Reed Hastings is stepping down as chief executive of Netflix, the company he founded 25 years ago, in a shake-up at the top of one of Hollywood’s most powerful studios.
Hastings, who launched Netflix in 1997 as a DVD-by-mail service, wrote in a blog post that he has increasingly delegated management in recent years. Now is “the right time to capitalize on my success”, he added.
“Our board has been discussing succession planning for years (even founders have to evolve!)”, Hastings, 62, wrote. “I’m very proud of our first 25 years, and very excited about the next quarter century.”
Chief Operating Officer Greg Peters has been promoted to co-chief executive with Ted Sarandos, who was responsible for programming during Netflix’s big investment period and was promoted in 2020 to co-chief executive along with Hastings.
Netflix shares jumped more than 6 percent in after-hours trading.
The change comes as Netflix has lost more than a third of its market value in the past year, after announcing its decade-long growth spurt has ended. Sarandos and Peters will be charged with regaining momentum and leading Netflix through a tougher era for the entertainment industry.
Hastings will remain as executive chairman, following the example of Amazon’s Jeff Bezos and Microsoft’s Bill Gates. The billionaire founder said he would “spend more time on philanthropy” but “remain very focused on Netflix stock doing well”.
The change at the top of Netflix comes as the company reported adding 7.7 million subscribers in the fourth quarter, more than expected, thanks to popular programs such as the Addams Family spin-off. Wednesday with Harry & Meghan documentary series. Netflix has forecast that it will add 4.5 million subscribers in the quarter.
Sophie Lund-Yates, an analyst at Hargreaves Lansdown, said: “As Wall Street slumps under the weight of recession fears and a shaky Federal Reserve, Netflix’s massive subscriber base injects much-needed optimism into the mix.”
Netflix stunned investors last April when it announced it had lost subscribers, triggering a stock market revaluation that punished the entire US media industry. After the “Netflix correction”, Wall Street became more skeptical about the streaming video market, increasing its focus on profitability and forcing the big entertainment group to be more cost-conscious.
Netflix ended 2022 with 231 million paying subscribers, an increase of 8 million for the year, the worst annual growth in a decade. In a letter to investors, the company said “2022 is a tough year, with a bumpy start but brighter days”.
Revenue in the quarter rose to $7.9bn, up 2 per cent from a year ago. Net income fell to $55 million in the quarter, down from $607 million in the same period last year, a sharp decline that the company attributed in part to a strong U.S. dollar. Operating income fell to $550 million from $632 million.
The company spent $4bn on content in the quarter, down from $5.7bn in the same period last year.
Shares in Netflix have recovered slightly from last year’s lows, gaining 9 percent this year. But the $141bn market value is still about half its peak during the coronavirus pandemic.
As the growth in subscribers slows, Netflix has taken two important steps to support the business: introducing a cheaper version of the streaming service with advertising, and trying to limit the sharing of passwords, a practice that is generally ignored when the growth is red hot.
Netflix moved quickly to create advertising levels in partnership with Microsoft, launching the platform in November for $7 a month. The company on Thursday said it was “pleased with the preliminary results”.
With these two potential new sources of revenue, Netflix stopped giving investors guidance on the number of new subscribers — a symbolic shift for a company whose stock price has soared for years based on subscriber growth.
The promotion of Peters, who played a big role in the launch of Netflix’s advertising level, “is an indication of how the advertising business is going for Netflix”, said Paul Verna, an analyst at Insider Intelligence.
“In the same way that Sarandos’ previous elevation . . . was a sign of Netflix’s maturation from a technology company to a film and TV studio, the change now puts advertising at the center of the picture, along with content.