How the Netflix deal changes everything in Hollywood—again

A $40 late fee on a Blockbuster Video rental led to the creation of the company that has swallowed Hollywood.

- Joe Flint

Software entrepreneur and movie buff Reed Hastings was hit with sticker shock one day in the 1990s, when he returned an overdue film. Seeing the success Amazon was having selling books, Hastings figured a similar approach could work with movies—without penalizing customers.

He and partner Marc Randolph launched Netflix with 925 movie titles and 30 employees to stick them in envelopes and drop them in the mail. Nearly three decades later, that scrappy DVD rental company not only dominates the global subscription streaming landscape, but is now eating Hollywood itself.