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Former rival's advice to Netflix: 'Don't let Icahn get to you'

That's the advice from former Blockbuster CEO John Antioco to Netflix CEO Reed Hastings. After Carl Icahn got control of three seats on Blockbuster's board, Antioco had to put up with badgering from the billionaire.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
John Antioco, former CEO of the Blockbuster video chain says Netflix's Reed Hastings has to keep his wits and think strategically when dealing with Carl Icahn. Bloomberg

What should CEO Reed Hastings do if billionaire investor Carl Icahn wins some control of Netflix? Stay cool and don't sweat it, says one of Hastings' former rivals -- John Antioco, former CEO of the former Blockbuster.

Icahn acquired nearly 10 percent of Netflix's shares last week. His entry into any company typically means headaches for managers and directors. Antioco knows a thing or two about dealing with Icahn.

Antioco led turnarounds at Circle K convenience stores and Taco Bell, and was on his way to building Blockbuster's digital unit into a significant Netflix competitor when Icahn's pestering and meddling began, according to Gina Keating, author of the critically praised book 's="" eyeballs.""="">"Netflixed: The Epic Battle for America's Eyeballs."

Before Antioco resigned in 2007, he had implemented a hybrid strategy that allowed customers to rent videos from stores or over the Internet for one monthly subscription price. Even Netflix insiders said the idea would have been tough to beat, according to Keating's book. It was Jim Keyes, the CEO who succeeded Antioco and a man supported by Icahn, who gutted Blockbuster's digital unit and put the company's resources behind brick-and-mortar retailing. The company filed for bankruptcy protection in 2010.

On Monday, we asked Antioco about his experiences with Icahn.

Question: Carl Icahn is a legend and has made lots of money. Was it intimidating having him on your board and in control of three seats?
Antioco: He's an interesting guy. He's certainly good at what he does, but it's amazing how much his decisions are driven by instinct instead of analysis. When I was there, I think his son Brett was the driving forcing behind his involvement with Blockbuster. Carl is very dynamic and works a lot and if he gets in at Netflix, life for Reed will change.

Why did you leave?
Antioco: It became impossible with a board that was so dysfunctional. My departure in 2007 or 2008 came after a dispute about my bonus, which for me was more about principle than about money. It was, though, a convenient segue. There were the market conditions, a board that was difficult to deal with and certainly not a value add. The thing we really did have going was Blockbuster Total Access [the hybrid store-online plan]. I thought [Keyes] really should have cracked the whip on that. But he didn't and I think it was because he wasn't going to reap the glory for it and I suspect that his decision was personal. [According to Keating's book, Keyes and Antioco had an acrimonious relationship].

Get to know Carl Icahn, the former corporate raider who has Netflix in his sights. Click here to read the story.

I'm not going to try to tell you that had I stayed and had the right board, it would have been smooth sailing, but I think we could have offered a viable alternative to Netflix.

In her book, Keating goes into detail about how Icahn would call you at all hours and was critical of your work ethic. How did you deal with that?
Antioco: You learn to control that to the extent that you don't get sucked into it. Carl works a lot of hours, a lot of strange hours. He would say stuff like John has lost his worth ethic, his passion, but he defined that passion as a willingness to sit in an office until he called at 8 p.m., wait for a call that should take 10 minutes but lasted much longer because he would repeat himself so often. That's just his pattern but he's not an unpleasant guy. I would periodically come to New York for board function and we would have dinner.

The relationship started off rocky because we were trying to work out some formulas for our digital effort and that was a period of frustration because we wanted to make the transition to digital but at the board level he had his own bully pulpit and his own directors were certainly unwilling to buck him and the independents didn't want to either so a bunch of projects languished. At the end, it was the blow up over my bonus. Between that and the business conditions it seemed a difficult row to hoe; to expand and explore a different road for Blockbuster with a dysfunctional board.

Did Icahn understand that Internet distribution was coming? Does he know a lot about the Internet or technology?
Antioco: No. I don't claim to be a digital wiz and Carl knows less than me.

What many people didn't realize regarding the DVD-by-mail business is that mailing DVDS through the post office wasn't high tech, but it was a clear gateway from physical to digital delivery and established a pattern for consumers for going online to order movies. More importantly it established a relationship with the customer and acquiring knowledge about tastes and if used effectively, you could make recommendations and put entertainment that consumers liked in front of them. It's a beautiful combination and I'm not sure why Netflix raised prices and tried to break up the DVD operations. It would seem to have been a premature killing of physical distribution. It clearly alienated customers and tarnished that brand to this day.

At Blockbuster we were trying to use our store presence to enhance the conversion to digital. What's not to like about renting a couple of movies at home, and then mailing them back or returning them to a Blockbuster store? I give Reed a lot of credit for pushing a product that was counter-intuitive to the industry at the time. Blockbuster was slow on the uptake of DVD-by-mail because the business was all about instant gratification. People didn't plan to rent videos. They asked each other what they wanted to do and then decided on watching a movie and would head out to the local Blockbuster store. Netflix started out as an ala carte business, but their luck or brilliance was in coming up with the subscription plan. They really hit it by enabling people to load up queues and getting the movies in the mail without having to think about it again. That caught on with consumers. I give Reed credit.

If Reed Hastings were on the call with us now, what advice would you give him about dealing with Carl Icahn?
Antioco: Do the best you can of not letting him get to you. Keep your wits about you and keep your sense of humor because Carl has one too. I think Reed is a smart guy who is not prone to emotional swings. If he can keep his head about him and deal with Carl in a strategic manner and not let Carl's style control him, he'll be okay.