Everyone’s Complaning About Smiling Teddy. Except The Ones That Really Should.

Imagine if you were coaching a football team that was dominating its opponent in time of possession, yardage and even interceptions but you somehow only had a 10-point lead deep into the game.  YOU know you’re truly great, but the scoreboard isn’t responding in concert.

In football, you can’t suddenly decide that that silly yardstick called points isn’t applicable any more, and suddenly decide, you know what, we’re not gonna care about how many we score, and we’ll do everything possible to keep you from knowing about it.

But Ted Sarandos is running a streaming service, not a football team.  And he’s been a master of obfuscation when it benefits his company’s perception most, ever willing to change up the metrics Netflix is being judged on in his endless pursuit for the optimal narrative.

Late yesterday, as eagerly teased by many outlets, Netflix’s 1Q24 earnings report was released and by all indicators it was outstanding, even exceeding some expectations.  As the WALL STREET JOURNAL’s Dan Gallagher chronicled:

The streaming pioneer managed to deliver another quarter of blockbuster subscriber growth. Net new paid subscribers of 9.3 million in the first quarter were nearly double the official 4.8 million analysts expected, according to consensus estimates from Visible Alpha. They were even above the sky-high whisper number range that several analysts pegged as the real target among large investors tracking the company’s performance. It was yet another sign that the password-sharing crackdown that Netflix began last year still has legs. Netflix has added more than 31 million subscribers over the past three quarters since that program began—more than double what was added in the three quarters prior.

And this was the cherry on top of the sundae of strategic moves that have earned plaudits from many observers and the envy of those that have been vying for their own share of eyeballs, as CNN’s detailed:

In recent months, after “Suits” exploded in popularity on the platform, Netflix has indicated that it plans to license more content from other studios. New generations are rediscovering iconic shows from the 90s and the early aughts, like “Seinfeld” and “Sex and the City” after they show up on Netflix’s platform.

“They’re getting tons of viewership on both original content and licensed content,” Alicia Reese, an equity analyst who covers Netflix for Wedbush Securities, said. “It’s productive and it’s cheaper for them.”

And that’s on top of the imminent addition of WWE, as well as a pivot into gaming that started with a partnership on GRAND THEFT AUTO which reportedly is showing decent early returns , again per Delouyam which has Reese sounding like a de facto syncophant:

“We’re stoked by the performance of GTA,” Netflix co-CEO Greg Peters said in January. “We were in the top mobile game downloads for several weeks, which shows it was not only big for us, but big numbers for mobile gaming in general.”  Reese has faith in Netflix’s new direction.  “Netflix has that winning formula right now,” she said. “They have a lot of content of various types that keep people using the service at various price points.”

If only there were more like Reese.  Both among analysts and among subscribers.

Gallagher describes the reaction, or lack thereof, of a preponderance of others, which let’s just say isn’t making Sarandos any happier than he typically tries to be:

(R)evenue of nearly $9.4 billion for the quarter only barely exceeded Wall Street’s forecast. Netflix also gave its first-ever annual revenue forecast—projecting growth of 13% to 15% for the year—that was only in line with analysts’ views.

And what seems to have a lot of gears ground was this nugget that was initially buried deep in the printed report that was released ahead of the presser, per Gallagher:

(I)n another change, the company announced that it would no longer report subscriber data at all starting next year.

Delouya reported how Peters attempted to spin this:

We’ve evolved, and we’re going to continue to evolve, developing our revenue model and adding things like advertising and our extra member features. Things that aren’t directly connected to number of members,” he said. “So, each incremental member has a different business impact.”

Peters is spot on on pointing that out, but in this case it may be as much by necessity as anything else.  As THE HOT BUTTON’s David Poland observed in his newsletter yesterday:

Clearly, they are still getting some bump from the password sharing crackdown.

Over the last year, US/Canada is up 8.26 million paid subs. Europe and the Middle East is up 14.36 million subs, the largest increase in any region… which suggests they were stealing the most. Latin America is up 6.47 million subs. And Asia Pacific is up 8 million.

That’s really good. But it is the full year of the password crackdown. And that 37.1 million new subs is probably 90% or more of the full squeeze that Netflix is getting from that fruit.

But this isn’t the first time that Netflix has draconially decided what kind of data they choose to share with us mortals.  Even as they trumpeted how much more transparent they were with viewership data than their competitors, they have arbitrially redefined how that’s defined several times in their history, most recently last summer, when THE HOLLYWOOD REPORTER’s Rick Porter observed accordingly:

This version of a view, by the company’s definition — total time spent watching a movie or season of a TV series, divided by the running time — is certainly easier to understand than Netflix’s previous “view” stats. There’s a danger, though, in equating views with actual viewers, and the watch time/run time equation doesn’t get much closer to revealing how many people are watching a given title (.)

So we’re once again seeing Teddy Rux-Spin lecture us as to what data is actually meaningful.  Hence, it’s not a surprise that the ever-honest Rick Ellis of TOO MUCH TV was a tad more POd than usual in his newsletter last night:

To be kind, that’s a load of crap. Yes, the growth (or decline) in raw subscriber numbers isn’t a super useful financial metric. But having those figures, along with ARPU and revenue and operating margin provides the best sense of the strength of the company and the effectiveness of its strategy.

Delouya cited how eMarketer senior analyst Ross Benes defended their right to deflect:

Netflix’s decision to stop sharing subscriber numbers allows the company to “quit while its ahead and go out as the world heavyweight champ in subscribers… Netflix is emphasizing what benefits them,” Benes said. “The password sharing boosts will eventually recede and it will be very difficult to continue to add as many subscribers as they have added in the last few quarters.”

But perhaps most significantly to Sarandos, Peters and company, per Gallagher:

Netflix shares slipped nearly 5% in after-hours trading Thursday. “We suspect reduced disclosures may disappoint the Street,” Citigroup’s Jason Bazinet noted following the results.

And as Gallagher further observed:

Revenue growth has typically been more steady. It is also—according to Netflix—a better way to measure the performance of a business that now includes several pricing tiers, paid-sharing accounts and advertising. Left unsaid is the idea that a streaming service with nearly 270 million paying members now may struggle to find the same number of untapped viewers in the future. Netflix added more than 100 million new subscribers over the past four years. Are there 100 million left who have so far avoided “Stranger Things,” “Bridgerton” and “Squid Game?”

Likely not.  And let’s not forget that one of the biggest reasons Netflix wants to highlight these engagement metrics is to convince advertisers they’re worth the ridiculously high CPMs they’re seeking.  And right now, at best, that’s work in progress.  And Delouya cited how the person directly responsible for that business is taking a page from Sarandos and Peters’ doublespeak:

The ad tier…has seen explosive growth since it was introduced in late 2022, according to the company. In January, Netflix’s president of advertising, Amy Reinhard, shared that Netflix’s ad-tier had more than 23 million users.

While the company did not share an updated number of ad-tier users, in Thursday’s shareholder letter, Netflix said its ads membership grew 65% quarter-over-quarter.

That’s still roughly a third of Prime Video’s newly established base.  And far less than most linear cable networks.   Worst of all, it’s less than 10 percent of Netflix’s soon-to-be-deemed irrelevant subscriber base.

In the coming weeks, quarterly earnings reports for Netflix’s competitors will be released, right in line with the rollout of upfront presentations.  As Gallagher reminds, they’ve still got a lot of catching up to do:

Fortunately, the company has what still looks like an insurmountable lead among its big media streaming peers, whether in terms of subscribers, earnings or cash flow. Netflix projected an operating margin of 25% this year—a year in which Disney expects to barely get its own streaming operation profitable.

Those competitors have been loath to focus on any sort of data beyond their own propreitary measurement.  In a world where one isn’t competing for a share of ad dollars, that’s almost an understandable strategy.  First party data is always more reliable.  But there are now a host of third party vendors who can measure audience for multiple streamers.  Which also means they can provide information on how many homes those competitors are viewed in at all–which, with subscription models, correlates highly to whether or not they subscribe at all.  Most people don’t continue to pay over time for something they don’t use.

I’d really love to see good old-fashioned competitive intelligence and pressure for true transparency to come from the likes of Prime Video, Peacock, Paramount Plus or Disney Plus, among others.  I started out in an era where account executives and strategists were expected to know as much about other companies’ numbers as their own.  I refuse to accept that sort of knowledge has zero value, and I’m optimistic there are still folks smart enough in those companies who have the capacity to uncover it if given the support to do so.

Look at what a bunch of snarky analysts and pundits have been able to do in a matter of hours.  I’d love to see the braintrust at some of these far more well-heeled companies poke the bear.

Until next time…

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