Hastings, Pioneer of the OTT Industry, Retires After 25 Years
[Asia Economy Reporter Yujin Cho] Reed Hastings, the founder of Netflix, the world's number one online video service (OTT), announced on the 19th (local time) that he will step down from company management after 25 years. Although he will retain the chairman position, it is essentially a 'retirement declaration.' His successors are Ted Sarandos, co-CEO who led the company alongside Hastings, and Greg Peters, COO.
Hastings introduced 'streaming' services and 'original content' at the dawn of the internet, laying the foundation for the global OTT industry. Six years before founding Netflix in 1997, he was already a genius entrepreneur who successfully ran a software development company called Pure Software. Pure Software hit big with every new product, doubling its revenue every year for the first four years, attracted investment from Morgan Stanley, and successfully went public in 1995. Afterwards, Hastings sold the company and co-founded Netflix with Marc Randolph in 1997.
It was Hastings who transformed Netflix, which started as a video rental service (a service where customers paid a monthly subscription fee and received videos by mail), into a streaming business on the internet. As the internet became widespread and information technology (IT) advanced, he shifted the business stage from DVDs to streaming, expanded original content production and service countries, and grew the company. During his 25 years managing Netflix, despite the proliferation of nine OTT companies including Amazon Prime Video, Disney Plus, Apple TV, and HBO Max, he built the world's number one OTT service system with 230.8 million subscribers worldwide.
As OTT companies rapidly expanded during COVID-19 but have now entered a growth stagnation phase due to decreased demand and intensified competition, survival competition has become fierce. However, Hastings judged that now is the right time for management restructuring. Hastings cited examples of Amazon founder Jeff Bezos and Microsoft founder Bill Gates remaining as chairman (board chair) and said, "Now is the right time to complete my succession." He expressed high expectations for the new co-CEOs, saying, "They have deep understanding of technology and the entertainment business, and have proven this through their performance."
On the same day, Netflix announced after market close that the number of new subscribers in the fourth quarter of last year was 7.7 million, greatly exceeding Wall Street's forecast of 4.5 million. This was a surprising performance, increasing 220% compared to the previous quarter's 2.41 million. The company cited the newly introduced ad-supported plan in the fourth quarter as the reason for the subscriber increase. Netflix stated, "Although still in the early stages, both advertisers and customers are positively evaluating the new plan."
As of the end of last year, Netflix's global membership reached 230.8 million. The number of subscribers, which sharply declined in the first half of last year, rebounded in the third quarter and surged again in the fourth quarter. However, on an annual basis, the subscriber increase was only 8 million, marking the worst growth rate in 10 years. In a letter to investors, Netflix said, "2022 was a tough year. We secured 230.8 million subscribers worldwide last year."
Despite the surprising subscriber increase, earnings were sluggish. Netflix's fourth-quarter revenue rose 1.9% year-on-year to $7.852 billion, operating profit fell 13% to $550 million, and net profit plunged 91% to $55 million from $607 million in the same period last year. Earnings per share were $0.12. The company explained that a strong dollar, as much as the economic downturn, negatively impacted net profit decline.
Netflix's stock price fell 3.23% during regular trading on the day but surged more than 8% in after-hours trading following the earnings announcement.
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