Inside Netflix’s midlife crisis: culture wars, claims of ‘humiliated’ staff, and... old sitcoms

Dave Chappelle’s controversial “transphobic” Netflix special Closer feels like another complicated front in the culture wars. Chappelle’s last TV appearance on Saturday Night Live in November 2020 saw him lacerating white people who refused to wear masks – “you have no problem wearing them at a Klan rally, wear them to Walmart too” – and he identified as a radical feminist. So unpick that, ye soldiers of identity.

The reaction – in particular from the 100-odd Netflix staff who walked out of the company’s Los Angeles office last week in protest over Closer – suggests there’s actually something more fundamental going on. On the one hand, it’s facing something of a midlife crisis. The company is facing changes – in the way it commissions, in the arrival of new competition, and in the realisation that running like a start-up when you have over 12,000 employees, offices across the world and 200 million subscribers has the kind of consequences Mark Zuckerberg is trying to figure out how to deal with. On the other hand, it has a comedy problem.

First the midlife crisis. Tom Harrington, analyst at Enders Analysis, points to the leaking of Ted Sarandos’s internal email defending Closer. He insisted that “content on screen doesn't directly translate to real-world harm” and the leaking of Chappelle’s deal – $24 million for one stand-up special. “Netflix is no longer a disruptor – they’re an established multinational,” he argues. “They may have scaled up everything but they’re still reacting like a start-up sending round memos not realising they’ll be leaked. Warner and Disney wouldn’t send that kind of memo and five years ago this sort of content wouldn’t have been as big a deal.”

Part of the staff fury is down to the way Netflix runs a more open, start-up style internal culture that it describes as “radical transparency.” It is acceptable practice to be brutally honest when offering feedback to co-workers as long as “you only say things about fellow employees that you say to their face.”

“We work hard to get people to give each other professional, constructive feedback – up, down and across the organization – on a continual basis,” the Netflix corporate site says in describing radical transparency. “Leaders demonstrate that we are all fallible and open to feedback. People frequently ask others, ‘What could I be doing better?’”

In 2018, employees told the Wall Street Journal this policy created a climate of fear. This week, one Netflix employee told the Telegraph that the Chappelle incident reinforced doubts about the policy.

“In 2005 Dave Chapelle left Comedy Central halfway through his contract because he was worried about the reaction of a white audience to his jokes about black stereotypes [Chapelle was in blackface, and a white audience member laughed at him rather than with him] – and earlier this year he asked management to remove his old Comedy Central shows from the platform so that Comedy Central wouldn’t profit from something he felt exploited him,” the West Coast employee explained. “But when Netflix’s own trans employees asked the company to remove Closer for the same reason – because it was reinforcing stereotypes – management refused. Management is dishonest – favourites are rewarded while others are humiliated.” The Telegraph approached Netflix for comment.

To some extent this is a Silicon Valley-wide problem as Google, Kickstarter and Amazon employees start to unionise. With Netflix, however, there’s the additional comedy issue, which is a surprisingly difficult problem to overcome. The streaming service started out as a punchy start-up disrupting TV with a complicated mix of video store attitude – buying up the digital rights to well-known films and shows for not much money – whilst making its own edgy originals starting with 2013’s House of Cards and Orange is the New Black.

As the company has grown, the studios that made much of its classic content realised they were giving away the family jewels and took the shows back to launch their own streaming services. NBC’s Peacock and HBO’s HBO Max will follow Disney Plus in launching in Europe over the next year, meaning they’ll want their shows back. Friends, for instance, has already jumped from Netflix to HBO Max in the US. The success of recent shows like Squid Game is spectacular – Netflix described the show as it’s “biggest ever series at launch,” watched by 111 million accounts.

The problem is, says a Hollywood insider and strategist who blogs anonymously as the Entertainment Strategy Guy (EntStratGuy), no-one knows exactly what that means. Netflix is about to change the way it records success but currently if a home watches for two minutes, it’s counted in the audience figures.

“I’ll be interested to see how many of the 111 million were older viewers tuning in to see what the fuss is about then tuning out,” he explains. “They needed Squid Game as a hit to keep the US subscriber numbers flat or they would have had two quarters in a row where they lost subs. As it is, they have only put on 70,000 subscribers this year in America and in the mature markets Netflix is nearly at saturation. They have a business model based on growth – revenue, margin and cash flow are all fine but the stock is up and down on global subscribers. They’re talking about targeting older viewers which means becoming a mass broadcaster trying to appeal to everyone – but on a global level.”

One of the best ways to measure subscriber love is time spent on site. If you watch two hours a day of Netflix, the chance of unsubscribing is small. That’s why Netflix is changing its measuring system, as Ted Sarandos said in September at technology’s Code Conference. “We think engagement as measured by hours viewed is a slightly better indicator of the overall success of our titles and member satisfaction,” he explained. “It also matches how outside services measure TV viewing and gives proper credit to rewatching."

In the UK a technology and insight company called Digital i has been measuring Netflix this way for some time. Although the company doesn’t publish regular viewing figures, any subscriber can ask to download a full breakdown of their viewing behaviour. The Bristol based research company has built up a panel of Netflix subscribers who regularly download and sell their data, helping get an accurate picture of what Netflix viewers are really watching.

In September it published research showing the top five most streamed shows on Netflix in the UK were Modern Family, Friends, Big Bang Theory, Money Heist and How I Met your Mother. Only Money Heist is owned by Netflix.

“Especially for younger and heavier viewers Netflix has the potential to be background television with repeatable content,” says Matt Ross who runs the research panel for Digital i. “The streamer content combination you need is Friends style high volume, high repeatability to bring viewers back regularly and then big hits that generate buzz and drive subs. The big shows are binged, but they aren’t staple viewing. You could get a sub for a month, binge everything and drop the sub. Sitcoms are a habit.”

Netflix makes no sitcoms. It’s happy to spend money on high-end edgy content like the Crown – Netflix most expensive show costing $240 million, which isn’t quite as much as Game of Thrones eye watering $630m but is still a tidy piece of change. Next month, however, the entire back catalogue of Seinfeld arrives on Netflix to fill in the gaps the disappearing sitcoms have left. How much did Netflix pay for 180 half episodes of a 1990s comedy about nothing? $500 million. Old episodes of Seinfeld are now twice as valuable as the Crown.

This, then, is the business Netflix is really in. After all of the disruption and radical business models and wooing of talent around the world, after cutting the cords of the cable companies and billions of dollars spent and borrowed, after all the protests and offence, the future of streaming is Seinfeld.