My most popular article of the year is clearly this buzzy headline titled,
Why? Since Netflix is the sexy topic in entertainment—a titan of digital subscriptions—my article probably got some clicks because it’s an “aggressively moderate” take on Netflix. (A lane I’ve decided to lean into as heavily as I can.) Most headlines go the opposite direction.
If your thesis is that Netflix “will become TV”, I basically say, “Uh, not really.” Netflix won’t become TV, they’ve become a broadcast channel. Take a look for yourself.
But that last article was missing, in my mind, the most important part of any in-depth analysis. Which is all the implications from the data. Today’s article will fill that gap. I’ll start with the implications and strategic impacts of this data look. Then, I’ll discuss some potential criticisms of the approach.
Implication – Netflix is a Broadcast Channel…So They Can Launch Shows
That’s the upside take. A show like Love is Blind or Tiger King doesn’t just become a hit, it becomes buzzy sensational show that seemingly everyone is talking about. When you’re a broadcast channel, your top shows can do this. Fox can launch The Masked Singer or Lego Masters that still gets a lot of coverage. Or NBC can have This Is Us.
This is why being one of the top players provides so much of an advantage to incumbents. When you do put out something good, it is immediately amplified. This is why Netflix can drive so much of the conversation, while Amazon/Hulu seemingly can’t. (No matter how many times Bosch super fans recommend it.)
Implication – On the other hand, Netflix is *only* A Broadcast Channel
If I took this list of broadcast Primetime ratings, you’d likely shake your head and say, “Hmm, decline of TV is right!”
Honestly, did anyone else know that Altered Carbon season 2 came out? Me neither. Talk about a season 1 to season 2 decline. (Read my take here for why this is important here.) Obviously, the difference is growth. Netflix and Amazon are growing, whereas linear TV is decaying.
But we can learn something from these ratings. They explain why even some “buzzy” Netflix shows can stay anonymous in the conversation. Take Outer Banks right now. If you polled a majority of Americans, I bet they have never even heard of it. Which is fine for Netflix. If you polled a majority of Americans, another big chunk wouldn’t know that The History Channel has a successful show in The Curse of Oak Island.
In other words, even being a successful broadcast channel in today’s day-and-age is just enough to launch some shows. The rest fade quickly, even for streamers. And even “hits” can be unknown by most of the population.
Implication – Amazon Prime Video is a Cable Channel
That’s just what the data says to me. Besides their most recently launched show—Hunters, about Nazi hunters in New York—every other show is pretty old. In other words, based on their ratings they’re a decent cable channel. The question is if providing one decent cable channel is worth the potential billions Amazon is spending.
(Side insight: Hulu is a cable channel too.)
(Side insight: How many Amazon series are about Nazis? The Man in the High Castle. Hunters. At this point, I’m worried Hitler will show up in The Lord of the Rings.)
Implication – The Broadcasters Aren’t That Far Behind and Netflix May Be Losing Marketshare
Which could be good news for all their streaming services. The folks at Hub Research do some pretty good surveys on a quarterly basis and one slide in particular caught my eye.
Hard not to see how valued the broadcast channels still are. Which begs this question: Is Netflix worth more than ABC, CBS, Fox and NBC put together? Moreover, can all the new streamers based around those broadcasters compete to take more Netflix market share? I think it’s possible. If not likely.
Meanwhile, as Netflix has told us before, they are 10% of TV viewing in the United States. (From earnings report in 2018 and 2019.) Here’s my Tweet from when I first saw the Bloomberg article:
9/ Since then Netflix has been radio silent. Still, here's what we know from TV screen viewing in the US of Netflix:
2018 Q4 – 10%
2019 Q1 –
2019 Q2 – 10%
2019 Q3 –
2019 Q4 – 6%
— The Entertainment Strategy Guy (@EntStrategyGuy) February 12, 2020
Yet, this analysis only has them at 5.9%. While the difference is likely chocked up to different measurement systems, it could be a trend. We’ll monitor.
Strategic Recommendation: Understand Segments Better
My favorite strategic frameworks of all strategic frameworks is the 4C-STP-4P marketing framework. Specifically the middle part where business leaders evaluate “Segment-Targeting-Positioning”. My read on the landscape is that a lot of the streamers are targeting the same segment: coastal elites.
Looking at these Nielsen ratings, though, there is a big untapped segment. Overly-stereotyped, I’d call it the “middle America” segment. (A real segmenting would need more data than this cursory look.) They’re still watching broadcast TV. But as the streamers spend more and more money competing for the same segments (Hulu, Netflix, Prime Video, Peacock and HBO Max all arguably are), it gets more and more expensive. Peacock made the most noise about being broad, but even their originals are light on typically broadcast shows. Same for HBO Max.
Implication: The decay is super real in linear TV
To pull off my analysis, I collected 4 years of annual Nielsen ratings. (Collected every year by Michael Schneider of Variety.) Despite adding more and more channels tracked every year, the ratings are declining as you’d expect:
And that decay looks like it’s accelerating. Of course, this complicates the “Covid-19 will accelerate all changes” thesis, since the rate of decay was already growing. Meanwhile, as I mentioned last time, if you add streaming and linear, you get to 94 million, so the folks watching TV is growing with population. This makes me trust the Nielsen data more.
Content Implications: Original versus Licensed Battles
The biggest open question—the debate point that riles up the most folks online—is whether or not Netflix’s original content strategy is working. Does this Nielsen data settle the issue?
First, as Andrew Wallenstein pointed out on Twitter, when it comes to TV series, the Netflix “Originals” win hand down.
Look at the sizable gulf between the numbers Netflix's top originals get, and what top licensed shows get. Would have thought shows with hundreds of episodes in their library would give them some kind of aggregate advantage. Apparently not…. 2/n pic.twitter.com/wLt8qKSyxY
— Andrew Wallenstein (@awallenstein) March 21, 2020
Or do they?
As I wrote in my weekly column, some Nielsen data came out about the top ten licensed series on Netflix in the first quarter. (Here’s a “What’s On Netflix” article on it.) The gist is that licensed shows are still the most consumed TV series when you account for the entire quarter, not the most recent day’s viewing. As Kasey Moore points out, That 70s Shows has never made a Netflix top 10 list, yet it was third in total viewing. Clearly, new shows get lots of viewers initially, but series with lots of episodes drive more total viewership.
Second, when it comes to movies, the picture is out of focus. The top film in early March was Spenser Confidential. The top film in May, so far, is Extraction. So original films can claim the top spot and not let it go. (I’m writing a deeper dive on Hard R action films on Netflix for another outlet.)
That said, unlike the TV series, a bunch of licensed movies make up the rest of the Nielsen list. And have continued to do so. This makes me a little nervous for Netflix’s strategy. Especially considering that they launch something like 20 original movies every month. Their hit rate for those movies looks low, and licensed films are leaving the platform. (Also, kids films do show up on this list, which I’ll discuss later.)
Content Implications: The Decay Is Real
This is something I mentioned last time, when trying to calculate how much additional primetime viewership happened. (I made an estimate for every series not on the Nielsen top ten.) Netflix Originals drop quickly out of the top ten after premiere. Usually within two weeks or so from launch. The oldest show on this list is Locke & Key. This isn’t because folks are consuming all the content, but because they’re switching to something else. (Unless Netflix top ten lists exclude TV series that are older than one month from release, but I don’t know that for sure.)
Justification: Everyone Should Estimate Netflix
I can hear some silent critics out there. “Hey, EntStrategyGuy, you’re just guessing here, right? This is an estimate? Not facts.” The answer is yes, this is an estimate.
Of course, when you hear someone in the media commentariat opining about Netflix, they’re making estimates too. I’m thinking specifically of hyperbolic talk about Netflix on podcasts by so many reviewers or opinion makers. They’re making estimates of Netflix’s size, power and reach, just not explicitly.
But because they don’t have an actual estimate, they use their gut. And often that gut goes wild. By some of the discussion, you’d think Netflix was 100% of TV viewing in the United States.
Meanwhile, there is a strategic rationale for making this type of estimate. Especially if you work in a strategy or content planning or marketing or any role in the business of studio, production company, streamer or network. If you don’t know how well your competitors are doing, you can’t properly plan. Unfortunately, I’ve seen more firms that don’t make well grounded estimates than firms doing proper competitive analysis.
So I fill in the gap. For free!
Evidence/Arguments Against My Thesis
Here’s is another great public service I provide that separates me from some other media analysts: I’m willing to criticize my own work! How rare is that?
Kids viewing vs Non-Kids Viewing
A huge variable this analysis doesn’t/can’t account for is kids viewership. Kids are such a small portion of the audience that they won’t crack Nielsen’s time specific viewership. This has historically been true on broadcast and cable too.
Yet, as others like Richard Rushfield have speculated before, a huge portion of Netflix viewership is kid driven. Even has high as 60%. Traditional TV, I don’t believe, has ever seen viewership percentages that are that large. Which could throw off the entire comparison I’m making.
All of which would imply that my argument that “Netflix is a broadcast channel” is too generous. I assume that Netflix’s percentage of all streaming TV viewership is the same as its percentage of all primetime viewership. If Netflix over-indexes on kids viewership, then it’s percentage of primetime viewership would go down.
Without more data, though, we can’t know either way.
Or the Reverse: Netflix Has Higher Primetime Viewership
This is another argument I saw. Basically, some folks thought Netflix actually does better with adults so the day-part to primetime analysis doesn’t make sense. I couldn’t find any any data to support that, but the great thing about my estimates is if you want to tweak them, you can.
How Do Sports Impact This Analysis?
It does and doesn’t.
(This great comment from the excellent sports mind Steve Dittmore asking this question:
How does Netflix primetime viewership ranking change if you take sports away from CBS and NBC?
— Steve Dittmore, PhD (@stevedittmore) May 12, 2020
Yes, a TON of broadcast ratings are due to sports. Here’s the top 15 highest rated shows in broadcast from last year:
It’s a lot of viewing. 26 of the top 50 shows in primetime were sports. And you can see the orders of magnitude higher viewership for something like the Super Bowl. Unfortunately, I don’t have the specific Nielsen data to answer this question for Steve.
On the other hand, Netflix doesn’t have sports. Which means it will never get these ratings in the first place. That’s a potential advantage fro DAZN or ESPN+ to get mindshare for Netflix. (In other words, it’s hard to become TV without sports or news.)
This Data is Out of Date From a Pre-Coronavirus World
True and sort of irrelevant as far as I can see. If you told me a vaccine was delivered by aliens tomorrow, and you wanted to know how viewership would look post-lockdowns, I’d rather have data from before the lockdowns started than during them. It’s more representative of what a viewership world will look like after the fact.
Also, why certain industries are gaining during lockdowns, it appears as if the market leaders are actually gaining less than their smaller competitors. In shopping, Target, Walmart and Shopify users are up more than Amazon. And it looks like Disney+, Hulu, linear viewing and Prime Video are up more than Netflix in terms of overall growth.