So, Netflix had a pretty good quarter, punctuated by a really bad week.
It’s always bracing to see a giant corporation at the forefront of the entertainment industry stumbling through life’s painful dualities. It’s kind of reassuring to see that we’re all fallible, as humans and as organizations composed of humans. The question is whether the really bad week or the pretty good quarter will matter more to this particular organization in the long run.
Third quarter earnings were announced after market close on Tuesday, with subscriber growth about 25% higher than forecast, some 4.4 million adds, with a forecast to add 8.5 million more this quarter.
During the earnings call, Netflix execs pronounced themselves largely pleased with an increasingly strong quarter boosted by the thunderous arrival of all-time most-watched show Squid Game, out of Korea, along with strong showings by Spain’s La Casa de Papel, Denmark’s The Chestnut Man, and Britain’s Sex Education, and a record-tying sheaf of Emmy wins for shows such as The Crown and The Queen’s Gambit.
Furthermore, the success of those mostly international shows provided an emphatic endorsement of Netflix’s global strategy. As for the rest, well, it was pretty good.
“Really it boils down to it's sort of what we expected,” said CFO Spence Neumann during Tuesday afternoon’s earnings call. “We’re getting toward the tail end of the COVID choppiness. Throughout the quarter, the business remained healthy, at churn levels below 2020. Retention was healthy. Viewing was up, healthy, compared to 2019.”
After the ho-hum earnings call, co-CEO Ted Sarandos turned to a considerably more fraught set of conversations, with Hollywood trade publications, trying to walk back previous ill-received messaging about another of Netflix’s most-watched shows, comedian Dave Chappelle’s special The Closer.
“I screwed up,” Sarandos said, in full damage-control mode. He should have “led with more humanity” acknowledging the pain of some company employees, while also making a “blanket statement that didn’t land as it was intended.”
Sarandos went on, “We are trying to support creative freedom and artistic expression among the artists that work at Netflix. Sometimes, and we do make sure our employees understand this, because of that—because we’re trying to entertain the world, and the world is made up of folks with a lot of different sensibilities and beliefs and senses of humor and all those things — sometimes, there will be things on Netflix that you dislike. That you even find to be harmful. Where we’ll definitely draw the line is on something that would intentionally call for physically harming other people or even remove protections. For me, intent to cause physical harm crosses the line, for sure.”
It wasn’t enough to calm down an increasingly noisy and polarizing situation.
Chappelle is a professional excrement stirrer, a remarkable and ground-breaking comedian and social observer who also has a terrible history of problematic-to-bigoted comments about LGBTQ+ people. Even as Chappelle has proven to be an incisive comedic explorer of the challenges Black people face in a frequently racist society, he has failed to examine his own limitations when talking about another set of people with nearly as thorough a history of pain and exclusion.
Trans people and their allies took umbrage at Chappelle’s latest crummy remarks about them, and pushed to have the show taken off the service. Sarandos tried to differentiate between offensive speech and the artistic license that society still, haphazardly, grants to comedians.
His careful line drawing didn’t play well, fueling outright mutiny in some corners of Netflix, and countless hot takes by outsiders.
One worker leaked financial data about The Closer, and was fired. At least three other protesting workers were suspended after crossing one or another corporate line.
Then on Wednesday, trans employees and their allies took part in a protest outside Netflix’s Hollywood production headquarters, again pushing for Chappelle’s show to go, while promising to push for company support of a list of other “firm asks.”
The fight doesn’t seem likely to abate soon. The implications are significant not just for Netflix but for any media or technology company reaching a global audience (and the creators for those audiences), without enraging long-abused and -overlooked constituencies who are increasingly finding their voices.
Alphabet CEO Sundar Pichai said this week at a tech conference that he and other CEOs are navigating “a new normal” where employees expect to be able to express concerns when the company doesn’t live up to their values.
“CEOs need to embrace the fact that in the modern workplace, people want to have a say in things too,” Pichai said. “They have to embrace that and see that as a strength.”
Encouraging that kind of two-way communication “brings accountability,” Pichai said. The company has invested in new channels to allow people to provide that feedback. “But we’ve also been more focused on explaining what we’re doing.”
That doesn’t mean Alphabet has walked the line perfectly. Just this past year, it’s fired at least two artificial-intelligence researchers who raised ethical concerns with the company’s work.
ViacomCBS CEO Bob Bakish also talked at the same conference about empowering employees while striving to reach a broad array of audiences.
“For companies at scale, serving people all over the world, there will inevitably be content that some people love and others don’t,” Bakish said, alluding to controversy last year when former ViacomCBS division Simon & Schuster agreed to publish former Vice President Mike Pence’s book. “You're going to run into some of these issues. You have to manage them with finesse. Sometimes there’s something you have to pull (from the market). We've been there before and unfortunately, we’re probably going to be there again.”
Like Pichai, Bakish counseled “lots of communications” with staff. ViacomCBS relies on monthly town halls and regular staff surveys, among other communications channels.
“People give their points of view, and that's OK,” Bakish said. “Ultimately we have to make decisions, but we believe fundamentally there should be communications, and open communications.”
But just encouraging two-way conversations isn’t enough. An Explorance study of 2,000 workers found one big reason why people are leaving their jobs during the so-called Great Resignation: “feedback that goes unheard.”
“The survey found that a majority of employees are eager to share feedback with employers and do so in the hopes of driving positive change in their workplace,” according to an Inc. story about the study. “However, employees--including many executives--feel that all too often their feedback goes unheard and does not result in meaningful change.”
That suggests Netflix has stumbled across treacherous territory if it handles this controversy badly.
Other parts of Hollywood are actively supporting and even courting trans creators. The Sundance Institute, for instance, just launched an intensive workshop for “transgender storytellers of color.” Dramas about the sometimes-lethal bigotry and other challenges facing trans people are increasingly common. Even Netflix has an official employee group for its trans workers.
Netflix has long prided itself on a unique culture of “radical openness,” encouraging frank and constant internal feedback and criticism. When you foster that environment, you have to respond to it, or lose credibility and access to talent, within the company and with creators who no longer are willing to work with you. It can also impact how audiences see your company, and whether they choose to turn from your network to someone else’s.
It’s impossible to say whether Netflix’s really bad week will have that kind of long-lasting impact. But it’s going to be something to watch closely as Sarandos et al navigate one of their biggest challenges yet.
David Bloom of Words & Deeds Media is a Santa Monica, Calif.-based writer, podcaster, and consultant focused on the transformative collision of technology, media and entertainment. Bloom is a senior contributor to numerous publications, and producer/host of the Bloom in Tech podcast. He has taught digital media at USC School of Cinematic Arts, and guest lectures regularly at numerous other universities. Bloom formerly worked for Variety, Deadline, Red Herring, and the Los Angeles Daily News, among other publications; was VP of corporate communications at MGM; and was associate dean and chief communications officer at the USC Marshall School of Business. Bloom graduated with honors from the University of Missouri School of Journalism.
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