Fixing Netflix Requires Bold Strokes From Reed Hastings
In his 2020 book, “No Rules Rules: Netflix and the Culture of Reinvention,” co-CEO Reed Hastings preaches the virtues of “getting employees to give candid feedback to the boss … it’s when employees begin providing truthful feedback to their leaders that the big benefits of candor really take off.”
One can only wonder what kind of feedback Hastings and fellow CEO Ted Sarandos are getting in what may be the darkest days the company has faced in its 25-year history. Yes, even the Qwikster debacle of 2011 pales in comparison to Netflix seeing its valuation shrink to a third of the $300 billion achieved just last November.
Last week’s disclosure of a 200,000 drop in subscribers in the first quarter of the year, as well as the company’s own projection of a 2 million subscriber decline next quarter, was cited by VIP+ as nothing less than the end of an era for Netflix.
Wall Street itself is seeing a finger pointed in its own direction for putting too much faith in a company that deluded itself into thinking collecting half a billion subscribers around the globe was an achievable goal. Another factor blamed for Netflix’s crash: the onslaught of new plus-branded competitors collectively eating away at the company’s still dominant market share, now at 222 million subscribers.
But there’s another direction where no one seems to be pointing a finger: at Netflix management.
The video Q&A session the company’s top execs released after its Q1 financial disclosure featured a telling exchange. The mixed messaging evident in COO Greg Peters pledging at one moment, “We generally plan to continue doing what we’ve been doing,” only for Hastings to interrupt another Netflix exec moments later to say that adding a lower-cost advertising tier is “something we’re looking at now” presented a picture of a Netflix management team we’ve never seen before: reactionary, scattered and just plain scared.
But the lack of consensus in public isn’t the problem so much as it is a symptom of the real issue: Netflix is moving way too slowly to make moves it should have thought through ages ago.
Case in point: If Hastings wants to change his mind about including advertising on his platform after steadfastly refusing to do so for years, that’s OK — CEOs shift their strategic thinking all the time. But that it took a stock nosedive in 2022 to force his hand is absurd. There’s been speculation and debate both inside and outside of Netflix about such a move for nearly as long as the company has been in the streaming business.
To see Hastings openly dithering on the Q&A video on which way he could advance Netflix’s advertising ambitions, speculating about bringing in a partner company to handle the integration, is puzzling considering it's a strategic consideration Netflix should have studied much more closely much earlier on.
The same goes for Netflix’s recent about-face on password sharing. Letting what analysts at Citi have estimated at upwards of $6 billion in lost subscription dollars walk out the door every year because Hastings thought it was an effective form of marketing the product was always a suspect strategy. But tightening the clamps on passwords this late in the game with a plan that will take a full year to deploy worldwide is just inexcusable.
When a company that prides itself on cultivating a culture of innovation as assiduously as Hastings does appears to be asleep at wheel, it’s hard to shake the suspicion that a shakeup is warranted. That would be consistent with the modus operandi for Hastings, who has a track record for shuffling his exec suite when it's time to get bold. Now would be a perfect time to send a message to Wall Street that the company isn't as rudderless as it seems.
Considering Netflix is in desperate need of a change agent and outgoing WarnerMedia CEO Jason Kilar could be looking for a new gig, one has to wonder whether this is a match in the making. Kilar and Hastings already formed a mutual admiration society, as evident by the way they have tweeted at each other in recent years.
Congratulations @jasonkilar! Scary for us to have you there, but great for the world that HBO will be strong.
— Reed Hastings (@reedhastings) April 1, 2020
It's never been clearer that there's a dire need for a fresh strategic voice at Netflix, an outsider who can come in and provide a perspective unencumbered by management's sclerotic groupthink. And Kilar is exactly the kind of executive who can play the part of the disruptive force Hastings always claimed to have pumping through Netflix's bloodstream but evidently doesn't.
“Humility is important in a leader and role model," Hastings wrote in "No Rules." "When you make a mistake say it clearly and loudly, so that everyone can learn and profit from your errors."
We're all ears, Reed. Send the market a signal you truly get what needs to be done to fix your company, or the pain Netflix is experiencing right now is just beginning.