NETFLIX TEAM 12 SEPT 2020

1. Table of Contents
1. Executive Summary
2. History – The Netflix Story
3. COVID-19 Vs Netflix – Financial Analysis
4. The ‘‘Netflix Tax’’ – Political Impact of COVID-19
5. The Economic Impact of Covid-19
6. The Socio-Cultural Side of Netflix
7. Technological aspects of Netflix
8. Environmental & Ecological Impacts
9. Ethics & Netflix
10. Legislation & Corporate Governance & Netflix
11. Recommendations
12. Conclusion
13. Appendix
14. Works Cited

2. 2
Executive Summary:
Netflix is a global video on demand media service with over 182 million subscribers, 15
million of those joining the service as the COVID-19 pandemic forced its customers
worldwide to stay indoors and entertain themselves. Operationally and strategically the team
at Netflix had to adapt their current model to ensure they could sustain the demand and
continue providing original content to viewers worldwide. (Alexander, 2020)
As readers of this paper may expect, Netflix is one of the few global businesses that has a
positive story to share in 2020. The continued growth, however, was not without its
challenges, as production on sets came to an abrupt halt in March and now proceeds with
caution and at a much slower pace than forecast.
Overall, their current film-forward strategy and wide catalogue of content has meant that they
have managed to successfully avert the crisis and they continue to navigate towards a
sustainable future for the leading streaming site.
The leaders continued to drive the business forward during the pandemic and hesitantly
succumbed to many of its team working from home (Kelly, 2020) whilst enjoying a 25%
positive sales comp. To be clear, this success is no accident. It stemmed from an
individualistic-non-conformance from the beginning, ingenious innovation, audience
manipulation and dynamic leadership.
This paper uses the PESTLE model to examine Netflix’s 2020 story during the COVID-19
pandemic.
“Netflix has volume and data to help create luck.” (Chmielewski, 2020)
History – The Netflix Story
When we talk about Netflix we must talk about its founder and CEO Reed Hastings. He is
first and foremost a software engineer. His first successful step into the world of technology
was with his software company Pure Software. having subsequently sold it to a Russian tech
company, Rational Software for €750m in 1997 (Sherman, 2018).
So why did a $40 bill inspire Hastings to start Netflix? It was 1996, the internet was in its
infancy and VCR and video rental were still relevant. CDs and DVDs were in developmental
stages. Hastings rented a video and due to a late return, he was charged with a $40 bill. His
entrepreneurial instinct prompted him to look at a better way to supply videos to the public.

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Reed and companion Marc Randolph began to look at a less expensive way of posting DVDs
direct to consumers. A DVD was much lighter and could be shipped anywhere in America for
the cost of a first-class stamp (Voigt et al., 2017).
With his idea and just 30 staff, in 1998 Netflix commenced its journey. They quickly
established themselves as an innovative company with this new model of home
entertainment. Netflix charged $17.99 per month for the rental of up to 3 DVDs at a time,
with no late fee. Before long, both Blockbuster and Walmart also saw the growth of the DVD
market and began renting from their retail outlets. Blockbuster charged $14.99 per month and
Walmart $12.97 per month for the rental of 2 DVDs at a time (Bayot, 2005). Identifying
Blockbuster as a suitable strategic partner Hastings approached the company with an offer to
sell Netflix for $50m (Hastings, 2020).
Blockbuster rejected the venture, instead deciding to form a partnership with leading
American brand: Enron Broadband (Shih and Kaufman, 2014). This rejection did not impede
the Netflix journey, as Hastings pushed forward and established strategic partnerships with
Apple, XBox and PlayStation (Hastings and Randolph, n.d.). He introduced a no return no
late penalty service. Customers could have up to 3 DVDs and could keep them if they paid a
monthly fee of $17.99 per month. To receive a new DVD the customer would simply have to
return a DVD. A battle for market share between Netflix vs Blockbuster vs Walmart ensued
(Newman, 2010).
Netflix had the first to market advantage given its early adoption of DVDs. Although the
smallest of the three companies, Netflix was well-established as the market leader in the disc
rental market (Nair, Auerbach and Skerlos, 2019). Through well thought out marketing and
affordable pricing, Netflix soon emerged victorious. Walmart, despite substantial investment,
decided to withdraw from the market. In 2005 Netflix took over Walmart DVD rental
customers (Bayot, 2005). Blockbuster soon followed and in 2010 Blockbuster filed for
bankruptcy (Satell, 2014).
In 2001, the World Trade Centre in New York was subject to a terrorist attack. As the
American public retreated to their homes the first surge in viewership for Netflix began.
Netflix almost doubled their subscribers in the coming months, going from 456,000 in 2001
to 857,000 in 2002 (Statista, 2012).
In 2007, Netflix moved completely from an offline and streaming service to a fully online
streaming model. Customers could now get Video On Demand (VOD). They introduced

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various price plans to make their service accessible to almost everyone. For reference, in
2007, customers could get unlimited streaming for $9 per month or a reduced number of
hours for $5. As time progressed, Netflix have maintained an affordable pricing model with
price increases since 2014. The basic price plan as at December, 2019 was $9 per month,
with a premium plan at $16 (Ritcher, 2019).
In 2013 they began to commission their own programmes and first released the hit series,
House Of Cards in February 2013 (Lawlor, 2012). They have since grown to a $194 billion
company (Shapiro, 2020).
Netflix does not have a mission statement, instead they have a quest: “We promise our
customers stellar service, our suppliers a valuable partner, our investors the prospects of
sustained profitable growth, and our employees the allure of huge impact.” (Netflix, 2019).
The statement itself described as a quest, highlights the precedent Netflix aims to set. They
have tried to capture their four most valuable groups, customers, suppliers, shareholders, and
employees.
COVID-19 Vs Netflix – Financial Analysis
When reporting on Netflix Current Ratio, it shows a move in the right direction since Q4 of
2019. During the current COVID-19 pandemic, Netflix have increased their assets while
reducing their liabilities. This has put them in a positive footing for paying any short-term
obligations which may fall due in the next 12 months.
Looking at subscriptions, Netflix has grown steadily in its four primary markets, US and
Canada (UCAN), Europe, Middle East and Africa (EMEA), Latin America and Caribbean
(LATAM) and Asia Pacific (APAC). In total they have added an additional 28 million
subscribers since Q4 2019 bringing their total to 195 million subscribers worldwide.

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Revenue is up $6,435m in Q3 2020 from $5,467m in Q4 2019. EPS is up to $1.79 from
$1.34. Share prices grew from $329 in Q4 2019 to $556 in Q3, 2020 (Netflix Q3 Financial
Statement, 2020). Netflix is going in the right direction but what does the future hold post
pandemic?
The ‘‘Netflix Tax’’ – Political Impact of COVID-19
While Netflix financials look favourable, the risk of government intervention is high - several
new taxes have been imposed on Netflix since the COVID-19 pandemic spread across the
world. Netflix taxes are driven by an economic rationale, that is to increase the global
competitiveness of domestic films and improve their performance on global VOD platforms
and instead of moving against them, policymakers seek to incorporate players such as Netflix
into their cultural models (Kostovska et al., 2020).
As COVID-19 struck, Indonesia levied a 10 percent VAT (value added tax) on Netflix
purchases (Reuters, 2020). In response, Netflix officially increased its monthly subscription
pricing for Indonesian users. Netflix has also raised monthly prices in Canada to $15 from
$14 for standard HD service, and to $19 from $17 for premium HD service (Ahearn, 2020).
In the U.S, Netflix started phasing out free trials and instead has featured a promotional portal
where viewers can watch some episodes of top shows for free (Solsman, 2020).
From 1 July 2020, video-on-demand (VOD) platforms operating in Poland will be forced to
pay 1.5% of their local revenue to the Polish Film Institute (PISF) as part of a government
stimulus package bill prepared in response to the financial crisis triggered by the COVID-19
pandemic (Bird & Bird LLP - Michal Salajczyk, 2020). The Australian government had
announced the so-called “Netflix Tax’ in 2017. The GST (Goods and Services Tax) is
charged on all digital goods and services provided to Australian consumers by companies
headquartered outside of Australia. (Heinemann and Shume, 2015). Four of the EU countries

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France, Germany, Belgium (Flanders) and Italy have also imposed a 3% levy on digital
revenue for companies with more than €750 million in global revenue (Kostovska et al.,
2020).
In Brazil, Netflix is being accused of tax evasion and unfair competition in the country
(Caleiro, 2017). The Brazilian Federal and State Governments brought in a new regulation
for OTT (Over-The-Top) services, including tax collection that would affect Netflix directly
(Dias and Navarro, 2018).
Finally, Netflix has been accused of moving as much as £330 million in profits from the UK
via the Netherlands into tax havens (Sweeney, 2020). The company was blamed for
committing "superhighway robbery" by evading UK tax of over £13m in 2019 (Boland,
2020). According to a South Korean media report, the South Korean office of Netflix is being
investigated for allegedly evading tax (Mu-Hyun, 2020).
From the above we can see that as a result of COVID-19, Netflix has seen increased taxation
from governments across the world and while operationally Netflix have responded quickly
by restructuring pricing in some regions, strategically the company will need to plan ahead
and have a reserve fund for further taxation challenges given the economic impact that
COVID-19 has had. Governments may see Netflix as an easy target given their recent
responses to taxation challenges detailed above - raising prices in response to taxation
without a negative customer backlash.
The Economic Impact of Covid-19
The COVID-19 pandemic has negatively affected many businesses, with fears of a
worldwide financial downturn to match the Great Depression. But for some companies,
business is booming as the pandemic triggers a surge in demand for their products. People
were forced to stay indoors, which in turn increased the demand for home entertainment, and
Netflix were one of the biggest beneficiaries. Some 15.8 million people signed up to the
streaming service in the first quarter of 2020, more than double the company’s projections,
propelling its stock price more than 65 percent higher (Zeitchik, 2020). They have added 10.1
million new paid subscribers in the second quarter (April-June period) and reported net
earnings of $720 million over $6.15 billion in revenue (MENAFN, 2020).

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Figure 1 - Netflix Subscriber Graph. Source QZ.com
COVID-19 has confirmed that home entertainment is a key service for many countries. There
was a seismic change to streaming from audiences and Netflix’s viewership has skyrocketed
since shelter-in-place orders engulfed the world in March. During the pandemic, the runaway
popularity of streaming platforms leads to the invariable issue of entertainment-tinged: what
does Netflix do for a sequel? (Swartz, 2020)
Due to government lockdowns and recommendations, the Covid-19 pandemic has forced
Netflix to suspend the bulk of its production around the world. "Almost all television and
film production has now ceased globally — leaving hundreds of thousands of crew and cast
without jobs", Ted Sarandos, Netflix's Chief Content Officer said in a statement (Rodriguez,
2020). Netflix has insisted this will only have a "modest" effect on its new releases in Q2,
although the company will not predict the resumption of output. “No one knows how long it's
going to be before we can safely restart physical production in different countries, and once
we can, what international travel is going to be feasible, and how talent, stages, and post-
production agreements are going to play out” Netflix said in a letter to the shareholders
(Bursztynsky,2020).
Netflix has relied on Amazon Web Services (AWS) for nearly a decade now, but it also
operates its content delivery network entirely within its own infrastructure. Netflix had to

8. 8
combat supply chain concerns as the pandemic escalated earlier this year, specifically in
regards to deploying servers, setting up infrastructure, studios, corporate networks, systems
and storage. The company also had to create ways to enable content producers to work from
home (Condon, 2020). Netflix created a US$150 million fund to support the hardest-hit
workers on company productions around the world, in addition to the two weeks of pay for
suspended cast and crew (Knox, 2020).
The world-wide lockdown and social distancing measures caused by Covid-19 have disrupted
the usual consumer habits around the world. However, it is highly likely that some habits will
change post pandemic due to the consumer having embraced new habits like digital
technology that is more convenient, affordable, and accessible. The increased viewership of
streaming sites such as Netflix and Disney are examples. Consumers are likely to maintain
their new routine of home media consumption and reduce out of home more expensive
alternatives eg. Cinema (Sheth, 2020).
Netflix states that it expects subscriptions and viewing figures to spike as individuals remain
at home, but once social distancing measures are relaxed, subscription growth is likely to
decline. In a letter to shareholders, the company outlined three ways the coronavirus crisis is
impacting its business:
1. Membership growth
2. Dollar price rising
3. Reduced expenditure
"First, because of home confinement, our membership growth has temporarily accelerated,"
Netflix said. “Second, since the dollar is rising rapidly, our international revenues would be
lower than previously anticipated. Third, some cash expenditure on content will be postponed
due to the development shutdown, increasing our free cash flow, and some title launches will
be delayed, usually by a quarter.” (Bursztynsky,2020).
So while in some cases the impact of COVID-19 has been positive on operations, with rising
subscriber counts and reduced expenditure on new content, it must be noted that the
fluctuating dollar and challenges associated with producing and distributing content show
that COVID-19 is having an impact operationally on Netflix. So far Netflix have weathered
the storm and have responded to the operational challenges well, however strategically we are
yet to see how Netflix will be able to sustain its membership base once the pandemic
becomes less impactful on its customers.

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Netflix, like many businesses during the COVID-19 pandemic have been heavily focussed on
maintaining a positive position operationally however it is not yet clear what strategy Netflix
will take in the long term – if subscriber numbers drop and expenditure on content increases
in 2021 and the currency markets continue to be volatile then a strategic approach to
managing these risks needs to be formulated – with the suggestion to add new revenue
streams as outlined in the recommendation section of this document.
The Socio-Cultural Side of Netflix
Netflix uses intelligent algorithms for research analysis, which helps make decisions on how
best to target their audiences. They employ marketing teams in the regions they wish to
promote to, as they will understand their audiences better and they will recognize how to
entice them. COVID-19 has affected all aspects of the entertainment giant’s procedures, with
travel restrictions imposed globally, restrictions on productions and no premiere events or
launches.
Moving forward, they aim to incorporate some of the safety protocols that were issued by the
World Health Organisation permanently to minimise risks to the company in the future. It is
not known how long the pandemic will last. With SARS and Ebola not that far in the past, it
is better to take a cautious approach. Especially with Netflix productions taking place in
worldwide locations. The time spent in lockdown has been used wisely to enhance their
scripts and production plans, making them more efficient (Netflix Q2 2020 Earnings
Interview, 2020). While strategically these changes bring efficiency and decrease future risks,
it could be argued that Netflix are not doing enough to retain the new subscribers they have
gained due to COVID-19. To understand if this argument is true we need to understand if
Netflix have changed their content and marketing strategy due to the socio-cultural changes
COVID-19 has brought about.
Through their research, Netflix are aware that members spend a significant amount of time
on the site (Iqbal, 2020), so the best way to target those viewers is through Netflix itself,
therefore spending less on advertising. They do this by running trailers of shows on the
Netflix home page and sending custom emails for shows recommended to you, based on the
information they have gathered by their analytics team (Dillon, ND). Netflix has the ability
through data collection to see all measurements of viewers behaviour, e.g. binge watching a
series. A statement by Ted Sarandos stated in an earnings call in January “I would look at it

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like these are less financial metrics as they are cultural metrics'' (Alexander, 2019). Here
Sarandos emphasises Netflix strategy of following the cultural trend to make future
decisions. Less money on marketing will be required after a great second quarter for
subscribers. They have created a lot of social junkets for their upcoming shows. Actors could
collaborate with the best writers in the world from the comfort of their own homes, during
lockdown, thanks to technology (Netflix Q2 2020 Earnings Interview, 2020).
The Social Dilemma Documentary run by Netflix was a smart campaign in an attempt to
capture some of the competition’s audience, from things like Instagram, TikTok, Facebook.
It raised awareness of the benefits of spending quality time with family, using film and
shows to engage in social conversation with family or simply disconnect from social media
(Naughton, 2020). The film certainly pressed a few buttons with Facebook who quickly
refuted, by stating the social dilemma failed to recognise the efforts Facebook had made to
change (Spangler and Spangler, 2020). In this refute they also made reference to the fact that
Netflix themselves use algorithms that mine data to push recommendations. Netflix, along
with social media networks like TikTok became an escape during the pandemic from the
tirade of news bulletins and lack of usual amenities and sports. It became a central hub for
the family to enjoy time together, choosing family orientated and educational genres from
their large library.
COVID-19 restrictions have empowered the creativity of the marketing teams on their new
campaign launch “we’re only one story away from seeing, feeling and connecting more”. It
pulls on the heart strings that we are feeling in lockdown and convinces you that Netflix is
what is connecting you to everyone around the world (Nudd, 2020). This campaign created a
whole new collection in the Netflix library as a result. (see appendix fig.2) .
Netflix has always allowed teachers to show documentaries in the classrooms, but in the
lockdown when schools were closed, Netflix made relevant documentaries and resources
available for teachers and students to access and share outside of the classroom (Netflix,
2020).
Netflix employed a tongue in cheek style marketing campaign in the height of the lockdown
in an attempt to play its part, socially, to encourage its viewers to stay at home. The ATL
campaign featured billboards which displayed spoilers for the sites most watched shows. (See
Appendix 2).

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In summary, with the above evidence showing Netflix have been working hard to respond to
the COVID-19 socio-cultural environment with marketing and content releases throughout
the pandemic, it could be said that Netflix are taking the right steps strategically and
operationally to retain the new and current subscriber base.
Technological aspects of Netflix
Netflix is not merely an online entertainment platform but one of the most dominant tech
companies in the world. They are part of FAANG (Facebook, Apple, Amazon, Netflix and
Google) America's largest tech companies in terms of stocks (Clampitt, 2019). The success is
due in large to the technological strategies and algorithms enabling their constant innovation
to improve member experience. Recognising cultural differences, they assess factors over
time, macro factors, metrics such as churn and engagement to tailor recommendations.
(Gomez-Uribe and Hunt, 2016). The worldwide disruption caused by COVID-19 has resulted
in more engagement from its subscribers (15 million new subscribers in the first quarter and
10 million in the second quarter) and while it was perceived that the increased engagement
was temporary, fortunately numbers are still on the increase as winter approaches. In the
third quarter they added 2.2 million subscribers. They consistently use AB testing in order to
discover better content, entertainment options, best picks, user experience and features - with
the ability to diversely adapt and evolve depending on AB test results. They recognise the
importance of social listening and they collect substantial amounts of consumer data that can
be used to assist them create what the consumer wants (Gomez-Uribe and Hunt, 2016).
Netflix ensures quality streaming by having access to servers strategically located all over
the world via a Content Delivery Network (CDN). Thus, when you select a show to watch, it
is accessed from the nearest one, which will deliver it at max speed and quality, and it is then
transcoded to suit the device it is to be shown on. Using Machine Learning the adaptive
streaming can be adjusted if it recognizes fluctuations in conditions, minimizing buffering.
Netflix recognises the benefits of using Amazon's Web Service to run everything for them on
their servers, thus cutting out the hassle of having to maintain the hardware of the operation
and avoiding capital investment in infrastructure. The reliability that this strategy awards was
hugely beneficial when the pandemic began. Luckily, there was zero to minimum disruption
to the service, any of which was not noted in the media.
The global crisis has not impacted negatively on the technological advances within Netflix.
If anything, it has accelerated new strategies that were in the pipeline already. With the

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majority of its staff at home, online collaboration increased, and they introduced a new tech
infrastructure that would allow online sharing and collaboration of creators, artists, allowing
them to be just as productive while working remotely. (Netflix Q2 2020 Earnings Interview,
2020)
With Apple being served with another lawsuit in relation to ‘being the gatekeeper’ to the
consumer, as creators were forced to use Apple Play to get access to apple customers, and
so incurring extortionate fees (The Economist, 2020). Netflix has typically avoided these
issues by working closely with many device companies, to ensure the device will be able to
deliver the quality of their programming.
Environmental & Ecological Impacts
It could be argued that Netflix’s practice of minimising its environmental footprint has given
it a competitive advantage from the outset. Offering a postal service in cardboard with a
return to sender free post envelope, the consumer and the company had no waste at either
interaction apart from some recyclable paper. When comparing the likes of Blockbuster’s
rental from retail option with the postal model it shows the environmental effect this one
change made, it resulted in “33% less energy and emitted 40% less CO2” (Deepak et al,
2007).
Whilst its competitors build theme parks and create thousands of items of merchandise to
expand their revenue streams, Netflix has stuck to its core competencies and is yet to launch a
single physical own brand product. Instead, Netflix freely offers its brand assets as an easily
downloadable bundle with a set of guidelines that ensures permission is obtained from the
company to use its properties, but does not require compensation for such. This model has set
the brand apart during COVID-19 as there was no possible issue with excess inventory,
logistics or manufacturing.
Production of most series happens on an episode by episode basis, Netflix, unlike its
competitors, has worked with a film forward strategic approach from its offset, meaning the
entire series is created as a whole. This goes against the grain of the traditional television
model, much to the joy of viewers as it facilitates binge watching amongst subscribers. This
meant Netflix’s 2020 content schedule was only minimally impacted and new content was
readily available during the pandemic. The success of the hit series Tiger King may not have
been as favourable if the last few episodes had been unavailable. The show attracted an
outstanding “34.1 million U.S. viewers in the first 10 days after its release” right at the peak

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of global quarantine (Palmeri and Shaw, 2020). The digital streaming approach also meant
Netflix was one of the few companies in the entertainment industry that was not affected by
cinema closures (Chmielewski, 2020).
In 2019, Netflix accounted for “20% of broadband traffic in most developed countries”
(Sivaraman, Gharakhieli et al, 2019). There was however, an unforeseen issue in March 2020
requiring urgent investment and resources to project manage its way through a new demand
from the EU Commission. The scope, in simple terms was to decrease the bandwidth needed
to ensure the European broadband network could cope with the increased demand from
consumers (Newman, 2020). The project had to be invisible to the consumer’s eye as Netflix
could afford no downtime for the site at a time where its audience engagement had peaked.
The 30 day switch to standard definition task was completed swiftly and successfully with
zero impact to its service. This is evidence that Netflix have sustained their operations during
COVID-19 when faced with unexpected challenges. While nobody can predict what
challenges will come next, Netflix have shown that they can respond quickly and efficiently
when required.
Ethics & Netflix
With a 2019 study showing that Netflix is the No.1 video on demand service people across all
age groups turn to in times of stress (Khalili-Mahani, Smyrnova and Kakinami, 2019), it’s no
surprise that Netflix viewer numbers increased by 15.8m in Q2 2020 (Nicolaou, 2020) as the
COVID-19 pandemic developed across the world. While subscribers and revenue soared,
filming for upcoming movies, documentaries and series temporarily came to a halt (Kay,
2020). As a result, important decisions in relation to actors and freelancers remuneration
needed to be made. From assessing the key decisions and actions by Netflix as a result of
COVID-19 it is evident that Netflix were able to take ethical actions in response to COVID-
19 while maintaining the operational and strategic sustainability of the business.
The first key decision Netflix faced at the start of the COVID-19 pandemic was if actors and
freelance production staff were to be paid when their production had been cancelled or
delayed. Netflix were quick to announce short term support for both categories of staff
(Sarandos,2020), with two week’s pay committed. Shortly after came more permanent
support for actors along with the establishment of a $100m fund to support freelance
production staff (Sarandos, 2020). At 1% of Netflix cash reserves the support is unlikely to
have an effect on Netflix operations in the short term (Netflix Q2 Financial Statements,
2020). At the time of the announcement Ted Sanoros stated:

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“This community has supported Netflix through the good times, and we want to help them
through these hard times, especially while governments are still figuring out what economic
support they will provide. So we’ve created a $100 million fund to help with hardship in the
creative community.”
Along with supports for actors and freelancers Netflix was quick to acknowledge that
COVID-19 is having an effect on the mental health of its customers and in a 10 episode video
series posted on Instagram called ‘Wanna Talk About It’ (released on 9th April 2020) they
provided advice on sleep, anxiety and other issues. However questions arise as to whether
this is enough in terms of its moral responsibility, or could Netflix do more to support the
mental and physical health of its subscribers? With reports of a 31% increase in daily watch
time being observed during the COVID-19 pandemic (Ofcom, 2020) and recent evidence
suggesting that sustained watching of TV (known as binge watching) is linked to heart
disease (Garcia et al., 2019). Perhaps having a strategy that promotes “the freedom of on-
demand and the fun of binge viewing” (Netflix, 2020) negatively affect the long term
strategic sustainability of Netflix, considering potential health issues related to the platform’s
customers in the future..
And what about the freedom of speech? In 2018, Saudi Arabia and Netflix were forced to
confront the limits of freedom of speech online. The kingdom requested that the streaming
giant remove a critical episode of the satirical show “Patriot Act With Hasan Minhaj” from
its local service, and Netflix complied at the risk of reputational damage (Khalil and Zayani,
2020). In its 23-year history, the company has disclosed that it has removed nine pieces of
content in total from its platform at the request of various governments (Palmer, 2020).
Operationally this has meant that Netflix have been able to continue their service in these
jurisdictions, but strategically could Netflix be setting a precedent that may garner future
unwanted criticism?
Legislation, Corporate Governance & Netflix
Corporate Governance refers to “structure and processes for the direction and control of
companies” (ifc.org, 2018). In an interview with David Rubenstein, Reed Hastings, CEO of
Netflix said Netflix is an ‘open, inspiring’ style of company, valuing “inspiration over
supervision”. Some may say a laissez faire approach (“The David Rubenstein Show,
Bloomberg”, 2020).
In an interview with Bloomberg’s Emily Chang, Reed Hastings the founder and joint CEO
describes himself as more of a ‘coach’ than a manager. He does not like to make decisions if

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he does not have to. He prefers to allow his managers to make their own decisions
(Bloombergquint, 2020). Mathias Döpfner, Chairman and CEO of Axel Springer SE and
director of Netflix has described Netflix as having radically innovative culture and
governance (prnewsire.com, 2018). In the Netflix ‘Approach To Governance’ document, it is
stated that they focus on results rather than process (Larcker and Tayan, 2018).
In the year 2020, Covid-19 impacted all business around the globe. Netflix, despite its growth
has also been impacted and corporate governance is as important now as ever.
Board resolutions need to be passed; boardroom meetings need to take place. Due to the
pandemic and the restrictions on travel meetings have become difficult to attend. It is a
challenge to carry out legal requirements, remain compliant and adhere to public health
advice. Documents and contracts still need to be signed, even in a pandemic. International
transactions often need a wet signature and different jurisdictions have their own laws around
electronic signatures (Cox, 2020).
Dividend payments – should they be paid or withheld? There is the ethical question of
making a payment to shareholders while staff are laid off? Many governments encouraged
corporations to withhold dividend payments until the longevity of the pandemic is known.
Given its no dividend policy this does not apply to Netflix (Carvalho, 2016).
A ‘shareholder centric approach’ popular for so many decades is no longer the number one
goal (Rock, 2013). The health and sustainability of the company is now at the centre of many
corporation’s model of governance. Equally important is the welfare of the staff, customers,
and environment. The pandemic has highlighted the need to have sustainable companies to
provide services such as communication and entertainment.
Hand in hand with corporate governance comes social responsibility (Filatotchev and
Nakajima, 2014). Netflix achieved an employee gender balance as reported in June 2020
(Statista, 2020). Netflix also announced a racial equality allocation of $100m to support
organisations that support the Black communities in America (Lyles, 2020).
Recommendations
While this paper shows that Netflix have taken significant steps in sustaining the business
both operationally and strategically during COVID-19, it could be argued that future actions
are needed to retain the new subscribers and to mitigate risks going into 2021. The following
sections detail our recommendations.

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Live Sport
One arena Netflix has not ventured into is the sports market, nor any kind of live streaming.
Should the company choose this route and gain exclusivity in any sports genre, it will amass
a niche following and ultimately win ground from the cable television networks e.g Sky
Sports. The company could add a sports package which would allow them to charge an add-
on to existing monthly or once-off subscriptions. This new lucrative revenue stream opens up
the advertising by means of sports sponsorship, advertising not currently prominent in the
Netflix space.
Gaming
Netflix has the largest streaming service with over 183 million subscribers, giving them a
launching off platform for large MMO (Mass Multiplayer Online) games. Just like you can
access Netflix on all your devices it would be the same with cloud gaming : playing on your
phone on your lunch break, sneaking a game at work on the laptop, and having a game in the
evening on your fancy smart tv, with mates all over the world. The convenience of having all
your entertainment collectively. Perhaps Netflix could team up with a big gaming company
like Nintendo or get games directly from content owners and publishers like Ubisoft or
Electronic Arts (EA). With Netflix being an international platform, and being known for
extending personally into different regions it would be great if they would take the risk to
obtain original gaming content like they do with their original shows. It would need to
expand its workforce to cover content security etc. It may not have major gaming influences
at the minute, but it does have its large subscriber base and in terms of competition with
google stadia, it has a deeper connection with the gaming demographic.
Netflix could open themselves up to allow other third parties to sell on their platform e.g.
cloud gaming. The future of gaming is online. Consoles will become obsolete, with the new
ability to game online. However they will not be the first with others already entering the
playing field or in the process of making it possible i.e. Google Stradia, Sony Playstation
Now cloud gaming service and Microsoft xCloud.
Office Space
The company currently leases over 30 office spaces worldwide (Ritman, 2019). In Sydney,
the office staff work from a WeWork office, which is payable monthly with no fixed term.
When expanding, the company should proceed with a combination of this and a work from
home model where possible to minimise costs.

17. 17
Conclusion
Firstly, from the PESTEL analysis conducted, there are still many opportunities for Netflix to
continue the growth of their global operations through COVID-19 and beyond. A SWOT
style overview would suggest that their strengths lie in their global appeal and strong
financial position. Socially they appeal to many demographics. Their weakness lies in the
political/taxation of their service from various governments. Threats will come from
competition, not necessarily from direct competitors but from companies also vying for
screen time and potentially a drop in viewership when we get a vaccine or maybe some
fallout from health officials deciding to limit screen time for public health reasons.
It is hard to argue with the figures generated by Netflix during Covid-19. Their investment
pre Covid-19 in original content has paid dividends to an audience hungry for entertainment
during the Covid-19 lockdown. The leadership of this successful company have shown their
ability to act fast and decisive in a fast changing Covid-19 environment, closing studio sets
but also funding out of work industry personnel.
Netflix continues to grow shareholder value, the company as of November 10th 2020 is
valued at $227.41billion, a phenomenal growth in just 23 years (“Netflix Stock Value 2006-
2020,” 2020). To put it in context Netflix during the pandemic was worth more than Disney
(Shapiro, 2020) which was established in 1923, almost 100 years ago.
So, what is next for Netflix? Continue to invest in original content and technology, act
responsibly to their environmental and social responsibilities and remain aware of political
and economic factors which may impact on their future growth.

18. 18
Appendices
Figure 1 - Netflix's 'One Story Away' 2020 Campaign
Figure 2 - Netflix's Spoiler Campaign 2020
Figure 3 Netflix Financial Analysis - Source: Netflix Earnings Report Q1 2020

19. 19
Figure 4 Netflix Current assets Vs Current Liabilities - Source; Netflix Earnings Report Q1 2020
Figure 5 - Netflix Earnings Per Share - Source Netflix Earning's Report Q1 2020

20. 20
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