In mid-February, Netflix co-CEO Greg Peters took the stage at the Palladium, an Art Deco concert venue in Hollywood, Los Angeles, to give a morale-boosting speech to the company's so-called New Employee College. Dressed in a button-down shirt and white zip-up sweater, Peters is lanky with striking green eyes and outlines the history of Netflix before analyzing the competitive landscape. Traditional media companies such as Walt Disney Co. and Paramount Global (Paramount) have been slow to launch streaming services and are now struggling to make a profit. Big tech companies like Amazon.com Inc. and Apple Inc. can spend more than others, but they don't focus on entertainment. Some of these companies will eventually shut down services, he said. Netflix is already more popular than all of its competitors (except YouTube) and is currently growing rapidly, generating billions of dollars in cash flow. Business is good — no, "good." Peters corrected his teleprompter. He then left the crowd with a simple message: "The loss is ours." ”
Peters left to applause and entered the locker room, where he was interviewed about an idea he had teased on stage: the company's next big competitive advantage, the upcoming version of the streaming service adapted to customer preferences. If you like to watch documentaries on Thursday nights, you'll get that service, and if you like to watch comedy on Sundays, get ready to laugh at brunch. The idea is ambitious and unproven, but it can help Netflix differentiate itself from imitators. The company has long tracked how long it takes for competitors to steal its designs; Disney and Apple did it quickly, while Amazon took a long time. "I'll press the stopwatch," he said.
Peters' self-confidence seemed to have been seen as insane a few years ago. In the first half of 2022, Netflix lost a large number of customers, the worst six months in the company's history, forcing the company to lay off hundreds of employees and cut production of the show. Its share price plummeted, wiping out about $200 billion from its market value. After 10 years of rapid growth, Netflix seems to have finally hit a bottleneck. Especially in the United States, new services are competing for audiences. Russia's invasion of Ukraine has forced the company to pull out of Russia, where it has a small but growing customer base. In addition, inflation has made users more price-sensitive, limiting their ability to raise their fees. Netflix's hits "Virgin River" and "Ginny & Georgia" didn't impress critics or award voters.
In response, Netflix launched two major moves: the introduction of ads and the crackdown on password sharing, which many observers saw as a sign of desperate bets. The company has always said that it doesn't mind users sharing accounts and has "no advertising" at the heart of its advocacy. Netflix used to be a user-friendly alternative to cable but is now starting to feel like just another service company, and its slowdown has led Wall Street to question the entertainment industry as a whole. If the dominant streaming service doesn't grow, what does that mean for other media companies that spend billions of dollars trying to catch up? Under its influence, Disney, Warner Bros. discovered that Warner Bros. Discovery) and Paramount also saw declines, which was dubbed a "Netflix correction."
However, the company once again outmaneuvered the doubters, converting millions of "beggars" into paying subscribers without user opposition. The streaming service added nearly 30 million customers last year, its second-best annual performance in history, and added another 9.3 million customers in the first quarter of this year, its best start since the pandemic streaming boom of 2020. While Disney and Paramount (CBS, Nickelodeon, Comedy Central, etc.), which own ABC, ESPN, and other networks, are struggling with the collapse of cable and the high cost of streaming, Netflix is going from strength to strength. The company accounts for the majority of the most popular streaming TV shows in the U.S. — "Griselda," "Baby Reindeer" and "The Gentlemen" are the most popular shows this year — but faces less competition at home and abroad. After years of burning money to fuel expansion, Netflix is on track to generate $10 billion in profits in 2024.
This is largely due to Peters. His former boss, Netflix co-founder Reed Hastings, put Peters in charge of advertising and account sharing. "He's made some great decisions for us," Hastings said at Powder Mountain, a ski resort in Utah that Hastings owns. He motivated the team to get everything done in six months. It's an astonishing speed, and he's a general on the battlefield. Hastings retired as co-chief last year, giving him up to Peters, 53, who is 10 years younger.
Peters is now one of the most powerful media executives in the world. However, almost no one knew about him. Ask anyone in Silicon Valley about Netflix and the first thing that comes to mind is Hastings. Ask anyone in Hollywood and they'll say Ted Sarandos, Peters' social co-CEO, who shares the same title as Hastings. Colleagues and business partners describe Peters as smart, pragmatic and ambitious – the word "erudite" comes up a lot. Over the past 24 months, he has managed to turn the company around, and he has begun to adapt to the public nature of his work.
Still, the crackdown on password sharing has only provided a temporary boost. In April, when Netflix announced that it would stop announcing subscriber counts next year, the stock price plummeted as investors feared that the recent rapid growth was nearing its end. They want to know how Netflix keeps growing.
When Peters joined Netflix in 2008, Netflix didn't organize a new hire academy, but it did have new hires dressed up and put on a skit during orientation. Peters and a few other newcomers sang the ABBA band in a theater in Los Gatos, California. (He described the situation as "very awkward") long before "House of Cards" and "Squid Game" came out; A year ago, the company's streaming service was just a free add-on to its DVD mailing business. Neil Hunt, Chief Product Officer, is looking for someone who can help as many devices as possible use the service. When it debuted, it could only be viewed through a computer. Netflix needs to convince TV manufacturers, video game consoles, and other manufacturers of consumer electronics to support the product. Hunter arranged for Peters and Netflix's leadership to hold a meeting in downtown San Francisco. Peters is a fascinating engineer who impresses with his extensive knowledge of sports, music, entertainment, and food (in addition to technology), as well as his willingness to engage in debates rather than act like an asshole. Leslie Kilgore, a board member who was the company's chief marketing officer at the time, said: "We didn't hire him sooner. ”
Peters learned to code while learning to spell. When he was a child, his family changed frequently. He spent several years in Minneapolis, where he learned Latin in the fourth grade, and several years in Kansas, where he was introduced to foreign films. Wherever he goes, he always has a computer project to make games on his Apple II Plus computer. Earlier this year, he said on the podcast Stratechery: "I think I was born with the computer. ”
Although Peters spoke and dressed like a typical Silicon Valley tech executive (he wore a big vest), he initially wanted to be an astronaut. He received an ROTC scholarship to attend Yale University, where he majored in astronomy and physics; In his dissertation, he wrote a software program that simulates the inner workings of stars to explain how they work. After graduating, he joined the U.S. Air Force and was stationed in Los Angeles, with the idea that his training would eventually prepare him for outer space. But he spent most of his time on GPS satellites, and after completing a classified mission in Sunnyvale, he finally decided that he didn't want to wait another 10 years because it would take him 10 years to wait for a satellite launch into outer space.
Instead, he landed an engineering job in Wine.com Wine.com one of several startups looking to monopolize the online marketplace. The Bay Area-based company received ample funding from venture capitalists and fell victim to the first dot-com bubble hype cycle. But that was before Peters went to higher education. Wine.com hired several sommeliers who would sit in the kitchen, holding 40 to 50 bottles of open wine, talking about their work. To this day, Peters is still passionate about the subject. During a recent meal at an Italian restaurant in Los Angeles, he spent a few minutes discussing the merits of different wines with a sommelier before choosing a 50-year-old bottle of Barolo. (The sommelier agrees.) At Barolo's opening, Peters provided regular updates; Before the cherry flavor appeared, the wine tasted like a cigar and "wet cardboard" at first. "Probably cherry juice," he said. "It's remarkable."
As an engineer, Peters was initially employed by Netflix, where his job required him to become a salesperson. Streaming is so new that most electronics businesses have no interest in working with the company. About 95% of device manufacturers rejected Netflix. But Peters only needed a few early followers. He and Hastings will visit Vizio Inc., a television manufacturer based in Irvine, Calif., to show the company how to produce Internet-connected TVs. The company's founder and CEO, William Wang, tried to produce smart TVs in the late 90s, but lost a lot of money. But he's ready to try again. Peters and Hastings also convinced Vizio to put a button on the remote control to open Netflix with one click. When Microsoft agreed to offer the service on its popular console, Xbox, Netflix also gained a lot of support.
It didn't take long for Hastings to identify Peters as one of the few executives with CEO potential. Peters eventually got the company involved in every equipment imaginable; He built a local distribution network to ensure the quality of streaming even in remote areas of Latin America; He assembled an efficient team. In 2015, Coursera Inc., an edtech company, tried to hire Peters as its chief technology officer, and Hastings offered him the ideal position to stay on Netflix. He asked Peters to lead Netflix's expansion into Japan, Netflix's first market in Asia. Peters' wife is Japanese, and he spent years learning the language. In the same year, his tenure in Tokyo sparked controversy internally. As General Manager, he is responsible not only for local operations, but also for programming, marketing, and publicity. This is the first country in Sarandos that did not oversee the production of the show.
At first, Peters tried to simply replicate Netflix's programming strategy in the United States: he commissioned high-end scripted shows that were more expensive than regular Japanese TV shows. In retrospect, Peters said, Netflix could have been more successful in licensing popular local shows to help introduce the brand to the public.
After Peters had been in Tokyo for a few years, Hastings called him and asked him what his plans were for that weekend – Hastings wanted to fly over and talk to him the next day. For a moment, Peters wondered if he would be fired. Instead, Hastings invited him to become Netflix's chief product officer. Peters' tenure in Japan was seen as a failure by most of Netflix, but Hastings still believes Peters has successfully tackled new challenges. In 2017, he fired Hunter and put Peters in charge of the product. Japan is now one of Netflix's largest markets in Asia.
Soon after Peters returned from Japan, he began working on the issue of password sharing. The company doesn't see this as a problem and is just encouraging users to play with the system. It's still adding tens of millions of users per year and thinks that any additional audience amounts to free marketing. Peters knew this was going to end up being a problem. As Netflix grows, it will become more difficult to attract the same number of new customers. He tested ways to combat sharing, starting with the worst abusers. The company emailed them, saying it was aware of their actions and asked them to stop. If they don't, Netflix closes their account. The initial expansion was modest. Netflix doesn't see password sharing as a pressing issue yet, and the company is concerned about how customers will respond.
This tolerance of beggars began to change in the fall of 2021. The early days of the pandemic were a boon for the company; Globally, it added more than 165,000 customers per day in the first three months of 2020. However, growth slowed in the second half of the year and remained subdued throughout 2021. Netflix is hitting its potential audience cap in the United States, where the streaming service already has more than 60 million customers and another 30 million people are using someone else's account. In the U.S., the peak number of people on cable TV is about 100 million households; At this point, Netflix doesn't have much room to grow.
While everyone at the company agrees on the need to crack down on password sharing, the question is how. It's easy to spot egregious cases, but the practice comes in many forms. Some people live with their partners or children. This is considered legitimate. Some people share their accounts with friends or relatives who live in another place. This is more problematic (and more prevalent). Still others share passwords with dozens of people, often reselling accounts to people who can't or don't want to pay through traditional methods. The company built a computer model to distinguish between people who travel in other countries and people who use cousin accounts.
Once the company determines who shares an account, it has to figure out how to get people who eat white food to pay. This debate became one of the most heated in the history of Netflix. On one side is Hastings, the company's longtime leader. He believes that Netflix should be charged per household, like cable television. This means that people will pay for each household and will need to have another account for anywhere else. On the other side is most of Hastings' executive team. Peters argues that the residential model violates one of Netflix's core principles: if you pay for it, you can take it away. He proposed a model based on individual users. Customers can access Netflix anywhere, and those who want to add users to their account will need to pay a fee.
Hastings may be stubborn, and he's rooted in three decades of success (and the self-confidence that comes with a net worth of about $6 billion.) But he agreed to test both plans. In 2022, Netflix launched subscriber mode in Chile, Costa Rica, and Peru, and residential mode in five other Latin American countries. Password sharing is most prevalent in the region, and it has long been an ideal testing ground: most countries speak Spanish and face similar challenges when it comes to payments, as many are unbanked. These tests are clear. Peters' approach – a user-based rather than family-based model – has led to more registrations, fewer cancellations and less online outrage. "Greg was right," Hastings said. (Netflix's crackdown on password sharing has been so successful that Disney and Warner Bros. Discovery have been so successful that Warner Bros. Discovery Inc. plans to do the same later this year.
At this time, Hastings had been thinking about the issue of succession for some time. He and his board of directors discuss it several times a year, and long before he retires, he thinks about retirement, and Hastings keeps a list of 10 to 15 employees that he wants to put in senior positions. He regularly invites board members to meetings with his direct reports so they can become more familiar with leadership matters. The board had already promoted Sarandos to co-CEO in July 2020, a recognition of his oversight of the company's operations in Hollywood, including most of its budget, but also a test of the co-CEO model. At the same time, Hastings' promotion of Peters to chief operating officer has given him a broader portfolio.
Few companies hire two CEOs at the same time, and from the outside, Peters and Sarandos seem like an odd couple. Peters pursues efficiency; He tried to limit one-on-one meetings with colleagues to half an hour. Sarandos is a sociable person who spends his weekends with his celebrity friends. And Peters, despite his mild-mannered appearance, is one of the most competitive people at Netflix. In off-court events with executives, Peters turned a family feud or a friendly game of iron man chefs into a bloody sport. (Some even accused him of cheating, an accusation he "categorically" denied.) However, Hastings and Sarandos are also an unlikely combination, and their partnership has built an entertainment giant of about $260 billion. Netflix has long been breaking with tradition and bringing together Hollywood and Silicon Valley. Hastings believes Sarandos and Peters will put the needs of the company first. In January 2023, Netflix announced that Hastings would transition to the role of executive chairman and promoted Peters to co-CEO. Sarandos said his relationship with Peters was "very good" and that they had "found a very interesting fit."
Peters sat on the sidelines of the Michelob Ultra Arena in Las Vegas on March 3, still dizzy. On the first day of the day, he played with Spanish tennis stars Rafael Nadal and Carlos Alcaraz. Now, Peters sits next to his wife, daughter and a few co-workers and watches Nadal and Alcaraz play on a black court at the Mandalay Bay casino. Peters, an avid tennis player, has broken that contrast: the veteran Nadal is still recovering from a hip injury, which limits his mobility, but not his trademark perseverance. Alcaraz, with both strength and speed, is the new champion leader of the sport.
Netflix's Grand Slam is very different from Wimbledon, but this is the first time Netflix has officially broadcast live sports in its 27-year history. It offers competitions in English and Spanish and hopes to one day spread sports in multiple languages around the world. After years of movies and television, Netflix began testing what fans wanted to watch live. The company began Chris Rock's stand-up comedy show in March 2023, and a month later, the hit dating show Love Is Blind reunited. During this period, streaming failed, angering fans. But Netflix has gradually expanded its capabilities, either by creating its own events, such as celebrity golf tournaments, or by authorizing smaller ceremonies, including the Screen Actors Guild Awards. As the company prepares for a bigger stage in the future, most of this year's events are low-risk in terms of audience size and streaming reach. Earlier this month, the company's live broadcast of retired soccer star Tom Brady was its most popular title for several days in a row, and in July, Mike Tyson and influencer Jack Paul will face off in the boxing ring. Starting next year, Netflix will offer weekly wrestling shows worldwide.
"Our goal is to have large-scale events around the world every week," Peters said. He was one of several executives at Netflix who encouraged the company to try live sports. Some promote the sport of tennis. Others are debating whether or not to buy a surf league. At first, there was no progress on these proposals. The company has long said it is not interested in live sports.
However, Netflix has had to change its approach to support a major shift in priorities. For most of the company's existence, the most important metric was the number of new users it registered each quarter. The company's stock will rise and fall based on this figure. It commissioned shows that it believed would attract new clients, expanding from television shows with English scripts to stand-up comedy, original films, reality shows, and animation in several languages. As the boost from the password crackdown wears off, Netflix is entering a new phase where earning more money from existing ones is just as important as adding more subscribers.
Netflix has identified three approaches: raising prices, selling ads, and making video games. While the price hike has been successful, two other initiatives are underway. Games inspired by hits like Stranger Things and Love Is Blind are the most popular, and although they expand the show's branding, they make up a tiny chunk of the business. Advertising was a more pressing need, but Jeremi Gorman, an executive hired by Peters to run the company, proved to be not the right fit. Just a year later, she was fired.
The company's biggest problem is size. Amazon and Disney are telling customers that they have to pay more to avoid ads, which means millions of existing users are now watching ads, but Netflix is starting from scratch. Most customers are still using the ad-free plan, although the ad tier is the most popular option for newly registered users. Netflix has 40 million ad subscribers in 12 countries, which is a fraction of Amazon Prime Video, not to mention YouTube. It also has rates that are 50 to 100 percent higher than its competitors and refuses to share large amounts of viewer data for specific shows or live events. Netflix's ad sales last year were only hundreds of millions of dollars. Its biggest competitor in the online video space, YouTube, has a market capitalization of more than $30 billion.
As Netflix builds an advertising business, there's nothing more appealing to marketers than live sports, which allows the company to broadcast ads to premium members as well. So far, Netflix has been content to create its own one-off campaign. The company has not yet bid for the rights to a major sporting event (including wrestling, of course) because it feels that most events are too expensive for the size of the audience. However, most analysts believe that it is only a matter of time before Netflix acquires large companies; The company has already entered into talks with the NBA and has reached an agreement with the NFL to broadcast two games on Christmas. "We love to do sports," Peters said. If the company can find a way to make a profit, "we'll do it around the clock." ”
Towards the end of the tennis match in Las Vegas, the intensity of Alcaraz and Nadal began to rise. Nadal won comfortably in the first set, while Alcaraz came back from behind to win the second. Before the start of the tiebreaker (10 points first), Peters left to prepare for the presentation of the trophy. Although most die-hard fans would love to see Nadal win the title, Alcaraz defeated his childhood idol. He lifted the trophy and stood next to Peters and eight-time Grand Slam champion Andre Agassi. After a brief pause at a birthday party filled with Netflix-branded clothing, Peters left to catch a flight home. On his way out of the arena, a fan approached him and asked if he was the CEO of Netflix. She recognized Peters on the pitch. It was the first time in the night that a stranger knew who he was.