As Netflix co-founder pulls back, can CEOs preserve the ‘Netflix Way?’

By Dawn Chmielewski and Lisa Richwine

Jan 20 (Reuters) –

In his book “No Rules Rules”, Netflix co-founder Reed
Hastings described a moment in 2001 when venture capital had
dried up, forcing the company to lay off staff and retain only
the highest performers. Hastings was surprised to find both
morale and performance improved.

“This was my road to Damascus experience, a turning point in
my understanding of the role of talent density in
organizations,” Hastings wrote. “The lessons we learned became
the foundation of much that has led to Netflix’s success.”

After Hastings stepped down as CEO on Thursday,
Netflix’s new co-leaders – Ted Sarandos and Greg Peters – will
be charged with maintaining a culture that has become a Silicon
Valley standout. At the same time they must keep the company
growing in a weak economy while facing growing competition.

Hastings credits the company’s culture of internal
transparency and innovation, which endows top-performers with
unusual autonomy, for Netflix’s success. A 125-page slide-deck
that describes its culture has been downloaded 17 million times.

“This is a big psychological change for Netflix,” said Neil
Saunders, managing director of GlobalData. “With Hastings
remaining as chairman, his expertise will still be available to
the company. However, there is a small risk that the culture of
the company could change and become more cautious, especially as
economic uncertainty persists.”

Netflix lost customers in the first half of 2022. It
returned to growth in the second half.

Longtime content chief and co-chief executive Sarandos and
former chief operating officer Peters will share CEO
responsibilities, taking charge of a company still grappling
with slowing subscriber growth in its largest market, the United
States, amid intense competition from rival streaming services.

Hastings said in a blog post that the two had
complementary skill sets of understanding entertainment and
technology and that the company would grow faster with them as
co-CEOs.

Peters said on Thursday that the pair planned to forge ahead
using Hastings’s playbook and had no major changes to announce.

“There’s no big strategy shifts or big culture shifts,” he
said in a post-earnings video interview with an analyst.

Sarandos and Peters will be charged with containing costs
while continuing to churn out the hit movies and series that
attract and retain subscribers. They’ll also need to find new
sources of revenue, including in video games — where Netflix
will confront established rivals.

“Incoming co-CEO Greg Peters will have a number of major
decisions on his plate,” said Jamie Lumley, analyst at Third
Bridge.

Veteran media analyst Richard Greenfield of LightShed
Ventures said Hastings, whose company upended Hollywood’s
conventions, had bested the entertainment industry once again —
in terms of managing succession.

“Most media companies have done a relatively poor job of
management transition,” said Greenfield. “This appears to be
Reed creating a very elegant approach to management transition.”
(Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles
and Mehr Bedi and Eva Matthews in Bengaluru)