As Netflix executive Greg Peters takes the co-CEO reins from Reed Hastings, Wall Street, the entertainment industry and consumers will be watching closely to see how he and Ted Sarandos steer the streaming behemoth forward.
A major question for Peters, formerly the company’s COO, and Sarandos, who held the co-CEO title alongside Hastings for almost three years, is whether the company’s new leadership will use the old playbook that powered the company to the top of the streaming world or try to forge their own path.
UCLA professor Tom Nunan, a former executive at NBC and UPN, told TheWrap that one major lesson Peters and Sarandos can learn from Hastings is that they shouldn’t “be a slave to Hollywood’s history and its problem-solving techniques.”
Hastings’ way was to “always do what’s best for Netflix, wherever the idea comes from,” Nunan said. “What Reed stood for is individualism and being true to himself versus just following like a zombie in the footsteps of the folks who had preceded him in entertainment.”
But one expert argues that the pair “doesn’t need to innovate on a disruptive scale like Hastings did.”
Peters and Sarandos “need to minimize costs and maximize revenue within the structure that Hastings built,” Loyola Marymount University associate professor of finance David Offenberg told TheWrap. “From here, Peters and Sarandos should be charting a course that makes incremental improvements and is less exciting to watch.”
This new season of the Netflix show may be lighter on nail-biting cliffhangers — but there’s still opportunity for Peters and Sarandos to introduce some plot twists. Here are some areas where analysts and entertainment veterans see room for development.
Milking the catalog
Historically, Netflix has spent billions on its massive content library in the name of keeping viewers engaged. Sarandos and Peters need to focus on finding ways to extend the “lifetime value” of that original programming, Samba TV senior vice president Dallas Lawrence told TheWrap, even if that means letting it live outside Netflix.
“The data tells us that the average new streaming program experiences the bulk of its viewing in the first two weeks,” he said. “[Netflix has] over 1,500 original programs in its portfolio that could be licensed to other platforms such as FAST channels — that would then introduce Netflix content to new viewers who might in turn sign up for the service.”
Competitor Warner Bros. Discovery recently announced it would be launching 11 free ad-supported television channels as part of a new partnership with Roku and Tubi. It also plans to launch its own FAST service later this year. In addition, Bloomberg reported that DIsney is considering licensing some of its content library to third parties as it looks to bounce back from billions of dollars in losses in its streaming division.
Netflix “needs to be a little bit more like Disney in monetizing their successful IP,” Gerber Kawasaki Wealth and Investment Management president and CEO Ross Gerber told TheWrap, by finding ways to build better communities around their core franchises.
“One of the things I think Netflix could do a lot better job on is putting movies in theaters and making more money off the great content they’re making,” he added. “They should buy a theater chain and then turn them into Netflix community centers.” Gerber gave the example of bringing young fans of “Stranger Things” into theaters to watch episodes of the show. Netflix, he said, needs to “try harder to build these audiences that I think have tremendous potential.”
Netflix was criticized for leaving money on the table with its theatrical release of “Glass Onion: A Knives Out Mystery,” but Sarandos said during the company’s recent fourth-quarter earnings call that its “core business is making movies for our members to watch on Netflix.”
“That’s where we’re really focused,” he said. “And everything else is really a tactic to drive excitement around those films.”
Sharpening the advertising strategy
With competition rising and viewership of FAST services growing, Sarandos and Peters need to focus on building up Netflix’s advertising business, experts agreed.
An early report by Antenna found that sign-ups for Netflix’s Basic With Ads tier were off to a sluggish start, with just 9% of U.S. subscribers signing up for the plan in November. However, a separate report from Ampere Analysis finds that the ad tier’s release prompted a 58% increase in the streamer’s average daily sign-up volumes between Nov. 3 and 5, compared to three days before the launch.
Since the new plan was made available to subscribers, 8% of those signing up to Netflix or changing their plan have taken the ad tier, according to Ampere. Three out of four were new signups — mostly re-subscribers (64%), but also first-time users of the platform (36%). Meanwhile, about one in four ad tier subscribers were existing Netflix users making a switch. The largest portion (67%) came from the ad-free basic tier, while 21% moved from the standard tier and 12% came from the premium tier.
“As Netflix grows its ad business, Sarandos and Peters have a chance to innovate the ad unit as well, which the market is in desperate need of,” Lawrence said. “The opportunity to look beyond the legacy mindset of 30-second spots and embrace the incredible ways in which advertisers can leverage a platform like Netflix from sponsored content, interactive formats and much more data-driven engagement presents an exciting value proposition to advertisers looking to reach streamers.”
Lawrence points out that Netflix perfecting its ad strategy will provide a “good off-ramp for password sharers,” another crucial initiative Peters and Sarandos will now oversee. According to Netflix, an estimated 100 million households globally are sharing passwords with family and friends.
Despite recent pushback from consumers, Gerber anticipates that many people will end up paying to continue their Netflix subscriptions.
“There will be some annoyance among actual users who now have to go through this process,” he acknowledged. “But I also think from a business perspective if their numbers are right and 30% of people aren’t paying for Netflix, they’re going to have a substantial increase in revenue by doing this.”
Netflix Chief Financial Officer Spencer Neumann recently estimated that advertising would eventually account for at least 10% of the company’s revenue; in 2022, that figure was $31.6 billion, which would imply a sizable ads business.
Retaining customers
The biggest challenge for Netflix’s new co-CEOs will be retaining subscribers in a much more competitive streaming landscape.
According to Samba TV, a major challenge for streamers is subscription cycling, in which customers sign up for one service to watch a favorite program and then cancel that service once the show ends. The firm estimates that 29% of U.S. adults have cycled through subscriptions in the past six months and 69% plan to cycle within the next six.
“The good news is Netflix is already faring better than every other streamer when it comes to this challenge, and of all platforms has the lowest percentage of viewers watching only one program in the top 50,” Lawrence adds. That will require “multiple pieces of engaging content” — Sarandos’ domain as content chief — and “leading discovery tools” — Peters’ specialty as the company’s product leader.
Elizabeth Parks, president and chief marketing officer of Parks Associates, told TheWrap that Netflix could also retain subscribers through bundling. In addition to its standalone plans, Netflix is currently available to T-Mobile customers and Verizon +play customers.
“Most of the major ad-based streaming services are participating in one or more bundle with other services, offering discounts to customers who subscribe to more than one service,” she said. “We expect to see Netflix launch new partnerships to reach new segments.”
