The $40 late fee that didn't start Netflix
Reed Hastings told the same origin story for a decade. His own co-founder finally called it what it was.
For years, Reed Hastings told a tidy story: he rented Apollo 13 from Blockbuster, lost the tape, got hit with a $40 late fee, and drove to the gym fuming — where the gym's flat monthly membership gave him the idea for Netflix's subscription model. It's a great story. Journalists loved it. Hastings repeated it in interviews for years.
Netflix co-founder Marc Randolph eventually said the tale was, in his words, "a lot of crap." In his own book, Randolph describes something far less cinematic: two soon-to-be-unemployed software workers testing several ideas — customized surfboards, personalized dog food — before settling on mailing DVDs mainly because they were cheap to post and the format happened to be new. There was no subscription eureka moment. Blockbuster reportedly couldn't even find a record of Hastings ever renting that tape.
Randolph's own explanation for why the myth stuck is the sharpest part: we like founding stories that resemble Newton under the apple tree. The real process — elimination, luck, months of unglamorous testing — just doesn't retell as well at a dinner party.