Netflix Courts Backlash After Conceding to Saudi Crown on Content

Netflix (NFLX) is not kicking off 2019 on a high note in terms of public relations, as users are calling the company out for content censorship in Saudi Arabia.

Shares of Netflix have remained volatile, recovering to near flat levels on Wednesday after cratering in early morning trading amid unusually high trading volume. The difficult day comes amid increased criticism from free speech activists and users who fear the company might be kowtowing to Saudi Arabia's rulers in order to maintain its position in the major Middle Eastern market.

"By bowing to the Saudi Arabian authorities' demands, Netflix is in danger of facilitating the Kingdom's zero-tolerance policy on freedom of expression and assisting the authorities in denying people's right to freely access information," Samah Hadid, Middle East Director of Campaigns at Amnesty International, said in a statement.

What's the Fuss?

Earlier this week, the California-based streaming king removed an episode of the comedy show Patriot Act, hosted by Daily Show alumnus Hassan Minhaj, due to its critical take on crown prince Mohammed bin Salman.

The episode zeroed in on the killing of crown critic and journalist Jamal Khashoggi inside a Saudi embassy in Turkey. The episode's content was subsequently targeted by Saudi regulators who sought to pull the episode on the grounds that the episode damaged the public order and denigrated societal values.

In response, Netflix pulled the episode and noted it was behaving in line with Saudi Arabian law.

"We strongly support artistic freedom worldwide and only removed this episode in Saudi Arabia after we had received a valid legal request - and to comply with local law," Netflix said in a statement responding to the criticism.

Backlash Bound?

Human rights activists and concerned viewers did not take too kindly to the legalistic response, causing a scenario reminiscent of the backlash against Alphabet's (GOOGL) secretive "Dragonfly" project to create a Chinese law-compatible search engine.

The parallel extends to workers and performers who might not be as driven to work for Netflix if its actions conflict with its stated commitments, such as a belief in "artistic freedom worldwide."

Alphabet's involvement in China and its apparent bowing to autocratic demands has sparked backlash not only from users, but from employees and even congressional officials.

If Netflix is to fall under similar scrutiny from a more progressive legislature and court backlash from many of the tech employees it needs to keep its platform running smoothly, it could invite could  the same problems as its peers and shareholders may have to pay.

As such, the decision to give in to Saudi demands in a market that represents at most 0.2% of revenue for the company could provoke larger problems internally as well as in many of its larger markets.

Critics on Mute

For the shorter term, the market's reaction seems to have subsided after a brutal morning that saw the stock down about 4% at its lows as the company's reaction could have been inevitable.

The shares have since recovered after seesawing for much of Wednesday afternoon.

Ronn Torossian, CEO of New York-based PR firm 5W Public Relations said that the company simply did what it had to do.

"The company was put in a very tricky situation, as they had to consider the legal repercussions of keeping the episode on air," he told Real Money. "Their response was swift, and they made it clear that the decision to remove the episode was based on a legal technicality. From a PR standpoint, they made the right move in quickly coming out with a statement that they support artistic freedom and are only trying to comply with local law."

He conceded that the company could be seen as following the orders of the Saudi regime, but noted that the company acted appropriately in a no-win situation.

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