Due: After completion of Lesson 7
Credit Weight: 25% of your final grade
Summary: Case study essay (1000–1200 words; word-processed and double-spaced)
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Case Study: Reed Hastings — Netflix
Adapted from Lussier, R. N., & Achua, C. F. (2016). Leadership: Theory, application, and skill development (6th ed.). Cengage Learning.
In January 2005, Wedbush Securities stock analyst Michael Pachter called Netflix a “worthless piece of crap.” He put a price target of $3 on the stock that was trading at around $11. Doubters like Pachter thought Blockbuster, Walmart, or Amazon.com, with their economies of scale and established customer bases, would simply destroy Netflix. In 2010, founder and CEO of Netflix, Reed Hastings, was Fortune’s Businessperson of the Year. Not only did Hastings earn the number 1 spot; Netflix was also named the stock of the year, closing at $38.58 by the end of 2010.
Between 2010 and 2013, Netflix subscribers doubled to over 44 million and its stock price almost quadrupled, making it again the best-performing stock on the S&P 500. Don’t you wish you had bought shares in 2005 when it was selling for $11? In Fortune’s List of 2013’s Top People in Business, Reed Hastings was ranked #5, ahead of Amazon’s Jeff Bezos, Google’s Larry Page, Facebook’s Mark Zuckerberg, and Apple’s Tim Cook.
So how did Hastings do it? A lot of his success is based on how he built his company on a hard-driving, risk-taking culture. Also, Hastings never stops looking over his shoulder to stay one step ahead of the competition. Unlike Blockbuster, which declared bankruptcy in 2010, Netflix wasn’t afraid to change its business model by abandoning successful past models to build its future. Netflix cannibalized its own mail-order DVD model to focus on streaming existing programs and then launching original series, including the highly successful Squid Game, Bridgerton, and Money Heist. Although the change in focus from mailing DVDs to streaming with a revamping of the price structure was handled clumsily (resulting in angry and lost mail customers), it was clearly a good strategic move for Netflix.
With the growth of its streaming service, Netflix stole customers from cable and pay movie channels, becoming the world’s largest video subscription company. Early on in the streaming business, Netflix also expanded to Canada (2010), Latin America (2011), and Europe (2012), and in 2022, Netflix is available in more than 190 countries.
Let’s talk about the leadership style that catapulted Hastings to success. Hastings’s leadership style has changed over the years between the two companies he created. As the young founding CEO of Pure Software, Hastings was considered hard-headed and unable to accept criticism. He used an autocratic style to push for his ways of doing things, and he sometimes humiliated employees with eye rolls and critical comments about dumb ideas. Hastings earned himself the nickname “Animal.” After selling Pure Software, Hastings realized he had helped build a company he didn’t want to be part of.
So, when Hastings started Netflix, he was determined to create a culture in which people enjoyed coming to work every day. He wanted to run the company differently, so he changed his style to be participative. Hastings has become more honest and more direct with employees. He avoids being confrontational, but he still has a Steve Jobs-like perfectionist streak. Instead of simply telling others what to do, he actively seeks out ideas and advice from his employees. Now, when he hears ideas that seem silly, he doesn’t roll his eyes and humiliate employees. He digs deeper, responding with comments like “I don’t understand how your idea will work, so help me to understand how it could solve the problem.”
Hastings was ahead of the technology curve. Back in 1997, when Hastings cofounded Netflix, he anticipated that consumers would eventually prefer to get movies instantly delivered via the Internet. This foresight was amazing because in 1997, less than seven percent of U.S. homes even had broadband internet service. Nonetheless, Hastings had a team working on the technology to bring movies into homes via the internet back in 2000. Early on, they developed a Netflix-branded box with a hard drive that connected to your movie queue, but in the early 2000s, it took six hours to download a movie. Once Hastings saw YouTube videos, he abandoned the hard-drive device and put this team to work on a streaming machine — a sort of YouTube-in-a-box. Again, this was meant to be Netflix-branded hardware. However, after building the technology, Hasting abandoned this hardware too in favour of application software that could be embedded in all kinds of devices — what we now call apps.
The time spent envisioning and building hardware wasn’t wasted. Netflix built on the knowledge gained to begin streaming movies via the internet in 2007, after YouTube showed the world it could be done. Netflix also spun off the hardware technology into an existing company, Roku, which today makes a digital streaming player that funnels content via software from Netflix and a variety of other streaming services (Disney+, Prime, Crave, Apple TV, Roku Channel, sports channels, and many more).
Does this mean that Netflix doesn’t face any present and future threats? Hastings admits that there are plenty of challenges ahead. Analysts like Pachter have warned that Netflix could be crushed or acquired by the likes of Amazon.com, Google, or Apple. Anyone can come after Netflix by streaming via contracts with data-delivery companies like Level 3, Limelight, and Akamai. Also, Netflix has to pay the studios for content, and developing original content is expensive. Content acquisition can be denied, costs could become prohibitive, and expensive original series may be Netflix bombs. In February 2014, Netflix agreed to pay Comcast extra to speed up its streaming service to its customers, which could lead to extra costs. European media companies battle to stop Netflix from taking market share. But Hastings remains confident, as he enjoys solving subtle, yet tough, problems alongside the smartest people he can find. He said, “For me the thrill is making a contribution by solving hard problems.” Only time will tell if he can stay ahead of the competition and technology curve.
