Netflix Co-Founder Reed Hastings Transitions to Chairman Role, With Greg Peters Elevated as Co-CEO

The move comes as the streaming industry is facing a radically different set of challenges: Investors now value profitability over subscriber growth and consumers have become increasingly fickle given the ever-growing number of streaming options.

It marks the end of Mr. Hastings’s 25-year run at the helm of Netflix, which he helped turn from a DVD-by-mail upstart into the world’s biggest streaming service. Netflix is pressing on with dual efforts to stoke new revenue growth.

The company’s board had been discussing succession planning for many years, Mr. Hastings said in a blog post Thursday. Mr. Hastings said becoming executive chairman is a step that founders often take when they leave the role of CEO, naming

Microsoft Corp.

co-founder

Bill Gates

and

Amazon.com Inc.

founder

Jeff Bezos

as prominent examples.

The executive change comes as Netflix beat its own forecast for subscriber gains in the final quarter of the year, adding nearly 7.7 million new customers. It had previously said it expected to add 4.5 million during the period.

“2022 was a tough year, with a bumpy start but a brighter finish,” Netflix said in its quarterly letter to investors, adding that it has a clear path to reaccelerate its revenue growth. It ended the year with 230.8 million subscribers globally.

Netflix shares were up more than 7% in after-hours trading.

Revenue rose 1.9% year-over-year to $7.85 billion in the fourth quarter while net profit plunged 91% to $55.3 million. The net-profit decline was the result of an unrealized loss from a Eurobond currency hedge that dinged the company as foreign-exchange markets shifted.

The earnings report caps a tumultuous year for Netflix. It surprised Wall Street in early 2022 with two back-to-back quarters of customer losses before rebounding in the September quarter with 2.4 million new subscribers.

The company spent much of the year focused on starting an advertising-supported tier, controlling costs and finding ways to make money from the more than 100 million Netflix viewers who watch content using someone else’s account.

Netflix said it is past the most cash-intensive phase of building out its business and is now focused on generating strong free cash flow. Its ad-supported tier and effort to get paid for account sharing are two ways it plans to do that.

Netflix in November launched its ad-supported tier of service, which the company said Thursday was beginning to drive “incremental membership growth.” It a also said it has “seen very little switching from other plans.”

Mr. Peters played a leading role in creating the ad-supported tier of service. He previously helped expand Netflix globally into Japan and the gaming sector. In the blog post announcing the leadership change, Mr. Hastings said that the executives had all collaborated well together for years and that he planned to continue working with them “for many years to come.”

In another executive shuffle, Netflix named

Bela Bajaria,

its global head of television, as chief content officer, a title that was previously held by Mr. Sarandos.

Scott Stuber,

head of global film, will become chairman of Netflix Film.

Mr. Sarandos was named co-CEO in July 2020 and kept the chief content officer title at the time. Netflix said then that the change was part of “a long process of succession planning.”

As it ramps up its efforts to crack down on password sharing, Netflix said it expects to roll out efforts to spur more members to pay extra for the option of being able to share their accounts with people outside their household. That rollout will happen later in the first quarter, Netflix said, which it said is likely to result in “a very different quarterly paid net adds pattern” this year.

Netflix acknowledged that the account-sharing crackdown could result in a loss of viewership in the near term. It expects the broader rollout of the effort to result in a pattern similar to what it saw in Latin America, where customer engagement grew over time despite Netflix prompting households to pay to share with people who live outside the home.

The company attempted to calm some subscriber fears in its letter, saying that all members would be able to watch Netflix while traveling.

Netflix said its operating margin declined to 7% from 8.2% a year ago. It expects an operating margin of 20% in the first quarter, down from 25% a year earlier. The company’s margins tend to be lower in the fourth quarter because that’s when it spends the most on content.

Netflix added new subscribers in every region in which it operates. Still, its average revenue per user declined in Asia for the fifth consecutive quarter. In Europe, the Middle East and Africa, revenue per user shrank for the third consecutive quarter.

The streaming market has grown more competitive in recent years. Customers have seemingly endless options and are willing to flit between services when they are done watching a specific show. Investors also are increasingly focused on profitability, which puts added pressure on Netflix and its rivals to increase not just their subscriber bases, but also the amount of revenue they make per customer.

The rate of customer defections, or churn, among subscription-streaming-video services rose to 6% in the U.S. in December from 5% a year earlier, according to subscription-service data provider Antenna. Netflix’s rate of customer losses in the U.S. remained the lowest among premium streaming video-on-demand services at 3.1% in December, though that is higher than the 1.9% churn rate Netflix had in December 2021, according to Antenna.

Between October and December, Netflix released several widely watched shows and films including Ryan Murphy’s “The Watcher,” the highly anticipated “Glass Onion: A Knives Out Mystery,” “Wednesday,” and the two-part docuseries “Harry & Meghan.”

“Whenever there is great content there is that [fear of missing out] that exists among people that drives engagement on streaming platforms,” said Mike Proulx, research director at

Forrester.

“At the end of the day content is the currency on which streaming platforms compete with one another,” he said.

Write to Sarah Krouse at [email protected]

The move comes as the streaming industry is facing a radically different set of challenges: Investors now value profitability over subscriber growth and consumers have become increasingly fickle given the ever-growing number of streaming options.

It marks the end of Mr. Hastings’s 25-year run at the helm of Netflix, which he helped turn from a DVD-by-mail upstart into the world’s biggest streaming service. Netflix is pressing on with dual efforts to stoke new revenue growth.

The company’s board had been discussing succession planning for many years, Mr. Hastings said in a blog post Thursday. Mr. Hastings said becoming executive chairman is a step that founders often take when they leave the role of CEO, naming

Microsoft Corp.

co-founder

Bill Gates

and

Amazon.com Inc.

founder

Jeff Bezos

as prominent examples.

The executive change comes as Netflix beat its own forecast for subscriber gains in the final quarter of the year, adding nearly 7.7 million new customers. It had previously said it expected to add 4.5 million during the period.

“2022 was a tough year, with a bumpy start but a brighter finish,” Netflix said in its quarterly letter to investors, adding that it has a clear path to reaccelerate its revenue growth. It ended the year with 230.8 million subscribers globally.

Netflix shares were up more than 7% in after-hours trading.

Revenue rose 1.9% year-over-year to $7.85 billion in the fourth quarter while net profit plunged 91% to $55.3 million. The net-profit decline was the result of an unrealized loss from a Eurobond currency hedge that dinged the company as foreign-exchange markets shifted.

The earnings report caps a tumultuous year for Netflix. It surprised Wall Street in early 2022 with two back-to-back quarters of customer losses before rebounding in the September quarter with 2.4 million new subscribers.

The company spent much of the year focused on starting an advertising-supported tier, controlling costs and finding ways to make money from the more than 100 million Netflix viewers who watch content using someone else’s account.

Netflix said it is past the most cash-intensive phase of building out its business and is now focused on generating strong free cash flow. Its ad-supported tier and effort to get paid for account sharing are two ways it plans to do that.

Netflix in November launched its ad-supported tier of service, which the company said Thursday was beginning to drive “incremental membership growth.” It a also said it has “seen very little switching from other plans.”

Mr. Peters played a leading role in creating the ad-supported tier of service. He previously helped expand Netflix globally into Japan and the gaming sector. In the blog post announcing the leadership change, Mr. Hastings said that the executives had all collaborated well together for years and that he planned to continue working with them “for many years to come.”

In another executive shuffle, Netflix named

Bela Bajaria,

its global head of television, as chief content officer, a title that was previously held by Mr. Sarandos.

Scott Stuber,

head of global film, will become chairman of Netflix Film.

Mr. Sarandos was named co-CEO in July 2020 and kept the chief content officer title at the time. Netflix said then that the change was part of “a long process of succession planning.”

As it ramps up its efforts to crack down on password sharing, Netflix said it expects to roll out efforts to spur more members to pay extra for the option of being able to share their accounts with people outside their household. That rollout will happen later in the first quarter, Netflix said, which it said is likely to result in “a very different quarterly paid net adds pattern” this year.

Netflix acknowledged that the account-sharing crackdown could result in a loss of viewership in the near term. It expects the broader rollout of the effort to result in a pattern similar to what it saw in Latin America, where customer engagement grew over time despite Netflix prompting households to pay to share with people who live outside the home.

The company attempted to calm some subscriber fears in its letter, saying that all members would be able to watch Netflix while traveling.

Netflix said its operating margin declined to 7% from 8.2% a year ago. It expects an operating margin of 20% in the first quarter, down from 25% a year earlier. The company’s margins tend to be lower in the fourth quarter because that’s when it spends the most on content.

Netflix added new subscribers in every region in which it operates. Still, its average revenue per user declined in Asia for the fifth consecutive quarter. In Europe, the Middle East and Africa, revenue per user shrank for the third consecutive quarter.

The streaming market has grown more competitive in recent years. Customers have seemingly endless options and are willing to flit between services when they are done watching a specific show. Investors also are increasingly focused on profitability, which puts added pressure on Netflix and its rivals to increase not just their subscriber bases, but also the amount of revenue they make per customer.

The rate of customer defections, or churn, among subscription-streaming-video services rose to 6% in the U.S. in December from 5% a year earlier, according to subscription-service data provider Antenna. Netflix’s rate of customer losses in the U.S. remained the lowest among premium streaming video-on-demand services at 3.1% in December, though that is higher than the 1.9% churn rate Netflix had in December 2021, according to Antenna.

Between October and December, Netflix released several widely watched shows and films including Ryan Murphy’s “The Watcher,” the highly anticipated “Glass Onion: A Knives Out Mystery,” “Wednesday,” and the two-part docuseries “Harry & Meghan.”

“Whenever there is great content there is that [fear of missing out] that exists among people that drives engagement on streaming platforms,” said Mike Proulx, research director at

Forrester.

“At the end of the day content is the currency on which streaming platforms compete with one another,” he said.

Write to Sarah Krouse at [email protected]