Reed Hastings, the Co-founder of Netflix and its CEO during the company’s 25-year history, announced Thursday that he was stepping down from the role. It’s the end of an era for the company that first killed blockbusters and then caused cable TV to slowly bleed dry.
It’s an ending that may have been a long time coming. Netflix once stood alone in the streaming space, but in early 2023 it faces a cluttered landscape occupied by streamers like Disney+ and HBO Max and video platforms like TikTok and YouTube. Celebrated for outstanding original hits like stranger things and Wednesday‘Netflix’ seemingly endless stream of original content has also been criticized in recent years for emphasizing quantity over quality. This combination of increased competition and declining content resulted in a turbulent 2022 that slowed the company’s growth.
But Hastings’ departure could show that Netflix is still in better shape than it was a year ago, when it was rapidly shedding subscribers and stock value. The streaming giant took a sudden turn in November after quickly developing a new offering that allowed customers to pay less ($6.99 a month instead of $9.99 for a basic plan) to stream Netflix content, if they agreed to see ads. Now, Ted Sarandos, who was already Hastings co-CEO, will be joined as co-CEO by Greg Peters, Netflix’s chief product and chief operating officer. They’ll oversee Netflix’s move into a new iteration: If DVDs sent out in the mail were Netflix 1.0 and streaming 2.0, ad-supported Netflix disrupting the non-stop streaming phenomenon could be Netflix’s third act.
“This is a hugely transformative shift for Netflix,” said Tony Gunnarsson, TV, video and advertising analyst at Omdia, of ad subscriptions. “Once you start having advertising, you can no longer have that as a side business. It can’t be something that just complements another model. It’s becoming the dominant practice very quickly.”
Hastings has previously repeatedly dismissed the idea of putting ads on Netflix. Hulu has long offered streaming with ads, and Disney+ introduced an ad-supported option in December (Disney is also the majority owner of Hulu). In 2019, 70 percent of Hulu viewers saw ads instead of shelling out the full cost of an ad-free subscription. And fans of TikTok and YouTube are already used to a barrage of commercials. After a multi-year hiatus, advertisers have fought their way back into their personalized entertainment, and they seem to be staying there.
Netflix’s service with advertising is available in a dozen countries in North America, Europe, Asia and South America. The company ended 2022 with 231 million subscribers and generated $32 billion in revenue. A letter to shareholders on Thursday said that so far few customers have switched from ad-free subscriptions to those with ads and instead the new offering at a lower price has resulted in “incremental membership growth”. It ended the year with better-than-expected growth and continues to plan to reduce password sharing by urging accounts to use a paid sharing option where they can add users from other households for a fee.
“Netflix is much more of a mature business now,” says Sarah Henschel, media and entertainment analyst at Omdia. “They’re starting to focus less on subscriber growth and more on revenue growth. It may have to become a compromise where they lose some subscribers but end up getting more revenue.”
Hastings said in his letter that he would remain as chief executive, a move customary for founders to hand over the reins. He pointed out that the succession plan had been discussed in previous years, leading him to share the role of CEO in 2020. With the doom and gloom that followed Netflix in early 2022 fading, Hastings is leaving the company at a time when Netflix is more stable. and possibly enter a new season.