Reed Hastings to step down as Netflix chairman, Sarandos talks up streamer’s M&A ‘muscle’
Season two of One Piece was a leading viewership driver for Netflix
Netflix co-founder and chairman Reed Hastings will be leaving its board of directors after his term ends in June, while co-CEO Ted Sarandos has hailed the streamer’s M&A “muscle.”
Sarandos said Netflix learned many valuable lessons about executing major acquisitions during its pursuit of Warner Bros Discovery (WBD), despite the fact it opted to walk away from raising its bid when Paramount Skydance re-entered the picture in February.
Speaking with analysts during the company’s first-quarter earnings call on Thursday, the co-CEO said Netflix had “built our M&A muscle” during the process, which included striking the US$82.7bn definitive deal in December, figuring out how to bring the companies together and, ultimately, bowing out after Skydance Paramount tabled a higher bid.
“We learned so much about deal execution, about early integration. We’re really proud of the teams that did all that work. We were proud to win the bid. We were confident in our ability to get to the finish line with regulators for the approvals that we needed. But mostly, we really built our M&A muscle,” he said.
“The most important benefit of this entire exercise, though, was that we tested our investment discipline, and when the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion and ego aside and walk away. Doing it at this level sets up our teams to understand that that’s the expectation of them day to day.”
Netflix also revealed that its co-founder and current chairman Reed Hastings would be leaving the board of directors after his term concludes. Hastings, who founded the company alongside Marc Randolph in 1997, is leaving to focus on “philanthropy and other pursuits,” said the company.
“His vision and leadership pioneered how the world is entertained, and his legacy and impact are not only felt by all of us at Netflix but by audiences around the world,” said Netflix.
With Netflix failing to land Warner Bros, the question among many has shifted to what, if anything, it might look to acquire next.
Netflix made a smaller-scale acquisition last month, buying Ben Affleck’s AI business InterPositive, although Sarandos’ comments suggest the streamer could become more aggressive in exploring much bigger M&A opportunities.
Netflix posted solid financial results in Q1, with revenue climbing 16% year-on-year to US$12.25bn amid the WBD deal saga. The company beat analysts’ revenue expectations, while operating income hit US$3.96bn and net income was US$5.28bn.
Sarandos said the better-than-expected results were an indication that Netflix did not lose sight of its business priorities while undertaking the work to buy Warner Bros.
“As you can see from our Q1 results, we did not lose focus. We were very encouraged by the team’s ability to stay focused on our core business while exploring this opportunity as well,” he said.
In its quarterly letter to shareholders, Netflix insisted it still has plenty of room to grow organically.
“We have multiple ways to achieve our goals (including producing, licensing and partnering) and we’re constantly seeking to allocate our resources to the most attractive opportunities to maximise the value we are delivering to our members,” it said, adding later that it continues to focus the “vast majority” of its content spend on series and films.
It also appeared to take a swipe at the combined Paramount/WBD entity when it discussed the “vibrant and intensely competitive” entertainment landscape.
“Today, our competitive set includes Alphabet, Amazon, Apple, Comcast, Disney, local media companies around the world, Meta, Roblox and TikTok, to name a few,” wrote Netflix, choosing to omit Paramount/WBD from its list of competitors.
Netflix highlighted Bridgerton season four, One Piece S2, the Japanese World Baseball Classic and the BTS live comeback concert as key viewership drivers in Q1. It did not, however, provide any updates on its total subscriber numbers. In its most recent disclosure, in January, Netflix had 325 million global subs.
