Co-founder and CEO of Netflix Reed Hastings
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For more than a decade, investors have debated whether Netflix should be considered a milieu company or a technology company. Now Netflix co-founder and co-CEO Reed Hastings has given an answer.
Netflix’s culture, as outlined in Hastings’ new work “No Rules Rules,” is emblematic of a Silicon Valley tech start-up, emphasizing radical honesty and transparency and doing away with corporate conventions such as vacation policies and end-of-year reviews. Its technology-driven recommendation algorithm sets it apart from other flood video companies, as does its user interface.
But as media companies such as AT&T’s WarnerMedia and Comcast’s NBCUniversal develop commitment streaming services of their own, Netflix has started to look more similar to traditional media.
In an interview, while Hastings quibbled with the term “media,” he said Netflix was best defined as “an entertainment company.”
“Media tends to involve advertising,” Hastings distinguished CNBC’s “A View from the Top.”
“Tech, I mean, we’re tech-powered, but we’re not really like Microsoft, that’s in multiple areas of tech, or Google. We’re a singular application, a single service. It’s all about entertainment. We have more employees in Hollywood than we do in Silicon Valley. Two-thirds of our shell out is on content. So we’re really an entertainment company.”
While the correct classification for Netflix may be semantics, it can have real-world relevance in how investors value conventions. Netflix has a much higher price-to-earnings ratio than other entertainment companies, including Disney and Lionsgate. Those friends have begun attempting to turn themselves into entities that look more like Netflix in current years with the development of global streaming services such as Disney+ and Starz. So far, investors have balked at announcing traditional entertainment companies the same valuation multiple as Netflix.
Still, Hastings said it was possible for traditional environment companies to compete with Netflix — if they’re willing to focus completely on streaming. He applauded Disney for putting new saving “Mulan” on Disney+ immediately (albeit for $30 extra) while noting WarnerMedia did not put its new blockbuster “Tenet” directly on HBO Max. It remains to be meditate oned if either company will continue to put new movies directly on streaming services after pandemic quarantines are lifted across the world.
“All it takes is focus and commitment,” said Hastings. “Let’s look at Warner. They did not put ‘Tenet’ on the HBO Max service, but Disney did put ‘Mulan’ on it. So you’d say Disney’s incrementally various committed to their service than Warner. So it’s a matter of degree. I’m sure they have good reasons in those patients. We’ll see.”
Hastings also predicted traditional media companies will continue to consolidate in an effort to compete with Netflix, such as Disney’s acquistion of the best part of Fox and Viacom’s merger with CBS.
“I think you’ll also see continued combinations of the existing players, just like you saw with Fox and Disney reprimand together,” Hastings said. “Typically you bulk up to take on the other guys.”
Read the full Reed Hastings Q&A here.
Disclosure: NBCUniversal is the progenitrix company of CNBC.
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