REED HASTINGS — ACTIVE COPER!!

By Leslie Pratch

I’ve written a lot about active coping as a crucial determinant of leadership effectiveness. This is the third of a series that provide a case study of what active coping looks like, drawing on the careers of some well-known executives. Reed Hastings is a good example of what active coping looks like. Active coping is being able — emotionally, intellectually, and behaviorally — to successfully confront unforeseen challenges and capitalize on emergent opportunities. Active coping is an attribute of a healthy personality. It is baked into who the person is. If you are an active coper, you adapt resourcefully and effectively to novelty and change, repeatedly. You learn from experience. When you fail, you seek to learn why, and you respond more effectively the next time. Rather than hide from constructive criticism, you seek it out as a source of insight. You take into account the interests of others, as well as your own, and the interests of society.

When you pick people to run your companies, you’d like to find someone who has the active coping style of Hastings, who can lead an organization through tumultuous times. The best leaders combine active coping, intelligence sufficient to think through the level of complexity they will face in the job (which might vary from organization to organization or even over time) and a motivation to lead.

Reed Hastings started Netflix in 1997 and has successfully led it through several maneuvers, from an efficient DVD shipping operation, to an internet streaming business, to a content developer. Netflix is now the 36th most valuable companies in the world producing its own original content and streaming entertainment to more than 100 million subscribers around the world.

Active copers have characteristic behaviors that reflect their underlying psychological makeup. They:

  • face problems rather than avoiding them,
  • overcome obstacles rather than giving up or blaming others,
  • take into account the interests of others, as well as their own and interests of society,
  • take advantage of opportunities that others might have failed to capitalize on,
  • seek to understand multiple perspectives, so as to avoid own blind spots, and
  • learn from experience.

Face problems

Overcome obstacles rather than giving up or blaming others

  • Subscriber Growth. Netflix stock rises and falls with subscription growth, which has flattened in the U.S., yet the company’s valuation remains high. Hastings justified its current valuation by anticipated growth in Asian countries. Hastings anticipates that the next 100 million subscribers will come from places like India and Southeast Asia — areas with large populations and high mobile internet penetration. Netflix can only achieve that target by cutting its price in those countries, where potential subscribers have a fraction of the purchasing power of U.S. and European subscribers. In 2020, Netflix introduced mobile-only plans for about $3 a month in India, Malaysia, Singapore, and Indonesia. Disney’s Hotstar, the leading online streaming service in India, has only 7.5 million subscribers who pay less than $1 a month. For Netflix to pick up 100 million subscribers Asia (it cannot operate in China), it must win all the remaining streaming video subscribers in India and the eight major Southeast Asian countries and continue to grow in wealthier nations like Japan.

Added to Asian consumers’ price sensitivity are regulatory challenges. Indonesia’s largest internet provider blocked Netflix in 2016, citing objectionable content. Netflix had to raise prices in Singapore and Malaysia after their governments levied higher taxes on popular foreign internet services. The governments of Japan, Australia and India passed similar laws once Netflix became popular. Indonesia, Thailand and the Philippines are now considering similar legislation, which adds to their tax basis.

  • Explosion of Streaming Services by Media Conglomerates. Hastings is continuing to focus Netflix on developing its own content to overcome the ongoing loss of content from its platform to potential streaming competitors. Netflix has invested in local production more aggressively than any other U.S. streaming services. In November, Hastings told investors that Netflix had invested in over 180 originals from Asia and was sponsoring writing and filming workshops in South Korea, Vietnam, Malaysia, Indonesia and Thailand to help promote local production. He also said that Netflix planned to spend $423 million over two years on local content for the Indian market. The Indonesian government said last week (December 3, 2020) it would partner with Netflix to host writing workshops for Indonesian scriptwriters in both Los Angeles and Jakarta. Netflix also recently launched a local-language interface in Vietnam, where online video is quickly replacing broadcast TV.

Take into account the interests of others and of society as well as their own

Take advantage of opportunities that others might have failed to capitalize on

Hastings has led Netflix through several adaptations including shifting from CD’s to streaming at Netflix and shifting from buying content to producing content.

In 2000, Hastings proposed a partnership to Blockbuster’s CEO: Netflix would run Blockbuster’s brand online and Blockbuster would promote Netflix in its stores. Blockbuster rejected the idea. Blockbuster went bankrupt in 2010.

Seek to understand multiple perspectives, so as to avoid own blind spots

Hastings didn’t like the idea of House of Cards and the idea of moving into original content. But he listened to Ted Sarandos, who loved both ideas. Ted told Hastings, “’Trust me, it’s only a hundred million dollars.’” Hastings said, “And so I did, and he was worth it. And out of that, the world got House of Cards.”

Learn from experience

When he started Netflix, Hastings reflected on mistakes he made at Pure and learned from them. One mistake he saw had made at Pure was to put in place processes to ensure errors would not occur. But “by dummy proofing” the systems, he realized, “we created a system where only dummies wanted to work.” The average level of intellect fell. When the market changed, Pure could not adapt because its very average employees couldn’t adapt to the changes. Hastings saw that his solution to an easy problem made it harder to solve the more important problem. Not many people would see that and decide to take a different route the next time

Anticipating that online streaming would eclipse DVDs, he concluded Netflix needed to hire resourceful problem-solvers who could evolve new skills to adapt to change. He set out to build a company culture with and for such problem solvers, who are consistently working to further the company’s innovative environment. He decided to hire “first principle” thinkers who could shed old business models and devise new ways to deliver entertainment.

Next Steps for you?

BIBLIOGRAPHY

Parsons, Mike and Mark Freeland. “Hastings No Rules Rules.” Episode 74. https://www.moonshots.io/episode-74-reed-hastings-no-rules-rules(accessed December 10, 2020).

For more information contact me.

About the Author

Leslie S. Pratch is the founder and CEO of Pratch & Company. A clinical psychologist and MBA, she advises private equity investors, management committees and Boards of Directors of public and privately held companies whether the executives being considered to lead companies possess the psychological resources and personality strengths needed to succeed. In her recently published book, Looks Good on Paper? (Columbia University Press, 2014), she shares insights from more than twenty years of executive evaluations and offers an empirically based approach to identify executives who will be effective within organisations — and to flag those who will ultimately very likely fail — by evaluating aspects of personality and character that are hidden beneath the surface.