How Netflix reinvented entertainment — and corporate culture

Netflix and the management style behind its success
Netflix and the management style behind its s... 10:18

The New York Times once described the Netflix lobby as "the hottest see-and-be-seen spot in Hollywood." That was last year. Now?

"It's supposed to be full of people, cheering and talking and everything. Now it's empty," said Reed Hastings, the co-founder and co-CEO of Netflix. As he showed Lesley Stahl, the massive 80-foot video wall promoting new Netflix shows is now surrounded by lots and lots of empty chairs.

"We will be back," Hastings said. "We're gonna get that vaccine, and then that lobby's gonna be pumping again!"

"I know why you're so optimistic, because like toilet paper and Lysol, you're one of the few companies who has really thrived in this pandemic," Stahl said.

"People love entertainment," said Hastings, "whether that's wartime, peacetime, COVID."

"Yeah, but you're avoiding my question, which is that you're doing extremely well. Your subscription numbers have, what?"

"We are off to a faster start in growth than any year in our history, roughly from 160 million to 190 million. So, a lotta growth."

"Internationally, too?"

"All around the world. COVID, unfortunately, is everywhere, and luckily Netflix is, too."

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The streaming service Netflix has transformed into a leading film and TV production studio. CBS News

The global growth of Netflix has been exponential over the last few years. Now the service is available in 190 countries. And its financial growth has been a wow, also. When the company went public in 2002, the stock price was $15 a share; during the pandemic, Netflix has been trading around $500.

Stahl noted to Netflix's co-CEO Ted Sarandos, "You created this monster. Binge-watching is so addictive. It's changed our habits, it's changed our sleeping habits, we don't read as much. We don't watch CBS as much! People say it's ruined their sex lives."

"Well, they're watching the wrong thing then, Lesley!" Sarandos laughed.

Stahl previously interviewed Hastings in 2006, when Netflix was primarily mailing little red envelopes of DVDs around the country. He told her then that he thought he was not CEO material, and that he needed to turn that over to somebody else. "I definitely struggled," he confided.

So, is he CEO material now? "Beginning to be. Trying to be. Aspiring to be."

Still, the guy who said he wasn't a good CEO has now co-written a book about how to manage a company. It's called "No Rules Rules: Netflix and the Culture of Reinvention" (Penguin Press), and it spells out a highly-unorthodox management style that gives Netflix employees an unusual amount of freedom, and responsibility – offering unlimited vacation time, and paying top-of-the market salaries.

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Penguin Press

But in exchange, employees are subject to the "keeper test."

"We run like a professional sports team," hastings said. "We're trying to get the best players on the field at all times. If someone was leaving to go to another company, would we work really hard to keep them at Netflix? And if so, then they pass the keeper test. And if not, we give them a very generous severance package and we let them go."

"Sometimes they don't want to go," Stahl said, "but the keeper test says it's not worth keeping them? And therefore you have a reputation, this company, of being ruthless. Some people call it the 'Hunger Games company.'"

"It's not like 'The Hunger Games' at all,' Hastings responded. "This is a total cooperation. But If you're gonna win the World Cup of entertainment, then you've got to have the best players on the field at all times.

"There's no question it's a tough place," he said. "There's no question it's not for everyone."

In the tough "Netflix way," honesty is the best policy, no matter what. The idea of "radical candor" was instituted because, Hastings said, of marriage counseling that he once went through.

"Well, that's a long time ago. Now we've married 29 years, but early in our marriage, we had this great marriage counselor. And he got me to see that I was just lying a lot. I was saying conventional things like, 'Family's the most important thing,' and then I would stay at work late, you know? And so, it helped so much for him to really show me that I wasn't being that honest. And, you know, it helped to live more in balance."

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Netflix co-founder and co-CEP Reed Hastings. CBS News

Netflix also holds what Hastings calls "Live 360" meetings. "The Live 360 is, we'll typically have a dinner or a lunch, and then everybody just goes around and gives each other feedback, how they could be more effective professionally."

"So, do you get feedback, or criticism?" Stahl asked.

"All the time! Being too glib and not really listening, or I'll get critiqued about being too positive and Pollyannaish and not really seeing the problems. Lots of things. And, you know, there's always grains of truth."

In his book, Hastings reports on what was said about him in one of those sessions – that he's too aggressive, overconfident, and too dismissive when other people have ideas. Stahl asked, "You recognize yourself [in that]?"

"Yes," he replied. "And, again, I try to mitigate it. And then, you know, you can't really change your nature."

Ted Sarandos joined Netflix over 20 years ago. He said Hastings' vision is what sold him on the company: "Reed described Netflix in 1999 almost exactly like it is right now. And why that seems insane was, at the time, the internet was so slow and so expensive that it just seemed incomprehensible that – I mean, if someone emailed you a video clip, it would take days for it to open up and watch.

"And Reed talked so crystal-clear about where this was heading. And I was just mind-blown. By the way, I'm not sure that I thought he was right. But his sense of clarity about it was just incredible."

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Netflix co-CEO Ted Sarandos. CBS News

Hastings guided Netflix through four major shifts, from renting DVDs, to streaming other people's shows, to producing its own shows, to going global.

This year Netflix got more Oscar and Emmy nominations than any other studio, and that's in large part thanks to Sarandos. "My job was to pick everything that's on Netflix," he said.

He picked nearly 400 shows last year, and every one of them — be it "The Crown," or its royal cousin, "Tiger King" — started with a pitch. "We probably hear about 100 a day. So, that's film and series and television and global and documentaries."

The first pitch Sarandos heard, and the first show Netflix produced itself, in 2013, was "House of Cards."

Stahl asked, "Tell us why you even wanted 'House of Cards.' What did you see there?"

"It was Shakespearean," Sarandos said. "It was about greed and power and sex — all the makings of great television."

House of Cards - Season 2 | Official Trailer [HD] | Netflix by Netflix on YouTube

"House of Cards" starred Kevin Spacey and Robin Wright. Stahl asked Hastings, "What did you have to do to get them to sign on?

"Ted's charm, and a huge checkbook! That combination can do anything."

How huge a checkbook? Well, Sarandos paid $100 million for the first two seasons of "House of Cards." Netflix is notorious for buying its way to the top — as satirized by "Saturday Night Live," where Netflix executives literally throw money at prospective show producers:

Netflix Commercial - SNL by Saturday Night Live on YouTube

"'South Park' did one, too," Sarandos said, "where it was me answering the phone saying, 'Hello, this is Netflix. You're greenlit. Who am I speaking with?' They didn't call me by name, but I'm assuming!"

South Park - How Netflix answers calls by Ghastmal on YouTube

Sarando's content budget spent on programming last year was $15 billion. "Yeah. But across the world, that's not so much," Hastings said.

"But you're paying some stars $30 million, $40 million? The pressure on the other studios to match what you've done has been intense. How much is Will Smith getting these days? Forty million? Fifty million?"

"I can't tell you what Will Smith makes," Sarandos laughed.

Variety reported that Netflix will likely pay Will Smith $35 million to star in the sequel to the Netflix film, "Bright."

This summer Netflix moved $100 million of its assets into black-owned banks, and Hastings and his wife gave $120 million of their own money to historically black colleges and universities.

Hastings, whose worth is estimated at $5 billion, has pledged to give away the majority of his wealth to worthy causes.

Stahl asked Hastings, "So, Ted is your chief in charge of content, and then you make him co-CEO. People are wondering whether this is your first step out the door?"

"Well, eventually," he said. "But, you know, eventually we're all gonna die."

"So, they're gonna drag you out by your feet?" Stahl laughed.

"We'll see!"

       
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Story produced by Richard Buddenhagen. Editor: Steven Tyler.