Picking up on last week’s story.
This is getting more play than I expected.
For those
tuning in late (a callback to when media was something you tuned into), Netflix has always been a push-the-envelope when it comes to metrics and transparency, going back to the debut of House of Cards, when the company let pretty much every journalist on the East Coast report that the company actually owned rather than merely licensed their “originals.” (When business reporters finally caught on, the company started actually buying some of the rights, though still less than most people realize.) The narrative that has kept the stock flying high (P/E in the eighties last time I checked) depends on the business press not looking too closely at these details.
[See also
here. I'll admit being a bit smug about "I have a feeling that Netflix's transparency is about to become a bigger part of this story."]
The narrative is even more dependent on the idea that Netflix is building a massive library of popular, highly valuable content. Putting aside the enormously complicated question of exactly who owns what with shows like She-Ra, it is also essential to remember the incentive that the company has in portraying their originals as successful, and how much it spends to push that impression.
The streaming wars opened up unprecedented floods of marketing and PR cash, with Netflix taking the lead. An astounding amount of money has been spent getting you to check out the Witcher, either through advertising, SEO, press junkets and interviews, and planting (sometimes ghost-written) stories in major news outlets. Except for SEO, there’s nothing new here – the practices go back to when United Artists meant Chaplin, Fairbanks, Pickford and Griffith – but the magnitudes are unheard of.
With that in mind, think about the difference between a metric that counts people who watched more than two thirds of a show and people who basically made it through the opening credits. Marketing and PR definitely build interest and curiosity, so we would expect the new metric to favor heavily promoted originals over old TV shows and familiar movie (none of which are central to the Netflix narrative and most of which are owned by studios that are starting their own streaming services and pulling their content).
Fuzzy stats. There
was a whiff of desperation in some of the data Netflix shared in its
letter Tuesday. The company announced it changed the way it counts views
on the service. Now, instead of counting a “view” as a subscriber
watching 70% or more of a show or movie, Netflix stops counting after
the first two minutes. The company said measuring views that way puts it
on par with other online video platforms like Google’s YouTube.
But
YouTube and other free video platforms are much different than Netflix.
Counting a view after two minutes makes sense for them because that’s
long enough for a viewer to get an ad served to them. Netflix doesn’t
have advertising, and relies on subscribers staying glued to their
screens for as long as possible. Even with the new counting method,
Netflix said views were up an average of 35%.
Then there was that odd Google Trends chart
Netflix plopped into the letter that was meant to demonstrate the
popularity of its new show “The Witcher” versus shows on new rival
platforms like Disney+‘s “The Mandalorian” and Apple
TV+’s “The Morning Show.” Putting aside the fact that a Google Trends
chart isn’t the best way to measure interest in a TV show, Netflix used a
global version of Google Trends to make its comparison, even though
Disney+ was only available in the U.S. and Canada. Netflix said 76
million member households watched “The Witcher” in December, but it’s
impossible to gauge how popular it really was if those views were based
on just a minimum of two minutes.
Competition affected domestic subscribers. It
looks like the November 2019 launches of Disney+ and Apple TV+ took its
toll on Netflix in the U.S. and Canada. Netflix said its recent price
increases and “competitive launches” in the quarter caused its “low
membership growth” for the quarter. (Netflix only added 550,000
subscribers in the U.S. and Canada versus the 1.75 million it added in
the year-ago quarter.)
That could spell trouble for Netflix as its rivals expand across the globe.
...
No “Friends,” no problem. Netflix’s
execs were asked on the earnings call Tuesday about the loss of
“Friends” to upcoming rival HBO Max. While “Friends” was believed to be
one of the most popular shows on Netflix, Chief Content Officer Ted
Sarandos said subscribers find other things to watch when a popular
licensed show leaves the service. (Although he didn’t provide any data
to back that up.)
The bottom line: Netflix’s
mixed earnings report showed the company is sticking to its strategy of
investing more and more in content, with the aim of growing its
subscriber base. But as the competitors start to light up their own
streaming services, it has a renewed pressure to prove it can compete.