Netflix and Lockdown: Why Netflix Is the Right Company for the New Normal

Netflix is succeeding even as the COVID-19 pandemic sends the world into a recession. Why? The predictable answer is that the all-digital entertainment company is well suited to the needs of people sheltering in place. But the “right place at the right time” rationale is only part of the story. Netflix has also set itself up for success. Why Netflix Is in the News Right Now Netflix experienced a surge in news media coverage in recent days because on April 21, the company announced its earnings for the first quarter of 2020. Stock market analysts had that Netflix would see an 8.2 million quarterly increase in new subscribers as people began to hunker down in their homes and spend more time online with COVID-19 taking hold. In fact, Netflix added , the biggest quarterly subscriber growth ever for Netflix. This graphic shows just how strong that growth was: predicted 15.77 million subscribers from CNBC As media reporter Edmund Lee put it, “ .” The New York Times Everyone you know just signed up for Netflix In an April 21 , Netflix acknowledged that COVID-19 affected its subscriber growth in Q1 and predicted a return to slower growth rates in Q2: letter to shareholders During the first two months of Q1, our membership growth was similar to the prior two years, including in [the United States and Canada]. Then, with lockdown orders in many countries starting in March, many more households joined Netflix to enjoy entertainment. . . . Hopefully, progress against the virus will allow governments to lift the home confinement soon. As that happens, we expect viewing and growth to decline. Our internal forecast and guidance is for 7.5 million global paid net additions in Q2. It’s important that Netflix discuss the impact of COVID-19 in order to manage shareholder expectations. But COVID-19 does not dictate how Netflix operates. Netflix is also growing because it creates engaging content, is giving back to society, and runs its business well. Here’s why Netflix is the right company for the times we are living in: Netflix Is Culturally Relevant Netflix continues to succeed because the company is . Cultural relevance is essential for any entertainment company to succeed in the long run. Brands become culturally relevant when they connect with an audience through their attitudes, beliefs, and behaviors. Sometimes cultural relevance means shaping attitudes, beliefs, and behaviors, too. When brands achieve cultural relevance, they become so inextricably linked with our lives that we become lifelong members of their tribes. culturally relevant And in a COVID-19 world, digital is where brands create cultural relevance. For Netflix, cultural relevance begins with content. , , , and are all shows that not only capture our interest but also tap into the cultural zeitgeist. Tiger King, , also lit up social media during its initial run, inspired the growth of a cottage industry of , sparked conversations about topics ranging from polyamory to America’s obsession with true crime, and revived congressional interest in the Big Cat Safety Act. , “ . . . there’s a reason ‘Saturday Night Live’ ‘Tiger King’ instead of [CBS All Access’s] ‘Young Sheldon,’ or other broadcast TV shows. The world has coalesced around Netflix.” The world is shaped by Netflix, too. Consider some of the ways Netflix has made its mark on our over the years: Tiger King Stranger Things The Witcher La Casa de Papel/Money Heist the most streamed show in America Tiger King memes In the words of CNBC’s Alex Sherman chooses to parody actions and language The phrase “Netflix and Chill” is a commonly used euphemism for doing the nasty. (You don’t Apple and Chill or Hulu and Chill, and God knows no one will ever Disney+ and Chill.) Similarly, “Netflix and Pop Tarts” long ago worked its way into our vernacular to describe living alone. Netflix ushered in the phenomenon of , in which people hunker down in front of their TVs and consume episode after episode of a show for hours at a time. The phrase “binge-watch” became the Collins English Dictionary word of the year in 2015. binge watching became a pop culture sensation by tapping into 1980s nostalgia (and arguably engineering that nostalgia). Stranger Things In 2019, connected with an American materialism (and its consequences) so profoundly that the show actually created a spike in donations to thrift stores. Tidying up with Marie Kondo , Netflix drives culture in other ways, too, such as launching the careers of new generations of entertainers living at the epicenter of digital culture: As Dan Former of Recode reported a few years ago Today, Netflix is an important barometer of how our behaviors are changing during the pandemic. When Ella Koeze and Nathaniel Popper of , they examined Netflix, not Disney+ or any other streaming service: The New York Times analyzed media consumption during the pandemic To understand how we live now, you have to understand Netflix. Netflix Is Giving Back Netflix is cementing its bond with America in another important way: giving back. Netflix was among the first major corporations to join the fight against the ravages of COVID-19. On March 20, Netflix announced a $100 million relief fund for members of the creative community who had lost their jobs as the U.S. economy began to slow down in the wake of COVID-19. In addition, Netflix donated $30 million to third parties and non-profits, providing emergency relief to out-of-work crew and cast across the broader TV and film industry. Netflix’s chief content officer Ted Sarandos said in a statement, The COVID-19 crisis is devastating for many industries, including the creative community. Almost all television and film production has now ceased globally — leaving hundreds of thousands of crew and cast without jobs. These include electricians, carpenters and drivers, many of whom are paid hourly wages and work on a project-to-project basis. This community has supported Netflix through the good times, and we want to help them through these hard times, especially while governments are still figuring out what economic support they will provide. The gesture was both the right and the sensible thing to do. According to a recent of the public’s attitudes about COVID-19, more than three-quarters (77 percent) of people surveyed say they would like to see brands talk about how they're helpful in the new everyday life. And 77 percent would like brands to inform consumers about their efforts to face the situation. Meanwhile 62 percent of people around the world said that their country will not make it through this crisis without brands playing a critical role in addressing the challenges. Kantar study surveyed by Edelman We’re living at a time when businesses need to take an aggressive leadership role in helping others, and Netflix is answering the call. As people enter life beyond COVID-19, they’re going to remember who was there for them – companies such as Apple and Google, ; Salesforce, which has launched its own fund to help small businesses; or the many businesses supporting healthcare workers. I don’t know if Netflix will win any new customers with its $100 million fund, but it will gain some loyalty in the face of heightened competition. which are leading the way to develop contact tracing technology Meanwhile, since the beginning of 2002, Netflix’s stock is up 30 percent. of Mad Money’s James Cramer, “In a very tough environment, companies . . . with a heart are doing well by doing good. Turns out that rewarding your employees and protecting your customers is good for business.” In the words Netflix Benefits from Having an Agile Culture In the business world, Netflix is well known for its culture of “ .” Netflix operates through a decentralized structure in which cohesive teams are given leeway to make test new ideas and learn from them. This approach makes it possible to move quickly. A recent on the benefits of an agile culture cited Netflix as a company that was born agile. freedom and responsibility Harvard Business Review article Netflix’s ways of working also serve the company well now. The pandemic has caused companies large and small to move people out of their offices and collaborate remotely during shelter-in-place mandates. But running a business via remote collaboration means more than learning how to use Zoom to manage a meeting. Businesses are now learning how to do everything from planning new products to managing customer relationships online. The faster they can adapt, the better. And some are adjusting better than others. As Netflix noted in its shareholder letter, the company was able to adapt quickly: Netflix culture is designed to empower decision making at all levels of the company. Throughout this crisis, our employees have been working tirelessly to maintain the quality of our service and to find quick, practical solutions to the problems Netflix and our partners face. For example, within two weeks of the shelter-in-place orders coming into effect in Los Angeles, most of our animation production team was back up and running, working from home. On the post production side, we’ve been able to get 200+ projects going remotely. Most of our series writers’ rooms are operating virtually. However, we’ve been unable to create dubs in Italian and some other languages due to home confinement of our voice talent for a handful of titles launching in April and May. But we hope that with the help of guilds around the world, voice actors can be set up from home, ensuring that they can stay safe and continue to earn a living. Similar efforts are underway for both music and visual effects. We’re still in the early days of fighting COVID-19. Uncertainty lies ahead. Netflix, like many companies, is sailing into unchartered waters, and it cannot predict how many people will remain subscribers once shelter-in-place orders are lifted. “We don’t use the words guess and guesswork lightly,” CEO Reed Hastings on the company’s earnings interview. “We use them because it’s a bunch of us feeling the wind and it’s hard to say. But again, will internet entertainment be more and more important over the next five years? Nothing’s changed in that.” said And nothing has changed the likelihood that Netflix will become more important, too. -- davidjdeal Note: I am an investor in Netflix and Disney.