Five Things We Learned From Netflix’s Earnings Report
Netflix’s quarterly report card came out Tuesday, and the top-line news was mixed: The company is
still growing (it added 2.2 million net subscribers over the summer), but its rate of growth has slowed substantially from the first half of 2020. Wall Street initially punished Netflix stock, even though the cooldown should not have come as a surprise. The streamer’s previous earnings report forecast that growth would stall over the summer, if only because pandemic-related lockdowns resulted in a spring subscriber surge — and that’s exactly what seems to have happened. Even with minimal growth over the summer, Netflix has already added more than 28 million subscribers in 2020 and seems very likely to break the 200 million mark by year’s end. Not bad for a platform that was supposed to get pummeled this year by a slew of well-financed new competitors.
But while Netflix’s overall outlook still looks quite healthy, the streamer is not exactly a picture of stability of late. The decision by co-CEO Ted Sarandos to
ditch longtime day-to-day TV content chief Cindy Holland still has much of Hollywood slack-jawed, and the aftershocks of the move continue to reverberate. Late last week, news broke that Netflix comedy chief
Jane Wiseman would be following Holland out the door, ending a seven-year run at the company. Also gone: Channing Dungey, the former ABC Entertainment boss who joined Netflix less than two years ago to focus on dramas and a few key showrunners, including Shonda Rhimes.
Dungey departed to take a big job overseeing WarnerMedia’s TV studio operations, but whatever the reason for her exit, Netflix’s TV development team now looks radically different than it did at the start of the year.
During an investor call Tuesday, Sarandos and co-CEO Reed Hastings argued the exec upheaval below them was actually a good thing for the company. Holland’s exit was the result of Sarandos deciding to make the TV side of Netflix’s operations more closely resemble the structure of his film unit, and to
install as boss Bela Bajaria, a former NBCUniversal studio exec who joined Netflix four years ago this month. Sarandos told investors he thinks Bajaria is “really well suited to take on” the full TV organization and minimized the exits that have resulted since he pushed out Holland. “Whenever you put new change at the top, there’s some downstream effects as well,” he said. Hastings was even less sentimental about the reorganization of the programming team: “No one gets to keep the job for free. You get to earn it every year, which is intensely challenging, and we all love that part of it.”
While the Netflix exec team didn’t make any major news Tuesday, I found their quarterly earnings interview filled with a ton of interesting insights about how the company views several aspects of its business right now. My five major (and minor) takeaways:
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A U.S. price hike next year sure seems likely. Netflix recently increased its monthly price in Canada, leading to speculation the U.S. market is next. Greg Peters, the company’s chief operating officer and head of product, said he would not “comment or speculate on any specific changes,” but his analysis of how Netflix decides when the time is right to raise prices seemed to suggest an increase is in the offing. “Instead of an algorithm, we’re just basically assessing, ‘Okay, how many new popular titles have we delivered? What are local language originals in that particular country looking like? What’s the slate that’s coming looking like? What [do] the fundamental metrics — engagement and churn — look like?’” Peters explained. He also noted that Netflix is likely to once again make more new originals in 2021 than it did in 2020. “If we do that, then we feel like there is that opportunity to occasionally go back and ask members where we’ve delivered that extra value in those countries to pay a little bit more,” Peters said. Don’t expect any such hike, if it comes, to be too big though. We very much want to remain an incredible value as we continue to improve the service and grow,” the exec said.
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Netflix is experimenting with new ways to lure new subscribers, including free preview weekends. The service ended the practice of giving folks a 30-day free trial to sample programming, but later this year, Peters said all consumers in India will be able to stream Netflix for free over the course of a few days, no strings or sign-ups attached. “We think that giving everyone in a country access to Netflix for free for a weekend could be a great way to expose a bunch of new people to the amazing stories that we have, the service, [and] how the service works,” he said. Will something like that happen in the U.S.? “We’re going to try that in India, and we’ll see how that goes,” he said. The idea is hardly revolutionary, of course: Premium cable networks such as HBO and Showtime have done free weekends for decades, though such deals usually require consumers to be paying cable customers.
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Don’t expect older Netflix shows to start popping up on other streamers or linear networks. Pluto’s recent acquisition of rerun rights to
Narcos has prompted another wave of speculation about whether Netflix might start syndicating its shows outside its own platform, either to raise some cash or to raise awareness of lesser-watched shows. But Sarandos Tuesday all but put the kibosh on the idea. “It’s helpful for us to keep our original content on Netflix so people understand the value proposition of Netflix,” he said. “And [while] we have seen our ability to grow a show that was on another network or a smaller outlet pretty meaningfully, we’ve not necessarily seen it the other way around.” Indeed, Sarandos noted the only reason
Narcos is on Pluto is because rights to the show are owned by indie studio Gaumont and not Netflix, a situation that exists on some older series (such as
BoJack Horseman or
Orange Is the New Black) but is much rarer with more recent ones. Netflix and Gaumont had previously licensed a run of
Narcos to Univision in order to boost sampling on Netflix; similarly, Comedy Central bought rerun rights to
BoJack Horseman a few years ago. “It’ll be interesting to see if [the Pluto deal] lifts the awareness and interest in
Narcos, but it’s on a relatively small platform relative to Netflix,” Sarandos said.
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Peters was asked about how much viewing of shows happens because Netflix pushes audiences to sample shows via placement on its home pages, and his answer was: a lot! “A very significant majority is driven by the recommendations that we present,” Peters said. But while producers and outside studios clearly pray for Netflix to give their programs blanket promotion on the platform — and Netflix no doubt does promote some titles more widely than others — the streamer remains careful about what it recommends to subscribers. Rather than just pushing
Hubie Halloween or
Away to every customer in America, it still tries to customize a user’s experience based on past viewing. “We’ve realized there are no gimmicks,” Hastings said. “You can juice a given title if you wanted to, but you’re going to pay for it downstream because not everybody got the best title for them … The fundamental for us is member joy, which we look at [as], how much of your viewing time do you choose to spend with Netflix, how many repeat days, what’s retention, all of those aspects. So we’re really focused on the fundamentals … That’s how we grow.”
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It’s not just your imagination: There really are fewer old movies and TV shows on Netflix. Sarandos admits that the overall content offering of the service is “significantly lower than it was when we first started streaming,” even as the number of first-run originals has soared. “In the earlier days of Netflix, remember, we were trying to figure out what we could stream,” Sarandos said. “And we were licensing in bulk and volume — just a lot of content just to see what worked well versus today, where we’re much more deliberate. We really don’t focus that much on the title count … Ten years ago, we used to license an entire library of 800 films from somebody and nobody watched any of them.” Now the streamer’s strategy is to concentrate “on the titles that have a lot of impact and can aggregate big audiences and move the business forward and add a lot of value for our members,” Sarandos explained. “It’s really not a chase for how many titles, but are these the titles you can’t live without.”
