1. Netflix Adopts Dubious Measurement Standard
Netflix added over 8.8 million subscribers last quarter, all but 420K of them outside the US. Still, that estimate exceeded their earlier projection of 7.6 million new subs.
Simultaneously, the company affirmed its commitment to not run ads and announced that it would be changing its self-reported measurement methodology, so that a “view” would now mean the viewer had watched at least two minutes of a program, versus the previous standard, which required the viewer to have watched at least 70% of a program.
“If Zuckerberg can call thirty seconds with the sound off a “view”, we don’t see why we can’t call two minutes of a three and a half hour movie a view too,” noted CEO Reed Hastings.
(Okay, not really. But you know he was thinking it.)
Why It Matters
Mostly it matters because of how Wall Street and the mainstream media are covering this. You know, the people who keep trying to make “Netflix Killer” a thing and don’t ever seem to get how this all works.
Because TBH, none of this is the least bit surprising.
None of the other Flixes have launched in a big way overseas yet, while Netflix is in every country except China, North Korea and Syria. (Literally.) It’s the hot American digital product (think iPhone) and they’ve been very smart about marketing it, working with local partners and creating programming in languages that aren’t English. They’ve even been sussing out the price thing, offering lower-priced mobile-only subscriptions in developing countries where the local equivalent of their usual $10/month fee is a whole lot of money.
Meanwhile, back in the U.S., the slowdown isn’t so much about Disney and Apple as it is about reaching the boundaries of their potential audience.
Too often we forget that for a sizable enough segment of the population, figuring out how to watch Netflix is a tech challenge of Herculean proportions. And that, as per Leichtman, only 76% of US households actually have an internet connected TV of some sort (via a device like Roku or via an actual smart TV.) Even Netflix itself predicts that its maximum reach in the U.S. will be in the 60-90 million subscriber range, and, at its current level of around 62 million subs, it’s already there.
All of which is a long-winded way of saying that people are not going to be looking to replace Netflix as much as to supplement it with other Flixes. It is still the OG Flix and probably the last one people will give up as they churn through all the other services.
In other words, nothing to look at right now.
Ditto on the “still not doing ads” bit from Hastings, which is beginning to resemble the old SNL “Francisco Franco. Still dead” bit from 1970s SNL.
Or, as our friend Sahil Patel noted on Twitter “Media and advertising execs will still find ways to say Netflix has to—has to!—have ads.”
Which is really a no-risk gamble: if you’re wrong, no one will remember, but on the off chance you’re right, you can brag about it for years.
The one piece of Netflix news that is relevant is their wacky new self-reported ratings system.
Because, seriously, WTF?
Contrary to popular belief, Netflix still needs to care about ratings, even if they make a whole lot of noise to the contrary.
For example, they may want to sell a bunch of their original programming off for syndication and they need something to indicate just how popular those shows actually were.
Then there are the product placements they sell, whose reach similarly needs to be quantified.
And then there’s bragging rights: if you’re trying to get say, Quentin Tarantino to produce his first TV series with your company, you’re going to want to prove to him that he will get more viewers on your service than on any of the other Flixes.
Now here’s what’s curious: it’s highly unlikely that any of Netflix’s competitors will adopt a two-minute per view standard. Most of them (Disney, Peacock, Hulu, HBO) will likely rely on Nielsen and/or Comscore and ACR data from smart TVs. Those measurement systems take a more TV-centric view of what counts as a “view” e.g., the average-viewer-per-minute metric.
So it’s not clear what’s going on with Netflix or why.
If I had to guess, Netflix is figuring that (a) a lot of the non-trade press is clueless about measurement and, as they did with Facebook and even Snapchat, will report breathlessly on Netflix’s inflated, self-reported new viewing numbers, and (b) it will take some time for the other services to start reporting viewership numbers (Peacock and HBO have not even launched) so this gives Netflix a few months to get ahead of the PR curve and brag about their impressive viewer numbers before they’re forced to use the same metrics as everyone else.
Kind of a desperate move and not really in keeping with Netflix’s brand image, so I’m willing to give them the benefit of the doubt and say they may have something else in mind, something I haven’t considered.
Time will tell.
What You Need To Do About It
If you’re Netflix, just keep on doing what you’re doing in terms of expansion and content and all that. The measurement thing though? If it is an attempt to put overly inflated numbers out there—you’re better than that. If not, well, cue us in to what you’re thinking.
If you’re the other Flixes—you need to up your international game (something many of you are planning on) and it will be an uphill battle of sorts, given that Netflix has first mover advantage. Just remember: It’s all about the shows.
If you’re a reporter who sometimes covers the TV industry, educate yourself about measurement.
If you’re a Wall Street investor, educate yourself about the potential audience size for all the Flixes and the overall tech adoption curve. Remember that there will be no “Netflix killer” and that unless they do something egregiously stupid, all of the Flixes will be fine for the first few years.
And if you’re Nielsen, keep doing your unofficial Netflix numbers thing. At the very least it will keep them honest.
2. Comcast Doubles Number Of New Broadband Subs
While Comcast’s pay TV business may be shrinking slightly—the 733K pay TV subs they lost in 2019 equals just over 3% of their subscriber base—their broadband business is growing nicely, with a net add of 1.4 million subscribers in 2019, double the number they added in 2018.
Why It Matters
While the “massive wave of cord-cutting” so many media outlets keep writing about is, in reality, still more of a trickle (close to 97% of Comcast subscribers did NOT cut the cord last year), the company makes way more money from its booming broadband business anyway.
For most MVPDs, pay TV is a loss leader of sorts, a way to create stickiness with customers who have broadband and television and phone service bundled into a seemingly well priced two-year long contract. Yes, they make some ad revenue off of their pay TV business too, but mostly it’s a hassle for them what with carriage fee negotiations that can turn ugly in a heartbeat and set top boxes that need to be installed by people for whom customer service is not really a high priority.
So there’s that.
Broadband, OTOH, is an easy win, since it’s mostly pure profit and it’s super easy to upgrade people from whatever their current speed is for an extra $10-$20/month which also serves to lock them into a two-year contract.
So there’s that too, which is key, because while 5G is not coming anywhere as fast as some press releases masquerading as articles would have you believe, it is coming, and when it does it will provide Comcast with real competition for fixed broadband for the first time ever, and so the more people they can lock into a two year contract this year the better.
There’s also Peacock and the fact that Comcast seems to (wisely, IMHO) be betting on the fact that over the next ten years or so, viewing will shift from traditional cable channels to app-based services like Peacock which will require consumers to have better and faster broadband connections.
And all the bundling potential that would give them.
What You Need To Do About It
If you’re an MVPD, remember that broadband is the golden ticket and that you want to sell as many as you can before 5G kicks in.
If you’re an investor, remember that MVPDs have many ways to make money that don’t involve selling cable TV subscriptions which is why Comcast just announced a 10% increase in its dividend.
If you’re one of those people who keeps writing “TV is dead” stories about the “massive wave of cord-cutting” and how it’s about to kill off companies like Comcast, you can stop now.
If you’re a consumer, figure out how much broadband speed you really need (HINT: probably much less than you think) before you agree to a “special deal” on an upgrade.