• by Dave Morgan , Featured Contributor, Yesterday

Netflix is the most important TV company in the world today. What a journey since that fateful UBS Media Conference sixteen years ago, when then-Time Warner CEO Jeff Bewkes likened Netflix’ streaming threat to media behemoths like his as nothing more consequential than the “Albanian Army.”

Today, Netflix has more than 325 million paid subscribers in over 190 countries. It reaches one billion total viewers monthly, with over 250 million of them on its ad-supported tier. Its revenues are now more than $45 billion annually, and its market capitalization is more than $300 billion.

But Netflix has a problem, one deeper and more important than the 42% that its stock price is down over the past year’s. It has an audience problem.

As has been widely reported this past week, Netflix has seen massive drop-offs in viewership of a number of its shows between seasons one and two -- some of them its most touted hits, including “Beef,” “Running Point,” “The Four Seasons” and “Avatar: The Last Airbender.”

This is no surprise to veterans of the television business. Netflix built an extraordinary subscriber base and franchise by focusing its programming, scheduling and marketing exclusively on building its brand and growing subscriber acquisition and retention. All the metrics and efforts focused on those aspects, with little attention to how its audiences actually watched the shows.

In an “it’s only about the subscription” world, it matters little if viewers binge-watch a show versus tune in every week to see it episode by episode. It matters little if those viewers make you a daily or weekly habit. You’re not focused on building long-term habits, you’re mostly focused on satisfying the dopamine of the five-hour binge and making sure that you have another highly attractive bingeable show for them just at the time that they need to renew their subscription.

It’s a good model for retail sales of shows. It's not a great way to build a long-term, sustainable and growing relationship with audiences and their families.

TV companies of old learned these lessons over decades. Programmers let cable companies sell subscriptions, and they focused on driving those subscribers to tune in to their channels and shows, working hard to build dependable regularity and continuity to that tune-in. They focused on building habits among viewers.

Increasing the number of viewers they could get to tune in regularly grew cable companies’ leverage with operators for carriage fees. it directly drove their cash registers through higher ratings and increased ad rates and ad sales. At TV companies, the heads of programming and of sales were kings and queens, but the head of research was King Kong.

In many of the best TV companies, the head of research had to sign off on new programming’s audience numbers to sell in the upfront. Research either signed off or directly controlled a significant portion of the program promotion spend, whether it was on the companies’ “own air,” or was run on competitors’ channels, operators’ inventory, or in media properties like TV Guide.

Conversations in the halls of those companies were fed by data, talking “lead-in” and “lead-out” numbers for shows, talking conversion rates of program promotions (cost per converted viewers), and understanding “share of eyeballs” at the person and cost-per-thousand basis.

TV companies always understood how building repeatable behaviors among viewers could build long-term loyalty. They understood the marketing power when new episodes dropped each week, a lesson well understood by Apple and HBO MAX (“Ted Lasso,” “The Pitt,” etc.).

They knew that long hiatuses between episodes were bad for keeping and growing viewership. They understood that some shows took years to find their viewership (“Mad Men”). They weren’t afraid to alter ad loads and ad pod scheduling to drive more viewers (“Empire”). They knew that driving viewership was a different playbook than driving subscriptions, and that if you did it right, you could be brilliant at both (HBO).

Netflix is now a long way from its Albanian Army toddler days. It has executed the subscription playbook brilliantly. Now, if it wants to sustain and grow its audience and viewership -- essential as advertising-support gains importance to its future -- it needs to build and execute the “tune-in playbook” as well as it did subscriptions. If it doesn’t, it will find that YouTube and Amazon Prime will become Netflix faster than Netflix can become YouTube or Amazon Prime.

What do you think?