What happens when a pandemic forces most of the world to stay home?
They watch Netflix.
And if they don’t have Netflix, they sign up for Netflix.
That’s why Netflix added more subscribers during the coronavirus pandemic than any other quarter in its history. In its quarterly earnings report on Tuesday, the streaming video company said it now has 183 million customers around the world, and that its leap in subscribers was driven entirely by the worldwide lockdown.
The question is what that behavior means for Netflix, and for other companies around the world during an economic crisis.
It’s not surprising that Netflix saw a surge of viewing, because we don’t have to step outside our shelters to test that theory — you either watched Tiger King, like 64 million other people, or you knew that lots of other people watched the true crime series about deeply weird tiger fans.
Much more important is the sneak peek Netflix provides of the test all consumer companies will be facing for the next couple of years: In a ravaged economy — in the last four weeks, 22 million people have filed for unemployment in the US alone — are we selling something people will buy?
Like everything else about the pandemic, anyone who tells you they know a definitive answer is almost certainly lying.
“We don’t use the terms “guess” and “guesswork” lightly,” Netflix CEO Reed Hastings said during his company’s conference call. “We use them because it’s a bunch of us feeling the wind.”
For now, Netflix has something millions of people want to buy. On January 21, when much of the world still hadn’t realized the threat the coronavirus posed, the company told Wall Street it expected to add 7 million new subscribers in the first three months of 2020. Instead it added nearly 16 million, and all of that unexpected growth came in March, when governments around the world told their citizens to stay home.
In a letter to investors, Hastings says he thinks the company could add another 7.5 million subscribers next quarter. But, again, he doesn’t really know: “The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”
Hastings also figures that some of the customers he signed up in March would have signed up later in the year, which means that the company’s numbers in the summer and fall might be lower than he had projected before.
We will see how other companies describe consumer behavior over the next few weeks, as they provide their own updates. Hundreds of them have already told Wall Street that they don’t have any idea about what to expect.
Netflix may well prove to be one of the few companies that is booming during the pandemic, because it is different than many other consumer-facing businesses: It’s an internet-only business that hasn’t had to interrupt its service in any way, and it’s a subscription-based business that doesn’t make any money from advertising, so it doesn’t have to worry about the collapse of that industry.
Netflix is also, for now, in a good position to ride out the pandemic: While it has billions in debt, it is generating lots of cash each month from its subscribers.
It is already using some of that money to buy stuff from other media companies whose businesses have been disrupted by the coronavirus: On Tuesday, it announced that it had bought Enola Holmes, an adventure movie that AT&T’s Warner Bros had planned on showing in theaters; it had already bought Lovebirds, a movie that Paramount was supposed to show in theaters earlier this year, but had to shelve.
Netflix had been preparing to spend the year talking about competition from new streaming services like Disney+ and Quibi, and upcoming ones like HBO Max and Peacock. Now Wall Street is more worried that Netflix will at some point run out of stuff to show its subscribers.
That could be a real issue for Netflix, since like every other TV network and movie studio, it has had to stop production on almost all of the stuff it had in the works. (There are some exceptions: Netflix has animators working at home on some projects. Some shows and movies, like a new season of The Crown, have already finished filming, and Netflix thinks it can continue post-production work on those remotely too. The company also said on Tuesday that it has actually resumed production in South Korea and Iceland.)
Hastings thinks Netflix has more stuff in its library than his competitors in the streaming world, so he’ll be better off regardless.
But he doesn’t know: “Since we have a large library with thousands of titles for viewing and very strong recommendations, our member satisfaction may be less impacted than our peers’ by a shortage of new content,” he wrote. “But it will take time to tell.”