Netflix reeled in a staggering 15.8 million subscribers in the first three months of 2020 — a record for the company, fueled by the coronavirus quarantine — but execs are not sure what the long-term effects of the crisis will be on the business.
“It’s an incredible tragedy for the world,” chairman and CEO Reed Hastings said about the coronavirus pandemic, speaking on Netflix’s Q1 earnings interview.
Hastings said Netflix is “unsure what the future brings. It’s super hard to say if there are long-term implications.”
He said Netflix’s guess is that subscriber additions in Q3 and Q4 2020 will be lighter than the same period in 2019 because of a “pull forward” of subscriber additions in the first half of 2020 because of stay-at-home orders.
“Our small contribution in these difficult times is to make home confinement a little more bearable,” Hastings said, striking a tone of humility amid the company’s blockbuster Q1 growth. “Right now, we’re just focused on getting our content out, getting it dubbed.”
“People want entertainment,” Hastings added. “They want to be able to escape and connect, whether times are difficult or joyous.”
In its letter to shareholders, Netflix said it projects 7.5 million net additions worldwide for the second quarter, versus 6.8 million in the year-earlier period. “Hopefully, progress against the virus will allow governments to lift the home confinement soon,” the company said. “As that happens, we expect viewing and growth to decline.”
Chief product officer Greg Peters said Netflix’s focus has been to keep the service operating and available around the world. “At this point, we’re not even thinking about price increases,” Peters said.
In announcing earnings, Netflix touted worldwide estimates of how many households “have chosen to watch” a cherry-picked batch of originals. That included overnight sensation “Tiger King,” which has been sampled by 64 million subscribers since its March 20 premiere, according to Netflix’s metric measuring how many accounts watched a title for at least 2 minutes.
Ted Sarandos, Netflix’s chief content officer, commenting on “Tiger King,” called the docuseries an “unbelievably well-timed distraction.”
Netflix’s productions — like the rest of Hollywood — have been affected by the virus outbreak. But Sarandos said the Netflix originals slate for 2020 has largely already been shot with some titles in finishing stages of post-production, including “The Crown” season 4 and animated musical “Over the Moon.”
“We’re actually pretty deep into our 2021 slate,” Sarandos said. “We don’t anticipate moving the schedule around much and certainly not in 2020.” Given Netflix’s binge-release strategy, Sarandos noted, “We work really far out relative to the industry.”
Before Netflix resumes production on originals, “we want to make sure that it is an unbelievably safe working environment,” Sarandos said. “A series of things have to happen before we get into production anywhere, including the kind of the shelter-at-home orders being relaxed.” That said, Netflix is currently in production in Iceland and in Korea, and “we’re taking some of those key learnings about how we run those productions today and applying that to our plans to start our productions around the world,” Sarandos said.
On the product-development front, in its shareholder letter, Netflix said that “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.”
Meanwhile, in the earnings interview, Hastings gave a shout-out to Disney, which earlier this month announced hitting 50 million paid subscribers for Disney Plus in five months.
“Over 20 years of watching different businesses, incumbents like Blockbuster and Walmart… I’ve never seen such a good execution of the incumbent learning the new way and mastering it,” Hastings said. “My hat’s off to them.” With Disney Plus’ fast start out of the gate, he added, Netflix has upped its investment in kids and family content.
The prerecorded earnings interview with Netflix’s senior execs was moderated by Guggenheim Securities analyst Michael Morris.