M+E Connections

Netflix added far more subscribers than it expected to in the first quarter (ended March 31) and saw viewership soar also, as expected, as the coronavirus pandemic forced people to stay home across the world.

“The company is benefitting from a perfect storm that is accelerating net subscriber adds for the foreseeable future,” MoffettNathanson analyst Michael Nathanson said in a research note April 22.

As a content creator also, however, Netflix was hurt by the COVID-19 crisis as it was forced to shut almost all its productions down globally, company executives pointed out April 21 on its quarterly results webcast.

The 15.77 million paying streaming subscribers the company said it added in Q1 were far more than the 7 million it had projected in January. That boosted its total paying streaming subscribers to 182.86 million globally, Netflix said.

“It’s been humbling to be a place that people around the world in a time like this turn to for some entertainment for escape,” Greg Peters, Netflix chief product officer, said on the webcast. Echoing him, Ted Sarandos, chief content officer, said: “What’s been really amazing is the role that Netflix has played in all of this, which is to keep people connected [and] keep some people around the world who are incredibly lonely connected through storytelling.”

However, Netflix CEO and co-founder Reed Hastings started off the webcast by pointing to the uncertainty that has resulted from COVID-19. “Everyone is wrestling with the implications, both on health, on hunger, poverty — and we, too, are really unsure of what the future brings,” he said, adding: “It’s super hard to say if there’s strategic long-term implications because we’ve just been scrambling to keep our servers running well, keep the content, get our postproduction done. Our small contribution in these difficult times is to make home confinement a little more bearable…. In a couple of months, we’ll all be able to grapple with the long-term implications. But right now, we’re just focused on getting our content out [and] getting it dubbed.”

Netflix even started off its quarterly letter to shareholders April 21 by noting: “In our 20+ year history, we have never seen a future more uncertain or unsettling. The coronavirus has reached every corner of the world and, in the absence of a widespread treatment or vaccine, no one knows how or when this terrible crisis will end.”

The company is “acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term,” it said in the letter.

Netflix also pointed out that the higher viewership and significantly ramped-up subscriber additions it saw in Q1 won’t last forever. “Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth,” it said in the letter.

Amid the crisis, the company’s “focus has been on maintaining the quality of our service while our employees around the world adapt to working from home,” it said in the letter, adding: “For the most part, this has gone smoothly. Our product teams, for example, have been relatively unaffected.”

However, “as a precaution, we have temporarily reduced the number of product innovations we try, while continuing to release features that we know will add meaningful value for our members, such as improved parental controls,” it disclosed in the letter.

Netflix has also “seen significant disruption when it comes to customer support and content production,” it said, adding: “On the customer support side, we’ve now fixed most of our work-from-home challenges. In addition, we’ve taken on another 2,000 agents (all working remotely), so our customer service levels are almost fully restored despite the increased demand.”

On the production front, Netflix said all filming had “stopped globally, with the exception of” a small number of countries including South Korea and Iceland.

However, Sarandos pointed out on the webcast that the production stoppage won’t impact the shows scheduled to be made available to viewers this year.

What is “maybe not widely understood is we work really far out relative to the industry because we launch our shows all episodes at once,” he noted, adding: “We’re working far out all over the world. So our 2020 slate of series and films are largely shot and are in post-production remotely in locations all over the world… and we’re actually pretty deep into our 2021 slate.”

As an example, the Netflix show “The Crown,” in its fourth season, and “our big fourth quarter animated release,” the movie “Over the Moon,” were already shot and are “in the finishing stages right now to release later this year as planned,” he said, adding: “We don’t anticipate moving the schedule around much — and certainly not in 2020.”

Netflix Q1 revenue grew 27.6% to $5.8 billion, while profit soared to $709 million ($1.57 per share) from $344 million (76 cents a share).