Co-CEO Sarandos’ Netflix rise brings him closer to Hollywood

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Ted Sarandos (L), chief content officer for Netflix and Bob Iger, CEO of Walt Disney Company in 2015, in Los Angeles.Charley Gallay | Getty Images for LACMA

There was a debate on Netflix: is it a tech or media company?This debate has failed in recent years and clearly ended on Thursday, with Netflix’s announcement that Ted Sarandos would join Reed Hastings as co-CEO. Sarandos, who lives in Los Angeles, spent two decades at Netflix, leading the company’s huge shift to original content.

“It’s a unique company in the sense that it really has close to two headquarters,” said Gil Simon, chief investment officer at San Francisco-based SoMa Equity Partners, which owns nearly 10% of its nearly $ 3 billion in Netflix equity assets. “Obviously, the core competence of the business is the acquisition and production of content. ”

Netflix said Thursday it added more than 10 million global subscribers in the second quarter, bringing its total to 192 million. BMO Capital Markets has estimated that Netflix will spend more than $ 17 billion on content this year and more than $ 26 billion by 2028. Only Disney’s film and television budgets are significantly larger than Netflix.

Sarandos is the person responsible for putting Netflix money to work. From Martin Scorsese’s success last year “The Irishman” to Netflix’s new action movie, “Extraction”, Sarandos made deals even with Hastings as CEO, operating from the company’s official headquarters in the Silicon Valley.

“While Reed was the visionary, Ted is the future,” said Simon. “He is networked within the creative community and his ability to bring showrunners and leading film producers is the secret sauce. “

Netflix CEO Reed Hastings speaks during the Netflix Slate 2018 event at JW Marriot October 9, 2018 in Bogota, Colombia.

Gabriel Aponte | Getty Images

In the past few years, all the other big content companies have started to look more like Netflix, creating their own streaming services and platforms to capture the eyeballs. Now the digital service of Netflix, once an island in the world of cable TV, is the leader in a very crowded space. The result is that Netflix is ​​becoming more and more like all the big media companies.

Sarandos told GQ seven years ago that Netflix’s goal was “to become HBO faster than HBO can become us.” He succeeded. AT&T, which acquired HBO as part of its Time Warner deal two years ago, is now trying to turn HBO into something that looks like Netflix, by expanding HBO to HBO Max, a service that includes family shows and mainstream sitcoms.

Trades like an Internet business

Where Netflix wants to avoid media comparisons is on Wall Street.

Netflix presents itself much more as a high-growth tech company than a content giant. With a market capitalization of more than $ 230 billion at the close of Thursday, it is now among the 20 largest American companies. Netflix has a market value comparable to AT&T, even with a ninth of sales, and it has a price / earnings ratio of 106, compared to 41 for Disney, which has its own opportunities for continuous growth with Disney + and ESPN +.

But Netflix continues to show that its heavy investment in content is paying off. Operating profit jumped 92% in the second quarter from the previous year, and net earnings per share jumped to $ 1.59 after 60 cents.

Sarandos doesn’t talk much about the price of the stock, but he can spend hours discussing Netflix’s ability to invest much more than anyone else in a film while making it profitable. At an investor event with UBS in December, Sarandos described his work with Scorsese and “The Irishman”, a 3.5 hour film that was viewed by more than 26 million people in its first week. It was a movie that even Scorsese admitted he couldn’t get into the theater.

“We basically make films that would otherwise be difficult to make,” said Sarandos. “They are premiering on Netflix and are produced as the filmmaker wanted to and we could do it. “

Robert De Niro, Al Pacino and Ray Romano play in “The Irishman” by Martin Scorsese.

Netflix

As his budget increases, one area that excites Sarandos is animation. At the December event, he said that 2022 and 2023 would be big years for the company on this front.

He expects animation features “maybe four to six times a year” to bring together “everyone who has created excellent animation for each animation studio in the past decade.”

But that was before the coronavirus, which forced the film industry to stop much of its production.

Netflix said Thursday that it has made the most progress in resuming production in Asia-Pacific and that it has never closed completely in Korea. He has resumed production in Europe as well as two stop-motion animation projects in Oregon and two films in California. The company warned that “current infection trends are creating more uncertainty for our productions in the United States”.

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