March 23, 2023

Reed Hastings steps down

Netflix co-founder Reed Hastings is standing down as chief executive officer, ending a two-decade-long stint that saw the company grow from a rent-by-mail DVD service to an entertainment juggernaut. K Dass reports.

Hastings's exit comes as Netflix said it added over 7.5 million subscribers in the December 2022 quarter, beating analysts' forecasts of 4.5 million. However, earnings per share for the company came in at 12 cents, below the 45 cents expected by analysts.

In 2020, Netflix named Ted Sarandos, who has long led content efforts at the company, as co-CEO alongside Hastings. At the time, Netflix characterised the change as formalizing the way that the company was already operating. Netflix will maintain the co-CEO structure in Hastings' absence, promoting COO Greg Peters to the tandem role with Sarandos.

“It was a baptism by fire, given COVID and recent challenges within our business,” Hastings said of Sarandos and Peters taking the reins. “But they've both managed incredibly well, ensuring Netflix continues to improve and developing a clear path to reaccelerate our revenue and earnings growth. So, the board and I believe it's the right time to complete my succession.”

 

 

Hastings will stay involved with the company as executive chairman of the board, following a precedent shared by other prominent major tech company founders, including Amazon's Jeff Bezos and Microsoft's Bill Gates.

Netflix has projected “modest” gains in subscribers in the March quarter and forecasted 4%year-on-year growth in revenue during the period, with the help of its new revenue streams - an ad-supported cheaper plan and new plans for account sharing that Netflix believes will decrease the number of people who share their accounts.

Even as the company added subscribers, 2022 was largely a difficult year for Netflix. In the January to March quarter, it lost close to 200,00 subscribers and then in the quarter ending June, it lost nearly a million subscribers, marking the biggest ever quarterly fall in its subscribers. The company came under pressure after losing customers in the first half of 2022. Its stock, a one-time Wall Street darling, had fallen nearly 38% in the past year.

This prompted Netflix to work on an ad-supported subscription tier, marking a major shift in how the company had previously viewed advertisements in its 25-year history. In 2017, Hastings had suggested that the company was not well-suited to compete with the likes of Facebook and Google on ads.

Ad-supported plan is the way forward

Netflix introduced the ad-supported plan in November last year in 12 countries and remains bullish about its future prospects.

“While it's still early days for ads and we have lots to do (in particular better targeting and measurement), we are pleased with our progress to date across every dimension: member experience, value to advertisers, and incremental contribution to our business,” Netflix said in its letter to shareholders.

“Overall the reaction to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at minimum, in-line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, though the impact on 2023 will be modest given that this will build slowly over time,” Netflix added.

Status of paid sharing plans

The company said it expects to start rolling out paid sharing “more broadly” in this quarter. “As we work through this transition - and as some borrowers stop watching either because they don't convert to extra members or full paying accounts - near-term engagement, as measured by third parties like Nielsen's The Gauge, could be negatively impacted,” it estimated. “However, we believe the pattern will be similar to what we've seen in Latin America, with engagement growing over time as we continue to deliver a great slate of programming and borrowers sign-up for their own accounts.”

Back to Listing

---