When you write thousands of words each week—which somehow I do, which still fascinates me—naturally I get some things right and some things wrong. Back at the end of Q1, I wrote an article for the Ankler calling myself out for my biggest misses and hits so far in 2022. Now, it’s time for another edition!
As usual, I’ll cover what I got right, what I got wrong, and any mistakes that I caught or readers point out. If I left something out, I may address it in the next issue.
If you think I’ve gotten anything wrong—mainly factual errors, not differences of opinion—find some little mistakes, or anything else, please send me an email (I read everything even if I don’t respond) or send a message on Linked-In. Or keep an eye out for the next time I drop a request on Twitter!
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What I Got Wrong? – Netflix 2022 Q2 Subscriber Losses
We should start this edition off with the biggest prediction I made this year. Back in June, I predicted that—based on the data I was seeing—Netflix could lose 2 million subscribers in Q2 of 2022 in the domestic (U.S. and Canadian) market. They ended up losing 1.3 million, so I was off by nearly 35%.
Failure!!! Big time.
Or was it?
As I wrote in that article, and tried to heavily caveat at the time, I normally don’t make forecasts for Netflix’s quarterly numbers—and especially not for the individual regions—because the data is soooooo noisy. Even the data sources I used—Antenna, SensorTower, other survey results—told slightly different pictures, though generally the same story.
But, again, the data is noisy. And ultimately my prediction was off. I see a few improvements/corrections I should have made to my model. First, I used Antenna data through May, but I wish I had data through June. Churn ended up looking much better for Netflix in June compared to April and May, so I would have lowered my prediction had I known that. But it felt important to write that article in June, not wait until the day before earnings to make my prediction.
Second, I should have narrowed my 80% confidence interval down, especially in the best case scenario to “flat”, when I had it as a potential upside of 2 million. That was keeping my confidence interval much too wide. If I got anything wrong, especially in terms of process, this was it.
Third, I also intentionally ignored the quality of content in Q2 for Netflix (Ozark leading into Stranger Things into The Umbrella Academy back into Stranger Things). I’ve never tried to model content releases impact on quarterly numbers (it’s too noisy), but clearly it had an impact. Going forward, though, I still won’t model whether content is popular or not, because I don’t think we have enough data to tie content performance to churn.
(Public Service Announcement: keep an eye out for Antenna’s data in July. If Netflix continues trending down, back to their 2020/2021 rates between 2 and 2.5%, that’s great news for them. If it creeps back up closer to 4%, that means the very good churn numbers in June were only temporary/driven by Stranger Things season 4’s dual releases.)
All that said, it feels strange that Netflix lost 1.3 million subscribers in their best region, but that fact didn’t get as much coverage as it deserved. Yes, the price hike motivated the increased churn, but overall Netflix is supposed to be immune to price sensitivity. A key pillar of the “bull” case is that Netflix has pricing power. And sans a tremendous June, it could have been much worse.
Anyways, we get to play this game again next quarter. Can Virgin River, The Sandman and The Gray Man keep Netflix’s churn low? We shall see.
What I Got Right: NFTs Are Probably Not Entertainment’s Savior
I wrote skeptically about NFTs for the Ankler back in April. Since then, the market for cryptocurrencies has plummeted. Followers of crypto have even warned that the industry is in a “crypto winter”, the crypto term for blockchain recession. NFTs have been particularly hard hit—as a reminder, that’s the crypto version of collectible assets—and those were a key piece of the future value of entertainment.
There have been bad crypto headlines for months now. Axie Infinity was exposed as basically a Ponzi scheme. Helium, a wireless network, likely doesn’t make money for its buyers. One report said that over $100 million worth of NFTs were stolen in past year from users.
Here’s NBA Top Shot as one example:
Or the Google Trends for NFTs over time:
To be clear, is it possible that NFTs play some role in future entertainment? Sure. In fact, they could play a big role. What I am pushing back against is the idea that NFTs represent something profoundly new. Or a profound, disruption that will “change everything”. In fact, the more hyperbolic the word choice—“change everything”, “disrupt the industry as we know it”, “change who makes movies”, etc—the more likely the prediction is wrong.
What I Got Right and Wrong: Animation!
Way back in February, I called out adult animation—animation intended for adults, think Rick & Morty—as one of the flops of the year. This contrasted with public opinion, somewhat, since a few outlets touted that animation would help fill the gap as live-action series paused production during the pandemic.
So has that take aged well? I’d say so, though I continue to read articles to the contrary.
For example, some of the animated titles I called out at The Ankler ended up getting cancelled. Like Q-Force and Adventure Beast, both after only one season. The head of adult animation was just fired at Netflix too. So call that confirmation. Warner Bros. Discovery CEO David Zaslav has also pulled his company back from making animation as well. I continue to be more skeptical that animation has strong potential than the industry (and the media coverage) in general believes.
I will say, the one of best email responses I got this quarter pointed out that, for all the lack of viewership, in most cases animation is cheap, cheap, cheap. And since cost (think production budget) is one half of the ROI equation, animation for adults may still be worth it. I don’t disagree with that. I’d just argue that the ceiling for animation is not as high as other types of programming.
As a fun data update, you really can see the boost in animation during the pandemic in Variety VIP’s charts on total TV content:
What I Got Wrong: Netflix Will Do Ads, Doubles Down on No Theatrical/Weekly Releases
Here’s the biggest thing I got wrong this year. In January, I wrote:
“This is Wall Street’s favorite dream: that someday Netflix will sell advertising to its captive 65 million plus U.S. subscribers. Well, keep dreaming.”
So what did they do? They decided to launch an ad-supported tier! With Microsoft of all companies! This feels like a very complicated shift and one with a lot of risk. As I wrote back in January:
“While I think “Neverflix” is too strong in its convictions on binge releasing shows and releasing films in theaters, on this point Netflix is correct. The moment Netflix puts ads before or during its shows, the perceived value of the service falls dramatically.”
On this point, we’ll have to wait and see. But given that every service has an ad-supported tier now, it probably won’t hurt Netflix that much.
What I Got Right: Dramedies and Musicals
In May, I wrote about “Hulu’s Comedy Problem” pointing out that Hulu’s run of dramedies haven’t, yet, produced a big hit for the streamer. The one correction to this is that FX’s The Bear has generally been a solid performer for Hulu, though I shy away from calling it a “hit”. (It made the Nielsen rankings, though just barely, for one week at 5.8 million hours.) However, their biggest comedy, Only Murders in the Building, is also probably their funniest show, which feels related. Plus, their big comedy of the fall is Reboot from Modern Family creator Steve Levitan, and it definitely feels like a broad comedy too. (Though I have worries that shows about Hollywood feel too “inside baseball” for wider audiences.)
Apparently Netflix agrees with me on sad dramedies, though. In a leaked document to Biz Insider, Netflix wants to avoid making “sad-coms” now, a phrase I need to start using more.
Obviously, I stand by this point. I’m also going to write a whole series of articles for the Ankler this month outlining what America looks like, how they watch TV and, most importantly, what they actually like to watch. Spoiler alert: they like funny comedies that aren’t sad.
Meanwhile, the “Musicals” genre has mostly failed to chart on Nielsen too, the latest being Disney+’s Trevor: The Musical, which has a 4.9 on IMDb on a mere 162 reviews.
What I Got Right: Password Sharing Crackdowns are Hard
After Netflix’s two very bad, no good earnings quarters, one of their proposed solutions to solving their slowing subscriber growth was cracking down on password sharing. I was skeptical it would be that easy. If they could crack down on password sharing, they would have already done it!
Indeed, as this article from Biz Insider (and other rumors coming out of Latin America) show, password sharing isn’t easy to stop! Or if you do it well, it irritates customers. There is no easy solution here.
Meanwhile, Entertainment Strategy Guy Alone on “ESPN Helped Formula 1” Island
Again, both ESPN and Netflix contributed to Formula 1’s success in America. But based on the headlines, you’d think it was only Netflix.
– In this article, a typo had Netflix’s market capitalization as $300 million. Yikes, that’s too low. I meant $300 billion.
– In this article, I wrote that all the trades were controlled by Penske Media Group. Folks pointed out this ignored The Wrap, The Ankler and Puck. I regret the omission.
– In this article on Nielsen and measurement, I failed to mention that Nielsen had previously lost accreditation by the industry trade group. I regret that omission as it felt like an important piece of context.
– In this article, I wrote that Netflix failed to even bid on F1 rights. That was wrong. They did bid, but they lost out to ESPN.
– In my column on Netflix’s churn, I wrote that Disney’s churn was 4%. Some readers read that to mean churn across all services. I meant Disney+ had 4% churn.
– In my showdown between Shonda Rhimes and Ryan Murphy, I left out that Shonda produced this documentary, Dance Dreams: Hot Chocolate Nutcracker. H/T to Kasey Moore.
– The GrAy man. I should have spelled The GRAY Man with an “a” not an “e” in my streaming ratings report on its debut.
Other Things to Listen or Read
This was supposed to be a “most important story of the week” column, but I went too long to hit any other news stories. But I have a good supply of “other things to listen or read” and want to highlight one this week. It’s on Medium from Doug Shapiro, asking “Is Streaming a Good Business?”
Spoiler: maybe not. And Shapiro highlights his biggest worry as marketing costs to acquire and keep new subscribers.
My only caveat to his analysis is related to my first point about: churn. Shapiro believes that Netflix has an advantage based on historically low churn, and uses December’s numbers to show that. Again, if he’s wrong and Netflix’ churn becomes “average” at 4% like fellow streamers, their entire economic case could shift.