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Week In Review: Netflix Is Growing Faster Than Kudzu In The Summertime; But It Needs To Start Marketing Its Original Series

1. Netflix Is Growing Faster Than Kudzu In The Summertime

There were admittedly a few quarters last year where Netflix’s U.S. growth seemed to have slowed down and we were thinking that perhaps they’d hit their limit. DVR penetration in the U.S. had sort of capped out at around 50% and there was good reason to think that Netflix would hit the same limit. Maybe there just weren’t that many people who cared all that much about TV.

That theory seems all but disproven this quarter, as Netflix posted some very impressive gains for the third quarter in a row. The service added over 5 million subscribers in Q2 2017, but what was truly impressive is that 1.1 million came from the U.S. That follows U.S. gains of 1.9M and 1.4M in Q4 2016 and Q1 2017, respectively. So there’s a definite upward trend that can no longer be attributed to Comcast adding Netflix to X1.

Why It Matters

Netflix’s subscriber numbers are impressive —at 51.9M U.S. subscribers, they now are in around 40% of all U.S. households and well over half of all pay TV households.

They also don’t show commercials.

That has major ramifications for a TV ecosystem that’s based on people watching commercials.

We’re already seeing the gradual acceptance of a piece of conventional wisdom that says that educated upscale coastal types rarely watch commercial TV anymore.

And if you look at the shows considered to be “Peak TV”, they are admittedly almost all on ad-free SVOD and premium services.

So there’s that.

There’s also the shock of encountering one of those four minute long network ad blocks, the ones with two minute-long pharma commercials in them, after a steady diet of Netflix, and what that does to viewer’s ability to sit through those commercials. (We continue to believe that the onslaught of pharma ads bears a disproportionate responsibility for viewers abandoning live pay-TV, but that’s the subject of a much longer future post.)

There’s also the Netflix Paradox: While Netflix does have a lot of original content, most of what they show is reruns of network TV shows. And without the ad revenue to fund those network TV shows, Netflix’s offering would be a whole lot narrower. So at many levels, it is in their interest to ensure that ad-supported TV keeps on thriving.

How they actually do that is a bigger issue and not something we can solve in a single Week In Review column. But branded content and addressable ads that brands will pay more money for are both going to be a part of it.

What You Need To Do About It

If you’re an MVPD, you need to think about following Comcast’s lead and incorporating Netflix into your service. As we’ve explained before, it’s a win all around: you get extra stickiness and happier customers, they get free marketing and the ability to reach an older, more technophobic audience. Netflix will not disappear if you ignore them. That’s why joining forces makes so much sense.

If you’re a network, you want to think about what you can offer that they can’t. And, more importantly, whether you want to keep selling them your reruns or whether you want to save those reruns (provided you have rights to them) and launch an OTT app yourself.

There are pros and cons to both, but remember that launching a successful OTT app requires skills and people that are not native to your organization. So be sure to factor that in.

And if you’re a brand, start thinking about branded content and addressable advertising now, because they’re both more or less inevitable later.

 

2. But It Needs To Start Marketing Its Original Series

Netflix has been lucky thus far with its original series: they’ve largely been able to get by on word of mouth and media buzz around each new series launch.

But that’s less and less the case these days, and since Netflix releases all episodes at once, the window in which these shows can develop any sort of buzz is very small: other networks, which release shows weekly, have several months to build up buzz and an audience.

Now Netflix, which relies on subscribers, can afford to let shows do a slow build, but they can’t afford for them to disappear completely.

Which is definitely a real danger for them now, as both new series and new movies are added at a dizzying pace.

Why It Matters

Take Ozark, for example, a new series starring Jason Bateman, that launches today. It has a 73% rating on Rotten Tomatoes, which is pretty respectable. The problem is that it’s fighting for mind share with the return of Game of Thrones and blockbuster summer movies like Dunkirk, Spiderman and War for the Planet of the Apes.

That means Netflix can no longer rely on buzz and needs to step up its marketing game. Yes, the Netflix algorithm can surface shows like Ozark to the type of audience that’s likely to want to see it, but people don’t watch shows because Netflix recommends them: they watch because their friends recommend them or because they just read an article about them on Facebook.

It’s just human nature.

What You Need To Do About It

If you’re Netflix, you need to look at how movies are marketed rather than TV shows, if only to understand how to create buzz in a limited time frame. Long tail marketing efforts using Facebook are likely to be key to this effort too, but with so many original series available, Netflix is going to have to bite the bullet and double down on marketing.