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Netflix names Ted Sarandos as Reed Hastings' co-CEO as growth surges again

Sarandos, who was once a video-store manager in Arizona, led Netflix's programming as it came to dominate online TV worldwide.

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Joan E. Solsman
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Ted Sarandos has been elevated to co-CEO after years as Netflix's content chief. 

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Netflix made an unexpected change to its top leadership Thursday, naming a co-CEO. Ted Sarandos, the company's top content officer who led Netflix programming as the company grew into an online TV behemoth, will serve alongside Reed Hastings, the company's longtime CEO and co-founder.

"Ted has been my partner for decades," Hastings said in a letter to shareholders. "This change makes formal what was already informal -- that Ted and I share the leadership of Netflix."

Hastings dispelled the idea that Sarandos' promotion indicated he would be leaving Netflix, the world's dominant streaming-video subscription service

"I'm in for a decade," Hastings said Thursday during a call to discuss the news and the company's earnings. 

Netflix reported another period of unexpectedly strong growth in that second-quarter report. It added 10.09 million subscribers in the last quarter, after starting the year with a record-high number of new members. Second-quarter subscribers climbed to 192.95 million between April and June. That beats Netflix's April guidance of an additional 7.5 million new members, and analysts on average expected about 8.1 million member additions, according to Thomson Reuters. 

Once a video-store manager in Arizona, Sarandos joined Netflix in 2000 when the company was aggressively ramping up its DVD-by-mail business to take on Blockbuster, years before Netflix streamed its first video. But as Netflix transitioned to licensing shows and movies to stream online, and especially as it ventured into its own original programming, Sarandos emerged as the leader of a new global powerhouse in programming.

Sarandos will continue to be Netflix's chief content officer. Greg Peters has been appointed chief operating officer in addition to his role as Netflix's product chief.  "We want Greg to help us stay aligned and effective as we grow so quickly around the world," Hastings said.

The news comes as Netflix is on a tear. The company added more new subscribers in the first three months of the year than it ever had before, record growth that was taken as a bellwether for the popularity of streaming video during the coronavirus pandemic. The coronavirus, which causes the disease known as COVID-19, has devastated swaths of the entertainment industry: Movie theaters are shuttered; big-budget films are being pushed back to next year; nobody knows when sports, concerts and theater can resume en masse; and new film and TV productions are on hold for the foreseeable future. 

Still, Netflix shares were down 6% at $495.83 in recent trading Friday. The company predicted its new-member growth will flip to declines in the second half -- in other words, Netflix will continue to add new subscribers, but not nearly quickly has it had a year earlier. Netflix estimated it would add only 2.5 million more members before October. That's less than half the consensus analyst estimate of 5.3 million and way below the 6.77 million new members it added in the prior-year period. 

Netflix had already warned (and reiterated again Thursday) that its surging growth in the pandemic was likely pulling forward members who would've joined later in the year anyway. Essentially its growth now is borrowing from growth later this year that subsequently won't occur in the second half. 

But since then, new programming on regular TV has dwindled as networks run out of fresh material they'd already shot before productions shut down. Netflix, with its eye-popping slate of original content that's made way in advance (a perk of its release-all-episodes at once model), is ideally positioned to keep serving up new programming as people are stuck at home desperate for entertainment. 

Even among its competitors, Netflix has appeared as one of the best-positioned media companies for this extraordinary time. The company has said it's confident its gigantic production pipeline will keep new shows and movies flowing onto the service into 2021, even as rivals' original programming is hobbled by global shutdowns. 

The news also comes in the midst of the so-called streaming wars, a seven-month window when media and tech giants are rolling out new services. One day earlier, Peacock launched, from Comcast's NBCUniversal. But chief among the new competitors has been Disney Plus, which rolled out Nov. 12 and has quickly ramped up to more than 50 million subscribers

In the US and Canada, its biggest single region, Netflix added 2.9 million streaming customers, for a total of 72.9 million. In Europe, the Middle East and Africa, membership rose 2.8 million, to 61.5 million. In Latin America, the company gained 1.8 million members to reach 36.1 million. And in the Asia Pacific region, it added 2.7 members to hit 22.5 million. 

Netflix also predicted $2.09 per share in earnings in the third quarter. On average, Wall Street analysts who track Netflix expected $2.

Overall, Netflix reported a profit of $720.2 million, or $1.59 a share, compared with $270.7 million, or 60 cents a share, a year earlier. Revenue climbed 25% percent to $6.15 billion.

Analysts on average expected per-share profit of $1.82 -- compared with Netflix's guidance for $1.81 -- and $6.08 billion in revenue.

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