1. Netflix App Downloads Drop

Adding to Netflix’s increasingly growing list of woes comes reports that the number of downloads of the app is dropping. 

According to a note from investment firm Evercore ISI, June 2022 Netflix downloads were down 5% YOY and 2% MOM, with the biggest yearly drops happening in APAC (-16%) and USCAN (-13%).  

On the bright side, EMEA downloads were up 8%.

Netflix’s stock has plummeted as Wall Street takes in their stalled subscriber growth, recent layoffs, seemingly hasty decision to launch an ad-supported model and newly energized competition, and so this is just the latest piece of bad news for the company.

Why It Matters

Much of Netflix's troubles are due to the company being unable to get ahead of the media spin cycle.

To wit, what is routinely being billed as “massive subscriber losses” was less than one-tenth of one percent of their subscriber base—hardly “massive”--and that number would have been in the black had Netflix not supported the Ukrainian war effort by shutting down its Russian operation and its 700K subscribers.

As for the slowing app downloads, this, like the decision to launch an ad-supported model and the slowing subscriber growth is inevitable and TBH, I am more surprised that people are surprised than I am at the fact that it happened.

Why? Because by June 2022 just about anyone who wants Netflix already has it. Around two-thirds of all U.S. households subscribe to the service, which may be close to the limit of people who want a $15/month streaming TV service, no matter how awesome it may be. (US smartphone penetration is at around 80%, just to throw out a number for comparison.)

What's more—and this is key to interpreting those stats— pretty much every new TV sold these days is a smart TV that has Netflix already installed. So no need for a download. 

That note holds up when you look at which services are seeing a growth in downloads: Paramount+, Disney+ and HBO Max. Not only are those apps growing in popularity, but, unlike Netflix, they are unlikely to be pre-installed in older smart TVs, and so viewers are, you know, downloading them so they can watch them. 

(It’s also unclear whether those download stats are for the mobile app, in which case they’re even more easily dismissed given that, as per Conviva’s latest State of Streaming report, 83% of OTT viewing time in North America takes place on an actual TV set.) 

So nothing much to see here beyond another set of stats that seems to prove something it actually does not.

Which is not to say Netflix doesn’t have problems. 

Their biggest issue right now is that their “all things to all people” strategy of producing shows that might appeal to various niche audiences isn’t panning out, as the perception grows that much of what is on Netflix beyond Stranger Things isn’t worth watching, that their library pales compared to most of the FASTs and (most important) their competitors are all pumping out the Really Good Shows You Want To See.

Because ultimately, that is what it is all about—who has the really good shows, the ones viewers want to spend their time and money on.

There’s a secondary issue too—the more bad PR Netflix gets, the harder it will be for them to convince top talent to work with them.

If I am, say, Quentin Tarantino and I’m looking to place my first-ever foray into TV and I keep reading about how Netflix is in trouble, then I’m going to be far less predisposed to sign a deal with them than I was a year ago.

Which then feeds into the whole “not a lot of good shows” issue in what then risks turning into what is known in other parts of the business as a “flywheel.”

Ouch.

What You Need To Do About It

If you’re Netflix, you need to do more aggressive damage control. The media attention on Stranger Things got you some cover for a few weeks, but ultimately you will need to address the situation and here the best defense will be a good offense: explain that you are so firmly entrenched as Top Dog that of course your subscriber numbers are slowing down but that’s not cause for alarm. Rather, it’s proof that everyone else is just playing catchup and the key number to look at is still total subscribers.

Or rather, total subscribers, minus practically free Indian services that carry IPL cricket subscribers.

That should go some ways toward calming investor fears.

I’d also get in touch with every journo who talks about your “massive subscriber loss” and set them straight.

But that’s just me.

2. Streaming Has The Backend Backwards

The shift to streaming isn’t just impacting the advertising and distribution ends of the television industry. It’s impacting the creative end as well, in ways big and small.

This was brought home by a speech that Jeff Sagansky, a well-known producer/investor and former president of CBS gave at NATPE this year and doubled down on last week, lambasting the industry for imposing deals that eliminate most all of the backend profits that actors, writers and producers have counted on for years.

To wit, while Jennifer Aniston and the other Friends all made a nice sum of money during the run of the show, they accrued generational wealth when the show went into syndication. 

Sagansky estimates that the creative community in total loses around $1.5 billion each year due to the vanishing backend.

Why It Matters

While these would seem to be boom times for those in the creative end of television, what with over 500 new original series produced each year, the shift has proven very disruptive.

For starters, there’s scheduling. 

While TV was never a stable business, anyone attached to a network TV series with its September to June schedule could be assured of something close to year-round employment. This was a big deal to creatives with marriages and families where mortgages needed to be paid, vacations needed to sync up with school vacations, Little League teams needed to be coached, etc.

What I hear from friends and acquaintances on that end is that while there are more options, streaming has added a huge dose of uncertainty to their lives. 

Shows are eight to 10 episodes and so shooting only lasts three or four months, meaning they need to scramble for a new gig several times a year. Then, if there is a second season of a streaming show, it’s not on any sort of regular schedule, meaning it could resume nine months later or nineteen. And while streaming often does pay better, the ultimate gross for an eight episode streaming series is still nowhere near what it is for a 24 episode network prime time one.

“It just feels like I’m constantly scrambling” is a common refrain.

All that scrambling would not feel quite so onerous if there was still the potential for a pot of gold at the end of the rainbow.

But as Sagansky points out, eliminating the backend—the money creative talent makes when shows are sold into syndication or overseas—eliminates those pots of gold and thus the incentive many people have to work in television.

And it was a huge incentive.

While most network prime time series did not last more than a season or two, the hope was always there that you would get in on a show that ran for at least five seasons—the magic number for a show to be viable for syndication was 100 episodes—as the backend was where you would make your real money and when all those late nights and notes from interfering network executives would eventually prove worth it.

Unfortunately, Sagansky might be howling at the moon here.

Streaming services say they need to eliminate backend payments in order to remain profitable, given that they are not getting the millions (often billions) in carriage and retrans fees that broadcast and cable networks get and that they need to make up the shortfall somewhere.

Their argument is that they are taking the risk on the show, thus they should get the reward.

That, and it’s hard to feel bad about people “only” making hundreds of thousands as opposed to millions.

What You Need To Do About It

If you’re the streaming services (all of you, not just one) you need to find a way to bring back the backend, at least somewhat. 

The alternative is what happened to the creative end of advertising where lower salaries and deteriorating working conditions drove away a lot of the talent, which then led to agencies justifying paying lower salaries because the output was no longer stellar, which created a sort of flywheel effect the industry has yet to recover from. (Sensing a theme here?)

So heed Sagansky’s cleverly worded complaint that “we are in a golden age of content production and the dark age of creative profit sharing” and share some of the wealth before you drive away (to really murder a metaphor) the geese who lay your golden eggs.

It beats relying on the Metaverse and crypto.