New book reminds us why we loved Netflix

Dump Netflix. Buy Netflix.

That's the conflicting advice coming out of Wall Street about the Web video rental service during the past two weeks and it has sent the company's share price on a wild ride. How can investors know which way to bet?

Well, anyone looking for deeper insight should get their hands on "Netflixed," a richly detailed history of the company and its campaign to reshape the home-rental market. The book goes on sale today.

"Netflixed" is a reminder of why the public and business press fell in love with the company and managers there should hand out copies with every video rental.

One reason they won't is that all the warts are exposed. Author Gina Keating, a former Reuters reporter who covered the company for years, dispels some of the Netflix myths. She writes that CEO Reed Hastings had less to do with coming up with the idea for the service than he has previously said.

Some of Keating's conclusions about Hastings are consistent with those published in a CNET story from last summer, in which former employees described the company's co-founder as someone who had let Netflix's success go to his head, leading to his alienation of top lieutenants who were instrumental in the company's success.

In "Netflixed," Keating wrote that in the past few years, Hastings "became increasingly resentful of dissension." Presumably, it was the change in Hastings attitude that paved the way for Netflix's bungled price increase and attempt to spin off DVD operations last year.

But digging up some of Hastings' shortcomings is only a small part of the book. The real value in Keatings' more than two years of reporting is in chronicling how smart and skilled Hastings was during Netflix's showdown with the much bigger Blockbuster.

Keating interviewed numerous insiders from both companies and enables the reader to hear the thinking behind their individual strategies during their tug-of-war for Internet video rentals. It's all in there: the hobbling of Blockbuster when Viacom pulled its money out and left the video-rental chain deep in debt, the brutal price wars, and Netflix's attempt to sue Blockbuster for allegedly violating its patents.

One of the book's highlights comes when Netflix realizes that it must fend off challenges not just from Blockbuster, which at the time was synonymous with home video, but also Wal-Mart and Amazon.

This is where the book becomes a testament to Hastings' stewardship.

He may have eventually alienated some of his managers, but he's the guy who assembled a crack management team that included Leslie Kilgore, Barry McCarthy, Ted Sarandos, and Neil Hunt, and kept it intact for a decade. According to Keating, this was the group that was disciplined and resourceful as they pioneered the mailing of DVDs to customers' homes and later when they begin streaming films over the Internet, according to Keating.

The author writes that Hastings, a mathematician and software engineer, understood early on that his company was compiling unprecedented data about consumer's home-video tastes and behavior, based not on surveys or studies, but on usage. This data helped him recommend titles and build improvements into the service that he knew his customers would appreciate, according to the book, and the information only got richer with the development of the streaming service.

"Netflix's market researchers had found the holy grail of customer feedback," Keating wrote. "Real-time input about what customers thought about the movies they watched, based on how they behaved as they watched them. The system watched viewers as they screened films, noting the scenes where they stopped and rewound, how long it took them to abandon a film they didn't like, where they paused, what scenes they skipped. The resulting analysis of human behavior had the potential to be richer and more personal than any focus group could be."

In "Netflixed," Keating describes Hastings as a sometimes charismatic leader who would dress up in costumes, such as the time he donned a robe and boxing gloves, to illustrate whatever point he wanted to hammer home to his troops. He inspired employees with his cool and rational thinking that for most of the past decade was correct.

Obviously, Hastings' number crunching didn't help him anticipate the angry response from customers when he raised prices. It couldn't help him smooth over disagreements he had with his management team and many of the people who helped turn Netflix into a winner.

Keating said in a CNET interview last week that some former insiders say Hastings has an emotional IQ of zero. But all things considered, Keating still believes Hastings and Netflix are good bets.

"I hope that people recognize he is a genius," the author said in an interview this week with Michael Liedtke from the Associated Press. "There is no question in my mind that there is nobody like this guy. Wall Street and naysayers are wrong to bet against this company, especially as long as he is in charge."