tonight on "nightline," nation on the brink. giant crowds fill the streets, the egyptian president dissolves the government and the curfew is ignored. we are on the scene of an historic showdown with a vital arab and american alliance twisted in the balance. the movie people. it began with dvd deliveries. then, the technology changed and without missing a beat, netflix did, too. we go inside the tale fit for hollywood. and, the "nightline" interview. david axelrod, the president's closest adviser leaves the white house tonight and jake tapper is with him on a day of huge political drama. >> announcer: from the global resources of abc news, with

terry moran, cynthia mcfadden and bill weir in new york city, this is "nightline," january 28th, 2011. >> good evening, i'm bill weir. it's complicated does not even begin to describe america's relationship with egypt. in exchange for more than a billion of your tax dollars a year, they have been a partner, but egypt is run by a man many resent as a modern-day farrow. his average subjects scratches by on $6 a day. resentment over this arangement has been simmers for years. it boiled over this week and exploded tonight, setting the white house and the world on edge. for the very latest, here's alex marquardt in cairo. >> reporter: bill, despite the curfew, despite the armored military vehicles on the streets, protests continue tonight. tanks have surrounded the u.s. embassy to protect it.

from our perch, we've heard explosions, cheers, battles. it's been incredible 24 hours with the government of president hosni mubarak on the ropes, trying to figure out what to do in the face of such incredible anger. the scenes are unprecedented. the most violent day in four days of violent clashes in the heart of the arab world, reaching fever pitch, unthinkable a week ago. volleys of rubber bullets and tear gas fired at protesters. buildings and cars set on fire. a people furious and rising up to demand an end to decades of rule by a man the united states considers perhaps its most important al ly in the middle east. but widely reviled here in egypt as a corrupt dictator who has long tortured its own people. there have been days of violent

clashes as the president of the united states carefully avoided taking sides, fanning resentment against america. >> obama, he talk too much and don't make any sense. >> reporter: the army was sent to cairo, al san dree ya and suez. there had been calls for massive million man protests after friday prayers. and so, overnight, the government shut down the internet, clamping down on the social networking sites that have been essential to this uprising. as worshippers prayed, police stood at the ready. as soon as prayers ended, the fury was unleashed. egyptians young and old, men and women, pouring into the streets. their numbers growing expo ten shlly. >> 30 years is enough. we hate these people. we hate this, all this government. we hate it. we want complete change for all of them. >> reporter: the singular focus of their rage is president hosni

mubarak, america's staunchest arab ally who has been in office so long he has seen five u.s. presidents. egyptians blame his government for rampant unemployment and poverty. the world criticizes his regime. we were caught up in the crowd, running forward and back as tear gas rained down, sending the protesters scurrying down side allies. the demonstrators wiped their eyes and went back for more. the people on the streets now convinced they're on the cusp of a revolution. flash back three days when we met this young woman in the middle of the then peaceful protests. do you feel like this is the beginning of something? >> it might be. but it -- it could take a very long time. >> reporter: then, we ran into her today. >> this is real. this is real. i changed my mind. i did not believe that this was going to happen ever, ever. i just -- i can't believe myself. this is happening and i believe

that we've already won. we're still going to win. >> reporter: as the day continued, the demonstrations got uglier. restaurants along the nile were torched. the army rolled in. people cheered, confident it was on their side. after days of clashes, president mubarak had still not said a word. finally with the headquarters of his party in flames, mubarak addressed the nation. not just egypt, but the whole region watched. he didn't step down, but announced he was getting rid of his cabinet and would instaull what he called a new government. not the resignation the masses called for. and so the protests continued. and from across the region, angry messages flooded twitter. "the bastard is staying." president obama made a statement, saying this. >> suppressing ideas never succeeds in making them go away.

>> reporter: tonight, with the military on the streets in force, the question hovers. how far will president mubarak go to suppress the ideas that at this point seem a very real threat to his 30-year rule over this nation? another question is, who would take over if mubarak were to fail? would it be a liberal democratic government? the kind many of these young protesters online imagine? or would it be an islamic government, dominated by the muslim brotherhood? and that, of course, is what is american state department has to be worried about tonight. bill? >> well, alex, as you know, mubarak vowed he would stay in power, quote, as long as i draw breath. a vow that certainly took on new meaning tonight. thanks to alex for that report. when we come back, we will shift gears, go inside the home movie industry. how netflix went from being leader in dvd distribution to king of streaming on demand.

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my wife and i want to lowe our cholesterol, but finding healthy food that tastes good is torturous. your father is suffering. [ male announc ] honey nut cheerios tastes great and can help lower cholesterol. adapt or die. it is a law of the wild that applies to business, too. but few corporations have been as successful as adjusting on the fly as netflix, a company that has surfed the crest of the home movie distribution industry since it first started mailing out those envelopes in '97. but now they may be facing their biggest challenge yet, and here's john donvan to explain. >> reporter: two guys watching a netflix movie the other day while walking down a hallway.

oh, it's "bourn identity." and that's an i pad. so, what is 2011 here? well, let's do this. freeze it. and go back in time to another world, 2009, when the story i put on "nightline" about netflix was all about these. dvds. and, a mere two years ago, the business that netflix had built with the dvd showed an obvious but ingenius discovery that army's of people would pay to get dvds in the mail. i'm seeing ahead of me a world of at least hundreds of thousands of discs. >> millions. >> reporter: millions. >> we have millions. netflix has about 46 million in its catalog. >> reporter: and at the u.s. post office was the perfect delivery system. what is your postage bill? >> about $300 million a year. >> reporter: seriously? and with the right technology, netflix could get return dvds back out to mail again in under a number of hours. >> this is reply kated in little rock and boise.

>> reporter: in a way, my conversation then with reed hastings could almost have been called in praise of dvds. >> people have them in their car, they're in every pc. they're just incredibly useful. >> reporter: freeze. and now it's 2011 again. >> my far the majority of our delivery and our service now is streaming. >> reporter: so more people stream than get the dvds? >> not only do more people stream but more people get most of their content in streaming, too. i mean, it's just -- streaming is everything. >> reporter: streaming, the delivery and consumption of programming over the air. and into all kinds of devices that can go anywhere, almost. for example -- consumer electronics show in las vegas. and we're shooting this on a little hand held sony camera. but you watching this, where are you? where are you? the point is, with streaming, you can be almost anywhere. and that's the reality that's changed everything for netflix, in a mere two years. as the company that was built on dvd inside the mail embraced

streaming, membership went from 10 million to 20 million. its stock price from under under $43 to just under $192. its main competitor, blockbuster, defeated. and hastings was named business person of the year for 2010. netflix is everywhere, built into all kinds of devices, as hastings showed me the other day. >> it's getting used on televisions and blu-ray players so much that the manufacturers want to put a red button right on the remote so you just click and up comes the netflix application. >> reporter: so, what could go wrong? um, competition. because amazon is renting and selling movies via streaming. apple is into it, too. and, uh-oh. google. reed hastings, worried or not? and google is google, i mean, that's something that you can't just write off. >> you have to imagine that there will be a couple of netflix competitors that enter, but it's a very large market, so

we look at it, say, the best thing we can do between now and then is just focus on the subscribers, focus on getting more content, growing our subscriber base, you know, all the things we could be doing anything. >> reporter: well, it's certainly true that netflix and amazon are not offering the same service exactly. amazon, you pay per movie, say, the new release "inception." >> you never really remember the beginning of a dream, do you? >> reporter: $10 to own it, $4 to rent it for a limited time. with netflix, it's $8 a month to stream as many movies as you like, but "inception" is now available for streaming on netflix, and that's true of a lot of newer movies. amazon nailed down relationships that you guys don't have yet. what about that? >> we don't have the same films but we have a little bit older content, sometimes new tv series. but it's unlimited viewing for eight bucks a month. so, it's part of entertainment. >> reporter: so, you're not competing for the same piece of

the business. >> that's right. we don't have all the movies in the movie theater. you go to the theater sometimes. you buy dvds sometimes, you watch something on cable. >> reporter: like, say, "the bourn identity." remember where we froze the action. the other guy with me is netflix's chief content officer. they're saying, we want a bigger piece of this action, is that going to hurt your bottom line? >> i think the way they get a bigger piece of the action is, as we migrate from dvd to streaming, this big pile of cash we use to pay the u.s. post office every time somebody used to watch a movie. being able to migrate that to the studios works just fine for our business model. but just two years ago, and let's go back to 2009, he had this to say about the dvd. do we see a day when netflix is all about direct streaming into your home and the dvd is totally out of the picture? >> not very a long time. >> reporter: years and years? >> yes. >> reporter: and the dvd side of the business is continuing to grow. those hundreds of thousands are still going out their doors

every day. it's just that streaming is gaining ground on the dvd a lot faster than anybody thought it would. but back to 2011, where ted showed me a cool netflix trick. "the bourn identity" again, remember where we left off? so, this is a playstation three. and watch. same movie, different device. >> where is it going to pick up from? >> right where we left it off in the hallway. >> reporter: wow. that was pretty good. and on we went, net to a laptop and we could have moved to phones and the other 100 devices you can use to get netflix now days. though it is nice to know you can still stay in one place to watch a movie just like we all used to. i'm john donvan for "nightline" in las vegas. >> oh, the olden days. and when they figure out how to beam movies directly into your brain, john donvan will bring us the update. up next, the ax is out. david axelrod, architect of the obama election victory, leaves

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>> announcer: "nightline" continues from new york city with bill weir. >> david axelrod once told a presidential biographer, i thought that if i could help barack obama get to washington, that i would have accomplished something great in my life. well, he took that wox, and tonight, axelrod, now the president's closest adviser, left the white house, and possibly presidential politics for good. and his exit interview with jake tapper is tonight's "nightline" interview. >> reporter: it's been a whirld wind ride for david axelrod, whose last day at the white house was today.

>> i'm beginning my life torment. >> reporter: the white house senior adviser is headed back to chicago. >> actually have a meeting tomorrow morning. even though i'm officially ending my tenure today. >> reporter: after two years working at the president's closest aide, he's heading home. but there was little time at the white house today for cupcakes and punch. with unrest in egypt leading to clashes in the streets and demonstratored killed and wounded. prompting egyptian president hosni mubarak to fire his cabinet and address his nation. that prompted a presidential response here. >> when president mubarak addressed the egyptian people tonight, he pledged a better democracy and greater economic opportunity. i just spoke to him after his speech and i told him he has a responsibility to give meaning to those words. >> the president has strong feelings about this.

>> reporter: just a few hours ago, we sat with axelrod for an exit interview. so i guess it wouldn't be normal if your last day was a normal, quiet day that you doesn't have to worry about anything major going on. >> right, yes. that's life in the white house. so, no, it isn't surprising to me that something, somewhere in the world, is happening today that is going to require extraordinary attention. >> reporter: that government tortures, is repressive, doesn't believe in the same freedoms we do. and they are also one of our closest allies in the middle east. >> he went to cairo and talked about the need, the universal human rights of people. he's on several occasions directly confronted president mubarak on it and pushed him on the need to -- full political reform. >> reporter: to get ahead of

this. >> exactly. >> reporter: but axelrod is heading back to the windy city. he already has plans for next week. >> i'm going to play basketball with my old basketball group. i'm going to my favorite deli, manny's, and see my friends over there. >> reporter: more important than manny's corned beef, of course, axelrod is returning to his wife of more than 31 years, susan landau. >> that was part of the deal when we came here. >> reporter: two years and out? >> yeah. >> reporter: but usually people in his position don't keep those deals. >> yeah, well, he had to. >> reporter: another come peopling reason to return home is his daughter lauren. she's 29 and has epilepsy, a brain disorder involving repeated spontaneous seizures. >> lauren is very excited to get her dad back. he's already making dates, trying to get to some ball games with him and bring her friends along and wants to come home this weekend and, so, she's pretty psyched. >> reporter: that was the toughest part? >> it was hard. and, you know, i've said before, lauren was say all the time, why

does barack obama need so much help? what really moved me is when i told her finally that i was coming home and she was so obviously excited about it and it meant the world, you know, to me, to know that it meant so much to her. >> reporter: it has been a grueling two years. the hours long, the work, excruciatingly complicated. and not always successful. what was the most difficult moment you had? >> when you work in that building, there are things that happen, the ft. hood shootings, that were just unimaginable, that were disturbing. dark. and then, the entire first few months of the administration when we were dealing with the very real prospect of a second great depression and were worried about the viability of the financial system. >> reporter: that's a lot of bad days. >> yeah. well, those were bad days. those were bad days.

>> reporter: of course, there were victories. when the health care bill passed. >> president and the staff were watching the vote in the roosevelt room and i left there and went into my office, closed the door and i was just overcome, and i was overcome because we have a child with a chronic medical condition. we went through all those financial nightmares, coupled with the overall nightmare of having a sick child when the insurance company couldn't cover her medications and her treatments and we got into very deep water. and i realized, because of what he had done and because of what others had done with him, other people wouldn't have to go through that in the future. that was a memorable day for me. >> reporter: axelrod first met barack obama in 1992. >> a friend of mine in chicago, who is very active in politics out there, called me, said, i just met the most remarkable

young man and i think you ought to meet him. i said, happy to, but why? and she said, i have a feeling he might be president of the united states some day. and -- >> he was 31? >> reporter: 31 years old. and i thought that was pretty grandio grandiose. and i met him and i didn't conclude at that juncture that he was going to be president of the united states but i knew he was a special guy. >> reporter: axelrod worked on then state legislator barack obama's u.s. senate race in 2004 and they've been together ever since. still, there's no escaping that he's leaving the president's side, where he's essentially been for four years. >> i know that it's time, so, yeah, it's going to be a bittersweet -- >> reporter: you think you're going to cry? you've been known to get a little weepy on occasion. >> i do. i don't know whether that will happen tonight or over this weekend but you know, i'm sure i'll have moments or sadness. >> reporter: president obama is not familiarly known for

emotion, but one cannot help but this that he, too, will have moments of sadness when on monday, this close and devoted aide who has dedicate sod much of his life to him does not come in to work. this is jake tapper for "nightline" at the white house. >> jake with david axelrod. thanks to him for that report. when we come back, the egypt question. but first, here's what's next with jimmy kimmel. >> jimmy: tonight, ryan gosling, kourtney kardashian, music from ra ra riot, and something else that i can't remember right now. "jimmy kimmel live" is next. ztzq

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