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Netflix, once the great disruptor, is now taking ideas from the industry it upended to jumpstart growth

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Reed Hastings, co-founder and chief executive officer of Netflix Inc., during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, Oct. 18, 2021.

Kyle Grillot | Bloomberg | Getty Images

In the foreword to Hamilton Helmer’s7 Powers: The Foundations of Business Strategy,” published in 2016, Netflix co-founder and co-CEO Reed Hastings describes what happens when market leaders don’t adjust to new competitive forces.

“Throughout my business career, I have often observed powerful incumbents, once lauded for their business acumen, failing to adjust to a new competitive reality,” Hastings writes. “The result is always a stunning fall from grace.”

Six years later, Hastings finds himself in the role of an incumbent that has, for the moment, experienced a stunning fall from grace. Netflix shares have fallen more than 70% year to date. The company announced in April it expects to lose 2 million subscribers in the second quarter. Investors have sold in droves as they question the size of the total addressable streaming market — a number Netflix has previously said could be as high as 800 million. As of the latest count, Netflix has about 222 million global subscribers.

Netflix executives are now reflecting on how they failed to adjust to a new competitive reality, one which was masked by massive subscriber gains during the Covid pandemic when billions of people around the world were stuck at home. While the company has consistently churned out big hits, such as “Stranger Things” and “Squid Game,” Netflix is rethinking many of the philosophies that disrupted the industry more than a decade ago.

The change in strategy, even on the margins, is a surprising one for a company best known for disrupting two industries — first video rental and then cable TV. Instead of inventing new ways to upend what’s become a crowded streaming video industry, Netflix is reconsidering nearly all of the ways it stood out from legacy media companies in the first place.

In other words, Hastings has decided his best strategy now is to un-disrupt.

“It’s notable that Netflix is seeking growth by rethinking many of its firmly held beliefs,” said Joel Mier, Netflix’s director of marketing from 1999 to 2006 and a lecturer in marketing at the University of Richmond. “These decisions will clearly help revenue and subscriber growth in the short- to mid-term. The larger question is how they will impact the firm’s brand over the long-term.”

Netflix declined to comment.

Embracing advertising

Hastings has long proclaimed Netflix’s aversion to advertising is due to the added complexity of the business.

“Advertising looks easy until you get in it,” Hastings said in 2020. “Then you realize you have to rip that revenue away from other places because the total ad market isn’t growing, and in fact right now it’s shrinking. It’s hand-to-hand combat to get people to spend less on, you know, ABC and to spend more on Netflix. We went public 20 years ago at about a dollar a share, and now we’re [more than] $500. So I would say our subscription-focused strategy’s worked pretty well.”

Netflix is no longer more than $500 a share. It closed at $169.69 on Monday.

Since making that comment in 2020, Hastings has watched other streaming services, including Warner Bros. Discovery‘s HBO Max, NBCUniversal’s Peacock and Paramount Global‘s Paramount+, launch lower-priced services with ads without a consumer backlash. Disney plans to unveil a cheaper ad-supported Disney+ later this year.

A sign is posted in front of Netflix headquarters on April 20, 2022 in Los Gatos, California.

Justin Sullivan | Getty Images

In April, Hastings announced he’d changed his mind. An ad-supported Netflix “makes a lot of sense” for “consumers who would like to have a lower price and are advertising tolerant,” he said.

Netflix has previously argued it found a gap in the market by not worrying about advertising. Niche shows, which wouldn’t play well with advertisers, who want scale, could be valuable for Netflix if they brought in enough subscribers relative to production budgets.

It remains to be seen whether Netflix will offer its full slate of content on an ad-supported service or if certain shows will be walled off for no-ad subscribers only.

Developing shows

Part of Netflix’s pitch to content creators has been ordering “straight to series,” rather than making traditional pilot episodes of shows and judging them based on a hard product. Other streamers have followed suit after seeing Netflix attract A-list talent by skipping pilots.

“If you’re a typical studio, you raise money for a pilot, and if it tests well, you pick up the show, maybe you make a few more episodes, and you wait for the ratings,” Barry Enderwick, who worked in Netflix’s marketing department from 2001 to 2012 and who was director of global marketing and subscriber acquisition, told CNBC in 2018.

“At Netflix, our data made our decisions for us, so we’d just order two seasons. Show creators would ask us, ‘Do you want to see notes? Don’t you want to see a pilot?’ We’d respond, ‘If you want us to.’ Creators were gobsmacked.”

Ordering projects straight to series gave writers and producers certainty and, frequently, more money. The downside, Netflix has found, is it’s also led to series that didn’t turn out to be very good. Deadline noted 47 different examples of Netflix ordering straight to series in 2020-21 and 20 for 2022. While a few are notable, such as “The Witcher: Blood Origin” and “That ’90s Show,” most have generated little buzz.

Netflix plans to start ordering more pilots and slow down on its straight-to-series development process, according to people familiar with the matter. The hope is the end result will lead to higher-quality programming and less fluff.

Netflix doesn’t plan to lower its overall budget on content. Still, it does intend to reallocate money to focus on quality after years of adding quantity to fill its library, the people said. Executives have added more original programming in recent years to avoid a lasting reliance on licensed content — much of which has been pulled back by the media companies who own it to fill their own streaming services.

Appointment viewing

Another Netflix hallmark has been its long-held decision to release full seasons of series all at once, allowing users to watch episodes at their own pace.

“There’s no reason to release it weekly,” co-CEO Ted Sarandos said in 2016. “The move away from appointment television is enormous. So why are you going to drag people back to something they’re abandoning in huge numbers?”

Netflix co-CEO Ted Sarandos attends the Allen & Company Sun Valley Conference on July 08, 2021 in Sun Valley, Idaho.

Kevin Dietsch | Getty Images

Still,in recent years, Netflix has experimented with weekly releases for some reality shows instead of bulk drops. Thus far, this hasn’t extended to scripted streaming.

“We fundamentally believe that we want to give our members the choice in how they view,” Peter Friedlander, Netflix’s head of scripted series for U.S. and Canada, said earlier this month. “And so giving them that option on these scripted series to watch as much as they want to watch when they watch it, is still fundamental to what we want to provide.”

But people familiar with the matter said Netflix will continue to play around with weekly releases for certain types of series, such as reality TV and other shows based on competition.

Netflix’s resistance to weekly scripted release may be the next thing to go.

Live sports

Netflix has always rejected bidding on live sports, a staple of legacy media companies.

“To follow a competitor, never, never, never,” Hastings said in 2018. “We have so much we want to do in our area, so we’re not trying to copy others, whether that’s linear cable, there’s lots of things we don’t do. We don’t do (live) news, we don’t do (live) sports. But what we do do, we try to do really well.”

Yet, last year, Hastings said Netflix will consider bidding on live Formula One rights to pair with the success of its documentary series “Drive to Survive,” which profiles each racing season.

Max Verstappen of the Netherlands driving the (1) Oracle Red Bull Racing RB18 to the grid before the F1 Grand Prix of Emilia Romagna at Autodromo Enzo e Dino Ferrari on April 24, 2022 in Imola, Italy.

Dan Istitene – Formula 1 | Formula 1 | Getty Images

“A few years ago, the rights to Formula 1 were sold,” Hastings said to German magazine Der Spiegel in September. “At that time we were not among the bidders, today we would think about it.”

This month, Business Insider reported Netflix has been holding talks with Formula One for months for U.S. broadcast rights.

Adding live sports may give Netflix a new audience base, but it flies in the face of Netflix’s recent aversion to spending big money on licensed programming.

Limiting password sharing

For many years, Netflix dismissed password sharing as a quirky side issue that merely demonstrated the popularity of its product. In 2017, Netflix’s corporate account tweeted “Love is sharing a password.”

But as Netflix’s growth has slowed, executives see password-sharing crackdowns as a new engine to reinvigorate revenue growth. “We’re working on how to monetize sharing. We’ve been thinking about that for a couple of years,” Hastings said during the company’s April earnings conference call. “But when we were growing fast, it wasn’t the high priority to work on. And now, we’re working super hard on it.”

Over the next year, Netflix plans to charge accounts that are clearly shared with users outside the home additional fees.

“We’re not trying to shut down that sharing, but we’re going to ask you to pay a bit more to be able to share with her and so that she gets the benefit and the value of the service, but we also get the revenue associated with that viewing,” Chief Operating Officer Greg Peters said during the same call, adding it will “allow us to bring in revenue for everyone who’s viewing and who gets value from the entertainment that we’re offering.”

CNBC reported earlier on how the password-sharing crackdown is likely to work.

No longer pure-play streaming

Netflix has become famous for its 2009 culture presentation, which laid out the company’s values. One of the company’s core tenets speaks to innovation. “You keep us nimble by minimizing complexity and finding time to simplify.”

Netflix has benefited from being a pure-play streaming company for years. While other media companies, such as Disney, have lagged because of a conglomerate discount and slow-growing or declining legacy assets, investors have loved Netflix’s one-trick pony: streaming growth.

But that, too, is slowly changing. Netflix announced last year it’s dabbling in video games. Netflix currently has 22 video games on its platform and aims to have 50 by year end.

Adding a new vertical to streaming video may help Netflix give investors a new reason to bet on the company’s future growth. But it also potentially cuts at a long-held Hastings’ tenet: that focusing on movies and TV shows is what sets Netflix apart.

“What we have to do is be the specialty play,” Hastings told CNBC in 2017. “We focus on how do we be, really, the embodiment of entertainment, and joy, and movies and TV shows.”

WATCH: Netflix is probably best positioned among streamers in recession environment, traders say

CNBC’s Sarah Whitten contributed to this story.

Disclosure: NBCUniversal is the parent company of NBC and CNBC.

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Walmart strikes exclusive streaming deal to give Paramount+ to Walmart+ subscribers

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In this photo illustration, a woman’s silhouette holds a smartphone with the Walmart logo displayed on the screen and in the background.

Rafael Henrique | Lightrocket | Getty Images

Walmart has reached a deal to offer Paramount Global‘s streaming service as a perk of its Walmart+ membership program, the companies confirmed on Monday.

Starting in September, customers who belong to the retailer’s program will get free access to an ad-supported plan on Paramount+, which includes movies and shows such as “Star Trek,” “Paw Patrol,” “The Godfather” and “SpongeBob Squarepants.”

Walmart launched Walmart+ nearly two years ago to drive sales and deeper customer engagement. The program costs $98 per year, or $12.95 per month, and is the company’s answer to Amazon Prime, but with a different set of perks. It includes free shipping of online purchases, free grocery deliveries for orders of at least $35 and discounts on prescriptions and gas.

Now it will also include access to the “essential tier” of Paramount+, which typically costs $4.99 per month and includes commercials. Paramount also sells a premium product without ads for $9.99 per month.

“With the addition of Paramount+, we are demonstrating our unique ability to help members save even more and live better by delivering entertainment for less, too,” Chris Cracchiolo, general manager of Walmart+, said in a news release.

Walmart said in a news release on Monday that it has had positive membership growth every month since its launch in September 2020. But since launching the service, the retail giant has declined to share its subscriber total.

According to estimates by market research firm Consumer Intelligence Research Partners, Walmart+ had 11 million customers as of July — the same as in the April. A survey by equity research firm Morgan Stanley pegged the subscriber count higher at about 16 million members as of May.

Paramount+ is one of the many services that compete for eyeballs in the streaming industry. Paramount Global announced earlier this month that Paramount+ has 43.3 million subscribers around the world. The company aims to reach 100 million subscribers by 2024.

The deal with Walmart will give Paramount+ a new distribution channel to add subscribers as well as a branding boost. Paramount+ is the only streaming service that has struck a deal with Walmart and wanted to launch exclusively to get full marketing attention, according to a person familiar with the deal who was not authorized to speak publicly about it.

Jeff Shultz, chief strategy officer and chief business development officer of Paramount Streaming, said the two companies have worked closely together for years by selling consumer products in Walmart’s stores.

The Wall Street Journal first reported the news of the deal.

Walmart will report its second-quarter earnings on Tuesday.

WATCH: Walmart+ members to get access to Paramount+

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People are spending lots of money on makeup and beauty, and retailers are cashing in

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Target has added new brands to its beauty department. At a growing number of stores, it also has mini Ulta Beauty shops with prestige brands.

Melissa Repko | CNBC

As prices creep up, some people have decided against getting a new outfit, delayed big purchases like TVs or cancelled Netflix accounts.

But for now, they’re still splurging on beauty.

For retailers, the beauty category has become a rare bright spot as people pull back on spending amid surging inflation. Often seen as an affordable luxury, it is the only discretionary retail category with rising unit sales in the first half of the year, according to The NPD Group, which tracks categories including clothing, tech and toys, as well as beauty products at specialty and department stores.

“You may not be able to go out to eat out as much, but you can buy yourself a lipstick,” said Olivia Tong, an analyst for Raymond James.

This spring, Target called out the strength of its beauty sales, even as it twice cut its profit outlook for the year. Walmart is also investing in the category and rolling out new beauty displays to hundreds of stores, despite its warnings that shoppers are skipping over discretionary categories like apparel.

Other factors work in the industry’s favor, too. Weddings and parties have picked up again. More people are heading back to the office, and can no longer hide behind their Zoom filters. And during the pandemic, some people got in the habit of pampering themselves at home with face masks, hair treatments and other beauty products.

Larissa Jensen, a beauty analyst for NPD, called it the return of thelipstick index” — a term made famous by Leonard Lauder, chairman of the board of Estee Lauder, to explain climbing sales of cosmetics during the recession in the early 2000s.

As consumer sentiment has fallen, lipstick sales volume has climbed, Jensen said. That increase has carried over to other beauty products. Makeup sales, including lipstick, are up 20%, skincare is up 12%, fragrance is up 15% and hair care is up 28% for the first half of the year — and they are all growing in units, as well as dollars, she said.

Much of the beauty category’s growth is coming from households that earn over $100,000 a year, and Jensen said discounters may have a tougher time capitalizing on the trend. Still, beauty’s resilience could provide some cushion for big-box retailers in a slowdown − if they can figure out how to cash in.

Beauty at $3, $5, $9

Walmart and Target both cut their profit forecasts after having to mark down prices on apparel, home goods and other products that aren’t selling. Yet both companies are refreshing their beauty departments and adding new brands to attract customers.

A year ago, Target began opening hundreds of Ulta Beauty shops inside of its stores with brands including MAC Cosmetics and Clinique. The company plans to add more than 250 this year and eventually have the shops at 800 locations, representing about 40% of its U.S. footprint.

And after seeing fragrance become the biggest sales-driver in prestige beauty during the last holiday season, it also added popular fragrance brands to the Ulta shops, including Jimmy Choo Man, Juicy Couture and Kate Spade New York.

Since January, Target has introduced more than 40 brands to its stable of beauty products, including “clean” products that are free of certain ingredients and Black-owned and Black-founded brands.

On an earnings call in mid-May, CEO Brian Cornell said beauty saw double-digit growth in comparable sales in the fiscal first quarter versus the year-ago period. That broke from other categories, besides food and beverage and essentials, which saw a noticeable slowdown.

Walmart has added about a dozen prestige beauty brands to select stores. It struck a deal with British beauty retailer, Space NK, to add the assortment and develop a private label.

Melissa Repko | CNBC

At Walmart, new beauty displays were set up this summer at 250 of the company’s locations, featuring Mario Badescu, Patchology and other brands typically found at specialty beauty shops or department store makeup counters.

A more affordable display called “Beauty Finds” also began rolling to nearly 1,400 stores, offering shoppers lip glosses, lotions and more for $3, $5 or $9.

Walmart has also struck exclusive deals with direct-to-consumer companies like Bubble, a skincare brand with colorful packaging and focus on Gen Z and young millennial customers. For the past few quarters, it has seen double-digit growth in its cosmetics business, said Creighton Kiper, Walmart’s vice president of merchandising for beauty.

“Beauty is this fascinating category where it’s not like food and it’s not like health and wellness, but yet the customer interacts and engages with it every day,” he said in an interview earlier this summer. “You’ve got this mental wellness component to it around confidence and feeling good about yourself.”

When budgets get tighter, Kiper said customers might also fall back on skills they gained during the pandemic — such as doing their nails or hair color at home — and go to Walmart to shop for an at-home twist on the salon.

Ashley Marie Lemons, a stay-at-home mom in suburban Atlanta, said her family is eating out less often because they’re spending more on groceries, diapers and other necessities. She said she cooks more meatless meals and buys hot dogs instead of pricier meats, such as ribs.

But she said she still allows herself to spend about $50 a month on beauty products like eyeshadow pallets and mascaras.

“It’s an outlet for me,” she said. “Some people like art. It’s a creative way for me to express myself.”

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Salman Rushdie reportedly on a ventilator and unable to speak after he was stabbed

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Author Salman Rushdie is reportedly on a ventilator and unable to speak after being attacked while on stage in western New York on Friday.

State troopers confirmed in a press conference Friday afternoon that Rushdie was stabbed at least once in the neck and at least once in the abdomen while on stage for a panel in Chautauqua in western New York.

Staff and audience members rushed to the stage and pinned the assailant to the ground following the attack, state troopers said. A state trooper who was present took the suspect into custody with the assistance of a local sheriff’s deputy.

Rushdie was treated by a doctor who was in the audience before emergency medical services arrived and airlifted him to a local trauma center.

After hours of surgery, Rushdie was reportedly on a ventilator and unable to speak on Friday evening.

“The news is not good,” Andrew Wylie, his book agent, wrote in an email reported by Reuters. “Salman will likely lose one eye; the nerves in his arm were severed; and his liver was stabbed and damaged.”

Author Salman Rushdie is tended to after he was attacked during a lecture, Friday, Aug. 12, 2022, at the Chautauqua Institution in Chautauqua, NY.

Joshua Goodman | AP

The state police department identified the suspect as Hadi Matar, age 24, from Fairview, NJ. The New York State Police is collaborating with the FBI and local police for the investigation.

A preliminary review of Matar’s social media accounts by law enforcement showed him to be sympathetic to Shia extremism and the causes of the Islamic Revolutionary Guard Corps, a law enforcement person with direct knowledge of the investigation told NBC News. Law enforcement officers reportedly found images of Solemani and an Iraqi extremist sympathetic to the Iranian regime in a cell phone messaging app belonging to Matar, according to NBC News.

There are no definitive links to the IRGC but the initial assessment indicates he is sympathetic to the Iranian government group, the official said.

The New York State Police released a statement immediately following the incident:

“On August 12, 2022, at about 11 a.m., a male suspect ran up onto the stage and attacked Rushdie and an interviewer,” the statement read. “Rushdie suffered an apparent stab wound to the neck, and was transported by helicopter to an area hospital. His condition is not yet known. The interviewer suffered a minor head injury. A State Trooper assigned to the event immediately took the suspect into custody.”

A spokesperson from the Chautauqua Institution, where the panel was being held, told CNBC that the organization was coordinating with emergency officials on a public response after the attack.

The Wylie Agency, which represents Rushdie, did not immediately respond to a request for comment.

Rushdie’s book “The Satanic Verses” forced him into hiding after it was banned in Iran and a $3 million bounty was put on his head. The Iranian government has distanced itself from the bounty, according to The Associated Press, but the fatwa has been continued by a semiofficial religious organization, which raised the bounty to $3.3 million.

Rushdie has been awarded many of the top literary prizes, including two Whitbread Prizes for best novel. He was knighted in 2007 while Tony Blair was prime minister. Blair released a statement on the attack.

Author Salman Rushdie at the Blue Sofa at the 2017 Frankfurt Book Fair on October 12, 2017 in Frankfurt am Main, Germany.

Hannelore Foerster | Getty Images

“My thoughts are with Salman and all his family,” Blair wrote on Friday. “A horrible and utterly unjustified attack on someone exercising their right to speak, to write and to be true to their convictions in their life and in their art.”

Rushdie was scheduled to sit on a panel alongside Henry Reese, president of City of Asylum in Pittsburgh, an organization that provides sanctuary to writers exiled under threat of persecution.

“We ask for your prayers for Salman Rushdie and Henry Reese, and patience as we fully focus on coordinating with police officials following a tragic incident at the Amphitheater today,” the Chautauqua Institution said in a tweet Friday. “All programs are canceled for the remainder of the day. Please consult the NYS Police statement.”

The institution’s website described the panel as “A discussion of the United States as asylum for writers and other artists in exile and as a home for freedom of creative expression.”

Rushdie was the former president of PEN America, a nonprofit that defends freedom of expression and supports persecuted writers. PEN America CEO Suzanne Nossel released a statement in the wake of the attack.

“Just hours before the attack, on Friday morning, Salman had emailed me to help with placements for Ukrainian writers in need of safe refuge from the grave perils they face,” Nossel wrote. “Salman Rushdie has been targeted for his words for decades but has never flinched nor faltered. He has devoted tireless energy to assisting others who are vulnerable and menaced.”

New York Gov. Kathy Hochul thanked the New York State Police for their response to the attack on Rushdie.

“Our thoughts are with Salman & his loved ones following this horrific event,” wrote the governor. “I have directed State Police to further assist however needed in the investigation.”

Hochul later said Rushdie is alive.

“It was a state police officer that stood up and saved his life,” the governor said during an event about gun violence, adding that the event moderator was also attacked. “We’re monitoring the situation, but he’s getting the care he needs at the local hospital.”

This is the latest in a series of onstage attacks against public figures, including Rep. Lee Zeldin, R-N.Y., in a town near Rochester, New York, earlier this summer, Dave Chappelle at the Hollywood Bowl, and Chris Rock during the Oscars.

NBC News contributed to this report

Correction: Rep. Lee Zeldin, R-N.Y., was attacked in a town near Rochester, New York, earlier this summer. An earlier version misspelled his name and misstated the location.

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