Netflix was founded 20 years ago today because Reed Hastings was late returning a video

It’s a good story.
It’s a good story.
Image: Reuters/Paul Hanna
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Netflix knows how to tell a good story. Have you heard the one with Reed Hastings and the overdue video rental?

Legend has it that the Netflix founder and CEO came up with the idea for the DVD-by-mail rental business that would go on to shutter video-rental stores nationwide and upend the world of media 20 years ago today because he was late returning a videotape.

In the mid-Nineties, he was said to have rented Apollo 13 from his local Blockbuster Video store and lost it. The penalty for such an infraction was a $40 fine. Here’s how Hastings told it in Fortune Magazine eight years ago:

I remember the fee because I was embarrassed about it. That was back in the VHS days, and it got me thinking that there’s a big market out there.

So I started to investigate the idea of how to create a movie-rental business by mail. I didn’t know about DVDs, and then a friend of mine told me they were coming. I ran out to Tower Records in Santa Cruz, California, and mailed CDs to myself, just a disc in an envelope. It was a long 24 hours until the mail arrived back at my house, and I ripped them open and they were all in great shape. That was the big excitement point.

Is it true? In some retellings, the genesis stems from a drive to the gym while contemplating the fine, in which Hastings realizes the gym-model of charging a flat fee to use a service as much as you wanted could revolutionize movie rentals. Hastings has also credited a graduate-school math problem with helping him see how the internet could be the future of video delivery while he was building the company around DVDs.

The real origin story wasn’t as clean or concise, according to co-founder and former CEO Marc Randolph. He says Hastings began telling the tall Apollo 13 tale to give a sexy explanation for how Netflix worked. There was no late fee, no aha moment, just long commutes in Silicon Valley that the pair spent plotting their next venture around the time that Hastings’s first business, Pure Software, merged with Atria, where Randolph worked, and sold to another company.

Amazon was dominating the book market and Hastings and Randolph wanted to be the “Amazon of something,” Gina Keating, the author of Netflixed: The Epic Battle for America’s Eyeballs, wrote in the Washington Post (paywall). The advent of the DVD, which held hours of video and could be delivered cheaply, presented the perfect opportunity. That’s when they mailed a CD to Hastings’s house, in a blue greeting-card envelope, as Randolph recalls.

Maybe all of these origin stories are true. Maybe none of them are.

The fact is that on August 29, 1997, the company was incorporated in the US state of Delaware. The US-based video business was called Kibble, before the name was changed to NetFlix.com, and later Netflix. It began renting DVD rentals by mail in April 1998, and introduced its subscription model the following year. Nearly a decade later, Netflix started streaming video and changed the way we watch everything. Today, it’s one of the biggest Hollywood distributors and producers of online video—and a prolific global storyteller.

“These founding stories are just that—they’re stories,” Randolph told the Silicon Valley Business Journal in 2014. “They’re constructs that we come up with to take what’s a very messy process with input from many, many people, and condense it into a story which you can get across in a sentence or two… It’s a good story, and Netflix is a story, so I’m okay with that.”