Moments after revealing Netflix had added a record 15.7 million global subscribers in its latest quarter, CEO Reed Hastings took a moment on his earnings call Tuesday to do the unthinkable: congratulate his fastest growing competitor, Disney.
Praising Disney for adding more than 50 million subscribers since launch, Hastings admitted that, “over 20 years of watching different businesses — incumbents like Blockbuster and Walmart and all these companies — I’ve never seen such a good execution of the incumbent learning the new way and mastering it.”
The move to take the time to praise a competitor may have surprised many, but not Netflix co-founder Marc Randolph, who built Netflix along with Hastings as the company’s first CEO. As Randolph tells Yahoo Finance, Hastings must be feeling extremely confident in Netflix’s positioning relative to his competitors.
“I have to echo what he’s saying, I’m actually very impressed with the job Disney has done,” Randolph told Yahoo Finance. “But despite Disney’s success, it’s really hard to build in two years something Netflix has been working on for 22 years. There are certain advantages to having 180-plus million subscribers and all the data that comes with that direct relationship.”
More specifically, Randolph weighed in on the reason Netflix saw a surge in signups in its latest quarter as people around the world continue to stay home amid the spread of coronavirus. Like Hastings, Randolph noted that Netflix is uniquely suited to fully benefit from a shift in more people exclusively seeking entertainment in the confines of their homes.
“You really have what I consider the ‘secret weapon’ which is focus. Netflix is not worried about theatrical releases, it’s not worried about theme parks, it’s not worried about cruise lines, it’s not worried about live sports,” he said. “There is a certain advantage to being a pure [streaming] play.”
Disney, which also owns ABC and ESPN, has had to deal with the advertising dilemma of losing live sports programing after the XFL went bust and other major leagues like the NBA and the MLB saw their seasons impacted by coronavirus lockdowns across the country. During all that, Netflix’s market cap managed to zoom past Disney’s.
“What we’re seeing is the fact that internet TV is the future,” Randolph said. “And the people who are really taking it on the chin is linear TV.”
Not everyone is in agreement that Netflix will be able to maintain its growth after lockdown restrictions are lifted, however. As Raymond James analyst Justin Patterson explained in a new note cutting Netflix’s rating to “Strong buy” from “Outperform,” the upside and “multiple expansion are limited until we observe post-COVID-19 retention rates.” Despite the rating cut, Patterson raised his Netflix price target to $480 a share from $415.