One of Netflix Co-CEO Ted Sarandos‘ guiding principles that he has frequently discussed is Netflix’s ability to adapt, change, and evolve. He introduced ads when it looked like there would never be, he never wanted to do sports or live events until he warmed to them, and we’re finally seeing Netflix soften on theatrical. In fact, it was Sarandos’ vision along with co-founder Reed Hastings to move away from the DVD mailing business that was Netflix’s cash cow and make a push toward the streaming model that would disrupt Hollywood.
In an interview with CNBC from January, Sarandos discussed creating a working environment where “there are no sacred cows here.”
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“It’s a great way to position yourself as a curious thinker inside of our business is if you challenge conventional wisdom, because I think Netflix was built on challenging conventional wisdom on almost everything,” he said.
In the past week, Sarandos has demonstrated there truly are no sacred cows at Netflix. Roughly 1,000 staffers were let go, and both chief content officer Bela Bajaria and film chief Dan Lin were shown the door. Taking Bajaria’s place is Peter Rice, a well-liked former Disney and Fox executive, and rumors abound about who could step into Lin’s shoes and how the film team will be reshaped.
The exit of two of Sarandos’ major lieutenants on the creative side of the business leaves little additional room for blame and all eyes on him to set things right. There’s no one left to fire. If Netflix’s stock price — now below $70 after being above $120 a year ago — continues to slide, if some of Netflix’s engagement numbers continue to struggle, if growth for Netflix is not where he would like it to be, all on the eve of the company’s earnings on Tuesday, October 20, it’s not a stretch to imagine that he might be feeling some heat too.
Sarandos, though, has been in this position before, and Netflix has continued to come out on top. First it was Qwikster. In 2011, Netflix had the idea to spin off its streaming and DVD business into two separate companies and label the DVD mailers under a new company name. The decision was so unpopular that then-CEO Hastings reversed it within a month, and stock prices promptly went back up. It took 25 years, but DVDs were finally sunsetted at Netflix in April 2023.
Then came what was known as the “Netflix Correction.” Netflix in April 2022 experienced its first-ever quarter in which it reported a loss of subscribers, roughly 200,000 that quarter. It would lose nearly another 1 million a quarter later. Wall Street panicked, and Sarandos jumped into gear. Among the major changes Netflix made, it started an aggressive crackdown on password sharing, estimating an enormous number of families and households were using someone else’s account to watch Netflix. And to win back those people who were booted off, it rapidly launched a more affordable ad-supported tier for those who didn’t want to pay full freight. Over time, Netflix grew to well over 300 million subscribers to the point that it doesn’t even report how many subscribers it adds each quarter now.
How Netflix got into this predicament is a different story. Wall Street didn’t love when Netflix wanted to buy Warner Bros. Discovery’s film business, and the stock didn’t exactly bounce back when it lost it to Paramount, even with a few billion dollars infused into the business as a kill fee. Since then, Netflix has aggressively ramped up podcasts in an effort to get people to start watching their favorites on Netflix, not YouTube, signing deals with Spotify, Barstool Sports, iHeartMedia, and Jay Shetty’s “On Purpose” all within the last 12 months.
It also used some of that Paramount money to splurge on another NFL package, rights to stream the World Cup internationally, and even a few marquee MLB games. Some of the other creative content choices of late have included releasing a 30-minute gameplay trailer for the highly anticipated video game “Grand Theft Auto VI,” which is the sort of thing that usually gets attention on X and Twitch rather than Netflix. Netflix not long ago retooled some of its Kids and Family content, picking up streaming rights to “Sesame Street” and “Ms. Rachel” while dumping “CoComelon,” and the streamer is planning a “Sesame Street” film as well. Netflix is also finally making the bet that heavy marketing spending on some movies in theaters might make a difference for its titles on streaming down the road.
That’s how Sarandos is tackling the engagement problem, but some analysts are bullish that Netflix’s ad business is what will lead it back to the promised land. Wedbush late last week wrote in its report that the engagement changes are going to take some time, even longer with all the staff upheaval. But ad revenue, Wedbush writes, is “on track to double to roughly $3 billion in 2026” and gave it a 12-month stock price target of $90.
In all this time, Netflix and Sarandos are still chasing a Best Picture Oscar that has eluded them, and “La Bola Negra” may be its best shot yet. Wall Street will still have its own concerns regardless of awards, but momentum like that would be a symbolic victory for Sarandos and Netflix as it navigates this latest period of turbulence. The now-departed Lin would deserve some credit for the win if it were to happen, but Sarandos would be able to take a victory lap as much as any. It would be a sign that the Old Guard of Hollywood has softened its stance on Netflix, that its movies for grown-ups (not just “KPop Demon Hunters”) can capture the zeitgeist, and that Sarandos still has some levers to pull to show Netflix can still change, be disruptive, and an industry leader.
But if none of the levers he’s pulled so far work out, have you thought about a DVD business?