Category: Ideas

Netflix is a Broadcast Channel – Implications, Insights, Strategic Impacts and Criticisms

My most popular article of the year is clearly this buzzy headline titled,

“Netflix is a Broadcast Channel”

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.

Image 1 - EstimatesBut 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.

Implications

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.)

IMAGE 3 - Total Viewing Q4

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!”

Image 11 Anonymous 1

Image 12 - Anonymous 2Honestly, 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:

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:

Screen Shot 2020-05-13 at 11.40.42 AM

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? 

Hardly.

First, as Andrew Wallenstein pointed out on Twitter, when it comes to TV series, the Netflix “Originals” win hand down. 

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:

Yes, a TON of broadcast ratings are due to sports. Here’s the top 15 highest rated shows in broadcast from last year:

Screen Shot 2020-05-13 at 12.11.49 PM

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.

Netflix is a Broadcast Channel: Comparing Streamers to TV Channels in an Age of Nielsen Data

One of my big frustrations with the “debate” over Netflix is how little we know. That’s a gripe I share with a lot of folks. 

One of my big frustrations with coverage of Netflix is how seldom folks try to step into the gap and estimate data points for Netflix. In this gripe I’m mostly by myself. I understand that some journalistic outfits can’t do this. They can only report facts or estimates from other established firms.

But I won’t settle. If Netflix won’t tell us how many folks watch their programming, then I’ll take things into my own hands. (See Ted Sarandos’ latest on Reliable Sources. All he said was “Viewership is ‘up”.) I just need enough data to make my estimates reasonable.

And guess what? Over the last three months I think I’ve collected enough. 

Normally, at this point I’d launch into a bit of a strategy lesson. I mean, it’s right there in the name of this website. Instead I’m getting right to my results. I’ll put my “Bottom Line, Up Front”, what this is, why it’s a good look and then how I calculated it. Then in my next article, I’ll analyze some implications from all this data, and finally my strategic lesson for folks out there.

Bottom Line, Up Front  – My Estimates for Primetime Viewing

The breakthrough for this project came from three summaries of viewing. All came from Nielsen, which means the measurement system is “apples-to-apples”. Even if you’re measuring subtly different things, at least having the same person measuring is better than multiple different measurement systems. 

Here’s my prediction of the top 20 “channels/platforms”—across both linear and streaming—in Primetime (8-11pm) in the United States, as measured by “Average Minute Audience”. 

Image 1 - Estimates

To be clear, this is the “average minute audience” during primetime in 2019. The best way to explain “average minute audience” is that it is the average number of people tuned in or watching during primetime. It can be different people who tuned in for only part of a show in traditional linear TV. Notably, it does include delayed viewing of shows, so it’s better described as “shows that debuted during primetime.”

Why use “average minute audience”? 

First, because it isn’t subscribers, which is the numbers we most often see reported. (And duly covered by me, for example here or here or here.) 

AMA is pretty damn useful because it captures actual usage, not just folks who are subscribed to a service, but don’t use it. While AMA can have wild swings—for example live sports skew ratings heavily—over 365 days it absolutely evens out. In other words, it’s a pretty good sample of the average amount of usage.

I’d add, the business rationale for tracking both usage and subscribers is because they are a chicken and egg problem. If you have lots of subscribers, but they don’t use the service, they’ll quit being subscribers. And if you have lots of usage, that ends up getting more subscribers. (Meanwhile, coronavirus is going to screw all this up as the old models of usage to sub growth will be pretty inaccurate during this time of crisis.)

Here’s a fun example. Who has more subscribers, CBS or Netflix? Well, CBS obviously. Through all the linear cable channels. (If you count those as subscribers, and they do pay a monthly fee, even if they don’t know it.) But since usage is declining, so is linear channel subscriptions.

How the relationship between usage and subscribers evolves overtime will have a big impact on how the streaming wars progress. We have subscriber numbers for the most part; AMA balances it out nicely in the interim. (Though if I had a preference, I’d just prefer total hours consumed by streamer and linear channel.)

The other main reason I used it? Well, it’s the data I have. So you use what you have.

Methodology

How did I pull off this feat of estimation? Let’s go step by step through it.

First, gather your sources. 

One. Every year Michael Schneider releases a roll up of every channel by average primetime minute audience. This means for the 3 hours of prime-time (8pm to 11pm) he averages how many folks watch by every single channel. That gave me this chart of the last four years, since he linked to his past columns at IndieWire: 

IMAGE 2 - Top 25 Channels

Two. In February, Nielsen released their “Total Viewing Report” for 2019 Q4. They then released some juicy nuggets about streaming and Netflix’s share of viewership. Covered in every outlet possible, here’s the pie chart from Bloomberg converted to a table:

IMAGE 3 - Total Viewing Q4

Three. In another scoop, Michael Schneider in Variety got the weekly Nielsen streaming data on a show-by-show, top ten basis, which we hardly ever get:

IMAGE 4 - Nielsen Originals March

Second, make an estimate between the first two sources.

This actually just becomes a math problem. To start, I calculated the total viewing of primetime shows each year. You can see on the top line of the 2016-2019 chart that I calculated total viewership year over year, and it’s decline. With Nielsen’s estimate that streaming is 19% of viewership, we can combine these two estimates:

IMAGE 5 - Total Viewership

Once we have that, we can just multiply the percentage of streaming by percentage of viewing. Assuming that the percentage of prime-time viewing on Netflix is on average the same as broadcast and cable channels—which seems reasonable—we get this updated table:

IMAGE 6 - Updated Implied Total Viewership

That gave me the table above, which I’ll post again because I love it so much…

Image 1 - Estimates

Third, make some margin of error.

See, Netflix has in the past estimated they are 10% of TV viewing. So I wanted to give them their due and put the number out in case that’s closer to reality. So that number made it in as the “high case”. In this case, Netflix would surge past CBS and NBC to 9.4 million AMA on average. 

Of course, I’ve also heard that Netflix has something like 60% of their viewing is kids or family content. While this doesn’t show up often in their season data, you see this in their film viewing. So if I were estimating total Netflix usage, I’d consider lowering the primetime ratio down a bit, say to 4%. This would mean that Netflix severely under indexes on primetime viewership because it is essentially a kids TV platform. This would make Netflix’s primetime AMA around 3.7 million.

I’d call those two numbers our high and low case for Netflix in 2019. So 3.7 million to 9.4, with a like 5.5 million average AMA.

Fourth, sanity check your estimate.

This is where Michael Schneider’s latest Nielsen scoop in Variety comes in. In his latest scoop, he got the top ten ratings by “average minute audience”  from the first week of March for both Amazon and Netflix across a range of originals and films. 

We can use these weekly snapshots to evaluate our previous estimates. Because if the top ten had multiple shows in the high 8 digits of viewership, then obviously way more people are tuning in nightly than *just* 5.5 million per night. And since I unveiled this article, well you know the math doesn’t add up. First, here are Nielsen/Variety’s charts, converted to Excel so I can “math” it.

IMAGE 7 - Raw Tables

If we add up each of the 30 Netflix data points, we get 34.8 million AMA. Which is way higher than my 5.5 million per night. But…this viewing was spread out over 7 days. Someone could have watched multiple series each night. On a streamer, there isn’t a constraint on viewing. Since this is 7 days of data, at a 5.5 million AMA we’d have expected about 38.8 million. That’s pretty close to the 34.8 we actually had. This is why overall I think my methodology is pretty accurate.

But I have some huge caveats.

First, this is seven days of around the clock Netflix viewing. Which is way more than what Michael Schneider was tracking in his “top channels” run down which is strictly a primetime measurement. (8pm to 11pm) So if we’re trying to balance the books, we’d need to draw down the Netflix numbers to account for non-primetime viewing. Try as I might, I couldn’t find a good data source showing Netflix viewing by time of day.

Second, you could also point out that these 30 shows weren’t the only things available on Netflix. What about all their hundreds of other shows?

Good point. So here’s a table of the Netflix shows whose data we do know.

Image 8 - without additionsWhat should jump out at you right away? The logarithmic distribution of returns. In other words, in the content game, the winners aren’t just a pinch better than the others, but they are orders of magnitude bigger. We see that starkly here. Of just these 30 pieces of content, a plurality had less than 500K AMA and a majority had less than 1 million.

But we know that’s far from all the content Netflix has. They’re a machine churning out, according to Variety’s estimates 371 new TV series in 2019. That’s in addition to a hundred plus original films. 

Why does this matter? Well, I made my own estimate of the rest of Netflix’s viewership based on these trend lines. Here’s how that looks:

IMAGE 9 - with additions

In other words, even though Netflix has hundreds of other shows, they don’t really impact the ratings after the launch. Likely the majority of series launched on Netflix last year average a ratings-wise insignificant number of views. (Say 10-25K per week. Or less.) If you have 300 shows earning 10,000 views a week, that’s only a 3 million AMA. Which would bring the estimates above right in line.

In other words, after my sanity check, I think my nightly AMA number for Netflix looks pretty good. Arguably the primetime only numbers would bring it down—meaning I was too high—but the other not included shows would bring it back up. And likely still a majority of adults watch Netflix at primetime, regardless of anecdote about binge watching at all hours of the night.

So that’s my data estimate of the day. But what does it mean for Netflix? 

Next Time and My Data

Let me be honest: if you unleash me on a data set like this, I generate way more insights than just this one article. In my next article, I’ll run through some implications and provide a piece of strategic advice. 

Also, I built a fun Excel for this. It’s not super complicated and you could go get all the data yourself if you wanted. But like I’ve done a few times before, I’m going to give it away. The price? You have to subscribe to my newsletter at Substack. It goes out weekly if I don’t have a consulting assignment; once or twice a month if I do.

Email me from the email you subscribe to the newsletter with, and I’ll reply with the Excel. (Email is on the contact page.)

Read My Latest at Decider – Should Netflix Become A Content “Arms Dealer”?

In the olden days, the real value in a TV show was the long tail selling to syndication. A network, say NBC, would pay for the first run, but then constant reruns would make the true owner, say Warner Bros, all the profit. When streaming came, say Netflix, that was another source of cash.

The question, of course, is what about Netflix? Could they sell their shows to other platforms or channels? Why or why not?

My latest at Decider explores that very question, using Grace and Frankie as the example, given that it’s launching its most recent season today, which happens to bring them to 96 episodes. (As always they crushed it on the key art.)

Along the way I explore or provide the data for…

– The various content deals of the last year or so
– Past streaming to syndication deals
– The relative popularity of Grace and Frankie compared to the “big six” streaming deals.
– Calculate a broad guess at how much G&F would be worth in licesning.

And for the second time, I’m going to give my readers a special offer. If you want to download the Excel file I used to run the calculations—it’s definitely not that complicated, but some have asked for it—click here. (Click on the link.) I also have all my citations in there, and my Google Trends images for completeness.

Here’s all I ask: if you download it, subscribe to my newsletter. That’s the best way to help out the website. 

(As the year progresses, I’m debating monetizing my writing by releasing more of these Excel docs via a Freemium model. If that interests you or you’d pay to support my writing, send me a note to let me know.)

Read it and let me know what you think.

A Netflix Data Dive: What does their “annual” top ten lists reveal about their biz model?

Last December, I unveiled my theory for how big organizations use PR. Big entities—be they corporations, governments, non-profits, even news outlets—share their good information and actively hide bad information. It’s like the iceberg principle on steroids. Especially with digital companies like Netflix:

Slide2

(By the way, in government, the CIA is the absolute best at this. They have feature films like Argo win best picture, then have the gall to go on cable news and say, “You never hear about the good things the CIA does.”)

With this in mind, let’s draw some insights on Netflix’s (kinda) annual tradition to release a top ten “something”. In 2018, they released their top “binged” things. Now they’ve released for both film and TV across three lists in their most prominent territories. Sure, Netflix doesn’t give us much to work with, but I’ll interrogate these numbers to death in the meantime.

The Facts

Before the analysis, though, some facts to keep in mind. Whenever you see data, you should ask the “5Ws” of journalism. Most problems with data come from folks measuring it differently. (If you’re curious, I’ve tried to explain how to understand digital video metrics, and the distinctions, in this big article, which is one of my more popular.) If a news outlet buries these details, you should be skpetical.

– Who: Subscribers
– What: Watching 2 minutes of a given title
– When: During the first 28 days of release
– Where: Country-by-country. I’ll focus on the US, but they released it for a few major territories.
– How: Separated into content types, with all releases, by film/TV, scripted vs documentary.

Here’s a chart, with some additional details of the Top 10 Movies:

Top 10 tablesThat just leaves the why…

Thought 1: If this is the best “datecdote” Netflix could offer, that’s not great

Really, that’s what you think when you see a list that specifically changes the criteria from their previously announced metrics. Netflix had spent all of 2019 giving investors the “70% completion” metric for all their datecdotes. For this release, they dropped it down to “2 minutes of viewing completion”metric.

Using our iceberg principal above, what would the 70% threshold have told us that Netflix didn’t want to know? There’s clearly a narrative they’re deliberately trying to avoid.

Further, why not give us the “most binged” shows again as they did in 2018? Whenever someone changes the data goal posts, you should be very cautious. Yes, you see this all the time in Hollywood when development execs want to greenlight a project. If the numbers don’t look good, they change the measurements to get their greenlight. And yes, this happens all the time in business too. If leaders don’t like the numbers, change the measurements.

But it’s a bad habit.

Thought 2: This new metric doesn’t tie to Netflix’s self-stated goal for monetization.

If you’re looking for more red flags, this is it. In the last earnings call, CEO Reed Hastings said they care more about time on site than anything else. So why not give us that? They have the hours viewed data…they even could have limited it to new releases. (Which would have excluded Avengers: Infinity War, Black Panther, Friends and The Office.) What does the hours viewed tell us that customer counts don’t?

Or take the emphasis on acquiring and retaining subscribers. When Netflix execs speak at conferences, they downplay traditional viewership to focus on how well films bring subscribers to the platform, or keep them there. Clearly completed films would correlate more with sign-ups than only 2 minutes of viewing. (This also jives with my personal experience.)

Thought 3: Netflix Avoided Total Hours Because of Kids Content

I think Netflix avoided “total hours” for two reasons. Let’s start with kids content. Kids rewatch the most content. They don’t watch The Incredibles 2 once, they watch it a dozen times. That gives kids films an edge on viewership hours. Narratively, you don’t want to emphasize how valuable kids content is right after Disney+ launched. As Richard Rushfield has written, something like 60-70% of Netflix viewing may be on “family titles”. That’s a huge win for Disney+ if true.

It also means that if hours on site are the key metric—again as Hastings said in the last earnings call—then kids content seems even more valuable.

Insight 4: Licensed content still made it on.

Netflix also likely avoided the 70% completion metric because they wanted to downplay licensed content as much as possible. Netflix films have a dramatic marketing edge because when new seasons premiere, they get home page, search engine tinkering and top of screen treatment. This doesn’t necessarily drive completions—if shows aren’t good people don’t finish them—but it does drive 2 minute sampling. 

Still some licensed content made the list, even as it was deliberately curated out. Specifically, three of the top ten films and one of the top ten series. I’d argue this is bad for Netflix; even as they tried to weed out licensed titles a few prominent Disney films made the list.

This is more impressive than it seems because the biggest Disney films weren’t even released in 2019. Specifically, Black Panther and Avengers: Infinity War were 2018 releases. Meanwhile, Netflix was stuck with The Ant-Man and the Wasp—one of the lower grossing recent MCU films—and Solo: A Star War Story. Then the rest of the incredible Disney 2019 slate didn’t make it onto Netflix. 

Thought 5: Focusing on 28 days ignores films and shows with longer legs.

Licensed titles, especially big blockbuster films, also have longer legs than new releases. Don’t you think Avengers: Infinity War had some rewatching going on in the run up to Avengers: Endgame’s release? Absolutely. By focusing on 28 days as the time period, it narrows the window for licensed films to rack up viewership. (They also had a fairly crowded January 2019, with three Disney feature films being released in the same month.)

Thought 6: International Originals Still don’t play in the United States.

Read More

Should You Release Your Movie Straight to Netflix? Part I: The basic maths

Since 2019 started, there has been a debate among the entertainment biz literati (you know who they are):

Should you keep releasing your films in theaters, or go straight to streaming?

I first saw this in January when some folks on Twitter argued Disney should release Star Wars films straight-to-streaming now that Disney+ was coming. (My rebuttal here.) Then, when Booksmart flopped, I saw this debate take over Twitter. In short, why bother looking bad releasing in theaters, when you can go to Netflix and get 40 million views?

The Booksmart-esque examples kept coming. Late Night’s flop brought Amazon to the debate. Then Brittany Runs a Marathon. It got so bad, Amazon got out of the theatrical release business altogether. (So the big-for-Amazon Aeronauts abandoned traditional theatrical in exchange for a “four wall” strategy like Netflix.)

Meanwhile, this question is on every company’s mind. Netflix doesn’t do theatrical runs; Amazon just left the business; Apple is figuring out what it wants to do; Disney, Warner Bros and Universal are leaning into theatrical, except when they aren’t as Disney did with Lady and the Tramp. Paramount is an arms dealer at its finest. Let’s not sugar coat how important this question is. It’s literally a billion dollar question, per company! 

Getting this question right is business strategy at it’s finest: so who’s making the right call?

Judging by the online narrative, the Netflix supporters say Netflix. Most “arguments” for going straight-to-streaming seem to rely on personal experience, first, and Netflix’s stock price, second. Hardly ever do I see the piece of information I love most: numbers. (Strategy is numbers!)

Before I finished my series on The Great Irishman Challenge, I would have had trouble relying on anything more than qualitative/narrative explanations too. Without a model, testing assumptions or quantifying the financial impact of these strategic implications would have been little more than guesswork. But since I have it, I think I can try to quantify some aspects of this debate better than I’ve seen before. 

This debate has so many components, arguments and counter-arguments, that as I wrote my response, it was fairly jumbled. To organize my thinking, I’m deploying a “question and answer” format. Which I think helps. Still, before I get to that here’s my…

Bottom Line, Up Front

While very small films or historically poor performing theatrical films—think documentaries or foreign language films—may benefit from going straight-to-streaming, the vast majority of “studio films”—larger than $5 million production budgets, will make much more money for their producers by having theatrical distribution. (On average.) The “strategic” benefits of skipping the theatrical window don’t exist in practice as much as theory. So much so I call it the “straight-to-streaming trap”. 

Question: If you only had two words, why should movies avoid the “straight-to-streaming” trap?

Avengers: Endgame.

Q: Okay, explain.

Well, it made $2.7 billion (with a b) dollars in theatrical box office. Of course, Disney doesn’t keep all of that in revenue. Depending if it is US or international, Disney keeps 35-50%, and less in China. Still, I’d estimate Disney kept about $1.1 billion (and even that is low considering how powerful Disney’s bargaining power is with studios).

Assuming a $350 million production budget and a $200 million marketing budget, after just theatrical distribution, Disney has $550 million in gross profit to split with talent. In just one window! That doesn’t factor in toys, DVDs, electronic rentals or future streaming/cable value. Just one window netted over half a billion dollars. 

I honestly can’t fathom a scenario where Disney would have made more money by ignoring theatrical. (Again, that was my thesis back in January about Star Wars, but these are equivalent franchises.) That’s like having a barrel of oil and not refining the entire thing.

Q: Excuse me, oil?

Oil. Every year, one of the best things I read is The Economist’s Christmas Double Issue. Two years ago, they had a graphic about how a barrel of oil is refined into its component parts. Here’s the link for subscribers, but they had the whole thing on Google Images:

Image 1 - Economist Oil 20171223_XMC600_weblarge.png

In short, a barrel of oil is sort of like the not-quite-true aphorism that the Native American’s used every part of the buffalo. (Which was taken to another extreme by American meat packing at the turn of the century, who used every part of the pig/cow. Read Upton Sinclair’s The Jungle for details.)

871878e86165ef98858ea0235551942d

(Source: The Far Side cartoon. How is that not a piece of IP up for sale?)

As oil companies heat a barrel of oil, the raw material separates into different types of chemicals that are then used for everything from gasoline to diesel fuel to sulphur to countless other compounds. This is necessary because different size oil molecules have different uses. The goal for the oil company when refining oil is to extract as much value as possible from the oil they spent real money bringing out of the ground.

I love this analogy for theaters. Each window is a heavier as in greater gross margin type of oil. Netflix is essentially skipping the heaviest molecules (theaters, home entertainment) for the lightest (digital streaming). Long term, that means a lot of lost potential revenue.

Q: And can we quantify that?

Yes, and that’s what I spent a chunk of November doing. Here’s the “financial revenue” waterfall I’ve been using for theatrical films. Actually, here’s how it’s looked historically:

Image 2 - Financial Waterfall Historically

And here are my recent assumptions:

IMAGE 3 - Financial Waterfall Now

In other words, if you skip theaters, there goes 35-40% of your revenue. (While box office isn’t rising, as a percentage of feature film revenue, it is increasing because home entertainment is shrinking. By next year, it may be 40% of a film’s take.) If you skip home entertainment, that’s another big chunk of revenue. And frankly, it makes sense that theaters make so much money because it’s more expensive to go.

Q: The gross margins are higher for theaters than streaming? Do you have numbers for that?

Frankly, these are the numbers that any discussion about Netflix and Amazon have to start with. You can end up where you want, but if you ignore these numbers you’re likely using fuzzy math to justify your preexisting conclusions.

So let’s take each window into rough “per person per film hour” revenue in the United States. Just to make it explicit. Theaters have an average ticket price of call it $10. (It’s slightly lower, but I like to round my numbers.) Since each person pays that to see a film, it’s a $5 per person per film hour for the average two hour film.

Now, compare that Netflix, where the average subscription watches 40 hours of content per month. (According to past leaks/surveys.) Since a US customer pays $12, that’s $0.30 per hour. But since more than one person can watch, we can assume 1.5 customers share that viewership. Which takes it down to $0.20 per film. Which leads to this crucial note on potential revenue:

The streaming window is 8% of the total revenue of the theatrical window per person.

As I said above, theatrical is much, much more lucrative for studios than streaming. (The specific way to calculate the value to Netflix of a film is different than the usage version above—see here for those—but this is to show the potential size difference for different windows.)

Q: So let’s ask the obvious: have you quantified how much Netflix could have made releasing films in theaters this year?

Rightey-oh I have. Let’s talk upside. I took a selection of Netflix’s most noteworthy/expensive films, and asked Twitter for ideas for some quick and dirty “upside” comps for them. (I focused on the most recent films as possible, and matching rating/genre primarily.) Here’s the list I settled on:

IMAGE 4 - Netflix Film Comps

There’s your headline/nut graph/lede at the end of the article: if Netflix released its 10 (arguably) most valuable films from December 2019 to December 2020 (with Bird Box sneaking in), it could have made $750 in additional cash flow to the bottom line in just theatrical box office. If Netflix had to throw in $50 million per film on this list in additional marketing (which feels high), that’s still $250 extra million.

I’d add this list isn’t a ridiculous list of comps. A Quiet Place is definitely the same sized hit that Netflix is portraying Bird Box, so that number is reasonable. Meanwhile, I put in a couple of films well under $100 million in total gross and a lot of other solid doubles. 

So why hasn’t Netflix looked at this revenue and jumped? I’d argue sloppy financial thinking. And changing their strategy has PR implications. Others, though, would argue it’s about exclusivity for their platform. (Presumably some folks would see it in theaters, but not on Netflix.) 

To keep this article from going too long, I’m going to continue the Q&A in my next article. Essentially, I’ll lay out and debate the pro-straight-to-streaming arguments in their own place.

How The Irishman Lost $280 Million: The Great Irishman Challenge Part IV – The Results

(For the last few weeks, I’ve been debuting a series of articles answering a question posed to me by The Ankler’s Richard Rushfield: Will The Irishman Make Any Money? It’s a great question because it gets as so many of the challenges of the business of streaming video. Read the rest here, here, here and here.)

The biggest uncertainty in The Great Irishman Project was figuring out how well the film did with viewers in the first place. I was all set today to parse Nielsen’s estimates from last week, but doing so meant tons of estimating based on a very limited data set. So I waited.

Specifically, I had a suspicion that Netflix would feel forced to tell us something. They couldn’t let Nielsen drive the narrative for their most high profile picture of the year. Sure enough, we got the results today, as Ted Sarandos spoke at the UBS Media conference:

26.4 million subscribers watched 70% of The Irishman in its first week.
40 million are projected to watch in the first 28 days.

Huzzaw! Now we can be a lot more confident in our estimates.

Here’s today’s plan. First, I’ll given you the “Bottom Line, Up Front”. The results and my model. Second, I’ll discuss a few specific estimates and inputs I still had to make. Third, I’ll answer what I assume will be the most commonly asked questions or criticisms of my model. In Q&A format.

(Also, look for my write-up in The Ankler if you’re subscribed.)

Bottom Line, Up Front: Netflix will lose $280 million The Irishman

As I wrote in Part I, the goal was to make a scorecard, and here it is:

IMAGE 20 - Irishman Profiitability

For the full model, here you go:

Image 21 - Irishman Full Model

In other words, if this were a big budget tentpole from Disney or Warner Bros–whose flops have extremely public numbers–I think Netflix would have to write down the costs for “only” getting 40 million viewers in the first four weeks. This film was extremely expensive, and it’s already decaying fairly rapidly in viewership. Even with a bump from a Best Picture nomination, Netflix will lose money on this investment.

The Model Details

Even having built the model ahead of time, I had to make some assumptions. Here they are.

Determining US versus International Split

One of the big assumptions of my model right now is that international viewership is much less valuable than US viewership. I do this based on their reporter lower international “Average Revenue Per User” and higher churn rate overseas (from what I’ve been told/researched). As a result, the more US customers for a film (for now) the better it is financially for Netflix.

We have two data points to triangulate the split for The Irishman. First, we can look at historical box office trends of mobster films. According to all the films listed as “Mafia” in The-Numbers database, about 61% of box office comes from domestic versus international box office. For example, a film like American Hustle did $150 million in the US/Canada vs $107 million in the rest of the world. Black Mass from 2015 was even more weighted to the US: $62 million vs $36 million rest of world. (The Departed did $132 million US to $157 million rest of world.) This would imply viewership was skewed to the US.

Second, Nielsen provided their estimates that 13.2 million people watched The Irishman during its first five days of release. That’s almost exactly half of the 70% completion Netflix claims. If we assume this would increase with two more days viewership, again we get closer to 55-60% of viewership being in US/domestic.

I decided to use 62.5% US viewership for Netflix. This is pretty beneficial to Netflix, but makes sense. In all, since US viewers pay more on average for longer, this change benefits Netflix.

Changes to Best Picture Bump

My initial model assumed 25% more folks would watch on Netflix if The Irishman is nominated for Best Picture. I decided to bump this up to 25% first window revenue, since that’s a more accurate reflection of the box office bump. (That’s also a benefit to Netflix’s bottom line.)

Adding in Box Office?

I wanted to add in box office revenue, but Netflix hasn’t released any since this film wasn’t released in the traditional theatrical system. (Netflix rented out theaters and then collected the revenue themselves.) Given the limited number of theaters, I think leaving this out won’t drastically impact the bottom line. 

Frequently Asked Questions

I imagine a lot of folks have a lot of questions about this analysis. Let’s try to answer what I imagine are the most common.

What is the best case for Netflix?

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“Hurry Up and Wait” for the Streaming Wars: Netflix’s Q3 2019 Earnings Report

(Before you start, consider signing up for my newsletter! Yes I know you have too many already, but this is the best way to help support independent writers such as myself. Sign up here.)

If you ever found yourself in the armed forces, you may be familiar with the phenomenon of “hurry up and wait”. It worked like this. A dignitary is coming in. Say a three star general. So your two star general plans a division parade. Which means the Command Sergeant Major sets it up. Scheduled to start at 1000 (ten hundred in parlance), the Division Sergeant Major tells his Brigades he wants them in position by 0930, so of course that means standing in place at 0915.

Woe to the unit that is late, by the way, which is why everyone is “hurrying”.

Here’s where the fun starts. The brigades don’t want to be late for the 0915 “time hack”, so they have their troops show up in formation at 0830, to be ready 30 minutes early too. Then the battalions say, well, “Let’s be ready 30 minutes before that.”

And so on. With companies, platoons and even squads.

Eventually, you have thousands of soldiers leaving their houses at 0500 in the morning—and skipping PT— so that they can stand in formation for 3 hours doing nothing. Hurry up and wait.

That’s my feeling for Netflix’s latest earnings report. If I can speak for my fellow Netflix hawks—be they bulls or bears—we had this date circled since July. Will Netflix miss subscribers targets again? Could the stock tank? Or will Netflix crush estimates? And what will Reed Hastings and Ted Sarandos have to say about the “streaming wars”, which start next month? 

No kidding, the (hashtag) streaming wars made it in the shareholder letter.

IMAGE 1 - The Streaming Wars

After all the waiting…we didn’t learn much. Netflix hit almost all their targets on the dot and Hastings/Sarandos didn’t reveal any ground breaking news.

Instead, we hurried up, but we’re still waiting for the streaming wars. Sigh. Still, we learned a few things in the latest earnings report. Let’s start with strategy, touch on the specifics and end with the subscribers/financials. Oh, and meta thoughts to conclude.

Strategy: Focused, but Narrow?

When it comes to strategy, Netflix probably has the clearest plan and simplest business model of all the streamers. They sell subscriptions and they plan to dominate all scripted and reality viewing. If you want to know their strategic advantage, it’s that. They know what they are, and they’re extremely focused on that.

And they still have a big goals: they want to take over TV all over the globe. If you want Netflix’s global upside for share price, it’s all this. Honestly, “Netflix bears” like myself probably neglect how much additional revenue can come from this global conquest.

But it isn’t cheap, of course. Netflix is spending $10 billion in amortized and $15+ billion in actual cash each year (from 10K) to get those new subscribers. Worse, the most valuable subscribers are in the United States, then Europe, then Japan and then descending down the GDP per capita income ladder. And those most valuable markets are nearing Netflix saturation. (Meanwhile some, like China, remain off limits.)

The most interesting observation, for me, was about the content strategy. Here’s the introduction to the content section of the shareholder letter:

IMAGE 2 - Content Strategy Summary

This content strategy manages to be both broad and limited, at the same time. Broad because Netflix is competing on film and TV and scripted and unscripted for kids and adults and everyone. 

And it’s limited because that’s all they are competing on? If “live TV” isn’t an option, that means  events, sports and news just aren’t in the cards.

In other words, for all the growth in content spend, many TV consumers will want a TV service that provides news and sports. If Netflix can’t fulfill someone’s entire TV demand, that means customers will have to watch other options too. If you value Netflix’s stock price as “becoming TV”, well you’re seeing a company that knows it won’t be that. Sure, it has a chance (that is becoming smaller every week) of “become all scripted and reality TV”, but that will be a pricey fight.

My view is that as long as customers need to have other TV services, Netflix is increasingly likely to be churned out of someone’s regular diet.

Nor does Netflix have the capital to branch out into a large new business like either buying DAZN or Roku or even a Lionsgate. They could merge with any of those, but any new venture that has huge upfront costs will stress their cash flow even further. Apple, Amazon and Disney don’t have those hindrances. That means Netflix needs to be perfect on everything decision from here on out to maximize that share price. That’s tough. 

So let’s get into those specifics.

Content: Some Selected Datecdotes Tell Us Some Things

Let’s start with the headlines you did not see yesterday. And the “null results” because I want to place in your easily available forebrain the idea that most shows aren’t doing well on Netflix. Or they are and it behooves Netflix to keep them secret. (I guess.)

Headline one: 

Of 162 original launches in Q3, 93% did under 29 million viewers. They were bombs.

Fine that is a bit provocative. Technically, I don’t know how many series really had less than 29 million viewers. Just because the lowest Netflix datecdote was 29 million doesn’t mean some other movie secretly did more than that, and Netflix just didn’t say. (Which, why hide that?) How’s this:

We don’t know how 93% of Netflix originals performed last year.

It’s crazy to consider that’s how many launches Netflix had in Q3, but according to my data—which means sorting this long, long list from All Your Screens Rick Ellis—that’s accurate. And given that when we do get inadvertent leaks—Steven Soderbergh said in an interview High Flying Bird had 8 million views—they are much lower, I’d bet that most other content releases were much lower than the leaks.

On to the datecdotes (explanation here) we did receive. These are both higher and lower than it seems. On the high side, I counted 12 datecdotes (authorized or leaked) since Q2. No seriously, four movies and 8 TV series. The challenge is that four of these datecdotes apply to two series (Netflix released 7 and 28 day numbers for both Stranger Things and La Casa de Papel.) And three of the TV series releases didn’t actually have numbers just “biggest TV series in the country” (Sintonia, The Naked Director and Sacred Heart.)

Since I’ve done feature films the last two times, I’m going to try to draw out some conclusions from the TV side this edition. Here’s my summary table of the data:

Screen Shot 2019-10-17 at 4.28.29 PM.pngAnd now some implications.

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Why Most Netflix Charts Start in 2012: A History of Netflix Subscribers

On a recent The Weeds podcast, Matt Yglesias talked with Binyamin Applebaum about “how economists took over the world”, based on Applebaum’s recent book. Midway through, Applebaum told a fascinating story about how business leaders often get their forecasts about government regulations/interventions wrong. During the Great Depression, as part of the New Deal, President Roosevelt wanted to create the SEC and force companies to release audited financial statements. Apparently, part of the roaring 20s including gross accounting fraud, including create false prospectuses and financial documents.

Naturally, business folks and economist types of the time said these onerous requirements would destroy investing/capitalism.

But they didn’t! In fact, the value created from audited financial statements is arguably one of the greatest value creating regulations in financial history.

Why tell this story in an article ostensibly about Netflix? First, it’s a great example of how regulations make things better for society, despite the cries of protest from business.

Second, even now, a lot of financial statements are currently pretty rubbish. Sorry “suboptimal” in business parlance. What they lack in substance, they make up in heft; they are long, filled with hundreds of pages of legal jargon designed to obscure and CYA, but they still don’t tell you that much.

When you pull up the financials of a company like Google—for example—you discover that they only break out the operating segment information for two businesses: Google and moonshots “Other Bets”. What? Why not break out Youtube and Gmail and Waze? As Matt Stoller informed me, Google runs 8 businesses with 1 billion or more users; they shouldn’t be broken out by themselves? (Google does provide more granularity on revenue sources, but still only four revenue streams!)

Let’s look at Amazon: they run Prime Video, Music, Games, Channels, Twitch, and Comixology. Could they make a “media enterprises” business segment and share operating performance for all those companies combined?

Yep! And guess what, it would be fairly easy to do.

Which brings us to Netflix. They too have tried to minimize the numbers they provide over time. Worse, every so often they change their definitions, and stop reporting old numbers. Which makes an enterprise like the one I pursued last week much more fraught. To help build the table with subscriber numbers, I had to go through essentially 20 years of Netflix annual reports to figure out how they defined subscriber totals every year.  Fortunately, this deep dive taught me a lot about Netflix, and could help you understand their history a bit better.

Today, I’ll tell you what I learned, including the different definitions of subscribers, how they have evolved over time and the two pieces of data I’d still love to see.

The Six Definitions Netflix Has Used for Subscribers in the US

As I mentioned last week, here’s an example from Statista of a chart of Netflix global subscribers. 

IMAGE 1 - Statista Netflix Subscribers

Here’s another one. Here’s another one from my archives in Statista that doesn’t match my numbers:

IMAGE 2 - Statista NFLX 2011 Table

Meanwhile, most of the other charts I found with Netflix started in 2012. Which seems like an odd decision. Since I don’t like uncertainty in my estimates, I pulled the data myself for my article applying Bass Diffusion to Netflix. (I had previously done this back in March for this Decider article.)

As I churned through the financial docs, three big categories leapt out at me. Netflix has highlighted different numbers as their “top line” subscriber number, which news reports usually echo. For instance, up until the end of last year, Netflix reported “total subscribers” inluding free-trial and paid subscribers together. Now they’re only emphasizing paid subscribers. When they made the change, some folks thought their numbers had declined. Anyways, the three big areas I see are:

– Location: US, International or Global: Pretty self explanatory, and Netflix has combined these to report “global”. 

– Paid vs Free-Trials: I tend toward “paid” as my preference because it means the people have actually committed to the product and aren’t just sampling. (Netflix changed last year to focusing on paid vs free-trials, which is what they had reported before.)

– DVD vs Streaming: Before 2007, you could only rent DVDs through Netflix. After 2007, you could rent DVD or stream content or do both. Before 2011 a subscription paid for both, then it didn’t. 

The only challenge is some of those categories are mutually exclusive (paid vs free trial) and some aren’t (DVD vs streaming). So I made a table to simplify it in my head. 

IMAGE 3 - NFLX Metadata

The key is the “unique” number versus total subscribers when it comes to DVDs and streaming. For a short period, Netflix gave the total numbers, even when unique was more accurate. Nowadays, for the record, Netflix just gives streaming as DVD subscriptions decline.

Combining the Definitions in One Chart

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Why I Think Netflix Will End Up with 70 Million US Subscribers: Applying Bass Diffusion To The Streaming Wars

(Before we start, I launched a newsletter! It’s weekly and it’s short, and I explained my logic here. Sign up here.)

My goal is to try, as best I can, to explain the complicated parts of the entertainment biz, trying to walk readers through what I’m doing and how I’m doing it. Unfortunately, even when I’ve tried to simplify things, I’ve gotten comments that my articles are pretty dense. That’s what happens when you don’t have an editor. 

With that preamble, today’s article is math-y.

This is about as math-y as I can get. I’ll be slinging terms like linear programming and mean absolute percentage error. To help out, I’m going to start with a BLUF (bottom line up front) so you can read my findings even if you don’t want to read my process to learn how I pulled it off.

Today is the “Bass Diffusion Model” in action. In layman’s terms, the Bass Diffusion Model is a way to calculate a “total addressable market” (TAM or “market size” in non-jargon terms) for various new products or innovations. As the headline suggests, today we’re turning our gaze towards Netflix as a stand-in for the streaming world.

BLUF – Netflix’s Market Size in the US is closer to 70 million than 90 million

When you apply the Bass Diffusion Model to Netflix’s US operations, the model which fits best has a market size in the United States of around 70-72 million subscribers. In other words, a saturated US market is much closer to the low end of Netflix’s projected outcome (60 million) than the high end (90 million). 

The Bass Diffusion model fits the data pretty well. My average “error” fitting the Bass Model to Netflix is 1 million for streaming only and 600K for all subscribers.

That said, applying the Bass model to Netflix isn’t perfect. First, Netflix transitioned from a DVD company to a streaming company, which is arguably two different product innovations. Second, Netflix isn’t alone in the streaming world, and we only have current Netflix subscribers in any period, and don’t know how many folks are still streaming, but no longer Netflix subscribers. Third, this is a US only model. In the future, I plan to apply the projections to the international markets (which has its own problems) and for all streamers.

The Origin Story – Seeing Bass Diffusion Applied in the early 2010s.

Going to b-school during the Qwikster debacle of 2013 made for interesting class discussions. Overnight, Netflix became a laughing stock. Yet, even with that debacle the year before, they had kept adding streaming customers. They were the growth story already—23%!—leading some early analysts to throw out huge potential market sizes. How long would this double digit growth continue for?

That’s when my professor—a marketing professor, naturally—trotted out the Bass Diffusion Model. We’d all learned this model in marketing the year before; I’d never considered applying it here. He did, and out popped a total market size: about 60 million US subscribers. The model fit really well. 

That 60 million has stuck in my head and influenced my thinking ever since. It’s why I launched this series and why I kept my annual subscriber projections a bit lower than most observers last January. Seriously, look at this chart I made back for an article on Hulu at DeciderBass doesn’t leap off as strongly as it did for Fortnite, but you can see it for Netflix and especially see it for Hulu.

Image 1 - NFLX StartFrankly, because of that one application, the 60 million subscribers point in the US felt like the point where we’d see Netflix slow down. Then, in Q2 of this year…that reality finally happened.

The good news for Netflix is the last few years have had better subscriber growth for Netflix than that old Bass model. (For those keeping score, my projection last year was probably too low.) The bad news? Well, 90 million subscribers is looking MUCH harder to reach. But instead of relying on old estimates, today is about making new ones.

The Task – Forecast Netflix Subscriber Growth in the United States

Just to be clear, my goal today is to apply the Bass Diffusion Model to Netflix’s US subscriber count. Why US only? Well, it has a few more data points which will make it a bit more accurate. More over, the recent slow down point gives me a bit more confidence that we’re seeing the inflection, which I’m not sure we’ve seen internationally yet. 

I’ll be building two models, though, because Netflix has actually had two products: the DVD delivery and streaming video. Unfortunately, Netflix has been a bit tricky when it releases subscriber counts, which means I needed to make some assumptions. Let’s explain those.

The Data – Netflix Subscriber Counts Over Time

To really make the Bass model work, I needed to do a lot of cleaning of my Netflix subscriber data to make sure everything I was calculating was apples-to-apples. Wait, doesn’t Netflix provide this? They do, every year. Here’s a Statista table summarizing that. Can’t we just use that?

Unfortunately, it’s a bit unreliable. When I use data, I pull it myself so I can vet it. For example, with those Statista numbers, are those numbers paid subscribers or free? Streaming only? Or all subscribers? Many tables and charts for Netflix actually mix up those categories in the same chart.

In fact, even in my chart above—the one for Decider—I did a bit of that.

So I updated all my Netflix subscriber numbers, calculating streaming and all subscribers for Netflix from the beginning of time. This took me SO long—and I had some insights into Netflix’s history from it—that I’m going to write it up as its own, probably too-in-the-weeds, article. In the meantime, just know these colors are the six different ways Netflix has revealed subscribers to investors:

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Read My Latest at Decider: “‘The Boys’ Is a Hit for Amazon, But What Does That Mean?”

Last week, I threw up a quick Twitter thread on The Boys and I just turned it into a full article for Decider.  (And it’s short for me, about 800 words.)

So take a read and share on social media! Appreciate it in advance.

Of course, trying to judge if a series is performing well or poorly is NOT simple. And as I found some new data sources, I had thoughts that got cut from the final article. (As always.) So here’s the rest of the story, including a broadcast comparison, how I think about managing messy data sets and the rest of Amazon Studios datecdotes.

Introduction – A BH90210 Comparison

Initially, I was going to compare The Boys to BH90210, the Beverly Hills, 90210 revival that was off to a good start last week. Here’s the Variety quote on its success:

Image 1 - Variety TV Rating

That’s good! Or is it bad? I mean, is 3.8 million people watching good? Honestly, with broadcast we don’t know since a show like Night Court used to get 20 million viewers in the 1980s, and The Big Bang Theory—the biggest show on broadcast in 2019—didn’t even get that for its finale. (Fine, it did with DVR viewing.) No seriously, here are the ratings for Night Court:

Image 2 - Night Court Ratings

So which was bigger, BH90210 or The Boys? To the Google Trends. Now, here’s the first look and you can say, “Well The Boys won”…

Image 3 - The Boys initial

But I told you Google Trends was finicky, didn’t I? The problem with a show like BH90210 is the title is super generic and derivative off another series. So here’s with a few other variations on that title.

Image 4 - GTrends Updated

Add them all up, and BH9210 was more in the consciousness than The Boys. Whether that translates to more viewers, I can’t say. But it provides some “broadcast to streaming” context.

Comment on Amazon Datecdotes

One of my favorite parts about writing and researching this article was it forced me to look up all of Amazon’s “datecdotes“. Which I’d been meaning to do since their last earnings report, where they again touted Emmy success while steadfastly avoiding numbers a la Netflix.

Now, why wouldn’t Amazon tell us good news? Well, the pro-Amazon case is they have all sorts of good news but are hoarding it for some advantage. That’s frankly BS. My rule of thumb with all large organizations—from the government to any corporation—is they share good news and hide/bury the bad.

The most basic assumption is that Amazon’s overall numbers are much, much smaller than Netflix, so they avoid specifics. Because if they did, they would look bad. That’s simple logic.

Anyways, here’s my Amazon datecdotes table, a la Netflix. Notably, I left out two other sets of numbers for space in my Decider piece. First, the Reuters leak from last year had aadditional details for Transparent and Good Girls Revolt. Second, last fall Amazon touted it’s NFL viewership numbers for Thursday Night Football:

Image 5 - AMZN Datecdotes

Some quick notes. For The Man In the High Castle, for example, we still don’t really know what 8 million viewers means. Is that over the lifetime, up to the point in time Reuters got the leak? Or some shorter time period? With data, that distinction is really important. 

Or take The Tick as a top five series for Amazon in 2017. That would worry me, given that as the IMDb data shows that series wasn’t even that popular. And it was in their top five? And now it and Sneaky Pete are off your platform? That would make make me think the other series are much much smaller than we imagine. (Sneaky Pete was also a Sony co-production. So the co-pro curse strikes again.)

Google Trends – The Boys Pessimistic Case

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