TOPSHOT – The Netflix logo is displayed at the entrance to Netflix Albuquerque Studios film and television production studio lot in Albuquerque, New Mexico on October 13, 2023. (Photo by Patrick T. Fallon / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)
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When it comes to weekly news cycles, Netflix has just had a particularly bad one.
It began when Bloomberg’s Lucas Shaw wrote a piece arguing that Netflix’s subscriber engagement seems to decreasing, and that a number of shows recently returned for a second season to rapidly declining viewing numbers.
That piece set off a fire storm of industry hot takes and gleeful dunking on Netflix from people who believe the streamer has permanently damaged the economic model of Hollywood.
Then on Thursday, the Wall Street Journal published a piece reporting that Netflix executives, concerned about dropping subscriber engagement numbers, are exploring bundles with other streamers as well as what the story describes as “live channels” inside the Netflix app.
That story in particular was aggregated by every media reporter I saw, and many of them took the easy approach of arguing this was just another sign that Netflix was “reinventing the cable bundle,” or “becoming the next TikTok.”
And that argument seemed to be reinforced by recent deals made by the streamer to add a number of video podcasts to its service. “Netflix has lost its way,” critics argued. “It wants to be more like YouTube. It’s going to launch a free version of its service. It’s going to allow creators to upload video directly onto the platform.”
Sure, most of the stories are just based on speculation and a healthy misunderstanding of how Netflix’s business model really works. But why not speculate? Because in the world of hot takes, there is no real penalty for getting it wrong. However, if you somehow stumble across the truth, there’s money to be made hyping your insight.
This is not to say that every piece you’ve read about Netflix over the past week is wrong. But the reporters who actually understand the company and where it may be headed can probably be counted on not much more than one hand.
Part of the blame for this confusion lies on Netflix’s executives, who have never been willing to sit down and provide a look at the company’s strategy. Their interviews tend to be long on vague assurances they’re just following the dictates of their subscriber base. The problem is that in the absence of substantive conversations, the vacuum is filled with a lot of often ill-informed speculation. And it’s especially a bad strategic when you are talking (or not talking) about a company whose stock price has been inextricably linked to its story.
I’ve been covering Netflix since it was a one-DVD warehouse company based in the S.F. Bay area. I’ve been able to nurture a number of sources inside its executive ranks over the years and there are people there I speak with off the record maybe once a month. And while my newsletter letter TooMuchTV tends to punch above its weight when it comes to reporting on the media and the streaming industry, if Netflix executives are speaking with me, they’re certainly speaking to other reporters.
And yet, I haven’t seen anyone making the argument that much of what you’ve read about Netflix this week is wrong. And that while the company faces some real industry headwinds and challenges as it battles competition in the marketplace, it also has a good story to tell. If anyone in the company was willing to talk about it publicly.
What Netflix Executives Aren’t Telling You
First, Netflix executives will note that while engagement has dipped as has been reported, there are a couple of important caveats to the story. First, engagement issues are very much a problem across the streaming industry and the problem is primarily limited to more mature markets – North America, the UK, Western Europe and some parts of Asia.
Their working theory seems to be the engagement problems are primarily driven by two factors: competition from other non-SVOD platforms as well as the fact that in mature markets, every SVOD is hitting its natural ceiling for market growth. “Our ceiling might be different than Paramount+, as an example,” one Netflix executive shared with me this week. “But at some point, you’re reached all the people likely to subscribe to your service without some substantial discount.”
The other challenge comes from all the other choices for screentime: social media, YouTube, TikTok, gaming, FAST channels, etc. And this is reason that is driving many of Netflix’s recent decisions regarding video podcasts and licensing lifestyle content.
I haven’t seen any indication that bingeing has any substantial impact on engagement. If you examine ratings numbers on the original programs that are released on other SVOD platforms, a weekly or binge release decision doesn’t seem to have much of an impact. Unless it’s a half-hour show that is released weekly and in that case, not releasing multiple episodes seems to negatively impact viewing numbers.
In the end, what seems to matter is not the frequency in which the episodes are released. It comes down to quality and the amount of marketing available for the title.
The Impact Of Netflix PR On Second Season Slumps
In fact, I would argue that marketing and PR has had a substantial impact on the second season performance of Netflix shows.
Netflix very famously doesn’t have a lot of faith in the traditional press to move the viewing needle on its programs. Executives there have a lot of faith in the ability of the Netflix algorithm and its UI to drive interest and help content discovery. It relies heavily on its inhouse entertainment web site Tudum.com for press coverage. And it generally embargoes reviews in most cases until the day the program premieres.
And while that approach works reasonably well on new titles (although it doesn’t help titles that are a lower priority), it doesn’t seem to work nearly as well on follow-up seasons. Marketing for returning seasons isn’t about introducing a show, it’s about reminding viewers that it’s coming and why they enjoyed it the first time around. And that requires a very different subset of promotional skills.
The Truth About Netflix And FAST Channels
Which brings me to Netflix adding “live” channels.
It was mentioned as part of the Wall Street Journal story, and a number of reporters jumped immediately to “Netflix wants to turn into Pluto or Tubi.” Which is a serious misread of the situation.
The WSJ piece mentioned live channels, but didn’t really specify what that would look like. But one thing that is almost certain is that it won’t include Netflix becoming the new home for the 24/7 UFO Mysteries FAST channel.
When Netflix talks about live channels, they are talking about curated channels that feature programming already on Netflix. And this is an idea they have been circling around for years.
A look at Netflix Direct
Netflix, 2020
In 2020, Netflix briefly launched Netflix Direct in France, which was a series of curated live channels that focused on current Netflix originals. And more than 18 months ago, a couple of Netflix engineers walked me through an early Alpha build of a Netflix interface that included a similar approach.
While it’s not clear that Netflix executives have made a final decision of the approach, that is my hunch on what will be rolled out in North America. A series of curated 24/7 live channels focusing on current Netflix programming. And along those lines, I have heard that in recent months, Netflix has been nailing down the rights to stream licensed titles in their own exclusive 24/7 live channels on Netflix.
The early success of Netflix’s deal in France to stream live and on-demand content from broadcaster TF-1 points to another possibility for Netflix in the U.S. The big challenge here is that it’s not clear if any broadcaster would be interested in cutting such a deal.
Which is one reason I think you are seeing speculation that Netflix might somehow bundle with Peacock. A platform bundle is unlikely – Netflix has notoriously shied away from bundles other than in some telecom deals. In large part because a bundle inherently means less money per subscriber for Netflix.
But what is more likely is a scenario in which Netflix adds Peacock-branded on-demand content from Peacock, along with some live channels that are essentially 24/7 ad-free streams of Peacock content on Netflix.
Netflix Is Not Becoming ‘The Next YouTube’
I’ve seen a lot of comments arguing that by leaning hard into video podcasts, Netflix is trying to somehow become the next YouTube. A point of view that misunderstands both YouTube and Netflix.
Yes, it’s true that one of the reasons why Netflix is licensing video podcasts is because it wants to boost engagement as well as tap into the younger audiences of various creators.
But Netflix is also taking advantage of several YouTube weaknesses. Big-time creators make a lot of money from YouTube, but also are unhappy with the advertising revenue at the company. CPM has been dropping for many streamers, and that is in part due to the fact that advertisers continue to be wary about paying top money to advertise on a platform that contains so much filler and possible problematic programming.
Netflix can offer creators what YouTube can’t – a guaranteed paycheck along with a safe and curated environment. The streamer has been willing to work on the terms of deals – offering everything from a pure licensing deal to exclusive partnerships.
In a sense, Netflix is becoming a premium YouTube for top creators. And while other streamers are experimenting with similar content, Netflix’s UI provides the best presentation now available for the podcasts.
The 23-Episode TV Season Conundrum
Anytime the subject of streaming television comes up in Hollywood, the topic of shortened streaming TV seasons comes up. There are mentions of the golden days of Hollywood when 23-epiosode seasons were the norm and it was still possible to have a middle-class career was a Hollywood creative.
And those expanded seasons had the added benefit of making Hollywood’s programming more popular overseas. Having hundreds of episodes of TV shows available for licensing is an immensely powerful selling point.
But what people in the industry tend to memory hole is that even in the glory days of broadcast television, the 23-episode season was on outlier in the television industry. It was only financially feasible in the United States, where a unique set of constraints – including a massively profitable cable TV bundle – made those long seasons possible.
Nearly every other country has always relied primarily on 8-12 episode seasons for scripted television. And while I agree that those extended seasons here had creative value and boosted the income of Hollywood’s creatives. I don’t see how those golden days can ever return.
No, Netflix Is Not ‘Reinventing The Cable TV Bundle
Finally, I’ve read a number of pieces this week that argue that Netflix is “reinventing the cable TV bundle” or “rediscovering the successful TV model it broke in the first place.”
Netflix gets blamed for a lot of the problems in Hollywood and certainly its success hasn’t been helpful. But the cable TV bundle was only financially successful because it was a near monopoly. If you wanted cable TV, you likely only had two choices. Whatever cable company owned the local cable TV monopoly, or satellite television.
That monopoly allowed media companies and networks to regularly raise their carriage prices and local affiliates to boost their retransmission fees. All of that was passed along to cable TV customers. Yes, it was a great deal for Hollywood and for the media companies. But once the internet came along and other options were available, it was doomed to slowly fade away.
Netflix didn’t severely wound Hollywood. Greed was a large part of it, along with the growth of the internet and the shift of production to parts of the world that now include the deadly mix of world class production facilities and non-union production crews.
I have my own problems with Netflix and it is certainly not the perfect company. But if you’re going to complain about the company, at least complain about the right things.