Netflix reported earnings after the close yesterday, and the stock immediately dropped 8% in after-hours trading. So why do I argue that CEO Reed Hastings is leading this company brilliantly? Because he sees a future that some others find difficult to grasp; he has pushed resolutely toward it even through potholes and sudden twists in the road; and the further he goes, the more knowledge he amasses about how to do it better. Those are all things that excellent leaders do.
Hastings’ most important strategic move now is spending billions to create original TV programming that he can sell to online subscribers worldwide, about 600 hours of such programming this year, the same quantity that HBO plans to produce. This strategy may seem breathtakingly audacious—or, as some would say, insane—considering that Netflix was barely in the original programming business just four years ago. But it had been in the business of renting DVDs and streaming existing movies and TV shows for many years, accumulating and analyzing growing mountains of data on what its customers like. To attract high-profile Hollywood talent for its entry into original programming, Hastings had to commit to a two-year deal instead of commissioning a pilot show, as most established networks do. But that was okay. Unlike established networks, Netflix had all that data on its customers. Hastings knew they love political drama, actor Kevin Spacey, and director David Fincher. So he risked significant money by signing them to two full seasons of House of Cards, confident it would be a hit. And it was.
Hastings is ferociously expanding original programming on that same principle, and while not all his bets will be right, they will all expand his mountain of customer knowledge, which every day becomes more difficult for competitors to match. Investors weren’t delighted with yesterday’s earnings report—the company lowered its forecast of subscriber growth in light of a price increase—but the stock’s performance in the bigger picture remains impressive. Since House of Cards debuted in February 2013, the S&P is up 38%. Netflix is up 304%. Investors think Hastings knows what he’s doing, and I suspect they’re correct.
Leaders in business, government, and every other realm should pay attention to Connectography: Mapping the Future of Global Civilization, published today by Parag Khanna, a senior research fellow at Singapore’s Lee Kuan Yew School of Public Policy. Khanna argues powerfully and persuasively that we misunderstand nations, economic growth, war, and peace if we analyze them only according to existing political boundaries. Within nations—such as the U.S., as he explains here—or among nations, he says, “We don’t fight over the borders that divide us but rather pull and yank the supply chains that connect us. While very few societies are at war, all societies are caught in this global tug-of-war, competing over the flows of money, goods, resources, technology, knowledge and talent transpiring between them.” You will see the world in new ways as Khanna shows how connections across borders are in many ways more significant than the borders themselves.
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What We're Reading Today
Theranos under federal investigation
The hits keep coming for Elizabeth Holmes‘ blood-testing company, as federal prosecutors and the SEC have opened up investigations into the company’s business practices. The government is questioning whether Theranos misled investors about the technology’s efficacy. Stefano Pessina’s Walgreens Boots Alliance, a Theranos partner, has also received subpoenas for information about promises the lab may have provided to the pharmacy while courting them as a customer.
United Continental nears deal for proxy board
Activist investors Altimeter Capital Management and PAR Capital Management launched a proxy fight to remove Chairman Henry Meyer III from the airline’s board. The funds made the move to force change due to communication errors while CEO Oscar Munoz was out on medical leave. United appears near a deal, agreeing with the proxy to replace Meyer with director Robert Milton or James Whitehurst.
Immigration battle hits the Supreme Court
Supreme Court justices seem split on President Barack Obama‘s executive action to grant deferred deportation of illegal immigrants who are parents of U.S. citizens. Left-leaning judges, particularly Justice Stephen Breyer, have questioned whether Texas and 25 other states had the right to bring the case to court. While conservative-leaning justices, including Chief Justice John Roberts, questioned the scope of President Obama’s action.
Primary day in New York
It’s an important day for Donald Trump and Hillary Clinton, the two favorites according to the latest polls. Trump needs a big win to keep hope that he can secure a majority of delegates prior to the Republican National Convention in July. John Kasich and Ted Cruz are desperately trying to prevent Trump from securing a pre-convention victory. Clinton, meanwhile, needs to stop the momentum that Bernie Sanders has built over the past month by securing a string of victories.
Building a Better Leader
Target is raising its minimum wage to $10 an hour
Managers are telling employees that their pay will rise in May.
American employees are the happiest they’ve been in a decade
With 88% of employees “satisfied overall with their job” and 37% “very satisfied,” the new report highlights the benefits of a strong labor market.
Before former Apple CEO John Sculley met Steve Jobs and Bill Gates…
…he thought business was about winning. They helped him change his view to using business to solve a “noble cause.”
Verizon’s shadow workforce
Lowell McAdam‘s company has employed a secret workforce within Verizon to fill in while its wireline workers continue to strike. This includes managers, lawyers, and nonunion staffers who have the technical skills to accomplish the job. Many were trained over a year ago, in case a strike took place. Those who don’t have the skills field calls.
IBM suffers its 16th straight quarter of declining revenue…
…and all it wanted to talk about was new initiatives it’s undertaking. IBM’s older products have resulted in falling revenue figures, and it’s investing aggressively in new technologies, like its Watson unit and cloud computing.
AB InBev accepts deal for Peroni, Grolsch
AB InBev CEO Carlos Brito has agreed to sell the SABMiller brands to Asahi Group for $2.9 billion to quell antitrust concerns as it tries to close its $108 billion merger with SABMiller. The deal for Peroni and Grolsch won’t go through unless the merger between the No. 1 and No. 2 largest beer manufacturers in the world takes place.
Up or Out
Fortune Reads and Videos
Tesla drivers can now test its auto driving feature for free
The typical $2,500 cost to upgrade cars made after Sept. 2014 has been waived for a month so customers can test out how the Model X and Model S vehicles can parallel park, steer, and change lanes on highways without human input.
U.S. Merck sues German Merck…
…over trademark infringement. And German Merck has countersued.
To bring a George Lucas museum to Chicago…
…Mayor Rahm Emanuel wants to issue $1.5 billion in bonds.
Tidal has been sued by fans who thought…
…Kanye West‘s new album would be exclusively provided to users of the streaming site.
On This Day...
…in 1982, President Ronald Reagan reinstated travel bans for U.S. tourism and businesses trips to Cuba. The travel bans, which had been lifted in 1977, have recently been eased.
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|Produced by Ryan Derousseau|