Netflix has become one of the nation’s all-around distractions, acting as both a supercharged nanny and a nightly balm during the coronavirus crisis.
It’s not hard to imagine why. With an almost bottomless well of movies and serials that can be watched on almost any device, it’s the kind of service that would be dreamed up by someone stranded on a desert island — or stuck at home during a pandemic.
More than 15.7 million people signed up for Netflix in the first three months of the year, when the coronavirus started to disrupt daily life around the world. That was a record for the streamer, according to its first quarter earnings announcement on Tuesday.
Netflix has 182.8 million subscribers, making it one of the world’s largest entertainment services. It added 2.3 million in the United States and Canada in the first quarter for a total of 69.9 million, and added 13.5 million internationally.
The results offer a vivid snapshot of how the coronavirus has affected the streaming industry, signifying the first real test of how durable online video has been during the pandemic. Streaming has also become one of Hollywood’s few lifelines at a time when the entertainment industry is at a virtual standstill.
The company’s letter to shareholders is normally a dry note about quarterly achievements, but this time it struck an emotional tone.
“We have never seen a future more uncertain or unsettling,” it read. “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, led by Reed Hastings, acknowledged that it had fared well during the crisis, but said it expected the growth to slow.
“We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon,” the company said.
It hasn’t been an easy time for the industry as a whole. Broadcast and cable networks have been starved of their most important programming: sports. Advertisers have cut back on television spending by as much as $12 billion, according to the research firm eMarketer. And movie studios haven’t been able to sell tickets ever since stay-at-home orders were put in place.
But Netflix has benefited. It doesn’t have sports programming. It doesn’t have commercials. It doesn’t need movie theaters. Mostly. Hollywood studios have changed tack to release films on streaming services to reach their audiences. On Tuesday, Netflix announced that it had bought the rights to “Enola Holmes,” a period film set in the Sherlock Holmes universe that features Millie Bobbie Brown, the star of the Netflix hit “Stranger Things.” Legendary Entertainment, the studio behind the film, was originally considering a theatrical release.
Netflix’s original programming continued to draw audiences. More than 29 million households tuned into the third season of “Ozark,” a crime drama starring Jason Bateman. The reality show “Love Is Blind” drew 30 million watchers. But the surprise hit was “Tiger King,” a wildly popular documentary series about a tiger breeder and zookeeper in Oklahoma who ultimately landed in prison. The surreal saga was viewed by 64 million subscribers.
Netflix faces a slew of deep-pocketed competitors. The Walt Disney Company unveiled Disney Plus in November and has already racked up over 50 million subscribers. Comcast’s NBCUniversal division launched Peacock last week to more than 15 million Comcast customers before making it widely available this summer. On Tuesday, AT&T announced that HBO Max, its long-awaited, multi-billion-dollar effort, would finally roll out on May 27.
Netflix said on Tuesday that it expected the current quarter, which ends in June, to slow down a bit. The company has forecast 7.5 million new subscribers and about $6 billion in sales and $820 million in profit.
As production companies have remained idle, a widening gap has opened up in the industry’s content lineup. Netflix has also put productions on hold, but it is continuing to pay staff out of a $100 million fund it created to shore up the Hollywood economy.
It might be a short-term blessing. Netflix normally burns through a ton of cash to fund its content slate. Because the company pays for all of its productions up front — before they are available to be watched — it does not account for those costs until later, sometimes a year or more after it has spent the money.
That allows Netflix to claim a profit despite spending more than comes in. The accounting practice is legal and is employed by every media company; Netflix just does it on a much bigger scale.
Because of the slowdown in Hollywood, Netflix saw a temporary bright spot here. The company had positive cash flow of about $162 million during the first quarter. On a yearly basis, the company burns through as much as $3 billion in cash, but it anticipates that figure could go down to $1 billion this year.
Revenue for the quarter reached $5.7 billion and profit was $709 million, which was below estimates.