Netflix: The Challenge of Keeping a Boom

Netflix isn’t an essential business, but based on the way people around the world are subscribing to the streaming service it seems as though it is as vital as food and water.

Not unlike Amazon, for instance, Netflix’s business is booming—its stock price is up more than 60% year-to-date. Netflix added 10.1 million new subscribers globally in the second quarter after signing up nearly 16 million subscribers in the first quarter. Prepandemic, the company's previous quarterly high for subscribers was 9.6 million. The challenge for Netflix’s leaders now is to figure out ways to hold onto all these new subscribers during an increasingly competitive time for streaming video. For instance, NBC’s Peacock streaming service launches this week, joining Amazon, Apple TV, HBO Max, Hulu, and dozens of others vying for consumer eyeballs and dollars. 

“Netflix has to find ways to continue to meet the needs of its vastly growing audience around the world to keep them coming back for more,” says William Simon, Korn Ferry’s global sector leader for media and entertainment. He also notes that around 110 million of Netflix’s more than 180 million total subscribers are outside the United States and Canada. 

To be sure, in these summer months, as people do more outdoor activities like going to the beach or hiking, subscribers could cancel service just as quickly as they signed up for it. To be sure, Netflix's stock fell after it warned investors that it only expects to add 2.5 million subscribers in the third quarter "as consumers get through the initial shock of COVID and social restrictions." The goal for Netflix, says Simon, is to use the subscriber increases in the first two quarters to reinvest in content, technology, and talent to reduce churn, an industry term for how quickly consumers cancel service after subscribing. “Now is the time for Netflix to be aggressive and strategic but also careful,” he says. 

Simon expects not only more exclusive original content, like this spring’s buzz-provoking documentary series Tiger King, but also more development deals with international and diverse creators to appeal to a wider (if more fragmented) audience, such as the company's new Belgium and Korean original shows. He also points to the recent hiring of chief marketing officer Bozoma Saint John, a Black American female, as another example of how Netflix aims to bring in more diverse audiences. 

“Talent is a big part of Netflix’s growth story,” says Simon.

In fact, Netflix ranks as one of the few companies that has been hiring in general, rather than laying off people, with more than 250 jobs currently open, many of them in digital technology roles. Indeed, one of the ways Netflix keeps subscribers engaged is via its recommendation engine, which serves up content based on user behaviors and watch histories. The more Netflix can fine-tune its recommendation engine, the more it can keep subscribers glued to its service, Simon says. 

Lorraine Hack, a Korn Ferry senior client partner who has worked for Viacom, HBO, and others, says Netflix’s one disadvantage is that it is not a diversified business—it is a pure-play streaming video service. By contrast, as the majority owner of Hulu, Disney offers those services independently or as part of a bundle. Amazon, meanwhile, offers its streaming service free to its Prime members. And Apple, of course, has its suite of beloved devices on which it can package its streaming service to hardcore fans. 

“Now would be a great time for Netflix to think more broadly about different partnerships and alignments while they have this uptick in subscribers,” says Hack, suggesting live event programming or joint ventures with complementary businesses like restaurants or other out-of-home entertainment.