Commentary
Netflix Defies Odds, Finances Soar Without Ads
- by Wayne Friedman , Staff Writer, July 8, 2020
This was followed by the perceived threat of Disney+, Apple TV+ and HBO Max launches. End result: No problem, shake it off.
Ask those analysts how they look at things now. Their response might be: It’s easy to look in the rear-view window. On Monday, Netflix’s publicly traded shares hit another high -- up nearly 4% to $493.81 -- up 52.6% year to date, up 29.8% versus the same time period a year ago.
COVID-19 lockdowns benefited streamers. Plenty of people working from home, ready to access any premium VOD service in any moment of work-related downtime.
Think about our traditional media companies, which may have had a rocky period. And then think about what Imperial Capital analyst David Miller says about Netflix:
It has no exposure to advertising, cable networks, movie theaters or theme parks -- something almost all legacy media companies have.
What about big time content? Netflix has no live sports programming -- and that’s good news right now. The lack of sports TV has plagued media companies during this pandemic. (On the flip side, Netflix, doesn’t have TV news content, which has been rising in viewing and advertising revenues.)
Competition from Disney+, Apple TV+ and HBO Max has done little to stop Netflix -- now almost six months after the start of the new wave of streamers.
To be sure, each of those services can tout their own improved, positive financial metrics. And, for Netflix, at around 70 million U.S./Canada subscribers and 183 million worldwide, it might tell you a slightly different story: The service has been reaching a saturation point. What then?
The big factor yet to come: More movie/TV content creation and acquisition. Netflix will spend another whopping amount on this: $17.3 billion in creating and acquiring new content in 2020.
Will there be saturation issues here?
Does that also mean a possible consumer monthly price rise? These factors could curtail the party.
In the meantime, we have a lot of “Tiger King” episodes to catch up on.
Wayne Friedman is West Coast Editor of MediaPost. You can reach Wayne at wayne@mediapost.com.
Wayne, the questions about whether Netflix should offer an ad-suppported option was raised in anticipation of future developments, namely what will happen as the major TV programming powerhouses enter the streaming space with AVOD platforms -because they are expecting additional declines in their "linear TV" ad sales due to cord cutting, the gradual shifting of viewing time to streaming, etc. This type of big time AVOD is only now beginning with Comcast ( NBCU ) leading the way, however it is most likely that we will see Disney as well as Viacom/CBS, Discovery and others join in ---if Comcast's initiative proves successful. By that time it may be too late for Netflix to join in and reap the big bucke that are now available as its share of streaming audience will decline, not only because of lost subscribers---or flattened frowth---but becasue the TV folk's AVOD platforms are pulling in a growing percentage if the audience as well as most of the premium content ad dollars that are available.
Also worth considering is the view recently expressed by the Netflix boss, Hastings, to the effect that he didn't want to compete with Google, FB, etc. for ad dollars with an ad-supported platform. If that's really his thinking then he doesn't appreciate the potential that this idea has--as he would be competing with the TV networks, not Google, FB, etc.
Finally, I would note that starting an ad-supported platform doesn't happen overnight. If Netflix decided to go in this direction right now, it would take anywhere from 12-18 months before enough subscribers were recruited to be of interest to many advertisers, plus a major re-staffing with people who understand how to organize and sell network TV time and, last but not least, an independent rating source---namely Nielsen---wouldhave to be used---providing it was able to "count" all of the Netflix audience.
Moral of my story---current stock valuations may not be good predictors of future developments.
People hate ads. It's really that simple. Unwanted interruptions are the ants at your picnic.
Stock price does not equal "finances." Netflix still has something like $14 billion in debt, and last year that debt grew by an amount larger than the year's net income. At some point that will have to be addressed, stock price notwithstanding.
There you go---again. I'm sure that you are right, Douglas---at least that's what many say--"I hate commercials". But riddle me this. Why is it that studies that actually observe how people behave while they are viewing TV---via cameras, or family members secretly spying on others---have consistently found that 40-45% of the audience reamins in the room and looks at the screen to some extent while an average ad message is shown? And why do ad recall studies, which prompt the viewer with a reminder such as, "Did you see a toothpaste ad last night on this show?", also find that 30-40% of the audience, once its memory is thus refreshed, can recall the brand name and/or describe the commercial sufficiently to prove that they might have seen it? Why aren't both kinds of studies finding that no one is watching and no one remembers seeing anything?Even your precious students---who, I'm certain, are unanimous in claiming that they hate commercials and I'm equally certain that most claim that they never watch them, would probably be found to have watched something like 35-40% of the commercials in shows that they viewed using the same observational methods. Finally, why aren't sales for all of those advertiswers who allocate 75% or more of their ad expenditures to TV tanking---if people reaqlly hate all commercials and, by implication, don't pay any attention to them?