Covid-19 May Hurt Netflix’s Output In 2021, Says Co-CEO Reed Hastings
The company’s stock soared to a record high, surpassing competitors like Disney.
Netflix Inc.’s subscriptions sky-rocketed in the first half of 2020 as the Covid-19 outbreak holed people inside their houses, with almost 16 million new users signing up. And yet, the company knows the real hit from the pandemic is yet to come.
With production and shooting disrupted due to various lockdowns across the globe, Netflix is anticipating a fall in output in the coming year. “There was definitely a challenge from the lack of production,” Reed Hastings, co-chief executive officer at Netflix, told Bloomberg in an interview. “That’s going to have an effect more in the next year than this year. Not only for us but for our competitors also.”
Hastings said production, however, has started to resume slowly in Europe and Asia and that’s somewhat a respite. He said eventually production houses and content providers will have to figure out to make it work.
That, he said, may not have a huge impact in the larger scheme of the entertainment industry. “In the long-term I think Covid is just a little blip and a historical footnote. Kind of like the 1918 pandemic that we read about today.”
Read edited excerpts from the interview here:
You are the CEO of a multi-billion dollar company and your time is precious but you wanted to spend some time writing this book about your culture. What do you want readers, other CEOs, other companies to take away from this?
We filled the book with stories about howNetflix really works. So Erin Meyer, my co-author, a business school professor, we gave her unfettered access. She interviewed hundreds of Netflix employees about the reality. So the book is me talking about the theory and her talking about the reality which sometimes is wonderful and sometimes is a little challenging and ugly. That’s the reality, so we hope in that tension, there’s something really worth reading.
For more than two decades you’ve been working to build what you call a culture of freedom and responsibility and over those same two decades, Netflix has survived and thrived despite massive technological shifts and become one of the top technology and entertainment companies in the world. Do you believe that your success is a direct result of the culture? If so, how?
Our culture is really geared around flexibility instead of efficiency. So we have very few rules, we’re very inventive and we’re on the edge of chaos. So, that happens sometimes but that helps you adjust and we had to do a lot of adjustment coming from DVD by mail in the U.S., to then doing streaming of other people’s television (sort of re-run TV) to then figure out how to break into original series and then later original movies and how to expand around the world. So now about two thirds of our members are not in the U.S. – so really big successful expansions there. Big successful extensions of building our studio like Stranger Things and that’s all really due to the culture in both attracting incredible people and being very flexible so that we didn’t stay really focused on the DVD by mail business.
How is the pandemic changing the way you run the business and how you create a culture of maximum candour when so many people are working from home and some CEOs likeJack Dorsey has said his employees can work from home forever. Is that okay in your book?
Well, we definitely want employees to be productive. So, it’s sort of however they’re most productive. I think for most of us we want to get back into the office, we want to have human contact, have discussions and debate. The technology of Zoom and Google are good but it’s not yet the same as being in person. So I’m sure like most companies we’ll have more people spending more days from home but for me, the human contact and the interaction you can do in trying to understand some challenging topic is great to be in person.
So do you think that working from home forever is an overreaction?
I think there are different companies and different cultures. So I’ll bet there’s some, that will do that and that it’ll be great for them to try that. But at Netflix, I think we’re a very human company, we want to really have human interaction and that it will be better to have that be in person than only virtual.
One thing I still don’t quite get is how you get through a day, sometimes months without making a decision. When’s the last time you did make a big decision and where do you still feel the need to step in?
About a month ago, I made a big decision to promote Ted Sarandos to Co-CEO at Netflix with me which was a great decision.We’ve been working together for more than 20 years and we really have been acting as Co-CEOs anyway. We wanted to give him the recognition and the platform of his existing role and that’s been great. So, that’s a big decision, but I try not to make decisions about particular titles or particular product features or particular countries or marketing campaigns. I see myself as really the coach who is trying to stimulate good thinking amongst all of the great players.
So when it comes to Ted, Co-CEO arrangements are highly unusual and they often don’t work. I’ve covered many in tech that are not intact anymore. Why do you think this will work?
It’s really dependent on the two people, it is an unusual situation but if you think of every family, there generally are two CEOs running the family and you just have to be really close. Ted and I, again, have been together for more than 20 years and with the two of us, I am totally confident it’ll work great.
The pandemic in many ways has played right into Netflix’s hands. You’re in a perfect position for this moment. That said, production has come to a halt, projects are backing up, I’m not complaining but it’s getting a little harder to find something new to watch every night. How do you think the entertainment industry looks different when it emerges from this?
That was definitely a challenge from the lack of production, particularly in the U.S. In Europe we’re able to go back to production and in much of Asia, but in the U.S., it’s still quite slow and challenging. That’s going to have an effect more on the next year than this year, not only for us but for our competitors also. But everyone’s figuring out how to make it work, just like if there’s a writer’s strike or other things that have happened over the last 50 years. So, in the long term I think Covid is just a little blip in a historical footnote – kind of like the 1918 pandemic that we read about today.
You said that there is a space for many streaming services in the market. I know you’ve been impressed by what Disney has accomplished. We’ve just seen HBO Max launch anew. How many of these services though, do you think actually have the potential to reach 100 million or 500 million people? Will there be consolidation and who’s left standing?
There’s a huge difference between Disney+ which is over 60 million subscribers in the first year and HBO Max which is 3 or 4 million. So, one of those is really incredible. I would not have guessed that you could get to 60 plus million in the first year, but we’ll see depending on what the quality of the services are. I do think over time there’ll be additional consolidation like Fox Disney, which has proven to be great for Disney; there will probably be some more of that because consumers want fewer brands. They give a wide range of entertainment rather than too many.
Now, as the centre of gravity for Netflix shifts from Silicon Valley to Hollywood and you’re hiring more of these Hollywood executives who’ve been trained in different worlds, how do you make sure that Netflix doesn’t become just another entertainment company?
Well, we’d love to be a great entertainment company. We don’t want to be a lousy one. So it’s taking the best of studio cultures. Think about long term brand management and again, think about you know Harry Potter and how well developed that brand was. And Star Wars. We don’t yet have those franchises then there’s a lot we still have to learn from traditional media and the skills that they have at stimulating creativity. But of course, we want to stay very flexible, always learning, very customer focused, very member focused on what we do with our programming. We’re able todo that because we’re producing all over the world. So, when we have a Spanish show like Casa de Papel or a German show like Dark or a British show like SexEducation – they can be big hits all around the world.
So speaking of international growth, what are the new frontiers that you’re most excited about?Where do you think Netflix will be making the biggest breakthroughs in the next five years?
We’ve been very strong in premium television for a number of years since Orange and Stranger Things. Now we’re getting very strong in movies – both at the awards level and at the consumer pleasing level. Unscripted has really developed for us with Floor is Lava, Tiger King and animation is just beginning. So, that will be a big focus for us for a number of years of expanding that category. Then we’ve got great stories coming out ofItaly, coming out of Spain, Poland – some really big successes.
So how many years of growth are left before Netflix has to think about something new and what might that be? I mean would you be open to a big acquisition, video game or social media?
We always try to keep an open mind. My first company, we acquired a lot of companies, so we’ve kind of been through that. I’m afraid it’s got some good and bad properties but mostly we want to make our service better and there is at least 5, 10, 15, 20 years of growth really focused on making our service better and better. We’ve always added new types of programming. For example, starting in series and then expanding into film and non-fiction and now animation. So we’ll just continue to expand in what we offer in the service.
Now, I understand you’ve been complimentary of what Disney has been able to accomplish with their streaming service and arguably Disney has a very different culture than Netflix. Have you learned anything from Disney, from Amazon, from Facebook orMicrosoft when you’re on the board?
Yeah, we’ve learned a ton from every one of those companies. Like, for Microsoft –the way they think about the 10-year picture is incredible. They’ve got such a long term view of the trends in the world and how they approach that where I’d only seen people thinking about next year. So, that’s a great example there. Then in Disney, we kind of talked about brand management but their kind of long term brand stewardship is phenomenal.The way they do consumer products, we have a lot of catch-up to do before we get close to being as good as them at consumer products. We’re definitely focused on closing that gap. We’ve got a great new group, so that’s moving forward.