Greg Peters named Netflix co-CEO as Reed Hastings steps down

When Netflix reported fourth quarter earnings Thursday the streaming giant also formally announced a major leadership shakeup that sees co-founder and co-CEO Reed Hastings step down and shift to the role of executive chairman as COO Greg Peters takes over the co-CEO position, a title shared with Ted Sarandos.

Speaking during the company's Q4 earnings presentation Hastings, who co-founded Netflix in 1997, noted the company had already taken a partial step when he originally shared the CEO title with Sarandos starting in 2020, and indicated Peters has been moving into the leadership position behind the scenes, as the three worked together for the past 15 years.

“Frankly more and more they’ve been leading the company and this is acknowledging really in formal terms how we’ve been operating for at least the last few quarters,” Hastings said. “It’s a great feeling.”

Peters, who also becomes a member of the Netflix board, said during the interview that he will continue to follow Hastings’ model of “continually seeking excellence,” adding that there will be no major strategy or culture shifts with the leadership change.

"I feel humbled and privileged to become co-CEO of Netflix,” Peters said in a statement. “Ted and I have worked together for many years – building tremendous trust and respect for each other. We're also motivated by the same goal: a desire to better serve our members so that we can continue to grow our business.”

Sarandos, who has been with Netflix for more than two decades, thanked Hastings in a statement.

“I want to thank Reed for his visionary leadership, mentorship and friendship over the last 20 years. We’ve all learned so much from his intellectual rigor, honesty and willingness to take big bets – and we look forward to working with him for many more years to come,” said Sarandos in a letter to shareholders. “Since Reed started to delegate management to us, Greg and I have built a strong operating model based on our shared values and like-minded approach to growth.”

In addition to the CEO changes, Bela Bajaria, former head of Global TV has been named chief content officer and Scott Stuber is now chairman of Netflix Film.

Progress on Netflix with ads

In discussing progress on Netflix’s Basic with Ads plan, which launched in November six months after it was first announced, Peters zeroed in on engagement on the tier, saying the metric is comparable to users on similar ad-free plans.

“So that’s really a promising indication, it means we’re delivering a solid experience and it’s better than we modeled and that’s a great, sort of fundamental starting point for us to work with,” Peters said.

Additionally, “we’re seeing take rate and growth on that ads plan is solid” he commented, noting that it’s coming partly from incremental subscribers who are coming into the service thanks to a lower price point of $6.99 per month in the U.S.

The take rate fits within the middle of other plans, which Peters said “is another really healthy sign,” as it means Netflix has a set of complementary offerings for customers to choose from.  

As noted in the Q4 earnings letter to shareholders, Peters reiterated that Netflix isn’t seeing many subscribers step down to the ad tier from higher priced ad-free plans.

“We aren’t seeing, as expected, much switching from high ARM subscription plans like premium into our ad plan, so the unit economics remain very good as we modeled,” he said.

And again, the executive focused on a common refrain the company has used for its advertising ambitions in taking a “crawl-walk-run” approach, with Peters saying they hope to get to the “walk” stage but much remains to do. That includes technical improvements such as ad delivery validation, measurement, and targeting, as well as experience enhancements.

Peters also talked about “nuts and bolts” aspects, such as improving the ad sales and operations processes in partnership with Microsoft to serve an increased number of advertisers and demand.

“We’re just getting started, we’re constantly improving and we see the trajectory ahead of us,” he noted..

CFO Spencer Neumann took time to comment on the success of Hulu with its ad model, which Netflix hopes to catch up to or surpass over a multi-year timeline.

“We’re not going to be larger than Hulu in year one, but hopefully over the next several years we can be at least as large. And we wouldn’t be getting into this business obviously…if it couldn’t be a meaningful portion of our business,” the finance chief said. He noted Netflix had almost $32 billion in revenue in 2022 and said wouldn’t jump into the advertising sphere “if we didn’t believe it could be bigger than at least 10% of our revenue” and hopefully much more over time.  

On the advertising front Netflix also nabbed a spot for the first time at this year’s Upfronts, providing further evidence of its advertising ambitions as the streamer takes over Paramount’s vacated place at the event.

“It does signal we have big aspirations here and we think there’s a big potential opportunity,” Peters said Thursday, noting Netflix is starting at a zero base on the ad plan front.

“Again, our goal and aspiration is that this is a very meaningful and significant source of revenue and profit for us for many years to come,” Peters added. In its letter to shareholders Netflix highlighted a $180 billion branded TV advertising market globally, excluding China and Russia.

Asked whether Netflix will launch a free ad-supported streaming (FAST) service, Sarandos said they’re keeping an eye on all models and options but emphasized that the streamer already has a lot on its plate this year with plans to roll out paid sharing more widely and evolving its Basic with Ads plan.

In Q4 Netflix added 7.66 million global subscribers, for more detail on earnings results and updates on its plans for paid sharing see here.