Tag: Netflix

Read My Latest at Decider: “To Binge or Not to Binge: Who Won the Battle Between Game of Thrones and Stranger Things”?

I just had a guest article published at Decider, this time asking, “Should Netflix keep binge releasing all its series?” My conclusion: not all of them. Essentially, Netflix is leaving “awareness” on the table.

Take a read and share on social media. Also, shout out to Alan Wolk, who tackled this back in the spring with Game of Thrones. I’d been toying with this idea when I read his take, and tried to update his thesis with the Stranger Things data point.

Like all long articles I write, I had two ideas that didn’t fit in the main piece. Here they are.

Has Hulu’s Weekly Release Helped?

It’s tough to say. Here’s the brutal case against it:

Image 8 - G Trends with Handmaids

Frankly, The Handmaid’s Tale is their most popular series and it is clearly the lightweight to the Game of Thrones/Stranger Things heavyweights. So let’s drop those two, and throw it up against some similar competition.

Chart 7 - Google Trends TV.png

That’s better, and you can see the same weekly interest boost that Big Little Lies and Game of Thrones had, just on a different scale. Instead, I still think that Hulu is just much, much smaller than Netflix right now. (Which, yes, isn’t breaking news.) Or about where HBO is, given that the interest almost matches something like Big Little Lies.

The counter to the binge model, though, could also be this chart. If The Handmaid’s Tale had dropped on one weekend, would Hulu even have a chance to keep it in the conversation? I don’t think so. In this case, Hulu made the right decision. This naturally leads us to ask about not just the current streamers, but the future streamers.

What Should the DAWN (Disney, Apple, Warner and NBC) Streamers Do?

Well, it depends on who you are and what your business model is, but overall, I’d be flexible. If you have a show with tons of pent up demand—like the upcoming Lord of the Rings on Amazon—consider weekly releases for the first season. Ride the potential enthusiasm to help launch weeks worth of content.

For the rest, I’d consider what type of content you have. Disney has a lot of shows that will benefit from weekly releases. Star Wars or Marvel TV series are guaranteed to drive conversation on comics and sci-f (fanboy) websites and podcasts. Weekly releases will amplify their reach from season one. For other dramas? Maybe not.

For HBO Max, they know all about launching prestige television, but HBO is about to quickly run out of days to launch all their content. In that sense, having more binge releases may make sense. Though again many of their fantasy or superhero series are destined to be stars in recap culture. For NBC, I still know so little about their platform that I won’t even speculate.

Apple may benefit the most from the binge release model. They are buying a ton of content and needs lots of buzz right from launch. Moreover, they aren’t trying to build a streaming platform per se, but a TV platform of which the content serves a subsidiary purpose. They should probably consider an approach closer to launching all series on binge, then rolling out the hits weekly for season twos.

Fine, What About Netflix?

If I were Netflix, I think they are missing something essential about how the social conversation drives a show to new heights. Right now, they have one potential mega-hit in Stranger Things. Even if they want to keep binge releases for all ten thousand other releases, they should consider carving exceptions for their biggest hits. A Stranger Things weekly release likely would have brought in new customer which they, um, need nowadays.

The key boils down to flexibility and being innovative. Innovation is not saying “Never, never, never.” It’s about understanding your customers, your business models and the attention landscape to maximize your return on assets.

“Neverflix” – What Netflix’s Q2 Earnings Says About Their Future Strategy

This sub-bullet in CNBC’s “prepare you for the earnings report” article caught my attention:

QUOTE 11 - Wont catch p soonOn the surface, it’s clearly true. One bad earnings report won’t power Disney+ or HBO Max to 150 million subscribers. But as I reflected on it, the key variable is “when is soon?” By the end of the year, sure, Netflix is safe. But what about the end of 2020? Or 2021? If someone does catch up to Netflix, then the streaming wars will have a new champion.

Let’s see if the earnings report sheds any light on that question.

Strategy

Most earnings reports don’t reveal monumental shifts in strategy. This report would mostly qualify, except that Netflix did rule out a key potential revenue stream in fairly definitive terms.

“Neverflix”

At the end of last year, when it came to a Netflix show airing on a linear channel, I called Netflix the “company of Never”:

QUOTE 12 Neverflix

This earnings report doubled down on the fact that Netflix will NOT roll out advertising any time soon. I believe them and agree with this position. Adding advertisements will concretely change the user experience, likely leading to higher subscriber churn than the ad wizards begging for it expect.

I have softened on the position of “never” recently. I do appreciate Netflix’s relentless focus. A good strategy is a focused strategy, and saying “No” to efforts that divide your energy can be a wise tactic. But let’s not go overboard. For example, releasing episodes weekly.

I’d argue that decision is not material to the Netflix customer experience. Instead, binge releasing is a decision they made, and now cling to unnecessarily. Why isn’t, for example, Stranger Things 3 being released weekly? Having one series go weekly won’t lead to customer churn. There may be a 10,000 angry fans on the internet who want the binge, but again that’s noise, not signal. (I like this issue so much, I wrote an article for another publication coming out soon.)

Oh, and one other “never” that should really worry Reed Hastings.

The Never That Terrifies Me: Aggregation

If I understand the Netflix bulls correctly, the sky-high stock price—if it isn’t based on past performance being sky-high—is due to the fact that at some point, Netflix will be TV. Netflix isn’t just “another streamer”, it’s the future of TV. But is that future already in the rear view mirror?

Currently, many people get their HBO, Showtime and Starz through Amazon Channels. More will get Disney+, HBO and Showtime through Hulu. Apple will have another set of channels. Already, people experience streaming through Roku, and they added the ability to buy channels too. 

In other words, as Ben Thompson coined, the streamers are getting aggregated.

Eventually, the aggregators will offer bundles or discounts. Netflix, though, won’t be included because they have started pushing everyone to subscribe through the internet, instead of through those platforms. They did this because all those aggregators charge fees to sell the channels. I see two sub-optimal outcomes for Netflix as a result:

1. Eventually they get aggregated, which means they are “just” HBO.

2. They struggle to get awareness and presence outside the bundled aggregators.

Either choice is bad, and the sooner Netflix realizes it the better. (Hopefully more to come on this topic.)

Distribution: The good news

If avoiding digital bundlers is the downside case for Netflix, the upside case is integration with MVPD providers. Netflix announced that they will now be on AT&T’s devices that enable streaming integration. I’ve seen this work on Cox’s (via Comcast) Contour system, and it really does complement the cable bundle. Amazon Prime/Video is right behind them, and both are well ahead of the new streamers to catch up to their head start.

Competition: This is the low water mark for digital streaming.

Speaking of new SVODs, the other looming cloud over Netflix is the impending launch of the DAWNs: Disney, Apple, Warner-Media, and NBC-Universal. (Hat tip to Variety for coining.) Obviously, this will put pressure on Netflix to keep prices low to stay competitive—they are just below HBO in cost—and keep spending high to produce original content—they lap everyone when it comes to spending.

More interesting is how this will impact subscribers. While the launch of these streamers may inspire more cord cutting, which would benefit Netflix, the launch could also lead people to “cutflix” and trim the number of streaming options. But let’s move to our next section to discuss those implications.

Subscribers

How Many Subscribers Will Disney+ Grab?

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Netflix Q2 Earnings Report – A Lot Less for The Bulls

Back in the halcyon days of April, Netflix had just crushed another quarterly earnings report and it was riding high. In Decider, I said their report had something for both sides—for the haters and the lovers, skeptics and the supporters, bears and the bulls.

Well, Netflix finally had a bad earnings report.

The most fascinating thought, to me, was this one by Gene Munster:

“As much as I love the company, I just think its best days, unfortunately, are in fact behind it…I think we’re going to look back at this quarter as one of the pivotal moments in the Netflix story.”

If the laws of entropy are indeed correct, well at some point, every company’s best days are behind it. Unfortunately, we hardly ever realize this in the moment. This doesn’t mean the companies go out of business a la Blockbuster—IBM is well past it’s high water mark, but it’s still around and publicly traded—and it doesn’t even mean the stock price will decline—since stocks in general have gone up in general even faster than inflation. But at some point everything declines.

So is this the moment of Netflix’s high water market? Honestly, it may be. But we won’t know for sure until years from now.

To figure it out, I’m going to dig through Netflix’s last earnings report for the strategic insights I can find. As a reminder: I’m not here to give you stock advice. I’m here to critique strategy and Netflix’s quarterly reports are the best time to update my priors/data on Netflix’s strategy. Today, let’s discuss meta thoughts and content strategy; tomorrow I’ll go over strategy, subscriber and financial thoughts.

Meta Thoughts

At Least Netflix Gives Us Financial Data to Parse.

Let’s praise Netflix for one thing to start: producing this document in the first place. 

If Apple had bought Netflix in 2015, Netflix would have become an operating segment, which means that Apple could pick and choose selected numbers to release about their performance.  Likely they would have hidden as much as possible, they way they now hide iPhone sales. So I’d have much less data to judge them on.

To get a feel for this, take a gander at AT&T. We used to get a lot of HBO data every quarter—even as part of Warner-Media—but since AT&T acquired them, they went back to not reporting on HBO specifically. Meanwhile, if HBO were a standalone company, we’d have even more data than both previous reporting situations. The current situation leaves us guessing about their revenue, operating income and subscriber totals. We only get little tidbits if AT&T deigns to give it to us.

If we had to power rank the streaming platforms based on data released, right now it looks like this:

1. Youtube
2. Netflix
3. HBO
4. CBS All-Access
5. Hulu
6. Amazon Prime/Video/Studios

And all of them pale compared to the networks and TV channels of old who had TV ratings released every day and provided us financials. To Netflix’s credit, they give us their financials to make columns like this possible.

What is a “Netflix Killer” Anways?

Alan Wolk had a good article at TVRev clarifying that Netflix won’t actually disappear anytime soon, which is a statement I wholeheartedly agree with. Why, then, do so many headlines have “Netflix Killer” in them? 

Well, fuzziness in definitions. For a lot of folks, Netflix is one of the most over-priced companies in the world. They’re usually reacting to folks who think that Netflix is destined to conquer all of television. So you could reasonably say that any of the following end states is the “death of Netflix”, depending on your point of view:

1. Netflix suffers a few bad quarters and ends up with a price-to-earnings ratio around 20-25. (To show the gap, Netflix is currently at 123; most media firms trade between 15-20; Disney is currently a 20.5.)
2. Netflix is acquired by another larger digital company. (I recommend Facebook in this article.)
3. Netflix becomes the 3rd or 4th most subscribed OTT platform in America and/or the world.
4. Netflix goes out of business.

This is how I can think that Munster may be right—Netflix’s best days are behind them—and that Alan Wolk is right—there is a no “Netflix killer”. It depends on the definition. My personal opinion is that option 3 above is exceedingly likely, which means Netflix should valued like HBO, not like Amazon. Netflix is here to stay, but maybe not one of the most highly valued companies in the world, which may be death depending on how much stock you hold.

Content

How do you evaluate the biggest spender in Hollywood’s performance when they dole out so little data? By my count, they’ve released 17 “datecdotes” going back to the Q3 2018 earnings report. They’ve doled out a few more to news outlets over time, like this one to Reuters, this one to Variety or this tweet for Stranger Things last week. 

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Most Important Story of the Week and Other Good Reads – 28 June 2019: The Office Is Leaving Netflix

A “Most Important” column on a Thursday? What’s going on with the Entertainment Strategy Guy’s usual Friday column? Well, an out of town wedding, which means I’ll be on the road tomorrow. So enjoy an early bite at the entertainment biz apple. 

Also, next week, with a birthday, Fourth of July, and some household projects lined up, posting will be light again. However, I have a lot of fun ideas planned for July, so keep checking in.

Most Important Story of the Week – The Office Is Leaving Netflix (in 2021)

Imagine that you have a favorite restaurant. A fancy small plates restaurant with a named chef. The first time you go, the meal is incredible. Almost all the dishes are delicious. (The service is impeccable too.) And for how much food you get, well, the price isn’t too bad!

Naturally, this becomes a restaurant you visit often.

Fast forward a bit. A year or two later. The small plate place has changed its entire menu. It’s a bit more adventurous. You try a few plates, and well this time there are a few dishes that are misses. Meanwhile, your old favorites are gone. (The service is still impeccable.) Do the portions seem a bit smaller? Man, this bill is kinda pricey for what we got.

Naturally, you don’t go as often anymore. 

Since this is a business strategy site, let’s take the above two scenarios and put them in terms of the old quality drivers: the product–in this case the food–isn’t quite as good. Though part of the product–the service–is the same. Meanwhile, the price for the food (both in terms of quantity delivered and quality of dish) is much lower. Hence, you don’t go as often because it isn’t as valuable.

You see the Netflix analogy, right?

One part of Netflix’s product is just fine: the user experience. They’re way out in front of everyone else in streaming. But the prices are going up, starting in the US and expanding to the EU. These prices are going up right as the quality of the product (in terms of both size of offering and quality of individual titles) is about to potentially fall off a cliff facing. Starting about two years ago–and continuing for the next half decade or so–Netflix has lost or will lose theatrical movies from Disney and Universal, new shows from The CW, library TV content from Disney, Fox, and others (including The Office which was widely speculated about online) and more.

Let’s not pretend that losing thousands of hours of the most valuable content is nothing. You can’t lower quality while raising prices and say, “This will have no impact.” Signs are Friends and The Office are Netflix’s most valuable TV series in terms of hours viewed; I continue to believe that Disney has the most popular movies being made because…they do. (See box office.) Moreover, the biggest shows and movies aren’t just bigger by a little bit–long time readers know where I’m going with this–they are MULTIPLES more important. (Article explaining that here.)

As we move into the next wave of the streaming wars, the value of a content library will be increasingly important in separating the services. Consider this (hypothetical) situation with (made up) numbers. Netflix has a service that most customers value at a “5”. Disney offers a service most customers value at a “4”. But Netflix costs twice as much as Disney’s service…so how many keep both? How many cut the cord for Disney? What if HBO ends up with a service customers (hypothetically again) value at an “8”, but it costs even more than Netflix? What if NBC and Hulu are free…but have better content valued at “3”?

I don’t know! That’s a complex equation with too many variables to compute. Then we’ll have to repeat the exercise country by country around the world. But whereas we know one key piece in that equation absolutely—price per month isn’t a secret—we’re left guessing on how much less valuable the Netflix library will be after The Office, Friends and Disney movies (after Dreamworks movies, Fox TV series and others have already left) depart the platform. So will this hurt Netflix? Yes. How much? It remains to be seen.

(Here is where I wish I could link to my article explaining how to value content libraries (versus series, which I did here), and my take on which service has the most valuable content library. But, um, I haven’t written those yet. Yes, I’m on it. I’ll do what I can.)

Other Contenders

Kanopy Dropped by New York City Public Libraries

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