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COVID-19 helped Netflix win the streaming wars before they’d barely begun

The world is being entertained via Netflix. How it has soared through the coronavirus crisis.

COVID-19 helped Netflix win the streaming wars before they’d barely begun
[Photos: courtesy of Netflix]

“It’s been a remarkable thing to watch the creative community come together to entertain the world through Netflix,” chief content officer Ted Sarandos said from what appeared to be an unused or little-used pizza kitchen in his home during the company’s earnings video, discussing its very impressive earnings results for the first quarter of 2020, where it revealed that it added 15.8 million new subscribers worldwide (a company record) and 2.31 million North American users.

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On Tuesday after the market close, Netflix released its quarterly letter to shareholders and a couple of hours later its earnings video with the analyst Michael Morris. Together, they reflect exactly what Sarandos said just a few minutes into that video: The world is being entertained through Netflix, and the creative community has coalesced around it in this moment of global crisis that has hit the entertainment world incredibly hard.

The quiet—dare I say, humble—presentation of Netflix’s senior leadership signaled that this is a company that knows it has effectively won the streaming wars (a phrase the company has always bristled at a bit) before they’ve even really begun.

CEO Reed Hastings, who has long affected a brash pose and is never afraid to shiv a rival in these settings, struck a genuinely muted tone from the outset, saying that they’re unsure what the future will bring and “our small contribution in these difficult times is to make home confinement a little more bearable.” All that was missing was a 1950s sitcom-style “gosh,” prefacing his self-effacing statements. Hastings, calling in from what looked to me to be a mid-priced seaside hotel in, like, Santa Cruz, California, where he had neglected to pay the extra $11.95 a night for the “premium” Wi-Fi, admitted that the gaudy subscriber numbers were likely a “pull forward on the rest of the year,” meaning that Netflix added about all the users that it expected to win over in 2020 in about the last three weeks of March.

In terms of Wall Street expectations, we’ll see what effect this has on the rest of the year as things play out, but in the context of the streaming wars, this is like a football coach complaining about jumping out to a four-touchdown lead in the first quarter.

This quarter performed a myriad of wonders for Netflix. One, it largely quieted every doubt generally thrown at the company. Its pricing? Doesn’t seem like a problem when subscribers the world over are willing to pony up for Netflix in the face of the kind of economic uncertainty now affecting workers. Spending between $3 and $12 a month to take your mind off the havoc being wreaked by COVID-19 outside seems like a bargain. Netflix’s negative cash flow and debt spending? This issue hasn’t gone away, of course, but Netflix reporting positive cash flow and almost doubling its net income over the first quarter of 2019 would indicate that it’s at least possible that the company can indeed get to a place where its business model consistently works. (CFO Spence Neumann did indicate that the next few quarters would be choppy.)

The bigger takeaway, though, was that Netflix showcased that despite all the doubters (and I have sometimes been among them) this is a company that has long been built to be resilient to almost any kind of upheaval. It was impressive to hear Sarandos explain how the company resumed production on animation projects within days of having to close offices and postproduction on already-shot projects sometimes within hours. It has pitch sessions and writers’ rooms operating virtually. He walked viewers through how the company works well in advance so that almost everything that the company planned to release in 2020 had already been shot and was in postproduction—and the company’s 2021 slate is also well along. Netflix’s big holiday animated release, Over the Moon, was on track, as was season four of The Crown.

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So the schedule will not have to be rejiggered too much to account for the effects of the halting of almost all production. Even there, the company is already shooting projects in Iceland and South Korea, two locations which were aggressive in testing and tracking the spread of COVID-19 and seem to be on the other side of the pandemic in terms of a complete disruption to their daily lives.

Netflix does what it needs to do when it needs to do it. Although it’s largely made the shift to streaming its own content, the company will license projects when it makes sense, as it did with the Korean thriller Time to Hunt (coming Thursday), as well as the Issa Rae rom-com The Lovebirds (May 22) and Millie Bobby Brown’s Enola Holmes. These pickups show that other studios may want to compete against Netflix, but they don’t have the infrastructure—in any sense of that word, from the technical to their business models—to adapt to something as unprecedented as the novel coronavirus in the way that Netflix does.

Netflix released all its shows at once for binge-viewing—until it started experimenting with staggered releases, as it did with its unscripted hit Love Is Blind. Netflix once only had one way to purchase the service—until it offered a cheaper, mobile-only one in such countries as India, Indonesia, and the Philippines. Netflix used to refuse to tell anyone how its shows performed. Now it shares the 10 most-popular programs on the service—and it seems to amplify the burgeoning popularity of series like Tiger King.

There is no other competitor that seems even close to operating on Netflix’s level. Disney Plus has grown rapidly and has more than 50 million subscribers in its first five months of operation, but it’s a babysitting service and not a real competitor. HBO Max could not accelerate its launch during this global quarantine, announcing on Tuesday morning that it would debut on May 27, because it almost certainly was not ready to do so. Everyone else but Netflix may have certain strengths in a normal climate, but none of them can compete in even a handful of years of prep with what Netflix has built over two decades.

All of Netflix’s Hollywood rivals want what Netflix has: a direct relationship with audiences, all the data that comes with it—and the stratospheric stock-market performance, to boot. But none of them, including Disney, truly understood the long-range vision and planning underpinning Netflix, much less the operational execution it’s taken to build it.

At the end of the analyst conversation, Morris asked each participant to name two programs (and only two, he stressed) that people should seek out on the platform, either now or soon.

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Sarandos, the content chief, went last—and he named 11 projects: Extraction, The Willoughbys, The Wrong Missy, Time to Hunt, Space Force, After Life, Dead to Me, 13 Reasons Why, Dark, Cable Girls, and Ghost in the Shell.

It should serve as a shot heard ’round the world: The streaming wars are over, and Netflix is the winner.

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