In a rare interview, Netflix co-CEO Greg Peters discusses the company's evolving strategy, from its ad-supported tier's success to its approach to competition and content investment, revealing a company navigating the maturation of the streaming market.
The narrative of Netflix as a pure, ad-free subscription service is officially over. In a wide-ranging interview with Ben Thompson of Stratechery, co-CEO Greg Peters provided a candid look at the company's strategic recalibration, moving from a period of hyper-growth to one focused on sustainable profitability and engagement in a saturated market. The conversation, coming on the heels of a volatile period for the company's stock, underscores a fundamental shift in the streaming giant's identity.
The Ad-Supported Tier: A Surprising Success
Perhaps the most significant revelation from Peters was the performance of Netflix's ad-supported tier, which launched in late 2022. Initially viewed by many as a reluctant concession to market pressure, the tier has become a cornerstone of Netflix's growth strategy. Peters indicated that the ad tier is not merely a lower-priced option but a distinct product with its own dynamics. The company has observed that the ad tier attracts a different demographic, often younger and more price-sensitive, who might not have subscribed to the premium service at all. This isn't just about capturing a new segment; it's about expanding the total addressable market for Netflix.
The operational reality of running an ad business is also changing Netflix. The company has had to build an entirely new advertising technology stack, a far cry from its core competency of content recommendation and streaming infrastructure. This includes developing its own ad server, a move that gives Netflix more control over the ad experience and, crucially, the data. The interview hinted at the long-term vision: using first-party data from its 260+ million global subscribers to offer advertisers highly targeted campaigns, a capability that could become a significant competitive moat. The success of this tier is measured not just in subscriber numbers, but in its contribution to average revenue per member (ARPU), which has stabilized after years of decline.
Viewer Engagement: The New North Star
While subscriber growth has been the dominant metric for streaming services for the past decade, Peters emphasized a shift towards engagement—specifically, "member satisfaction." This is a more nuanced metric than simply hours watched. Netflix is increasingly focused on how much value members derive from the service, which they measure through surveys and retention data. The goal is to ensure that every dollar spent on content translates into a satisfied member who is less likely to churn.
This focus on satisfaction explains some of Netflix's recent content decisions. The company has become more disciplined, canceling shows that don't meet engagement thresholds, even if they have a dedicated fanbase. It also explains the continued investment in live events, like stand-up specials and sports-adjacent programming (e.g., Formula 1: Drive to Survive), which create cultural moments and drive concurrent viewing. The data suggests that a mix of broad-appeal hits and niche, passionate followings is the optimal strategy for maximizing overall engagement across the subscriber base.
Competition and the "WBD Acquisition" Context
The interview touched on the competitive landscape, which has evolved from a race for subscribers to a more complex battle for attention and profitability. Peters downplayed the threat from other mega-mergers, like the attempted acquisition of Warner Bros. Discovery (WBD) by Paramount, suggesting that Netflix's scale and global reach provide inherent advantages. The real competition, he implied, isn't just other streaming services, but all forms of entertainment—from TikTok to video games.
This is where the company's gaming strategy comes into play. While Netflix's foray into gaming has been slow to gain traction, Peters framed it as a long-term play to increase the value of a Netflix subscription. The goal isn't to become a dominant gaming platform but to offer games that are complementary to its core video service, enhancing member satisfaction and reducing churn. The recent acquisition of studios like Night School Studio and the development of original games based on IP like Stranger Things and The Crown are test cases for this integrated approach.
Regulation, Hollywood, and the Broader Ecosystem
Peters also addressed the increasing scrutiny from regulators, particularly in the EU and the UK. The conversation highlighted the tension between Netflix's global scale and local content mandates. While the company has invested heavily in local productions (e.g., Squid Game in Korea, Lupin in France), there is a clear operational cost to these requirements. The interview suggested that Netflix views these investments as a necessary part of doing business globally, but the regulatory environment adds a layer of complexity to its expansion plans.
The relationship with Hollywood was another key theme. The 2023 writers' and actors' strikes underscored the growing friction between streamers and the creative community. Peters acknowledged the importance of talent and the need for sustainable business models for both the company and its partners. The shift to a more data-driven, engagement-focused model has inevitably changed the power dynamics in Hollywood, with Netflix holding significant leverage in greenlighting projects based on its internal metrics.
Counter-Perspectives and Challenges
Despite the optimistic tone, the interview didn't shy away from challenges. The ad business, while promising, is still in its early stages. Building a competitive ad sales operation from scratch is a massive undertaking, and Netflix will compete with established giants like Google and Meta for ad dollars. There's also the risk of alienating the core subscriber base that joined Netflix precisely to avoid ads.
Furthermore, the focus on engagement and member satisfaction can lead to a more conservative content strategy. The era of spending lavishly on prestige projects with uncertain audience appeal may be waning. This could stifle creative risk-taking and lead to a homogenization of content, as the algorithm favors what is known to work. Critics argue that this data-centric approach could make Netflix's library feel increasingly formulaic over time.
The competitive landscape remains fierce. While Netflix leads in scale, rivals like Disney+, Amazon Prime Video, and Apple TV+ have deep pockets and valuable IP. The battle for the living room is far from over, and the rise of free, ad-supported streaming TV (FAST) channels like Pluto TV and Tubi presents a different kind of competition for viewers' time.
Conclusion: A Mature Giant Navigating a New Reality
Greg Peters' interview paints a picture of a company that has moved past its adolescence. The frantic growth phase is over, replaced by a focus on operational efficiency, profitability, and sustainable engagement. The ad-supported tier is no longer an experiment but a core pillar of the business. The content strategy is more disciplined, guided by data on what keeps subscribers satisfied. The gaming push is a long-term bet on increasing the service's value.
Netflix is no longer the disruptor; it is the incumbent, facing the same pressures as traditional media companies—regulatory scrutiny, talent negotiations, and intense competition. Its success will depend on its ability to execute this new strategy flawlessly: building a world-class ad business without compromising the user experience, using data to inform but not dictate creative decisions, and expanding its value proposition beyond video. The roller coaster of its stock price reflects the market's uncertainty about this transition, but the strategic direction outlined by Peters is clear: Netflix is betting on a future where it is not just a streaming service, but a multifaceted entertainment ecosystem.
Relevant Links:
Comments
Please log in or register to join the discussion