Netflix Q2 earnings report blew away the company’s own forecast with revenue of nearly $6.15 billion (original forecast was $6.05 billion), operating income of $1.36 billion (original forecast was $1.08 billion), and global net subscriber additions of 10.1 million, which increases total paid memberships to nearly 193 million (original forecast was an increase of only 7.5 million). Free cash flow grew to $899 million (from $162 million at the end of Q1).

Netflix’s growth was worldwide, though foreign markets showed greater strength than did the domestic market as has been the case for a couple of years.

This massive success is a direct result of a full quarter of a COVID-19-induced shutdown, which left mindlessly bored consumers with little else to do. But Netflix also delivered by releasing over 50 new originals in March and about as many in July, thanks to content that was already in post-production. This included the scripted TV show Never Have I Ever that was downloaded by 40 million households in the first four weeks, as was the original comedy series Space Force with Steve Carell and John Malkovich. These and others helped keep current subscribers engaged while enticing new ones to join.

Where will Netflix go from here? That depends on when the virus is under control, and when fearful consumers feel safe enough to venture beyond their doorsteps toward an array of out-of-home entertainment options. But Netflix believes it will experience less growth in the second half of 2020, issuing a Q3 forecast of roughly $6.3 billion in revenue, $1.2 billion in operating income, but only 2.5 million in net subscriber additions.

If the previous two quarters are a guide, though, Netflix may easily hit 200 million paid subscribers by the end of this year. It is hard to imagine that Netflix only had 100 million subscribers about three years ago. They created a streaming rocket with plenty of content to keep audiences engaged, but Netflix was also the beneficiary of a virus that created the right environment at exactly the right time. It pays to be good. It pays better to be lucky.

Because of this massive growth, Netflix stock price soared this year, up 60% from $329.81 in January to $527.39 at the close of July 16, 2020. It is initially lower in the aftermarkets, possibly due to the overly cautious forecast of only 2.5 million new subscribers in Q3. Then again, Netflix lowballed the Q2 forecast on subscriber growth, so it may be doing that again to lower expectations. Regardless, its market cap is now $231.95 billion, besting AT&T ($216.53 billion), Disney ($215.72 billion) and Comcast ($192.33 billion).

While impressive, these results have much bigger implications for the entire entertainment industry. It is a bellwether for radical transformation.

1. The insatiable demand for streaming by trapped-at-home audiences suggests that the global streaming market may now be expanding faster—at an annual rate of 20.4%, according to Grand View Research.

The massive success of Disney Plus is testimony to the expanding universe, which I estimated will allow Disney Plus to become a $30 billion division by 2025 – see here for details. Newer entrants like HBO Max and NBC’s Peacock may have a slower start by being late to the party, but will still likely benefit from the market expansion.

2. Traditional broadcast and cable services will probably decline faster than expected.

There were 100.5 million pay TV households in the United States in 2013 and 2014 according to eMarketer, but since 2016 the market lost about 4% each year, arriving at approximately 86.5 million by 2019. The rate of decrease should accelerate as a greater number of new streaming households can’t justify paying over $100 a month for cable, especially when unemployment is high. And many millennials have avoided legacy services altogether. There could be less than 70 million cable homes by 2023, far fewer than households with a streaming service. RIP.

3. Movie theaters are in more trouble, sooner.

With the recent, increasing threat of COVID, it is hard to imagine that they will open in August, which will result in a loss of nearly 52% of this year’s box office. If they stay closed through December it will be a revenue loss of about 83%. The longer they are closed, the more accustomed some audiences will become to the greater convenience and less expense of streaming films.

The earlier success of Trolls World Tour is a perfect example. Universal was forced to bypass theaters due to the shutdown and had a very successful streaming premiere of about $100 million in digital sales in the film’s first three weeks – attesting to consumers’ acceptance. This gives studios a financially viable, alternative path for mid-level films even after the virus subsides. Not good for theaters. One way or the other, theater chains will bleed losses and may finally, painfully enter bankruptcy only to be saved by deep pocket entertainment companies (like Netflix) that have flourished in this environment.

4. Consumers are learning that what is old is new again.

Existing streaming customers are plowing through libraries for older films and TV shows. New streaming consumers are watching original content that is 5 years old because it is all new to them. It is the size of the library—not only the number of new shows and films—that consumers will come to appreciate.

5. The international market will hit a saturation point sooner than expected—sometime after 2025.

This will be dictated by the industry growth rate, the status of the coronavirus, the unemployment rate, household income, and a dozen other variables. That’s when a battle for market share among streaming services will truly commence and when various tactics to enhance profitability will be put in place. These will include clamping down on password sharing to increase subscriptions (sorry, kids), adding more tactics to bind consumers into annual contracts, creating fewer yet higher quality films and TV shows overall to save costs, and reducing the number of episodes dropped at once—which inspires binging and trains consumers to expect a continuous, weekly flow of costly shows and films to keep them engaged.

So while Netflix’s Q2 earnings are stellar overall, the implications for the broader entertainment ecosystem are even bigger.