Tag: broadcast

Most Important Story of the Week – 4 Sep 20: The Fall of Fall (TV Advertising Revenue)

I’ve been too positive about the entertainment industry recently. Especially the traditional players. I think theaters by the end of 2021 will be fine. I think the traditional entertainment streamers can compete with Netflix (and Amazon). And I even think Disney will see a thriving theme park business sooner rather than later.

So let’s get negative. Really inspire some fear. Of course, that means broadcast TV.

(As always, if you’d like the Entertainment Strategy Guy delivered to your inbox, sign up over at Substack. My newsletter is free and goes out every two weeks.)

Most Important Story of the Week – TV Network Ad-Revenue is at Risk

While it may be “dying”, the linear TV business is still good money for traditional media conglomerates (Disney, Comcast/NBCU, AT&T/Warner Media). I like to tell this story via this chart via Disney’s revenue:

In addition to the total revenue, media networks also make tons of operating profit. As I laid out in one of my most popular articles of the year, if you imagine a world where, in complete disruption, they lose all their “media networks” operating profit, and streaming still isn’t profitable, they aren’t just losing $3 billion per year like Netflix, they’d have lost $10.5 billion in operating profit on net! 

Thus, as they pivot from linear to streaming, the traditional players need to be careful. They need to find out how to make streaming profitable and not destroy their cash cows that quickly. It’s unclear if anyone can do the former, and the Coronavirus may have pushed the latter from their control.

Advertising revenue will be the first part of the traditional linear pie to feel the pain. (And actually has been suffering in the last few years.) It’s not a majority of the revenue–that honor belongs to subscriber fees–but it’s a big portion of the puzzle. Across broadcast and cable, it’s a $44 billion dollar piece! Depending on the channel, it can be 20-50% of total revenue.

And the biggest piece of advertising revenue comes from the broadcasters, which are still the biggest channels in the linear bundle. The threats to advertising come from both the demand and supply sides, which is what makes the Covid-19 inspired recession particularly challenging. (Past articles on Covid-19’s impact on entertainment here, here, here, here or here.)

On the demand side, advertisers love to advertise on sports because live sports still get great ratings and viewers don’t usually skip the ads. And when I say sports, I mean football. Both college and NFL, but particularly the NFL, which dominates annual ratings. While the NFL is still scheduled for this season, it could disappear in a moment’s notice if Covid-19 rates skyrocket again. Thus, the Wall Street Journal reports that advertisers are seeking to claw back proposed ad spending if NFL games don’t happen.

(As for college football, a majority of college football games have been cancelled, but some leagues–the SEC, Big 12 and ACC–are trying anyways.)

If the broadcast networks lose NFL games, it’s doubly-brutal since the rest of their primetime schedule is fairly “meh”. The same force that could cancel NFL games caused studios to shut down all of production for new TV shows. Reruns don’t do as well as new TV shows. Thus, the linear channels will have fairly weak lineups this fall, even as customers have more free time than ever to watch.

There is one bright spot in the demand-side: out-of-home viewership. For years Nielsen didn’t mention viewership in bars or restaurants or anywhere that wasn’t in someone’s home. But obviously sports bars only exist to show sports and serve beer. After years of promise, and some last minute waffling, Nielsen plans to roll this out this fall. It should boost the role of sports/ESPN even further in the ratings. (And 24/7 news networks.) That said, if the NFL doesn’t happen, no amount of out-of-home viewing will help.

The supply side of ads is arguably in an even worse state than the demand. When you’re in a recession, the first thing that goes is marketing expenses, and that’s precisely what happened in this recession. Some of the biggest drivers of ads are under as much threat as the broadcasters, like car companies, airlines, or hotels. And they’ve pulled back on advertising. Meanwhile, digital advertising beckons with its “targeted” ads, since Google, Apple, Amazon and Facebook hoover up all your data to sell.

And one of the biggest advertisers, Hollywood itself, will probably spend the least on linear advertising in recent memory. Since, theaters have been shuttered in large parts of the country, there is no big opening weekend to push customers towards. Digital advertising can take up that slack. That’s the take in this Variety story.

Conclusions

That’s the doom and gloom for the near term. Will it last? 

Again, when everything is tied to Covid-19, there is as much a chance that things snap mostly back when the pandemic passes as it is that they are permanently altered. (For the record, I expected/will expect double digit drops in linear viewership since cord-cutting adoption is following an S-curve.) For example, if theaters are back to “normal” in the mid-point of 2021, the focus on opening weekends will return, and with it linear advertising.

If I had to point to one wildcard, though, it’s football. Which is really the issue suffusing the conversation above. (Even feature films are really talking about advertising against football.) As long as football wants to reach every household in America, it needs linear TV as much as digital. And that should support this ecosystem for another 5-10 years.

Still, we’ve likely seen a high watermark in linear advertising revenue. Which isn’t too surprising, since advertising revenue has been under pressure for years. It just means that, even if it bounces back, between cord cutting and reduced quality content, broadcast advertising will never regain its past heights.

Entertainment Strategy Guy Story Updates – Licensing Is Still Very Important for Streamers

This story is really a combination of three stories that all competed for my top slot this week. 

Combine the three and the story is fairly inescapable: for all their tens of billions in content spend each year, Netflix cannot give up on licensed content. This shouldn’t be that surprising, but it does contradict the story Netflix projects to Wall Street. 

Let’s start with why licensing is still crucial: because it moves the needle! When you look at the Pay-1 movies–films in their first linear TV or streaming window after theaters, usually in the first year–you can see that every streamer is desperate to get Universal’s output. This is because new Fast and the Furious, Minions, and Jurassic Park films move the subscriber needle. Just take a gander at VIP’s August report:

(Go to Variety VIP to read. Full disclosure: I’m on a free trial from Variety.)

That’s a lot of licensed film content in Netflix’s Top Ten! The story is the same on Nielsen (hat tip Alex Zalben) when it comes to top TV series on Netflix in the last week:

That top ten list is almost all licensed content. (Which contradicts Netflix’s daily Top Ten lists, a point I’ll explore in a future article/Tweets.) 

On the whole, the fact that Netflix needs licensed content should be the least surprising story in media. TV has always been about renting content. Syndication built up numerous channels from Fox to USA to AMC to you name it. Even HBO was built off Pay 1 films. So renting content to enter a market is a tried and true strategy.. 

Unless…

…your stock price involves “building a moat” of original content. Which Netflix’s does. Specifically, making a moat with original content that will bring “pricing power”.

Licensed content’s current and continuing importance to Netflix will determine if this strategy works or blows up. If it turns out that Netflix still needs licensed content, after spending billions on originals, then one of two things happen. First, if Netflix loses the content, then they will likely see higher churn among customers. That both lowers the average revenue per user and raises acquisition costs. So they keep losing money. Or Netflix keeps licensed content, but has to pay more and more for it in a competitive bidding environment. That raises their costs. So they keep losing money. 

In short, Netflix desperately wants to decrease its reliance on licensed content. But so far the data doesn’t show that strategy is working.

Over the last few months, I’ve softened on how important licensed content was for Netflix. It seemed like their original films were finally breaking through. And the top ten lists were filled with originals, especially on TV. But the combined FlixPatrol/Nielsen data contradicts that. Even as the licensed content changes–farewell Friends, The Office, and Disney blockbusters–the importance of licensed content remains. (My guess is Hulu and Prime Video are in the exact same boat, by the way.)

(Bonus update: it seems increasingly clear that the future will be measured, as I wrote way back in December of 2018 and October of 2019. Between top ten lists, Nielsen and others, we’ll have some sort of standard to judge which shows are doing well in the ratings.)

Other ESG Update: Cobra Kai’s Migration to Netflix

To quote Marshall McCluhan, the medium is the message. So for Youtube, the medium is ad-supported music videos, box openings and alt-right/alt-left commentariat. Not prestige originals. Clearly Youtube had a good show in Cobra Kai, but after that they didn’t know what to do with it. (Read my past writings on Youtube Originals for more.)

Other Contenders for Most Important Story

AT&T Is Selling Some Assets, but Not Others

The story over the last few weeks has been that AT&T is looking to sell tertiary businesses to reduce debt. On the table are Xandr (their ad-sales unit), DirecTV and CrunchyRoll; not on the table are Warner Media’s video game unit. As some folks have pointed out, though, we shouldn’t read too much into any specific business unit sale or story since these talks are ongoing. And the rumor mill is vicious.

Still, it seems clear based on the volume of rumors that AT&T is looking to sell some assets to help their balance sheet. The management lesson should be clear: M&A is not a strategy. Strategy is strategy. That’s the story of AT&T in the 2010s: buying size mostly to accumulate assets. The investment bankers got paid; the shareholders haven’t yet.

Walmart’s New Subscription

On the surface, Walmart offering “Walmart+” isn’t entertainment related. It’s an ecommerce story, about a battle between two monopolistic giants. Except for the fact that nearly every article had to mention that Walmart+ doesn’t offer any free entertainment streaming. So…

Prime Video = $120 a year, with Prime video and Prime Music
Walmart+ = $98, with no entertainment.

Therefore, Prime Video and Prime Music are worth $22 a year?

Listen, that math isn’t totally correct. There are tons of unaccounted for variables. But generally does it match consumer demand? It probably isn’t that far off either. 

Data of the Week – What is the U.S. Addressable Market for Streaming?

In a lot of ways, isn’t that the question of the streaming wars?

A few weeks back, Leichtman Research group updated their estimate for the number of broadband homes in America. In 2019, America reached 101 million broadband homes. On the bass diffusion curve, clearly broadband adoption is slowing. This could be a good proxy for cord-cutting homes, since if you don’t have broadband you can’t stream.

Meanwhile, Nielsen still counts about 121 million homes as “TV watching” homes. Meaning about 20 million homes are still cut off from cord cutting in general.

So, the natural question is do Netflix, Hulu, Prime Video, HBO Max and Disney+ all have aspiration of 100 million household penetration in the future? Probably not. As my past research has shown, Netflix will likely tap out at around 70 million US subscribers. Meaning we have a gap of about 30 million households.

While overall streaming could end up reaching 100 million homes–similar to cable at its peak–there won’t be one service that every household subscribes to. Either from keeping skinny bundles, sharing passwords or what not, I don’t think we end up with one service as the “universally owned” streamer.  This data from Reelgood shows that while Netflix is the closest to a universal streamer, many streamers have bundles which don’t include it.

And if Netfllix can’t do it, I don’t see anyone else doing it either.

Lots of News with No News

Another Netflix Producing Deal

With royalty no less. Or not, since I believe they renounced their titles? Listen, I’m not an expert on British nobility. And while I can understand the interest from a general entertainment perspective, from a business standpoint this doesn’t move the needle.

Sound Issues in Tenet

Since Tenet isn’t in theaters in the U.S., and won’t be in my neighborhood anytime soon, I can’t speak to this from first hand information. But apparently customers are having trouble hearing crucial pieces of dialogue in Tenet. That said, when it comes to most TV and films it can be hard to hear many of the lines. Sound mixing has a lot of trouble dealing with everyone’s different sound systems nowadays.

Most Important Story of the Week – 5 June 20: We’re All Streamers Now, a Look at Fall Broadcast TV

With no “big” entertainment news, my gaze fell on a story simmering all month. Call it the “story of the month”, which is that TV is planning its return to the small screen. By TV, I mean broadcast and cable television. Which are, obviously, dead. That’s the narrative.

But since they still, somehow, impossibly, are watched by tens of millions of people in American and rake in billions of dollars, it’s worth at least one column.

Most Important Story of the Week – When Fall TV returns, It Will Look LIke Old-School Streaming

Here’s the plan, first I’ll explain the logistics of producing an episode of TV. Next, I’ll drop my big theory. Then, I’ll run through each network and my thoughts on their strategy. Good? Good. Let’s do it.

(By the by, everyone should listen to all of May’s TV Top Five podcasts. I don’t listen to as many entertainment biz podcasts as you’d guess because podcasting is my escape from my day job. But they do such great coverage it’s a must listen. May was basically explaining what we know and don’t about each broadcast network.)

TV Series Production Timelines…Explained!

First, it’s important to understand what the three to four month shutdown of TV production means. (Sets were shutting down in mid-march, and may return in June or July.) My rule of thumb for producing an episode of TV looks like this

X Weeks – Writing
6 Weeks – Pre-production
1-2 Weeks – Shooting (5 biz days for half hour; 10 days with a weekend for dramas. Single cam)
4 Weeks – Editing (sometimes up to six)
4 Weeks – Post Production

This is explained in this thread here, but it’s what I used when I did content planning a streaming company. That’s the calendar for scripted TV content. Reality can move faster, also depending on whether it’s a slice of life, game show, documentary, competition or what not. 

What matters is adding them all up. Or about 4 months. Give or take a few weeks. (It’s my ballpark estimate.)

With coronavirus even that four months has a lot of uncertainty. Will pre-production take longer with coronavirus? Same for post production if folks have to edit from home or can’t work as closely. (I can’t imagine editing a show via Zoom!) Plus, if you want all your shows to launch simultaneously, like fall TV seasons of yore, you have to build in slacks for delays.

Add it all up, and if we start shooting in June, we’ll, fingers-crossed, have some half-hour shows ready by October. (Again, my schedules were for streaming, but are mostly the same.) More likely, we won’t have most shows until the end of November, and no broadcaster wants to launch shows then, for pre-existing biases. (We’ll get to whether those concerns are valid shortly.)

My Big Theory – Without Content, the Broadcasters Will Look Like Old School Streamers

I’m really talking about Netflix at its licensed content peak. Shows from other networks that were cancelled? Sure. International dramas that are surprisingly good? Absolutely. Random old shows refurbished? Yep, that too.

That’s what the hodgepodge broadcast season will look like. 

It makes sense because the forces impacting the broadcast business have the same outcome as the forces impacting Netflix at the start. When Netflix started, it needed cheap content. Reruns provided that. Even better were “gently used” content, as Lesley Goldberg brilliantly describes it, that felt new, even if they were old. And they needed a lot of it.

Broadcast needs that now. They’re perfectly calibrated release schedules are in shambles with the shutdown. Meanwhile, they can’t afford to over-produce Netflix-style. So “gently used” content it is. Especially interesting will be how much content from their owned streamers will make it onto networks. 

Each Network Ranked

So with these constraints, each network has to figure out how to get back to normalcy as much as possible. Here’s my ranking of how well I like each network’s plan, balancing roughly their plan to get “originals” back on the air and their plan for rep

  1. The CW: What? The CW is number one? This is the answer to my question for the broadcast exec I have the most respect for right now. His hand is so tough, and yet Marc Pedowitz makes the most out of it every season. As THR called it, his fall season is “coronavirus” proof, yet somehow feels like a typical CW season. A CBS All Access  rerun? Check. A new DC series (that’s already been cancelled) in Swamp Thing? Check. Some doses of cheap, easy to produce reality? Yep. Meanwhile, they greenlight and renew almost everything, but they get the ratings they need. Meanwhile, half of everything is presold to streamers.
  2. Fox: Fox had already implemented a plan that meant they were most protected in a downturn. They’ve turned multiple nights into essentially live sports. Either NFL, WWE, or reality competition shows. Which meant that they’ve locked in their ratings. Throw in their huge animation catalogue for Sunday, and they only needed to fill out two nights. So buying a Spectrum Original no one saw fits that bill. My big caveat is that Fox bought two series that were due for July, and Fox is holding them for fall. I’m sure financially they see the upside, but if current TV is starved for good content, so why not just release them? 
  3. or 6. CBS: CBS is gambling with their fall schedule. They are going to roll out shows when they are available. Right now they are telling Wall Street that will be in October as usual. This is a boom or bust strategy. Hence the 3 or 6 ranking. Which I respect for two reasons. First, I like the idea of getting shows out as soon as they are ready. I don’t know why in these times of turbulence networks are insisting on launching simultaneously. There’s too much content for that to work. Plus, if ABC and NBC have abandoned the fall it’s even easier to get mind share. Finally, CBS All Access provides the most easy to repurpose content. So expect either The Good Fight, Picard or The Twilight Zone to make an appearance.
  4. ABC: They cancelled a bunch of shows, but it’s unclear what their replacements are. Unlike CBS, they are leaning toward January as the return of new content. That feels “suboptimal” compared to the other strategies, but less risky. As for replacement content, it’s tricky. Disney+ only has one series worth ratings (The Mandalorian), but you could see a lot of the documentaries finding time on Saturday night. Hulu has another supply of shows that could work as well. What could push them higher? Well the NBA is going to occupy plenty of nights in September and October which should ease their ratings pain.
  5. NBC. Why so low? For NBC, I’m still not sure what their strategy is. It feels like the least fleshed out. Like ABC, they have leaned towards the January return as the return. Since Peacock hasn’t launched, it doesn’t really have original content to fill out the slate.

Other Contender for Most Important Story – Unions Release Back to Work Schedule

The other big news was that the unions and studios released a set of guidelines to get production back this or next month. It’s a 22 page document and it’s fine.

No one loves regulation more than me. I’m being serious: the idea that regulation strangles business is just wrong. Smart regulation adds tremendous value to society. (See Clean Air Act. See FDA. See antitrust, back when that was a thing.)

This report by committee is a regulation of a sort and it seems to go slightly overboard. I think 90% of the marginal benefits of preventing coronavirus will be seen by three policies:

  1. Regular (weekly) testing and isolation of individuals with positive tests.
  2. Wearing masks.
  3. Keeping moderate social distancing.

That’s it. So the rest of the 22 pages have what? Tons of stuff on cleaning surfaces? That in particular feels outdated because surfaces have largely been shown to not harbor the disease. Something like 98% of transmission is via airborne droplets. In my mind, that’s where you should focus your efforts. Instead, most of the recommendation is on cleaning surfaces. In my mind, that’s “cleaning theater” the way airport screenings were “security theaters”. They provide the illusion of preventing disease spread, while largely not doing anything.

Still, we have a plan and we’ll get back to work. That’s what matters. And once it happens it may surprise us how quickly it starts.

Data of the Week – Those HBO Max/Roku/Amazon Numbers That Bug Me

Let’s start with this: HBO Max is only launched in the United States.

Therefore, when Warner Media went to war with Amazon Channels and Roku Channels last week–read all about it here–the important thing was to index the size of those services for how big they are in America. If half of your users are in Europe, then it doesn’t really matter about this negotiation, does it? So when you see a headline like this…

Screen Shot 2020-06-05 at 10.56.25 AM

You immediately should think, “Wait, is that global or US only number?” As usual, it’s using the global number for US customers. So I went searching to find the answer.

Now, for Roku, this isn’t as big of an issue. Less than 5% of their revenue comes from international sales, so if we apply that percentage to active users, then we still have a whopping 35 million active users in March. Watching about 4 hours per day. 

What about for Amazon? Well, I have no idea how many folks are international versus US users. Because Amazon doesn’t tell us. Meanwhile, most folks speculate that a big chunk and maybe a majority of sales are overseas. So I looked for data and eventually Andrew Freedman of Hedgeye provided the data I craved:

Screen Shot 2020-06-04 at 8.52.57 AM

If we assume usage is roughly correlated to active users–and I do–then we can see that while Fire TV is huge, it’s also significantly less than Roku. Arguably about 44% of Roku’s audience. I’d add, they may not be perfectly correlated. In that sense, I feel like more Roku users are full-time Roku users, and Fire TV users are a bit more sporadic. A good chunk of customers got Fire TV or Fire Sticks as a gift or add-on and use it way less. So let’s call it 15 million Amazon customers. (Also, this data has Amazon and Roku as 63% of the market, which is lower than the 70% often thrown around.)

So that nets out to about 60 million devices. Which is a lot! But 25% less than 80 million. For the last piece of context, from 2017 Pew had this breakdown of how many devices are in each home. It repeats the point that likely no home has a single solution for TV. And imagine how much it has likely grown since then.

Screen Shot 2020-06-05 at 11.00.33 AM

Entertainment Strategy Guy Updates

We’re going long, so let’s go quickly. 

Apple and Sports

Apple hired Jim DeLorenzo from Amazon. At Amazon, DeLorenzo helped launch the Amazon Channels biz, specifically the big sports deals. So is Apple looking to get into sports? Definitely maybe. DeLorenzo has that expertise. Although, he can also just help with their Channels business in general. I’ve been monitoring sports rights for a while, and this another sign the big tech players are circling, without any major commitments yet.

Disney+-Japan deal

Disney+ is coming to Japan. This is a no brainer territory for Disney, but it likely required extra programming and product management to get a viable product. Japan loves Disney content as seen by the success of Tokyo Disney, though it is particular about lots of other TV, mostly preferring originals. This is more of a problem for other streamers than Disney, because of the catalogue. 

Also, you’ll note they have another local partnership for distribution. Which is now their modus operandi. Does this invalidate my bundle recommendation from last week? No, as that’s more of a content recommendation and think they could still do that with these distribution deals. (Read that recommendation here.)

Disney+ plays with weekly releases

I held on to this one for a bit, but Disney+ released a series “binge-style”. I doubt this presages a new form of distribution for their tent pole series, but even Disney+ is experimenting with release styles. Which is fine! As long as they maximize their tentpole series. (Read that take in Decider here.)

Youtube Sells the Rights to Cobra Kai

Emphasis on the scripted. Meaning, the pricey originals. And really this is just an extension of their pull back I first wrote about in 2018. “Originals” are a buzzy, seductive trap that haven’t paid off for many of the folks running that strategy. And Youtube didn’t need them either. (Hat tip to Kasey Moore.)

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.