That Will Never Work

by Marc Randolph

  “Not just tomorrow,” Barry was complaining. “That would have been bad enough. But eleven thirty tomorrow? They want us there at eleven thirty in the goddamn morning? Impossible.”

  Barry picked up his mechanical pencil with one hand and used the fist of the other to scrub a clean spot on the wood of the picnic table. “First,” he said, scribbling a number right into the wood grain, “Dallas is on Central Time, so that means nine thirty our time. Then it’s a three-and-a-half-hour flight from San Francisco—so probably about the same from Santa Barbara. Plus, if you add on enough time to get to the airport…” He paused, adding some figures onto the table. “You would have to leave here by five a.m. And I don’t even need to check to know there isn’t a nonstop from Santa Barbara at five in the morning. We’re screwed.”

  Barry slumped back, retracted the lead of his pencil, and somewhat guiltily tried to erase the figures from the table.

  “So we fly private,” Reed said, opening up his palm to the two of us as if it were self-evident. “We take off at five, land at ten thirty, have a car waiting. We’ll be there right on time. Probably even have enough time for Marc and me to grab an espresso.”

  Barry didn’t react, as if trying to figure out what was more absurd: the fact that Reed was proposing spending money on a private jet or the fact that he was doing so while wearing a dress.

  Reed, for his part, seemed to have forgotten all about his new attire.

  “Reed,” Barry finally blurted out, “that’s gotta be at least twenty thousand round-trip.”

  He moved to write something again, then thought better of it.

  “And I don’t need to tell you that we don’t have that type of money.”

  “Barry,” Reed said, “we’ve waited months to get this meeting. We’re on track to lose at least fifty million dollars this year. Whether we pull this off or not, another twenty grand won’t make a difference.”

  “Yeah, Barry,” I piped up. “Twenty grand. Isn’t that what you finance guys call a ‘rounding error’?”

  “You guys are a piece of work,” Barry muttered to no one in particular.

  From behind the plane an orange-vested worker appeared, holding an illuminated torch, and waved Barry’s car to a position just off the wing. As our headlights swept the area, I saw that a red carpet had been rolled out from the base of the plane’s stairs. A uniformed pilot appeared in the hatch, stepped down, and walked over to us.

  “I’m Rob,” he said, smiling and extending his hand. He gestured toward the trunk of the car. “Can I grab your bags?”

  Reed and I looked at each other and laughed. Reed opened his briefcase and pulled out a folded white T-shirt. “This is it.”

  Luckily for me, we were only on day two of the retreat, so some of my clothing was still clean. Dressing in the dark that morning, I had put on my one remaining clean item: my tie-dyed T-shirt. I’d opted to leave the lederhosen behind (as well as the Harley Davidson tattoos) and had instead substituted an almost-new pair of shorts, accented with black flip-flops.

  Reed grabbed hold of the cable handrail and bounded up the stairs, then ducked through the doorway and vanished into the plane. I followed him up, not quite sure what to expect from a private jet. Gold-plated bathroom fixtures? A giant king-size bed? A stand-up bar? (This latter amenity was actually the last thing in the world I wanted to see, since I was still struggling with the aftereffects of the previous night’s mason jars.)

  The interior of the jet was surprisingly businesslike—if you consider a huge platter of breakfast pastries and sliced fruit, a thermos of coffee, and a pitcher of freshly squeezed orange juice perched on the counter of a jet “businesslike.” Bottles of water and soda were visible through the glass door of a half-size refrigerator. A wicker basket overflowed with granola bars.

  The plane, a Learjet 35A, was smaller than I had imagined—but much nicer. Every surface seemed to be either leather or rosewood. It looked like someone had taken Steve Kahn’s living room and folded it around the inside surface of an airplane fuselage. As I started down the single narrow aisle, I noticed I could stand up straight, but barely. Immediately to my right, facing to the front of the plane, was a single leather captain’s chair, nicer than any piece of furniture I owned. Directly behind it was a group of four chairs facing each other—two forward and two back, with enough legroom that you could fit a dining room table between them. In fact, as I found out later, there was a dining room table, neatly folded into the windowsills between the seats.

  Reed was already settled in the front-right rear-facing seat, his long legs stretched lazily into the open space. I later learned that private jet aficionados, like home theater aficionados, have a “money seat”—although in a jet, you’re looking for the safest, smoothest, and most comfortable ride, not acoustics—and that Reed, accustomed to private plane rides, knew enough to snag it immediately.

  Reed stretched out an arm, gesturing toward a seat facing him, and as I struggled to figure out the four-point harness, Barry casually settled in across the aisle from me, balancing a plate of fruit on top of his laptop. Despite my efforts to play it cool, Barry knew that I was getting a kick out of all of this.

  “Like it?” he said, neatly spearing a piece of fruit. “I was talking to Rob outside. This jet belongs to Vanna White. She charters it out when she’s not using it. I guess flipping letters for a living pays better than I thought.”

  He took a bite of pineapple. “Pretty cool, huh?” Then, flashing me a quick smile, he lowered his voice to a stage whisper. “Don’t get used to it.”

  We landed well past rush hour in Dallas, but you wouldn’t have known it from the traffic. All the time we had saved by hiring a car to meet us at the foot of the plane’s stairs was wasted as we crawled through downtown.

  “That’s it right there,” said our driver, pulling the car to the curb. He leaned his head forward, looked up through the windshield, and gestured at the office building across the street. “That’s the Renaissance Tower. Tallest building in Dallas. Probably the most expensive one, too.”

  The building rose straight up out of the sidewalk, without setbacks, spires, or features of any kind; it was an unbroken cube of steel and glass. Its only gesture toward decoration was a giant X of slightly darker windows, diagonal lines stretching across the entire height and width of the building. The building’s immensity and lack of adornment made it seem serious: it was clear that this was not a building to be trifled with. There was no playfulness here. No joy. This was where business was done.

  As the elevator opened onto the 23rd floor, I was relieved to see that things looked a bit more familiar and less intimidating. The walls of Blockbuster’s lobby were covered with framed movie posters, and even though I recognized many of the same ones that we had back at the office, I couldn’t help but notice that Blockbuster’s were all framed considerably more tastefully, each movie in its own gleaming stainless-steel frame, encircled by a ring of lightbulbs like the marquee posters you see in theater lobbies. “Do you know what those things cost?” I couldn’t help but mutter to Reed, as we were ushered into the conference room.

  I was happy to see that their conference room was almost like ours—if ours had been about fifty times bigger. And with a view across the entirety of Dallas, rather than the Dumpsters between us and the park. And with a thirty-foot-conference table made from an endangered hardwood with hidden power outlets and audiovisual plugs, rather than an eight-foot folding table with an extension cord and surge protector.

  So, you know, pretty much the same.

  I was already feeling a little like a country mouse in the big city—and in my shorts and T-shirt, a little chilly in the arctic blast of Texan AC—when the Blockbuster boys came in and introduced themselves.

  Blockbuster CEO John Antioco came in first. He was dressed casually but expensively. No suit, but his loafers probably cost more than my car. He seemed relaxed and confident—and with good reason, too. Antioco had come to Blockbuster after near
ly ten years as a turnaround specialist, known for parachuting into struggling companies—Circle K, Taco Bell, and Pearle Vision among them—figuring out which core aspects of the business showed promise, restoring company morale, and coaxing the balance sheets back into profitability.

  Blockbuster had needed him. After explosive growth and massive profits in the eighties and half of the nineties, the company had floundered at the turn of the millennium. A string of poor decisions—like selling music and clothing in the stores—had largely backfired, and the company had been slow—extremely slow—to adapt to new technology like the DVD, and to the internet.

  Although he had no experience in entertainment, Antioco had recognized in Blockbuster the characteristics he was intimately familiar with: a struggling chain with thousands of stores, tens of thousands of demoralized employees, and the opportunity to bring things back to profitability.

  Antioco’s methods had shown promise almost immediately. Renters were returning to the stores, revenue was up, and the stock price of Blockbuster’s parent company, Viacom, had doubled, in no small part because of Blockbuster’s success.

  So as Antioco strode into the conference room that morning in September of 2000, I’m sure he was feeling self-assured. He had taken Blockbuster through an IPO just a year earlier, raising more than $450 million in cash, and he was now the CEO of a publicly traded company. He was ready to hear us out, but what we said had better be good.

  As we shook hands with Antioco and his general counsel, Ed Stead, it was hard not to feel a bit intimidated. It was partly the loafers. Antioco was wearing beautiful Italian shoes and I was in shorts, a tie-dyed T-shirt, and flip-flops. Reed’s T-shirt was crisp, but it was still a T-shirt. And Barry, always the best dressed of the group…well, at least his Hawaiian shirt had buttons.

  Really, though, we were intimidated because Blockbuster was in a much stronger position than us. Flush with cash from their recent IPO, they weren’t dependent on the good graces of VCs to keep them afloat. They weren’t struggling with the scarlet letters “.com.” And worst of all, they knew it.

  There’s nothing like going into a negotiation knowing that the other side holds almost all the cards.

  Notice that I wrote “almost.” There were, in fact, a few points in our favor. To start, everyone hated Blockbuster. This, after all, was a company that had “managed dissatisfaction” as a central pillar of their business model. They knew that most customers didn’t enjoy the experience of renting from them, so their goal as a company wasn’t so much to make the customer happy as it was to not piss them off so royally that they’d never come back. And there was a lot to piss them off: late fees, crappy selection, dirty stores, poor service…the list went on and on.

  And it wasn’t just customers who hated them: the movie industry did, too. The studios felt burned by the hard bargains that Ed Stead had negotiated on Blockbuster’s behalf as the chain had gained market share. They also resented Blockbuster’s insistence that it was Blockbuster itself that was creating demand for their movies rather than just fulfilling the demand that the studios felt they had created.

  But the most important point in our favor was the inexorable march of progress. The world was going online. No one knew exactly how it would happen, or how long it would take, but it was inevitable that increasing numbers of Blockbuster’s customers would want—no, insist on—transacting their business online. And not only was Blockbuster ill-positioned to take advantage of that trend, they didn’t even seem to see that it was coming. The way we saw things, they could use our help.

  We just hoped they could see it that way, too.

  Reed had carefully worked on his pitch, just as he had worked on the PowerPoint to me the year before, and as he leaned over the conference table and started building the shit sandwich, I couldn’t help but smile. It was a thing of beauty. A real triple-decker.

  “Blockbuster has some tremendous attributes,” he started in, laying down that first thick slice of bread. “A network of company-owned and franchised stores in thousands of locations, tens of thousands of dedicated employees, and a passionate user base consisting of nearly twenty million active members.” (He tactfully left out the part about how many of those users actually hated the service. That could come later.)

  Picking up speed, and readying himself to start stacking the meat, Reed continued. “But there are certainly areas where Blockbuster could use the expertise and market position that Netflix has obtained to position itself more strongly.”

  He laid out the proposal that we had all agreed was the strongest. “We should join forces,” he started, joining his hands together for emphasis. “We will run the online part of the combined business. You will focus on the stores. We will find the synergies that come from the combination, and it will truly be a case of the whole being greater than the sum of its parts.”

  Reed was doing well—he was concise, to the point, but not arrogant or overconfident. He belonged in that room, and he knew it. As he continued to point out the perceived advantages of a union, Barry and I nodded at all the right beats, occasionally interjecting a supporting comment. It was all I could do to hold back from spontaneously shouting, “Amen, brother. Hallelujah!”

  “Blockbuster,” Reed pointed out, “will be able to use us to greatly accelerate its entry into DVD, and do so at a much lower cost. With us focusing on back-catalogue items, you’ll be able to concentrate your inventory on the new releases which are at the heart of your business, improving availability and increasing customer satisfaction.

  “Netflix will also benefit,” Reed continued, “by taking advantage of Blockbuster promotions, both in the store as well as to the user base.” He paused. “And even if we don’t combine forces, just working together as independent companies could be of tremendous benefit to both of us.”

  Reed stopped. He looked from Antioco to Stead, and then back again as he settled into his chair. He knew he had made the sandwich perfectly. All that mattered now is if they would take a bite.

  The objections were just what we had anticipated. “The dot-com hysteria is completely overblown,” Antioco said. Stead informed us that the business models of most online ventures, Netflix included, just weren’t sustainable. They would burn cash forever.

  Finally, after Barry and I parried back and forth with them over the major objections, Ed Stead raised his hand and waited for everyone to be quiet.

  “If we were to buy you,” he started, pausing for emphasis, “what are you thinking? I mean, a number. What are we talking about here?”

  We had rehearsed this. Or at least we had rehearsed it about as well as three people can at 5:00 a.m. on a plane after a night of drinking at a dude ranch.

  “We’ve taken a look at recent comparables,” Barry began, “and we’ve also tried to consider what the ROI might be were Netflix to be rolled out to the Blockbuster user base. We’ve also considered how to make this accretive rather than…”

  Out of the corner of my eye, I could see Reed fidgeting. I had seen this before. It was just a matter of time before he lost all patience. Hold…hold…

  “Fifty million,” Reed finally interrupted.

  Barry stopped. He looked at Reed, his hands falling into his lap, then smiled at Antioco and Stead. He shrugged. What more was there to say?

  We waited.

  Through Reed’s pitch and Barry’s windup, I had been watching Antioco. I knew his reputation as a gifted empath, a great listener—someone who could make anyone feel that they were important and had something to say worth hearing. During the pitch, I had seen him use all the tricks that I’d also learned over the years: Lean in, make eye contact, nod slowly when the speaker turns in your direction. Frame questions in a way that makes it clear you’re listening.

  But now that Reed had named a number, I saw something new, something I didn’t recognize. A different expression in his body, a slight tension in his face. His earnest expression slightly unbalanced by a turning up at the corner of his mouth.<
br />
  It was tiny, involuntary, and vanished almost immediately. But as soon as I saw it, I knew what was happening.

  John Antioco was struggling not to laugh.

  The meeting went downhill pretty quickly after that, and it was a long, quiet ride back to the airport. We didn’t have a lot to say to each other on the plane, either. We left the tray of sandwiches and cookies on the counter by the door, untouched. The champagne in the refrigerator—provided by Vanna, and available for purchase—went unpopped.

  Each of us was lost in his own thoughts. Reed, I’m sure, had put the meeting behind him, and was already puzzling through some new business problem before we hit cruising altitude.

  Barry, I could tell, was running numbers in his head, trying to figure out how long our existing cash would last, how he could slow the rate at which we were burning through it, what clever financing rabbit he might be able to pull from his hat to buy us a few extra months.

  But I was on a different wavelength. We’d been in trouble before, but the dot-com crash was different. The springs were drying up, and we couldn’t count on unlimited venture capital anymore. Selling had seemed to be our only way out. And Goliath didn’t want to buy us—he wanted to stomp us into the ground.

  As long a shot as Blockbuster had been, I had genuinely held out hope that they could be the deus ex machina that would save us. That in one bold stroke we’d be out of the mountains and safely on the trail back to camp.

  Now it was clear that if we were going to get out of the crash alive, it was entirely on us. We would have to be ruthless in our focus on the future. We would have to look within. As my father used to tell me, sometimes the only way out is through.

  As Vanna White’s plane swept us quietly and quickly back to Santa Barbara, and as we all sat lost in our own thoughts, I grabbed an empty champagne flute and tapped it with a plastic spoon from the fruit tray. Reed looked up sleepily, and Barry paused the number-crunching long enough to look me in the eye.