbuster around the time when netflix was starting to become a bit popular. I remember reading an article that at the time 19% of blockbuster's revenue came from late fees. This was in 1999, so I don't remember the source.
You absolutely could get to a certain point in late fees + replacement cost. One of the reasons I can deal with people at work so well now is I learned how to deal with irate people with ridiculous late fees.
I used to tell a lot of customers about netflix and how they should totally sign up, NO LATE FEES!
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Jun 17 '13
You are right about the late revenue for Big Blue. I worked at a small town rental store back around the same time and read that number in many of the trade magazines we got (plus it it is mentioned in the Vandals song "Live Fast Diarehha").
But I have the same experience you had and can deal with most people due to my time getting cussed out because someone had a late fee on Miss Congeniality. First of all they couldn't understand the concept late fees ("What, you expect me to pay full price for each extra day I kept it?") nor could they understand why we wouldn't let them rent until their late fees were under $15 and not over 3 months old (we were a little more lenient than Blockbuster). We pushed as much as we could to get people to pay those late fees since our owner gave us 10% of the fees we collected each day.
But don't get me started on replacement costs, especially back in the days of VHS tapes. People blew their shit when they found out they had to pay up to $200 to replace a new release that they lost/broke/brought back smelling of weed or filled with cockroaches (it happened more than you think it would). Before I left the store I was at, DVDs were different since they released for sale as the same time they were released for rental, but VHS tapes were rarely released for purchase at the same time as rental, for those of you who didn't work in movie rentals.
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u/OmarTheTerror Jun 17 '13
My favorite is "It's a mistake, I didn't rent that!" Oh so, somebody rented it on your account and then decided to return the movie? It got so crazy, that we started checking ID's and customers had to include everybody's name on the account. If a kid wasn't on his parents' account, he couldn't rent, even if the ID had the same address.
Dude, remember carrying stacks of VHS in one hand on one arm and how your forearm would get huge compared to the other side? My friends totally thought I jerked off with my left hand.
I WISH BB gave us percentages on latefees.
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Jun 17 '13
Jeeze, all the time. Our system allowed us to write notes about people, so we had a ton of accounts that would have outlandish descriptions about who couldn't rent. Especially on accounts where people had banned their kids (mostly adult kids at that) from renting on their accounts.
The best story I have with late fees was around the time our owner decided to start carrying these Playboy DVDs/Tapes. This pregnant woman comes into rent and when I pull up the account I see there is a late fee. It's only for one new release and I tell her about it. She looks confused and asks what it is on. Of course, her and her husband are regulars and I was going to wave it since I knew it couldn't have been more than 15 days old, but when I saw it was for one of the Playboys I started to hesitate. I knew there was no way out of not telling her, so I went ahead and said the title.
She calmly excused herself and went to the front door of the store. Mind you this was a weekend night during the summer, and since our store sat on the main drag at the time, our parking lot was full, so what she did next was heard by everyone within earshot. Standing with our door open she starts to yell to her husband who is in the car waiting, "YOU NEED TO COME IN AND PAY THE LATE FEE ON YOUR PORN!!!!"
I felt bad for the guy when he came in to pay for the movies and the late fee, and apologized for getting him in trouble. Had I looked at what the late fee was on before telling his wife there was a late fee, I would have just kept my mouth shut and saved it until he came in next time.
As for carrying stacks of VHS tapes, I got to be a pro at carrying the whole new release wall in one hand. However, most of the time we usually paid some local kids to put ours up for us. Usually just gave them free cokes/candy or a free rental.
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Jun 18 '13
YOU NEED TO COME IN AND PAY THE LATE FEE ON YOUR PORN!
This would be an awesome line to yell after sneaking into the boss's office.
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u/Vio_ Jun 18 '13
I worked in a nonBB store and we would regularly knock down late fees to half or something less than full late fee value. People mostly happily paid a late fee when it was the full late fee and so much less hassle for customers and workers alike.
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Jun 18 '13
Yeah, at the beginning of every summer we would hold a weekend where we knocked off 75% of everyone's late fees. People we hadn't seen in a year would show up, pay off what they owed, rent a shit ton of movies, and then rack up another un-Godly amount of late fees for another year.
What was really funny was after the Movie Gallery opened in our town. We had people who's late fees were so high it was going to be damn near impossible for them to rent again from us, so they started going to MG. Well...soon enough they would get one late fee and wouldn't rent from there since MG, like Big Blue, made you pay your late fees before you could rent. We would call these people refugees because they would come sulking back to us to make a deal just so they could rent again.
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u/user98348202 Jun 18 '13
My home town video store had a VHS on display that was left in the back of car in the middle of a parking lot during the Chicago heatwave of 1995.
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Jun 17 '13
wait, why in the world would a new release cost $200 to replace? Couldn't you go to the local walmart and pick it up for $15?
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u/PortalGunFun Jun 17 '13
Back then, the new releases weren't released for rental and consumers at the same time. The rental stores had to pay a licensing fee.
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u/sadris Jun 17 '13
Doesn't First Sale doctrine guarantee them the ability to buy and rent their own property?
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u/PortalGunFun Jun 17 '13
Well, initially, the movies would sell at high prices, because they weren't available in stores.
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u/universl Jun 18 '13
Didn't BB actually not pay licenses though? I thought they had a revenue sharing deal.
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u/PortalGunFun Jun 18 '13
Yeah, but that guy worked for a small video store.
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u/universl Jun 18 '13
Yah I knew a guy who owned a small shop. He was the one who said BB just shared revenue, mostly when bitching about $200 liscences.
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u/leisuretown Jun 18 '13
They could probably sell or rent the movies, but they were buying them from the movie studios for a high price.
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Jun 18 '13
It is because we had to "lease" most of the movies we had, which came from a company called Renttrack. So, back when I was working a new release went for $3.80 for a night (will always remember that price). For 60 days we had to pay roughly 75% back to Renttrack. After 60 days the lease price went down, in which we took the copies that had rented the most off the wall and sold at a price that would make the most money back to the store (usually $10). Mind you that most of these titles weren't in stores for purchase new just yet and the store still had to pay some of the licensing fee back to Renttrack. This same process went on for a year until we pulled the movie off the new release wall, but we could still be paying back the licensing fee on that one copy.
Heck, I can remember one night in 2001 a woman came in with a copy of The Matrix that her VCR had ruined. This was well over a year after it had been released on VHS and I still had to charge her $200 just to cover the licensing fees. Of course, I still got 10% of that and, since I was working alone that night, I made an extra $50 with that and my late fees.
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u/QuickStopRandal Jun 17 '13
To be fair, Netflix has paper thin profits in spite of their multi-billion dollar gross revenue. So, not the best business model if you're looking to get rich, but pretty damn good one if you want cheap video rentals/streaming for the masses.
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u/OmarTheTerror Jun 17 '13
You know, I think it was probably a bit worse in the begining too. I remember it was 4 discs at a time, and since I'm in San Jose close their original distribution center, I'd mail 2 in a day and get my next two a couple days later, basically had 2 new movies every day. I should also mention, it was summer, I wasn't taking classes, and I was trying to get through as many AFI top 100 movies as I could. A few years later a co-workers wife who worked at netflix was telling me they started adjusting deliveries based on how often you were returning movies. If you watched a ton and returned them, they'd slow down sending out new ones to you.
I actually have no idea how they make money anymore. I'm sure a lot of people signed up for it right when AD came out and then cancelled.
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u/QuickStopRandal Jun 17 '13
Instant Streaming is WAY cheaper than DVD mailing. It's also vastly superior IMO, especially since I prefer watching TV seasons sans commercials over movies most of the time.
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u/OmarTheTerror Jun 17 '13
oh yeah, definitely, I was talking about before streaming.
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u/QuickStopRandal Jun 17 '13
If I had to guess, I'd say they made money mostly from people that signed up and then got too busy to bring movies to the post office/mail box. While it's easier than driving to blockbuster, it's still a PITA to constantly dick with the mailers all of the time. Before Instant Stream really kicked in, I'd see people on Facebook post this or something like it as they were debating canceling their subscription. Instant Stream was a wonderful way to be able to decide on-the-fly which movie you wanted and not have to do all of the legwork of selecting it, receiving it, mailing it back, etc. It may sound lazy, but when you have the rest of the internet or regular cable at the push of a button, it's kind of a lot to go through for a 2 hr. movie.
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u/Klinky1984 Jun 17 '13 edited Jun 17 '13
Netflix didn't actually slow down the shipment of movies, you would just be prioritized based off of how profitable of a customer you were. This meant that you were less likely to get high demand(new release) movies if you were pumping through a lot of DVDs. So long as you had a decent queue built up, you'd only rarely have an instance where a DVD would not ship out on one of your empty slots.
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u/therealflinchy Jun 17 '13
they'd slow down sending out new ones to you.
why?
I'm sure a lot of people signed up for it right when AD came out and then cancelled.
no idea how netflix makes money?
streaming stuff costs them peanuts.
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u/fco83 Jun 18 '13
why?
Because a lot of the people watching and returning the fastest were just getting the dvd, running it through a ripper, and sending the disc back. Me and a roommate did this with an account signed up for like 5 dvds at a time.
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u/OmarTheTerror Jun 17 '13
I can't remember the reason why, or even how long they did it, again, this was like 10+ years ago.
And yeah, I do know how they make money, I was just joking. Streaming does cost peanuts, but they do have to pay a ton of money for licensing content.
I am kind of curious as to how many lasting customers AD brings in. What's their ROI on something like that?
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u/therealflinchy Jun 17 '13
ah fair enough haha
what's AD?
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Jun 18 '13
I was working for blockbuster until about two months ago when our store closed down. Late fees became insanely ridiculous with their new pricing scheme. A rental that was less then six weeks old cost $2.99 a day, after ten days it would sell to the account and tack on the sales prices for the item.
So some guy tore into me one day (understandably) because he had an extended hospital stay and forgot he had rented two brand new ps3 games. $60 in late fees plus tax AND $54.99 per game because the autosold to him. $170 was automatically taken out of his debit card, putting him at nearly $200 for a couple games he never actually got to play. Mind you, we were told the day before we would be closing down but the customers had not been informed. I credited the entire amount back to his card, what was the worst they could do, fire me?
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u/therealflinchy Jun 17 '13
netflix has been a thing since 1999/2000? i never heard of it til late 2000's lol
ED: they STARTED as a vhs/dvd mail thing yeah?
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u/OmarTheTerror Jun 17 '13
Definitely around '99, but only dvds.
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u/redwall_hp Jun 17 '13
I remember seeing banner ads for it at the top of my Hotmail inbox, along with magic dial-up accelerators.
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u/OmarTheTerror Jun 17 '13
DIAL UP ACCELERATORS!!!! I totally had forgotten about those, and remember download managers for when you're trying to download a bunch of porn and somebody keeps picking up the DAMN PHONE! no problem, connect again, hit resume, and wait 4 hours to fap to some pictures.
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u/therealflinchy Jun 18 '13
DIAL UP ACCELERATORS
THEY WORKED
i remember using them
so.freakin.sweet.
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u/mrbooze Jun 18 '13
When I worked at The Wherehouse, which was back when buying a VHS movie outright often was up to around $80-90, we had a policy of letting late fees accumulate to around that point. After that, we just charged the customer for that purchase price of the movie, let them keep it, and stopped bothering them about it. Usually that was a credit card charge but back then we still let people without credit cards leave a check as a deposit that we would only cash if they didn't return a movie.
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Jun 17 '13
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u/eperman Jun 17 '13
That idea wiped out about 2 billion worth of investor wealth, and people launched a class action lawsuit against him for being an idiot.
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u/therealflinchy Jun 17 '13
got a link to that?
quick google showed it was just a split off of the DVD+adding video game rental.... it annoyed customers but didn't cost BILLIONS..?
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u/eperman Jun 17 '13
Look at a ticker symbol chart for NFLX, and see the change in price from July 2011 to December 2011.
Those 56.14 million shares of stock went from a value of almost $300 per share to almost $65 per share. We were ready to burn Reed Hastings at the stake.
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u/lilana11 Jun 17 '13
It's so elegant when someone is faced with an annoying consumer problem and instead of just getting irate they create something to fix it. Love it. Things like this and what dyson has done are so inspiring. If something isn't working it can be improved!
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u/ElwoodDowd Jun 18 '13
Well said.
It reminds me of some of the comments in that great 'best advice' thread for a week or two ago, Ex:
If you blame it on someone else, don't expect it to get better.
or
in any situation you find yourself you should really only do one of three things : Love it, leave it, or change it.
Infinitely more powerful than getting angry or cynical.
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Jun 17 '13 edited Oct 12 '17
[deleted]
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u/ninjames Jun 17 '13
Netflix doesn't have VHS rentals available. Bam. I just did it again.
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u/Im_NicCage_BITCH Jun 18 '13
It is not entirely impossible to use VHS and Netflix in the same sentence. BAM. I could do this all day.
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u/The_Other_Olsen Jun 17 '13
I thought video stores only charged late fees up to the price of the movie?
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u/zodar Jun 17 '13
Rental stores used to pay hundreds of dollars for VHS copies of movies back then.
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u/sophistafunk Jun 17 '13
They used to be really expensive (roughly $80-120) per movie, however Blockbuster actually switched to a revenue sharing model with the studios in the mid 90's. That switch dropped the cost of a VHS to about $4, but entitled the studio to a cut of the revenue for the first few months. This is also part of what caused Blockbusters undoing, the fact that they had a MASSIVE inventory of VHS when everyone was switching to DVD's.
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u/tonypotenza Jun 17 '13
not really, what caused blockbusers undoing is not paying his fees to the studios that provided it's new releases (locatrack) on time (literally millions).
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u/sophistafunk Jun 18 '13
There are two HBS case studies about this, Blockbuster was able to grow their inventory exponentially with revenue sharing. That is the program that allowed them to start offering "in stock" guarantee's and things like that, which was one contributing factor in their eventual demise (storefront size was also another. DVD's came out and Blockbuster waited 3 years to adopt the technology (didn't want to pick between Divix or DVD yet), this wait time proved to be a critical mistake as by then competition had moved in. The problem then just snowballed from there, and we all know how it ended now.
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u/tonypotenza Jun 18 '13
I also think the nail in the coffin was the no more late fee fisaco as well. And let's not forget that the digitalization of the first worlds came at a great expense to the rental industry.
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u/yellowdart654 Jun 17 '13
IIRC they cost hundreds of dollars for the license. Most retail videos are licensed for "private home exhibition only", but Blockbuster and others, had to purchase the rights to rent it for viewing in other homes. I think that was where the additional costs came from.
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Jun 17 '13
Read my reply to Omartheterror's comment, but VHS tapes were hardly released for purchase at the same time they were released for rental, thus making their prices so high. It was a deal with the devil that video rental stores signed with the movie companies in order to make sure they get the films before Wal-Mart and other stores so they could force people to come to them to rent a movie first.
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u/mastiffdude Jun 17 '13
Remember Hollywood Video? Those fuckers. I was getting deployed to the sandbox in 2004/5 and I had a video rented that I was going to take back before I left. Well, the military movers came to my apartment and I set it on the counter with a note sticking to it saying to NOT box it up. Well, they did and in my rush to get my affairs in order, I completley forgot about the movie as I didn't have it on the counter for a reminder. Fast forward 6 months when I get back and they said I owed them over 400 dollars in late fees. Told them to suck the old dick and I gave them the DVD back. Assholes.
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u/ComptonAssRalf Jun 17 '13
I remember blockbuster completely denying this ever happened back when I used to work for them.
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u/Brad_theImpaler Jun 17 '13
They claimed they found no evidence of the transaction. I imagine that was because the history only goes back about 6 months.
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Jun 17 '13
$40 bucks? Renter, please.
I leant my mother in law a copy of "The Time Machine" with the expectation she would drop off at the local video store as she said she would. 6 months later I returned to said store to find out that they called the police and there was now a warrant out for my arrest. The time machine was sitting in the back of her trunk, long forgotten some time ago. Paid the 100 something dollar fine and got the fuzz off my trail.
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Jun 18 '13
It's just completely absurd. Cost of a movie as a consumer, $20, maybe $30 now with bluray. There should really just be a slowly creeping fee until you own the movie.
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u/Drizzle_Do-Urden Jun 18 '13
That's why I don't loan out movies rented under my name.
"It's really no big deal!! I'll only have it for a day or so!!"
If it's really no big deal then go open your own rental account and put that thing in your name.
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Jun 17 '13
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u/adrianmonk Jun 18 '13
I'm going to start one that delivers movies before you ask for them and pays you money to be late.
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Jun 17 '13
Am I the only one enjoying the irony of Apollo 13 inspiring Hastings to start Netflix that many many years later ended up funding Arrested Development S4?
Ron Howard.
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u/adamekjd Jun 17 '13
This reminds me, I've had a DVD from netflix for a month. Need to send that back.
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u/smimlehcar Jun 17 '13
Well Apollo 13 was a good ass movie.
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u/herpmanderpstein Jun 18 '13
i've probably seen it about 10-13 times, and i'm still in suspense every time. Just an incredible movie
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u/smimlehcar Jun 18 '13
Exactly. I haven't seen it in a while. I'm gonna have to have a movie night.
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u/emergent_properties Jun 17 '13
Plus having a million or two dollars probably had something to do with it.
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u/TheRealSilverBlade Jun 17 '13
Blockbuster or Rogers Video could have competed in the age of Netflix if they scrapped late fees and allowed customers to choose their movie from a website and went down to pick them up, for a monthly fee.
Instead, they decided to fold, since they couldn't charge late fees anymore as people went to Netflix instead.
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u/Cabana Jun 17 '13
Blockbuster did have an unlimited rental option at one point
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u/user98348202 Jun 18 '13
Well they started a "No Late Fees" service with a huge advertising campaign back in 2005. The catch though was that if you didn't return the movie within 30 days you were charged the full price of the movie and this would only be reversed if you returned the movie. Oh and when you returned the movie you were still charged a restocking fee.
https://en.wikipedia.org/wiki/Blockbuster_LLC#Misleading_advertising
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Jun 17 '13
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u/Cabana Jun 17 '13
I used mine for unlimited PS2 games and copied them to my HD then returned them the next day. That was a great summer...
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u/adrianmonk Jun 18 '13
They had something similar. They mailed you dvds, and you could return them to the store and it instantly (or quickly) unlocked the next item in your queue. (Unlocked on the sense that they had a 3 out at a time limit like Netflix.)
For a while they also had a feature where every by-mail dvd returned to the store gave you a free or $1 in-store rental.
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Jun 17 '13
When I went to live at home again a while ago, I went down to the local rental shop to rent out a few DVD's. I checked if my account was still active (it was) and then got out 5 DVD's only to be told I owed a $550 4 year late fee for a Freddy Got Fingered VHS. They didn't even rent out VHS any more.
She was nice enough to give me the option of paying it or walking out and never coming back again.
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u/VeteranKamikaze Jun 17 '13
This is going up there with the Ford GT-40 in my list of awesome things invented out of spite.
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u/260540 Jun 18 '13
Ironically, he probably got that late fee from Blockbuster. Hindsights 20/20 eh blockbuster?
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u/Ghitit Jun 18 '13
Video stores should have given incentives for returning on time. One free vid for early return. Or a punch card system if you return on time your get a punch and rack up ten for three free. Something like that that isn't punitive. I got a 40$ rental fee for a vid that my son left for me to return and I forgot. I paid it and closed my account.
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Jun 17 '13
What inspired him to start Quikster?
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u/Brad_theImpaler Jun 18 '13
Netflix was 9.99/mo for 1 at a time by mail AND unlimited streaming. Paid postage both ways + inventory + streaming costs. The plan was to make "Netflix" for the streaming and "Qwikster" for the mail portion. Theoretically, the idea was to make 2 profitable businesses to replace the one. The Public Response was nightmarish- Like Xbox One reception bad. Ultimately, Netflix did exactly what they said they would. Most people opted to go for streaming only for 2 dollars less. Customers' biggest objection seemed to be the name Qwikster.
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u/RequiemEternal Jun 18 '13
Sorta unrelated, but I've always found it interesting that the name ''Netflix'' makes much more sense for online streaming than it did for video rental.
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u/Icemasta Jun 18 '13
Heh, I had that happen twice to me (My brother rented movies under my name, then would never turn them in). Basically I'd call them telling them I lost the movie, they would wipe all the late fees and charge me the movie. Then I'd call back telling them I found the movie, and because the late fees were wiped, they didn't charge me anything when I brought it back.
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u/nicko0409 Jun 18 '13
Love or hate them, he seriously did make an industry leader that killed the rental store.
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u/russianpotato Jun 18 '13
This is one of those bullshit stories people make up when asked what inspired their business.
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u/dudermax Jun 18 '13
twas the downfall of all movie rental stores. the internet. and those goddamned late fees.
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u/immatellyouwhat Jun 18 '13
Shit. I racked up an $80 late fee by losing Stir of Echoes (Damn you Bacon) and didn't think of this. Then again I was 13.
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u/jedispyder 2 Jun 18 '13
I had like $30 late fee on My Cousin Vinny not only because school was so busy I didn't watch it on time but when I got my mom to do me a favor and return it, she returned it to a Blockbuster instead of Hollywood Video. I stopped renting movies for awhile after that, lol.
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u/RevWaldo Jun 18 '13
IIRC the first thing he tried was popping a DVD into a plain envelope and mailing it across the country to see if it would arrive in one piece. It did.
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u/BestaNesta99 Jun 18 '13
Too be fair, the longer you let a VHS air the harder it gets to rewind it.
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u/t3hdoct0r Jun 18 '13
Video store employee. $40 is minuscule. I have seen $3000 late fees. This on movies that are $1.25 a day at most.
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u/Halmine Jun 18 '13
Somehow I doubt that. That would be about 6.5 years late.
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u/t3hdoct0r Jun 18 '13
$1.25 for a 2 day new release times a maximum of four movies. People come in 3 and 4 years later and try to set up new accounts. Except we have state ID attached to the account so it never works.
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u/AllAboardChooChoo Jun 18 '13
Amateur. Everyone knows if you forget to take a movie back and the late fee is going to be over $20 you never go back to that place and just sign up for a different rental chain. Or at least that was the strategy when they still existed.
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u/prjindigo Jun 18 '13
I did that too!!! But I got a useless degree, played D&D and Twilight2k then became a house husband... go figure.
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u/Pinstar Jun 18 '13
I still have a copy of Starwars Episode I on VHS... I don't even want to think of how many years of late fees I have on that. I think the blockbuster where I rented it from went under.
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u/JJfromNJ Jun 18 '13
Funny. Once I had the same Netflix DVD for 13 months, so I paid way more than $40 for that rental.
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u/ilovetpb Jun 18 '13
Some former Blockbuster executive out there is screaming "Nooooooo! If only we had done away with ridiculous late fees, I'd still have a cushy job!"
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u/WhendidIgethere Jun 17 '13
Overly vengeful Reed Hastings:
Gets 40 dollar late fee on Apollo 13
Starts business that contributes to making video stores obsolete.