It’s not a surprise that during the coronavirus shutdown, Netflix has had its biggest quarter in history: In an earnings report on Tuesday, the streaming company announced it now has 183 million customers around the world. Back in January, Netflix said it expected to add 7 million new subscribers; in the first three months of 2020 it actually added about 16 million.
With this major boost to revenue in a historic and chaotic downturn, the real challenge will be to make this momentum last while they have it. On the most recent episode of the New York podcast Pivot, co-hosts Kara Swisher and Scott Galloway wrestle with strategies for the streaming giant — including a possible step into audio.
Kara Swisher: So Scott, what would you do? To put their current plans into perspective a little, they also created a $100 million fund to help producers, crews, and filmmakers cope. It extended beyond the U.S., giving away money to film-related organizations in Britain, Italy, Brazil, Mexico, and the Netherlands. What does this list tell you about their global partnerships and reliance on the global creator system, and what does it mean in the competitive landscape? I got to say Reed Hastings is flawless as far as I can tell it in everything — including the weird little bedroom he’s streaming from.
Scott Galloway: Netflix I believe is up 28 percent, year to date. So they’re obviously accelerating through the crisis. What do they do? This is a company now worth more than Disney. What they do is they either buy Spotify or they start making these massive, super interesting investments as they did in Madrid, where they have hired 10,000 creatives and they’re creating content that can be morphed into German and Norwegian and Ukrainian content really easily. They just slip in into the same sets or the same scripts, different — the hot star from Kiev, and they make it a Ukrainian version. So they’re there in a position, they’re the only company other than Amazon.
They’re the Amazon of entertainment. That’s what I was just thinking.
The wind of corona will eventually subside and people will hopefully be spending less time in their homes, but they’re still going to spend more time in their homes than they did pre-corona. And you have one company that is just going out and absolutely making such incredible investments. If you’re making triple the cap backs of anybody else and you’re just as good or better, which Netflix is, you kind of can’t compete.
Even their AI. So for example, if I go to the home screen of Apple TV+ or Disney+ and then you do, we see the same thing. Whereas our Netflix screens are entirely different. They have figured out a way to incorporate some sort of AI or personal-recommendation engine that is just superior, that again, leverages it as a better investment. And by the way, that investment is bigger.
So where do they go from here?
You take this opportunity to make acquisitions.
I like Spotify because Spotify on its own can survive.
Yeah, I don’t think they’ll sell. But I agree.
You might be right, or they’re going to make some crazy investments in international production because that’s kind of the only place where people don’t have Netflix, is in Asia and in Europe. But you’re right, Reed Hastings is probably, he’s kind of the … I don’t want to [call him an] unsung hero, but everybody talks about the genius of Bezos and Gates and Zuckerberg. People will look back, and when they look at the environment and they’re probably the world’s greatest pivot in the history of business. I mean they were mailing out DVDs.
Yeah. Listen, he was amazing. I think I did tell you this. I interviewed him at Sundance. Nobody would pay attention to him. Nobody would come. And I was like, “This guy’s got onto something. He’s so calm. He’s an adult.” I really enjoyed talking to him because he’s such an adult. And even though they have that weird cult-y thing and everything, he really did understand. He just has an iron stomach to change things and everything.
Listen to Pivot
Pivot is produced by Rebecca Sananes. Erica Anderson is the executive producer. It is also now on YouTube.
Netflix isn’t the only tech giant with an opportunity to pivot.
As the majority of companies are drawing up plans to cut costs, Facebook made its largest single investment in a company in India, purchasing a stake in Jio Platforms, a major carrier of internet and cellular service for $5.7 billion. More than 388 million people in India have been connected to the internet over the past four years through Geo. Meanwhile, more than 600 million people in the country use the Facebook property WhatsApp.
At first I couldn’t figure out why they were doing this to take a minority stake in a company, paying high-price lawyers to figure out a way to buy 9.99 percent of Jio Platforms, so that they didn’t trigger Indian regulatory laws. But what this looks like is basically a multibillion-dollar investment in an attempt to monetize the WhatsApp users in India.
And there’s something called JioMart that is exceptionally popular among Indian small businesses. And the thinking is, all right, let’s take the small businesses, put them on WhatsApp and let’s try and turn WhatsApp into an e-commerce platform on top of a 600 million-strong user base and then maybe import those learnings to the rest of the world to turn WhatsApp into what is probably — could be — the next Instagram. And that just drives the real value at Facebook.
I think this is essentially an investment in WhatsApp, or the monetization strategy of WhatsApp, which so far has been incredible from a user standpoint, but not from a monetization standpoint. And it also portends an incredible increasing investment in India. India is about to become, I don’t want to say it will be the next China, but it will be the next China in terms of capital allocation because between coronavirus and diversifying your supply chain, everyone’s looking to the nearest instead of the first.
India has run up against a wall in China, in terms of investing in the next big market. But India is somewhat open, although much more controlled by the government. And of course under Modi, it’s almost fascist, essentially. And very controlling of the media. He’s disturbingly controlling of the media and doing all kinds of various things.
It’s a market that’s enormous and full of promise. I think this is the way to get in, like the way Yahoo got it and long ago got into China through Alibaba, that they try to go in straight ahead and it’s very difficult.
And Uber’s struggled there even though it’s done better than people thought. I think it’s still struggling. And of course that’s where they have a lot of their biggest controversies previously. But I think this has got to be markets that they’ve got to get into in a big way. They cannot buy anything here either. Neither Amazon nor Facebook can possibly buy a company here. I mean when you were talking about Netflix buying Spotify, obviously Amazon would be a contender for Spotify, even Facebook.
They can’t. Amazon can. Netflix could probably get away with it before raising antitrust scrutiny.