Reed Hastings Steps Down as Netflix Co-CEO

Samson Amore

Samson Amore is a reporter for dot.LA. He holds a degree in journalism from Emerson College. Send tips or pitches to samsonamore@dot.la and find him on Twitter @Samsonamore.

Netflix logo on a TV with red LED backlight behind TV
Photo by Thibault Penin on Unsplash

Netflix’s earnings report contained a few surprises this fourth quarter, including the news that its founder and leader for 25 years Reed Hastings would step down.


The company also managed to subvert analysts’ expectations by adding a hefty chunk of subscribers in its fourth quarter – causing the stock to tick up over 7% in after-hours trading. Netflix called 2022 a “tough year, with a bumpy start but a brighter finish,” and claimed that it had a “clear path to reaccelerate our revenue growth” as well as “building even greater profitability over time.”

Part of that profitability will come as the streaming service opens itself up to more users with more flexible pricing plans. Earlier this year Netflix announced it would offer a new subscription model that was cheaper, but supplemented by ads. The company launched that offering in November. People were skeptical at first about this new tier (after all, for most of its existence Netflix prided itself on not having ads), but it seems to be paying off, since Netflix gained a sizable chunk of subscribers this month – thanks to big hits like the Addams Family reboot “Wednesday,” “Stranger Things 4,” and Rian Johnson’s film “Glass Onion.”

The third quarter balance sheet was strong. Netflix posted revenue of $7.9 million for the fourth quarter, up 2% from this time last year. Annually, Netflix posted revenue of $32 billion, with about $4.5 billion left over in net income after expenses, compared to about $5 billion last year.

That said, Netflix holders have seen a slight dip in performance in the last year, with cumulative returns down 51%. Still, within the last five years the stock’s return is up 54%, and according to Bloomberg’s Dec. 31 figures, Netflix’s stock has generated a return of 2,129% in the last decade.

Here are a few big takeaways from today’s earnings, and what we have our eye on for Netflix’s upcoming fiscal year.

Hastings says goodbye

Reed Hastings, who co-founded Netflix in 1997, announced today he’d step down from his role as co-CEO. Netflix has operated with this co-CEO model for a while now; previously Hastings held the job alongside co-CEO Ted Sarandos. But now Hastings will cede his position to Greg Peters, the company’s former chief operating officer.

Hastings will still remain involved with the company as chairman of the board. He noted in a blog post Thursday that the reshuffle is basically a formalization of what’s already been happening inside the company’s C-suite, and said that he’s “increasingly delegated the management of Netflix” to Peters and Sarandos over the last two and a half years anyway.

Subscribers are up, surprisingly

The streaming service added roughly 7.7 million subscribers in the fourth quarter of 2022. This exceeded the company’s expectations, Netflix previously said it assumed it’d add only about 4.5 million new subscribers this quarter. To date, Netflix has 231 million paid subscribers globally, and its previous target was 227.6 million.

All eyes were on Netflix’s new ad-supported tier, which debuted for $6.99/month in November as part of a venture with Microsoft. While Netflix didn’t specify exactly how many of these new subscribers were paying for that specific plan, it’s pretty clear, based on the number of new subscribers, that the venture is paying off. Especially as streaming services across the board are getting more expensive.

Peters said during an earnings interview Thursday that engagement with the ad-supported plans is roughly on par with its more expensive counterpart. Netflix’s chief financial officer Spencer Neumann said he estimates about half of competitor Hulu’s subscriber base is on a similar ad tier, and said he expects Netflix’s ad business to be just as large as Hulu’s “within several years.”

Netflix also said customer and advertiser engagement with the ad-supported plan is better than expected, though it did say it aims to improve how it targets and measures those customers.

Overall, Netflix said the reaction from subscribers to the cheaper plan confirmed that it is not only a worthy offering but also has a shot at generating the same revenue, if not more, than its ad-free tier. Keep an eye on how Netflix reports growth this year, and if it will indeed offer more options for ad-based plans.

Unusually, Netflix declined to share specifics about its other developing business: gaming. In just over a year, the company pushed out 50 games, and said it plans to offer more games based on hit Netflix shows in the coming year.

Password sharing is still a bother

Finally, Netflix knows you’re still using your grandma’s password to watch “Wednesday,” and it’s getting fed up.

We’ve discussed the streamer’s ambitions to crack down on password sharing, and that came up during today’s earnings report. Netflix said it estimates 100 million households, if not more, share accounts, which it claims “undermines” its ability to make the service better.

To combat this, Netflix announced it will soon roll out paid sharing, a plan that would allow users to give permission to family and friends to join their plan even if they’re not part of the same household. It’s unclear how much this plan might cost, but Netflix said it will soon let users review which devices are using the app and transfer profiles to different accounts. It’ll also soon give users the option to pay extra to share the service with people they don’t live with – though that’s definitely happening already, and it’s unclear exactly how the company will prevent people from mooching.

Netflix also noted this move might tick off some account borrowers who might stop watching because they don’t want to pay for an account, and warned “near-term engagement” could suffer. But it claimed that its “great slate of programming” will continue to reel in more people than it loses. We shall see about that.

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Creandum’s Carl Fritjofsson on the Differences Between the Startup Ecosystem in Europe and the U.S.

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

Carl Fritjofsson
Carl Fritjofsson

On this episode of the LA Venture podcast, Creandum General Partner Carl Fritjofsson talks about his venture journey, why Generative-AI represents an opportunity to rethink products from the ground up, and why Q4 2023 and Q1 2024 could be "pretty bloody" for startups.

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AI Is Undergoing Some Growing Pains at a Pivotal Moment in Its Development

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
AI Is Undergoing Some Growing Pains at a Pivotal Moment in Its Development
Evan Xie

One way to measure just how white-hot AI development has become: the world is running out of the advanced graphics chips necessary to power AI programs. While Intel central processing units were once the most sought-after industry leaders, advanced graphics chips like Nvidia’s are designed to run multiple computations simultaneously, a baseline necessity for many AI models.

An early version of ChatGPT required around 10,000 graphics chips to run. By some estimates, newer updates require 3-5 times that amount of processing power. As a result of this skyrocketing demand, shares of Nvidia have jumped 165% so far this year.

Building on this momentum, this week, Nvidia revealed a line-up of new AI-related projects including an Israeli supercomputer project and a platform utilizing AI to help video game developers. For smaller companies and startups, however, getting access to the vital underlying technology that powers AI development is already becoming less about meritocracy and more about “who you know.” According to the Wall Street Journal, Elon Musk scooped up a valuable share of server space from Oracle this year before anyone else got a crack at it for his new OpenAI rival, X.AI.

The massive demand for Nvidia-style chips has also created a lucrative secondary market, where smaller companies and startups are often outbid by larger and more established rivals. One startup founder compares the fevered crush of the current chip marketplace to toilet paper in the early days of the pandemic. For those companies that don’t get access to the most powerful chips or enough server space in the cloud, often the only remaining option is to simplify their AI models, so they can run more efficiently.

Beyond just the design of new AI products, we’re also at a key moment for users and consumers, who are still figuring out what sorts of applications are ideal for AI and which ones are less effective, or potentially even unethical or dangerous. There’s now mounting evidence that the hype around some of these AI tools is reaching a lot further than the warnings about its drawbacks.

JP Morgan Chase is training a new AI chatbot to help customers choose financial securities and stocks, known as IndexGPT. For now, they insist that it’s purely supplemental, designed to advise and not replace money managers, but it may just be a matter of time before job losses begin to hit financial planners along with everyone else.

A lawyer in New York just this week was busted by a judge for using ChatGPT as part of his background research. When questioned by the judge, lawyer Peter LoDuco revealed that he’d farmed out some research to a colleague, Steven A. Schwartz, who had consulted with ChatGPT on the case. Schwartz was apparently unaware that the AI chatbot was able to lie – transcripts even show him questioning ChatGPT’s responses and the bot assuring him that these were, in fact, real cases and citations.

New research by Marucie Jakesch, a doctoral student from Cornell University, suggests that even users who are more aware than Schwartz about how AI works and its limitations may still be impacted in subtle and subconscious ways by its output.

Not to mention, according to data from Intelligent.com, high school and college students already – on the whole – prefer utilizing ChatGPT for help with schoolwork over a human tutor. The survey also notes that advanced students tend to report getting more out of using ChatGPT-type programs than beginners, likely because they have more baseline knowledge and can construct better and more informative prompts.

But therein lies the big drawback to using ChatGPT and other AI tools for education. At least so far, they’re reliant on the end user writing good prompts and having some sense about how to organize a lesson plan for themselves. Human tutors, on the other hand, have a lot of personal experience in these kinds of areas. Someone who instructs others in foreign languages professionally probably has a good inherent sense of when you need to focus on expanding your vocabulary vs. drilling certain kinds of verb and tense conjugations. They’ve helped many other students prepare for tests, quizzes, and real-world challenges, while computer software can only guess at what kinds of scenarios its proteges will face.

A recent Forbes editorial by academic Thomas Davenport suggests that, while AI is getting all the hype right now, other forms of computing or machine learning are still going to be more effective for a lot of basic tasks. From a marketing perspective in 2023, it’s helpful for a tech company to throw the “AI” brand around, but it’s not magically going to be the answer for every problem.

Davenport points to a similar (if smaller) whirlwind of excitement around IBM’s “Watson” in the early 2010s, when it was famously able to take out human “Jeopardy!’ champions. It turns out, Watson was a general knowledge engine, really best suited for jobs like playing “Jeopardy.” But after the software gained celebrity status, people tried to use it for all sorts of advanced applications, like designing cancer drugs or providing investment advice. Today, few people turn to Watson for these kinds of solutions. It’s just the wrong tool for the job. In that same way, Davenport suggests that generative AI is in danger of being misapplied.

While the industry and end users both race to solve the AI puzzle in real time, governments are also feeling pressure to step in and potentially regulate the AI industry. This is much easier said than done, though, as politicians face the same kinds of questions and uncertainty as everyone else.

OpenAI CEO Sam Altman has been calling for governments to begin regulating AI, but just this week, he suggested that the company might pull out of the European Union entirely if the regulations were too onerous. Specifically, Altman worries that attempts to narrow what kinds of data can be used to train AI systems – specifically blocking copyrighted material – might well prove impossible. “If we can comply, we will, and if we can’t, we’ll cease operating,” Altman told Time. “We will try, but there are technical limits to what’s possible.” (Altman has already started walking this threat back, suggesting he has no immediate plans to exit the EU.)

In the US, The White House has been working on a “Blueprint for an AI Bill of Rights,” but it’s non-binding, just a collection of largely vague suggestions. It’s one thing to agree “consumers shouldn’t face discrimination from an algorithm” and “everyone should be protected from abusive data practices and have agency over how their data is used.” But enforcement is an entirely different animal. A lot of these issues already exist in tech, and are much larger than AI, and the US government already doesn’t do much about them.

Additionally, it’s possible AI regulations won’t work well at all if they aren’t global. Even if you set some policies and get an entire nation’s government to agree, how to set similar worldwide protocols? What if US and Europe agree but India doesn’t? Everyone around the world accesses roughly the same internet, so without any kind of international standard, it’s going to be much harder for individual nations to enforce specific rules. As with so many other AI developments, there’s inherent danger in patchwork regulations; it could allow some companies, or regions, or players to move forward while others are unfairly or ineffectively stymied or held back.

The same kinds of socio-economic concerns around AI that we have nationally – some sectors of the work force left behind, the wealthiest and most established players coming in to the new market with massive advantages, the rapid spread of misinformation – are all, in actuality, global concerns. Just as the hegemony of Microsoft and Google threaten the ability of new players to enter the AI space, the West’s early dominance of AI tech threatens to push out companies and innovations from emerging markets like Southeast Asia, Subsaharan Africa, and Central America. Left unfettered, AI could potentially deepen social, economic, and digital divisions both within and between all of these societies.

Undaunted, some governments aren’t waiting around for these tools to develop any further before they start attempting to regulate them. New York City has already set up some rules about how AI can be used during the hiring process while will take effect in July. The law requires any company using AI software in hiring to notify candidates that it’s being used, and to have independent auditors check the system annually for bias.

This sort of piecemeal figure-it-out-as-we-go approach is probably what’s going to be necessary, at least short-term, as AI development shows zero signs of slowing down or stopping any time soon. Though there’s some disagreement among experts, most analysts agree with Wharton professor and economist Jeremy Siegel, who told CNBC this week that AI is not yet a bubble. He pointed to the Nvidia earnings as a sign the market remains healthy and not overly frothy. So, at least for now, the feverish excitement around AI is not going to burst like a late ‘90s startup stock. The world needs to prepare as if this technology is going to be with us for a while.

What the Future of Rivian Looks Like According to CEO RJ Scaringe

David Shultz

David Shultz reports on clean technology and electric vehicles, among other industries, for dot.LA. His writing has appeared in The Atlantic, Outside, Nautilus and many other publications.

What the Future of Rivian Looks Like According to CEO RJ Scaringe
Rivian

Rivian CEO RJ Scaringe took to Instagram last weekend to answer questions from the public about his company and its future. Topics covered included new colors, sustainability, production ramp, new products and features. Speaking of which, viewers also got a first look at the company’s much-anticipated R2 platform, albeit made of clay and covered by a sheet, but hey, that’s…something. If you don’t want to watch the whole 33 minute video, which is now also on Youtube, we’ve got the highlights for you.

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