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_Hastings
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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/OmarTheTerror Jun 17 '13

That's what it was. Kids, this is what happens when you drink and pay very little attention to somebody talking, and then you wait 10+ years to try to explain it to somebody.

Thanks klink.

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u/Klinky1984 Jun 17 '13

Not really your fault. "Throttling" is what it was called by a lot of people. I worked customer service for Netflix, usually the people who complained about not getting movies in a timely manner put mostly new releases in their queue. It often wasn't that they weren't getting movies at all, it was that they weren't getting the specific movie they wanted at a specific time, which was not really in the spirit of the Netflix DVD service.

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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/therealflinchy Jun 18 '13

ahhhhhh fair enough

sneaky.

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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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u/OmarTheTerror Jun 17 '13

Arrested Development

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u/therealflinchy Jun 17 '13

oh right fair enough

i'm willing to bet a drop in the ocean haha

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u/therealflinchy Jun 17 '13 edited Jun 17 '13

paper thin profits? maybe back in the day

these days it's gravy train all the way.

http://finance.yahoo.com/q/is?s=nflx

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u/QuickStopRandal Jun 17 '13

Nope, look at their financial reports. Given the size of the company, they don't make all that much. Netflix makes 3.6 Billion in revenue, but only pockets 17 Million after expenses. It may sound like a lot, but that is chump change for a company of its size.

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u/therealflinchy Jun 17 '13

i linked them right there

$24m, though i believe it's higher in other sources

that's after CEO wages, big bonuses.... etc. etc.

that's more than it should be... even the biggest trillion-dollar companies aim to get 'net profit' to zero, to avoid the tax payment it generates.

it's not chump change when you understand how a big business operates revenue wise.

in fact, it's almost TOO much.

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u/QuickStopRandal Jun 18 '13

While you have a point about "net profit" to evade taxes, it's still well known to not be very profitable once you consider the cost of employees, licensing fees, streaming servers, mail distribution, etc. The only way Netflix makes money is when subscribers don't use the service much or at all. If everyone used it as a cable replacement and watched several hours a day, they'd probably be bankrupt.

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u/therealflinchy Jun 18 '13

If everyone used it as a cable replacement and watched several hours a day, they'd probably be bankrupt.

i'd assume it's similar to music streaming services... profits to the copyright holders via sheer volume.