Reed Hastings steps down as Netflix CEO: Why the company had a tumultuous 2022, the way forward

Here’s a look at the last year for Netflix under Hastings, and what’s expected to come under the new leadership.

Netflix’s tumultuous 2022 under Hastings

Hastings’s exit comes as Netflix said it added over 7.5 million subscribers in the December quarter, beating analysts’ forecasts of 4.5 million. However, earnings per share for the company came in at 12 cents, below the 45 cents expected by analysts polled by Refinitiv.

Netflix has projected “modest” gains in subscribers in the March quarter and forecasted 4 per cent year-on-year growth in revenue during the period, with the help of its new revenue streams – an ad-supported cheaper plan and new plans for account sharing that Netflix believes will decrease the number of people who share their accounts.

Even as the company added subscribers, 2022 was largely a difficult year for Netflix. In the January to March quarter, it lost close to 200,00 subscribers and then in the quarter ending June, it lost nearly a million subscribers, marking the biggest ever quarterly fall in its subscribers. The company came under pressure after losing customers in the first half of 2022. Its stock, a one-time Wall Street darling, had fallen nearly 38 per cent in the past year.

This prompted Netflix to work on an ad-supported subscription tier, marking a major shift in how the company had previously viewed advertisements in its 25-year history. In 2017, Hastings had suggested that the company was not well-suited to compete with the likes of Facebook and Google on ads.

Netflix ad-supported plans: The way forward

Netflix introduced the ad-supported plan in November last year in 12 countries and remains bullish about its future prospects.

“While it’s still early days for ads and we have lots to do (in particular better targeting and measurement), we are pleased with our progress to date across every dimension: member experience, value to advertisers, and incremental contribution to our business,” Netflix said in its letter to shareholders.

“Engagement, which is consistent with members on comparable ad-free plans, is better than what we had expected and we believe the lower price point is driving incremental membership growth,” it added. Netflix said it saw very little switching from other plans.

“Overall the reaction to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at minimum, in-line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, though the impact on 2023 will be modest given that this will build slowly over time,” Netflix said.

Status of Netflix’s paid sharing plans

The company said it expects to start rolling out paid sharing “more broadly” in this quarter. “As we work through this transition – and as some borrowers stop watching either because they don’t convert to extra members or full paying accounts – near-term engagement, as measured by third parties like Nielsen’s The Gauge, could be negatively impacted,” it estimated.

“However, we believe the pattern will be similar to what we’ve seen in Latin America, with engagement growing over time as we continue to deliver a great slate of programming and borrowers sign-up for their own accounts.”