Much Ado About Next-To-Nothing

When CBS and Paramount Global announced it would eschew the 2023 upfronts with an actual glitzly presentation to advertisers in New York Netflix was quick to step in and fill the void.  Given the fact that, based upon its aggressive projections and their own detailed internal data that continued to tout record-breaking debut after debut, its ad-supported business would be more than worth the ambitious CPMs their experienced team of salespeople and marketers would offer, and that the presentation that took place yesterday would be a true coming-out party.

Instead, what we got was a virtual presentation where spin was rampant and substance dusted under the rug.  And when numbers were shared, despite the presenters’ best efforts to paint them in the best possible light (as well as some of the inexplicably naive reports from business and trade media about it), let’s just say this purported emperor’s new clothes were revealed to be to just a smidge tattered.

Take this recap from Best Media

Netflix has said that its recently introduced ad-supported tier has gained nearly 5 million monthly active users globally.  A company executive made the announcement on Wednesday at a presentation to advertisers.  However, this figure may only partially be accurate due to the possibility of multiple users sharing an account.

And when its newly upped chief spin-meister took the stage, a few more frays in the royal robes were apparent:

Greg Peters, Netflix’s Co-Chief Executive, stated that the member base of the ad tier has “more than doubled” since earlier this year. 

The video streaming platform has minted a total of 232.5 million global subscribers, according to reports.

Five million out of 232.5 million global subscribers actually have demonstrated both their availability and usage to actually watch an ad served up by Netflix.  For those of you scoring at home, that means 98% of Netflix’s universe is currently moot to advertisers.

And all indications are that the U.S. contribution to the ad-supported tier is actually proportionately lower than it is to Netflix’s overall subscriber base.  While specific information is still extremely difficult to compile as Netflix pivots to reporting different metrics that better mask its issues, all credible indications are that while roughly a quarter of all global subscribers reside in the U.S., roughly one million–a fifth–of the global ad-suppported MAUs reside in the U.S.

In other words, a “bucket” of one million households–max–in a universe of over 120 million TV households.

So let’s just say that the “Netflix effect” that Peters and his colleagues bragged about yesterday is so dramatic that its current top hit, the BRIDGERTON spin-off QUEEN CHARLOTTE, is 50% more successful in attracting viewers to its home than the number one show–YOUNG SHELDON–on the number one network–CBS–is.  YOUNG SHELDON attracts a little more than 7 million average weekly viewers in their universe of nearly 300 million.  Using that math, it would be aggressive, but plausible, that QUEEN CHARLOTTE–currently at the top of Netflix’ own publically disseminated research rankings using a methodology and sample they have purported to be superior to Nielsen  was getting the equivalent of a 3 rating.

In the Netflix ad-supported universe, that would mean about 30,000 HHs.  Optimistically, assuming every viewing HH for something like QUEEN CHARLOTTE featured an average of at least one co-viewer, that’s 60,000 viewers.  In 1Q23, per Nielsen, that would put it on par with the primetime delivery of FOX Business Channel. I think it’s safe to assume that can be bought for a far lower CPM than Netflix is seeking.

Netflix has had a holier-than-thou attitude for the decade of its existence , disrupting business models by taking full advantage of a greedy studio ecosystem, only to finally wake up once the pandemic began to disssipate and the majority of its suppliers began to claw back library content and start competing services and, head in hand, now start to build an AVOD business.

THE HOLLYWOOD REPORTER’s Alex Weprin apparently drank enough of their virtual Kool-Aid to take on a more apologetic tone of yesterday’s events:

Netflix knows it is in the early innings of the streaming advertising game, but it wants the ad world to know it isn’t a niche player.

During its virtual upfront presentation Wednesday afternoon, Netflix president of worldwide advertising Jeremi Gorman said that the nascent advertising tier of the service has nearly five million global monthly active users, with a median age of 34, six months after launch.

Early innings?  At this level of penetration, we’d offer that the leadoff batter has barely gotten into the batter’s box and the pitch clock has just started.

For Netflix to actually begin this ballgame, it needs to take some lessons learned by the industry they disrupted.  For one thing, start to grow the size of your bucket.

When cable was in its infancy, Turner Broadcasting’s legendary head of research Bob Sieber was challenged to come up with credible data to support his boss Ted Turner’s hyperbolic claims that SuperStation WTBS was a nationwide hit.  At the beginning of the 1980s, U.S. cable TV reached only 16 million HHs, and WTBS wasn’t yet in all of those.  So he went to Nielsen and asked them for a report that calculated a rating based upon the channel’s specific coverage area–its “bucket”–in a way to hype “ratings” based upon opportunity to be seen.  When publications would tout reruns of ANDY GRIFFITH at a 2 or 3 “national” rating, it actually meant within TBS’ coverage area.  As cable penetration grew, those ratings eventually translated to larger–and more saleable–numbers.

Turner worked hand-in-hand with cable operators to grow the business as a whole, which of course benefitted them, but also grew the industry at large in the process. We know that the landscape now is far more cutthroat.

Netflix has demonstrated an exaggerated level of arrogance since its emergence as a cultural touchstone a decade ago that has belied its actual popularity and profitability, which essentially resulted in this pivoting of their business as they purged themselves of many of those who built it.  The very fact that this presentation became virtual after all of the promise of glitz to replace CBS, ostensibly to avoid the angry pickets of the WGA who have labeled this current dispute the “Netflix strike”, is yet another nod to how over-inflated Netflix assumes its value to more scrutinizing types is.  It also relieved them of having to have face-to-face discussions with the buyers they are coveting, many of whom had attended an in-person presentation from YouTube earlier in the day.

Nielsen’s April 2023 Report on The Gauge, a snapshot of total TV consumption.

The very same YouTube that the Nielsen they now will (reluctantly?) allow buyers to buy from revealed currently has a+17% advantage over them in actual consumption, has NFL Sunday Ticket coming to assure them of actual real growth with strike-proof content and actually gave away free subscriptions to it to those in attendance.

It might be a really smart idea for Netflix to consider what companies that successfully grew their businesses did to get that point.  Free preview weekends to showcase their best content.  More heavily discounted subscriptions for marketing partners.  Maybe something even more radical than a lower subscription price–possibly even free–for its heaviest viewing households?  If Las Vegas casinos will give whales a free hotel room to keep them playing, and if growing their AVOD universe now what they see as their end game, maybe finding a way to drive more viewing hours–which translates to MAUs–to its service would be a worthwhile endeavor?  Perhaps partnering with an internet provider not named Comcast might be a win-win for both parties, which would of course help bring down Netflix’s marketing cost?

Buyers who were impressed enough to buy into some of the sizzle points espoused by Peters, programming chief Bela Bajaria and sales honcho Peter Naylor effectively challenged Netflix to look into that playbook, because many have been around long enough to know it’s effective.  And they apparently are motivated to play along.  Netflix has an immediate arsenal of new seasons and shows, but long-term they are as vulnerable–perhaps more so–than their competition.  All of those halo effects that they bragged about might be moot in the wake of needing a couple of more bonus episodes of LOVE IS BLIND (maybe they’ll be handle to handle a livestream?) or luck into a foreign-produced hit like SQUID GAME (and, no, not the reality competition spin-off of it that’s planned to drop later this year) to justify these aggressive claims.  Wanna bet how many of the top writers and showrunners that got them so far out in front will feel about doing more new projects for Netflix after it didn’t even have the huevos to physically stand up to their protests?

Think I’m being harsh?  The WGA will likely be joined by the DGA and SAG-AFTRA by July 1st.  And they sure know where their Hollywood offices are.  Right off the Sunset Boulevard exit of the 101.  And they won’t be able to hide behind a paywall as they did yest4rday.

So it’s probably in Netflix’ best interest to be a bit more considerate of the advertisers they are pursuing, and respect both their input and history.  After all, they’ve bought buckets before, provided they weren’t the size of pails.  And not filled with the kind of manure that the tone-deaf virtual presentation that they endured yesterday offered.

Until next time…





Leave a Comment