Reed Hastings --- Netflix

In January 2005, Wedbush Securities stock analysts Michael Pacther called Netflix a “worthless piece of
crap.” He put a price target of $3 on the stock that was trading at around $1. Doubters thought
Blockbuster, Walmart, or Amazon com, with their economies of scale and established customer bases,
would simply destroy Netflix. Founder and CEO Reed Hastings wasn’t supposed to be Fortune’s
Businessperson of the Year in 2010, five years after his demine was predicted. Not only did Hasting earn
the No. I spot; he and Netflix also killed it. Netflix was the stock of the year, up more than 200 percent in
2010, while the S&P 500 was up only 7 percent. Netflix shares ran laps around even Apple’s. Between
2010 and 2013 Netflix subscribes doubled to over 40 million and its stock price quadrupled to $375,
making it again the best performing tock on the S&P 500. Don’t you wish you bought it back in 2005
when it was selling for $11? In Fortune’s List on 2013”s Top People in Business, Reed Hastings was
ranked #5, ahead of Amazon’s Jeff Bezos, Google’s Larry Page, Facebook’s Mark Zuckerberg, and Apple’s
Tim Cook.

So how did Hastings do it? A lot of his success is based on how he built his company on a hard-driving
and risk-taking culture, and Hastings never stops looking over his shoulder to stay one step ahead of the
competition. Unlike Blockbuster, which went into bankruptcy, Netflix wasn’t afraid to change its
business model by abandoning the past to build its future. How, by cannibalizing its own mail order DVD
customers to focus on streaming existing program and even to launching original series, including the
highly successful House of Cards that won three Emmy awards, with more to come. Although the change
in focus from mailing DVDs to streaming with a pricing revamping was clumsily handled, resulting in
angry and lost mail customers, it clearly was a good strategic move. With streaming, Netflix is now
stealing customers from cable and pay movie channels HBO, Showtime, and Starz, as it is the world’s
largest video subscription company. Growth is also coming from Netflix global expansion from Canada
(2010) to Latin America (2011) and most recently to Europe (2012), where streaming is new in many
countries.

Let’s talk about Hasting’s leadership style that led to success. It has changed over the years between the
two companies he created. As a young founding CEO of Pure Software, Hasting was considered as hard
headed as they come and couldn’t take criticism. He used the autocratic style to push for his ways of
doing things, and he sometimes embarrassed employees with nonverbal eye rolling and critical
comments about dumb ideas. So much so that Hasting earned the nickname “Animal”. Hasting s sold
Pure for $750 million, and it made him realize he had helped built a company he didn’t want to be part
of.

So when he used the money to start Netflix, as CEO Hastings was determined to create a culture in
which people enjoyed coming to every day. He wanted the company to be run differently, so he
changed his style to be participative. He is more honest and direct with employees but not
confrontational, but he still has a Steve Jobs—like perfectionist streak. Instead of simply telling others
what to do, he actively seeks out ideas and advice from his employees. Now when hear ideas that seem
silly, he doesn’t roll his eyed and humiliate employees by making critical comments about the idea or
person being dumb. Hastings digs deeper by responding with comments like “I don’t understand how
your idea will work, so help me to understand how it will solve the problem.

Hastings was of the technology curve. Even back in 1997 when Hastings cofounded Netflix, he
anticipated that consumers would eventually prefer to get movies instantly delivered via the Internet.
This is actually amazing foresight because back then less than 7percent of U.S. homes even had
broadband. Hastings actually had a team working on the technology to bring movies to the home via the
internet back in 2000. They even developed a Netflix-branded box with a hard drive that connected to
your movie queue, but it took six hours to download a movie back in the early 2000s. Once Hastings saw
YouTube videos, he killed the hard-drive device, and put this team to work on a streaming machine, a
sort of YouTube –in-a-box. This again was meant to be a branded piece of hardware produced and sold
by Netflix. However, even though they built the technology, once again Hating killed the idea in favor of
software that could be embedded in all kinds of devices—the software today is known as apps.

No. This wasn’t wasted time. Netflix built on this base to be able to come out streaming a year and a
half, in 2007, after YouTube showed the world instant viewing over the Internet. Also, it spun off the
hardware technology into an existing company called Roku, which today makes a digital device that
plays content via software from Netflix, as well as Hulu, Amazon, and others.

Does this mean that Netflix doesn’t face any present and future threats? As Hastings admits, there are
plenty of challenges ahead. Analysts like Pachter now are warning that Netflix could be crushed or
acquired by the likes of [Link], Google, or Apple. Anyone can come after Netflix by streaming bits
via contracts with data-delivery companies like Level 3, Limelight, and Akamai. Who knows what
Facebook will come up with? Also, Netflix has to pay the studios for contents. Content acquisition could
be denied or costs could go through the roof, and new expensive original series may not have the
success of House or Cards. In February 2014, Netflix agreed to pay Comcast extra to speed up its
streaming service to its customer, which could lead to having to pay other cable providers extra. The
European media companies across the continent are girding for battle to stop Netflix from taking market
share. But Hastings is confident, as he enjoys solving subtle. Yet tough, problems alongside the smartest
people he can find. He said, “For me the thrill is making a contribution by solving hard problems.” Only
time will tell if the can stay ahead of the competition and technology curve.

1. How did Hastings changes his use of communication in sending and receiving messages from
Pure Software to Netflix?
2. How did Hastings change his use of feedback from Pure Software to Netflix?
3. How did Hastings change his use of coaching guidelines (Exhibit 6.3) from Pure Software to
Netflix?
4. Which conflict management style did Hastings tend to use at Pure and Netflix?
5. In making a deal with content suppliers, which conflict management style was most likely used
by Netflix?
6. How would you improve Netflix’s product offerings (i.e., what thing can’t you watch that you
would like to watch) or processes (i.e., how can it improve its delivery or service)?
7. Which level or levels of analysis and leadership paradigm are presented in this case, and did
Hastings use the management or leadership paradigm (Chapter 1)?
8. How did Hastings’s Big Five models of personality leadership traits change from Pure Software to
Netflix (Chapter 2)?
9. Which University of lowa leadership styles did Hastings use at Pure Software and Netflix
10. Explain how power, organizational politics, networking and negotiation are, or are not,
discussed in the case (Chapter 5)?