That Will Never Work

by Marc Randolph

  Watching Logan maneuver a forkful of pasta toward his open mouth, I mustered the last of the day’s enthusiasm to sell Lorraine on my brilliant idea. “Think about how much you hate dragging these three to Blockbuster,” I said, pointing to Morgan’s sauce-streaked face and Hunter’s grinning, toothless mouth. “A nightmare. And this could solve it.”

  Lorraine pursed her lips and dangled her fork over her largely untouched plate of food. I knew that when we got up, she’d have to eat it quickly, standing up near the sink, while I started the lengthy process of corralling the three kids into their baths and then to bed.

  “First of all, you have sauce all over your shirt,” she said.

  I looked down. It was true. Not a great shirt—a white T-shirt advertising BORLAND BUG HUNT ’87 only passes for high fashion within forty miles of Scotts Valley. And the sauce stain wasn’t helping. I dabbed at it with one of the wet wipes we kept near the table anytime the children were eating.

  “Second of all,” she said, smiling broadly. “That will never work.”

  Lorraine’s reasons were much the same as the ones Christina and Te gave me at the end of that week. The tapes were too bulky to ship. There was no way to guarantee that users would ship them back. There was a high likelihood they’d get damaged in transit.

  But more than anything, it was expensive. It’s easy to forget how much VHS tapes used to cost. There’s a reason the only tapes we had in our house were kids’ movies—back in the nineties, the only studio that was pricing VHS tapes to sell was Disney. And even then, they were only doing it for movies that had been out for years. For Disney, Bambi was pretty much always a new release—because new customers who had never seen it were born every day.

  Not looking for a kids’ movie? Tough luck. You were looking at $75 to $80 a tape. There was no way we could afford to assemble a VHS library big enough to tempt users away from the video stores.

  Christina spent days looking into Blockbuster’s and Hollywood Video’s business models, and what she found wasn’t encouraging.

  “Even the brick-and-mortars have a hard time,” she said. “To make any money, you have to turn a tape twenty times in a month. You need a steady stream of customers. That means you really have to stock what people want—new releases, ideally. Crowds don’t line up at Blockbuster every Friday night for Jean-Luc Godard. People want Die Hard. That’s why there’s a whole wall of them.”

  “Okay. We could also focus on new releases,” I said. “Two can play that game.”

  Christina shook her head. “Not really. Say we buy a tape for eighty bucks and rent it for four. After postage, packaging, and handling, we’re clearing maybe a dollar per rental.”

  “So we have to rent something eighty times just to break even,” Te said.

  “Right,” Christina said. “The video stores can rent the same new release twenty-five times in a month, because they don’t have to wait for the postal service. They can just have a twenty-four-hour rental period. Plus they’re not paying for packaging or shipping, so they’re clearing more money on each rental, too.”

  “So we limit a rental period to two days,” I said.

  “Still takes at least three days to ship,” Christina said, looking down at her notebook. “Best-case scenario—and it’s not likely—you get the movie back after a week. You could rent the same tape four times a month. If you’re lucky.”

  “So by the time you could rent a new release enough times to make some money off it, it wouldn’t be a new release anymore,” Te said.

  “Exactly,” Christina said.

  “And you’re still competing with Blockbuster,” Te said. “There’s one within ten or fifteen minutes of almost every potential renter in America.”

  “What about rural areas?” I said. But my heart wasn’t in it. I knew they were right—unless tapes got cheaper, or the post office got faster, renting movies through the mail would be almost impossible.

  “Back to the drawing board,” I said, eraser in hand.

  3.

  Please, Mr. Postman

  (early summer 1997: ten months before launch)

  FOR THE NEXT few weeks, I batted ideas around with Christina and Te, argued about those ideas with Reed, and watched them slowly turn to ash on the floorboard of my Volvo, somewhere between Scotts Valley and Sunnyvale. I started to get discouraged.

  I don’t remember how we first learned about DVDs. Christina might have uncovered the then-nascent technology during her market research. My co-founder at Integrity QA, Steve Kahn, was a home theater tech geek and might have mentioned them at the Pure Atria offices. I might have read about them in the newspaper—they were in test markets in San Francisco and six other cities in 1997.

  But I suspect I learned about them from Reed. He actually read all the free tech journals that got mailed to Pure Atria—journals that, in my case, only accumulated in a dusty pile in the corner of my office. And sometime after the online video rental idea crashed and burned, he’d complained to me about another exorbitant late fee he’d incurred at a video store. Movies were on his mind—and movies by mail had been one of the few ideas I’d had that had caught his eye.

  One thing’s for certain: I didn’t see a DVD on a shelf.

  Prior to 1997, DVDs were only available in Japan. And even if you found one, there was no way to play it—no DVD players were for sale in the States. It was easier, far easier, to find a laser disc than a DVD.

  Even on March 1, 1997, when the first DVD players went on sale in U.S. test markets, there were no DVDs available for purchase outside of Japan. It took until March 19 for any titles to be released in the United States, and the few that were available weren’t exactly hot new releases. The Tropical Rainforest. Animation Greats. Africa: The Serengeti. The first mass release of titles—thirty-two in total—came a week later from Warner Bros.

  The history of the format is a fascinating one, and it’s too long for this book. But essentially, everyone—movie studios, the video player manufacturers, the big video chains, the computer companies—wanted to avoid a repeat of the VHS/Betamax wars, in which two competing technologies battled it out in the marketplace, confusing customers and setting back the adoption of the VCR for years. And nobody—aside from cinephiles and collectors—really liked the expensive, large laser discs that had come out a few years before, either. There were various competing technologies in development in the mid-nineties, and all of them were compact disc–sized.

  Take note of that: compact disc–sized. That was what caught my eye. A CD was much smaller than a VHS tape. And much lighter. In fact, it occurred to me that it was probably small and light enough to fit into a standard business envelope, requiring nothing more than a 32-cent stamp to mail. Quite a difference from the heavy cardboard box—and expensive UPS shipping rates—a VHS would have required.

  Christina did some digging and found out that the studios and manufacturers were planning on pricing the DVD as a collectible item—$15 to $25 per disc. That’s a far cry from what had happened in the eighties, when studios responded to the newly ubiquitous video store by raising the prices on tapes. Once the studios realized that the video rental stores were making all the money (by buying one VHS cassette and then renting it out hundreds of times—a right established by the Supreme Court as the “first sale” doctrine), they had decided that the only way to respond was to price the VHS high enough that they essentially captured their “fair share” of all that rental income. They knew that by raising the price like this they were saying good-bye to consumer purchases, but it was worth it because most people didn’t want to own a movie.

  The studios had learned from that mistake, and they wanted DVDs to be like CDs: collectible consumer products. If DVDs were priced low enough, they reasoned, customers would forget about renting and instead buy movies, the same way they bought albums on CD. The studios envisioned customers with shelves of movies in their family rooms—avoiding the rental middleman altogether.

  Cheaper inventory, cheap
er shipping—it was looking like movies by mail could work, if (and this was a big if) DVD became a popular format. With other huge categories—books, music, pet food—slowly being taken online, the movie rental category (which brought in $8 billion a year!) was a tempting target. Betting on DVDs was a risk, but it might also be our way to finally crack that category. With the whole world consumed by VHS rental, we might be able to make DVD rental by mail work—and have the video rental by mail category to ourselves for a while.

  VHS by mail was dead. But DVDs by mail could work.

  Now if only I could find one.

  I have a longtime fantasy of working as a postman. After a few years in California, it had become a running joke with Lorraine and me. Anytime I got fed up with office politics, or worried about the perpetual boom-bust cycle of startups, funding, and bubbles, the two of us would sit on our deck with a glass of wine and imagine our alternate life somewhere else. I’d work as a mail carrier in a tiny town in northwest Montana, she’d homeschool the kids, and we’d cook dinner together at 5:00 when I had finished my route. No more crises. No more all-nighters. No more weekends in the office. No more travel. No more getting up at three in the morning to write down all the thoughts that had woken me up from a sound sleep.

  Part of the fantasy was a wistful yearning for a slower, simpler life—for getting off the treadmill. There was something tempting about a job that you could leave behind at the end of the day. And for Lorraine, I’m sure the fantasy of the simple life was equally vivid. For years she had tolerated my tendency to drift off midsentence if a work thought pushed its way in. She had gotten used to waiting out the two- or three-second lag time between when she said something and I finally was able to drag my focus away from what I was working on to respond.

  The simple life was tempting economically as well. Silicon Valley is not only one of the most expensive housing markets in the country—everything is pricey here. Even though we had saved a fair amount of money from some of my earlier ventures—and were earning a living wage—there was a feeling that we were running as fast as we could just to stay in place. On the porch, Lorraine and I would lapse into long fantasies and their attendant economic realities: With the money we had saved, and the money we would make selling our current house, we could afford a palace in Montana. I could almost be retired at forty. And with even a part-time postal job, we would be doing great…

  But like all wistful yearning, our vision for a new life in the woods was probably best left unfulfilled. If I actually lived in, say, Condon, Montana, and only had my daily mail route to keep me busy, I’d probably quickly learn just why postal workers…go postal.

  The truth is, I like headaches. I like a problem in front of me every day, something to chew on. Something to solve.

  That summer, I was doing a lot of chewing at Lulu Carpenter’s, a cafe at the top of Pacific Avenue in downtown Santa Cruz. Reed and I would meet there for breakfast once or twice a week, before driving into work. From one of the sidewalk tables where Reed and I usually sat, with our backs to the cafe’s huge open windows, we would look directly across the street at the Santa Cruz post office, looming over Pacific Avenue like a church.

  The Santa Cruz post office is a grand, many-columned building. It’s an appealing, distinctly old-fashioned place—granite and sandstone exterior, glossy tiled floors, a hallway of post office boxes, their brass handles somewhat tarnished. I wasn’t sending many letters by 1997—I was in tech, and email was king—but watching the stream of people parading in and out the doors of the post office made me want to start a correspondence with someone. It made me think back to my first jobs as a junk mail king, when I used to mail thousands—no, hundreds of thousands—of letters a week.

  It made me want to mail things again.

  “Look,” I said, eyeing the delicate leaf etched in foam on the surface of my cappuccino. I was thirty minutes into the “DVDs by mail” pitch that Christina and Te had helped me formulate. “Let’s just try it. Mail a CD to your place. If it breaks, it breaks, and we know that this idea could never work. If it gets there, you got something to listen to on Tuesday night.”

  Reed’s eyes bored into me. It was eight o’clock on a Monday morning, and not only had he probably already been awake since four, he’d also already had a double shot of espresso. Now he was halfway down a cup of regular coffee. He’d already reminded me several times that neither of us had ever actually seen a DVD.

  Me? I was excited as a bird. I’d been up early as well, surfing at the Lane as the sun came up. But even hours later, sipping coffee on dry land, I could see this latest idea ahead of me, just starting to differentiate itself from the horizon, rising in the distance as an indistinct swell. It was still too early to see if it was going to be rideable or not—but regardless, it was best to maneuver into position anyway.

  Reed sensed that I was fidgety. “Alright, alright,” he said. “Finish your scone.”

  We walked down the street to Logos, the used record store on Pacific, and waited out front until they opened for business. They didn’t carry DVDs yet, of course. But we thought a CD would be close enough. I bought a used Patsy Cline Greatest Hits compilation—if this didn’t work out, at least it was a disc someone might want to listen to. Within minutes, Reed was cracking the CD out of its clamshell while I ducked into Paper Vision, an office supply store, to look for an envelope. It seemed stupid to buy a whole box of envelopes just to mail one thing, so I bought a greeting card—two puppies in a wicker basket, barking HAPPY BIRTHDAY. It came with its own pink envelope. Reed printed his address on it in the post office, while I fed coins into the vending machine to buy a 32-cent stamp.

  In went the CD. On went the stamp. I licked the seal of the envelope, kissed it for luck, and dropped it in the slot under the worn brass sign saying LOCAL MAIL ONLY.

  Speaking of luck: Many months later, well into the Netflix experiment, I went on a tour of the Santa Cruz post office. By then, the company was a go. We hadn’t launched yet, but we were far beyond the early days of just throwing ideas out the window of a Toyota Avalon on Highway 17. We were close enough to actually launching that I decided I needed to see exactly how our DVDs would move through a post office, so we could tweak the design of our mailers.

  I felt like a little kid as I passed the stained baskets on the back side of the mail slots, the loading docks, the delivery office. The Santa Cruz postmaster himself traced the path that, he explained, was exactly the same one our pink envelope had taken nine months earlier: from stamp to slot to sort to bag to the delivery truck that would ultimately take it to Reed’s mailbox. I was expecting a highly automated system running at high speed under great pressure, something capable of destroying even the sturdiest of our prototypes. Or if it wasn’t happening here, I thought that the letters would be sent to a larger facility in nearby San Jose, to be sorted and mangled there, before coming back to Santa Cruz for delivery. But what I found was something more human, more analog. Hand-sorted for immediate dispersal, local mail was given directly to the drivers. It was a surprisingly fast and gentle process.

  “Is this how it’s done everywhere?” I asked.

  The postmaster laughed in my face. “Definitely not,” he said. “This is local mail. All the other mail for out-of-town gets trucked over to San Jose and they sort it there.”

  “So, what you’re telling me is that if I mailed a naked CD inside an envelope and addressed it to anywhere else, it would have gotten scratched, cracked, or broken?”

  “Most likely,” he said.

  Lucky us, I thought.

  It’s called a false positive—also known as being lucky. If we’d used any other post office—or if Reed had lived in Los Gatos or Saratoga—our CD might have been destroyed. Hell, if we had mailed it to my house in Scotts Valley instead of his place in Santa Cruz, the thing wouldn’t have made it. And I wouldn’t be writing this book. Or maybe I would be, but it would be about shampoo.

  Instead, the very next morning, less than
twenty-four hours after our pink envelope vanished into the slot, I met Reed in a parking lot in Scotts Valley and he pulled out our envelope. Inside it was an undamaged CD.

  “It came,” he said.

  “Thank God,” I said.

  So long, customizable surfboards. Good-bye, personalized baseball bats.

  When that CD arrived safely, I think Reed and I both knew we’d found our idea. All of Christina’s and Te’s objections—the turnaround time, the convenience factor—were still valid. But if it only cost 32 cents to mail a DVD, and we could buy them for twenty bucks apiece, we both knew we had a shot.

  One of the real factors separating DVDs and VHS, Christina and Te and I found out, was the size of the library. Even in places where DVDs were available in the United States, there weren’t that many titles. By mid-1997, there were still only about 125 titles to choose from. There were tens of thousands of movies on VHS.

  “So the thinking is,” Christina said when I showed her the CD, “we get in early? Beat the video stores to the punch, and then have more inventory?”

  I nodded. “It’s more like ‘have any inventory.’ Nobody has a DVD player yet, so it’s going to be a while before the video stores even start carrying DVDs. We’ve probably got a long window of being the only game in town.”

  “Might make up for lag time,” Te said. “If people can’t find a DVD in a store anyway, they won’t mind waiting as much.”

  Christina’s brow was furrowed, but I could see that she was starting to agree.

  “Okay,” she said. “Has anyone actually watched one of these?”