Reed Hastings is stepping down as chief executive of Netflix, the company he co-founded 25 years ago, in a shake-up at the top of one of the most powerful studios in Hollywood.
Hastings, who launched Netflix in 1997 as a DVD-by-mail service, wrote in a blog post that he has been increasingly delegating management in recent years. Now is “the right time to complete my succession”, he added.
“Our board has been discussing succession planning for many years (even founders need to evolve!)”, Hastings, 62, wrote. “I’m so proud of our first 25 years, and so excited about our next quarter of a century.”
Chief operating officer Greg Peters has been promoted as co-chief executive with Ted Sarandos, who was in charge of programming during Netflix’s massive investment period and promoted in 2020 to co-chief executive alongside Hastings.
Netflix shares jumped more than 6 per cent in after-hours trading.
The change comes as Netflix has lost more than a third of its market value in the past year, after revealing its decade-long growth spurt had come to an end. Sarandos and Peters will be charged with regaining momentum and leading Netflix through a more austere era for the entertainment industry.
Hastings will stay on as executive chair, following the past examples of Amazon’s Jeff Bezos and Microsoft founder Bill Gates. The billionaire founder said he plans to “spend more time on philanthropy” but “remain very focused on Netflix stock doing well”.
The change atop Netflix came as the company reported it added 7.7mn subscribers in the fourth quarter, well above expectations, thanks to popular programming such as the Addams Family spin-off Wednesday and the Harry & Meghan documentary series. Netflix had forecast it would add 4.5mn subscribers in the quarter.
Sophie Lund-Yates, analyst at Hargreaves Lansdown, said: “While Wall Street sags with the weight of recession fear and Federal Reserve jitters, Netflix’s huge beat on subscriber numbers has injected some much-needed optimism into the mix.”
Netflix stunned investors last April when it revealed it had lost subscribers, triggering a punishing stock market revaluation of the entire US media industry. After the “Netflix Correction”, Wall Street has become more sceptical of the streaming video market, increasingly focusing on profitability and forcing big entertainment groups to be more cost-conscious.
Netflix ended 2022 with 231mn paid subscribers, adding 8mn for the year, its worst annual growth in a decade. In a letter to investors, the company said “2022 was a tough year, with a bumpy start but a brighter finish”.
Revenue in the quarter climbed to $7.9bn, up 2 per cent from a year ago. Net income dropped to $55mn in the quarter, down from $607mn in the same period a year ago, a sharp decline that the company attributed in part to the strong US dollar. Operating income declined to $550mn from $632mn.
The company spent $4bn on content in the quarter, down from $5.7bn at the same time last year.
Shares in Netflix have recovered somewhat from last year’s lows, gaining 9 per cent this year. But its market valuation of $141bn is still about half its peak reached during the coronavirus pandemic.
As growth in subscribers slows, Netflix has taken two significant steps to shore up its business: introducing a cheaper version of its streaming service with advertisements, and trying to limit password sharing, a practice it had largely ignored when growth was red hot.
Netflix moved quickly to create an advertising tier in partnership with Microsoft, launching the platform in November for $7 a month. The company on Thursday said it was “pleased with the early results”.
With these two potential new sources of revenue, Netflix has stopped providing guidance to investors on its number of new subscribers — a symbolic shift for a company whose stock price soared for years based on subscriber growth.
The promotion of Peters, who played a big role in Netflix’s ad tier launch, “is an indication of how much the ad business means to Netflix”, said Paul Verna, analyst at Insider Intelligence.
“In the same way that Sarandos’ earlier elevation . . . was a sign of Netflix’s maturation from a tech company to a film and TV studio, the current shift puts advertising in the centre of the picture, alongside content.”