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1/ As I pondered the Netflix earnings report yesterday, I kept collecting some thoughts that didn’t make the initial tranche. Meanwhile, a comment on the earnings (pre-recorded) call has stuck with me.
2/ By popular demand, here’s the thread.
I may steal/been inspired by some great Tweeters. Will put their names at the end.
I may steal/been inspired by some great Tweeters. Will put their names at the end.
3/ Content Performance.
Tiger King is the big headline number again, but here’s another way to look at it: in a country of 330 million or so people, maybe 30 million watched it in the US.
Tiger King is the big headline number again, but here’s another way to look at it: in a country of 330 million or so people, maybe 30 million watched it in the US.
4/ How’d I get there?
Convert 65 million to 40 million for 70% completion. Cut in half for US vs global split. Then add a third for co-viewing in US. About 30 million, plus or minus say 5 million.
Convert 65 million to 40 million for 70% completion. Cut in half for US vs global split. Then add a third for co-viewing in US. About 30 million, plus or minus say 5 million.
5/ Does that seem low? For the buzz, definitely. But again a lot of folks probably were just there for the memes, not actually watching.
6/ On the other hand, it strikes me as what a broadcast channel does, which is what I have said Netflix is. https://entertainmentstrategyguy.com/2020/03/24/netflix-is-a-broadcast-channel-comparing-streamers-to-tv-channels-in-an-age-of-nielsen-data/
7/ Thinking on it, what number would have impressed me? Honestly, getting over the 50% threshold for a given TV series, not movie.
Right now “hits” seem to stall out at around 40 million viewers globally. Which says something about MAUs.
Right now “hits” seem to stall out at around 40 million viewers globally. Which says something about MAUs.
8/ Not to mention, as Netflix grows each quarter, *only* getting 40 million subscribers for each new piece of content is less impressive.
It may also speak to how poorly NFLX originals travel.
It may also speak to how poorly NFLX originals travel.
9/ Film wise, I agree with Netflix Film Project that it really was a lighter quarter than you would have guessed. Only one data point in Spenser Confidential.
Why so few? Bull case: staying somber. Bear case: the films didn't do well.
Why so few? Bull case: staying somber. Bear case: the films didn't do well.
10/ Long term, is their film team having trouble finding hits? Maybe, but my other theory is that we’re seeing “Arundel Partners” come to life.
11/ What is Arundel Partners? A ubiquitous HBR case study about finance. It’s about option value, but if you take it in entertainment strategy, it’s about not buying from a studio because they’ll screw you with their bad content.
12/ That’s kinda my take on Netflix films right now. Their in house stuff performs fine. Not above average—only Disney and Blum do that—but not below either. However their acquired stuff is usually the things studios know won’t do well.
13/ And if it won’t do well in theaters, it does “meh” on SVOD.
14/ Content Production
This is the real sticking point for me. On the call, Sarandos said in a widely quoted statement that:
This is the real sticking point for me. On the call, Sarandos said in a widely quoted statement that:
15/ Frankly, this baffles me. It flies against what I believe. A belief based on planning TONS of production for a studio.
So let’s try to explain it.
So let’s try to explain it.
16/ First, it’s helpful to compare what Sarandos said with the much more restrained comment in the letter to shareholders:
17/ Having a variety of content is much different than having “almost all” of the content done. Still, how can they have so much finished or nearing finish?
18/ First, it’s a matter of definitions. If you define all content as films, half hour TV series, animated series, and reality shows, maybe they’re all done. (Though then I’m still skeptical.)
19/ But for me, the tent poles holding up Netflix’s content slate are big, buzzy prestige TV series. Which tend to be one-hour shows.
20/ Looking at when other shows stopped production for Netflix, they still usually had only 6-8 month finish times until launch. Take their last Q4 2019. The Witcher finished in April and launched that December. Same for The Knight Before Christmas and The Crown too.
21/ In other words, the “largely” is doing a ton of work of work there.
My guess is it means everything except one-hour TV series. That's huge!
My guess is it means everything except one-hour TV series. That's huge!
22/ My guess was that Stranger Things 4 was their big tentpole for December. That’d be 18 months from the previous season. If it doesn’t happen in Q4, then they had a delay. But because they’d never given a release date, technically what Sarandos said was true.
23/ But it’s not.
If there isn’t a big TV series besides The Crown—which was shot simultaneously, so is a bit of a red herring—then yeah the schedule got moved around.
If there isn’t a big TV series besides The Crown—which was shot simultaneously, so is a bit of a red herring—then yeah the schedule got moved around.
24/ Which leads to a question of counting. By numbers, sure, “almost all” of the content is finished.
But is that what matters?
But is that what matters?
25/ Hell no! The value of the titles matter.
As my favorite chart shows, the hits aren’t worth a percentage of your total value, but nearly 80% of your total value. https://entertainmentstrategyguy.com/2018/09/12/the-most-important-shape-in-entertainment-part-ii-logarithmically-distributed-returns/
As my favorite chart shows, the hits aren’t worth a percentage of your total value, but nearly 80% of your total value. https://entertainmentstrategyguy.com/2018/09/12/the-most-important-shape-in-entertainment-part-ii-logarithmically-distributed-returns/
26/ In other words, losing Stranger Things season 4 isn’t just “almost all the slate”, arguably it makes the quarter. Pretending otherwise is misleading. (Same for no Witcher. Or other new prestige show.)
27/ BTW, I also heard a rumor today that in Netflix's latest debt offering, they actually confirmed that this is true. Their words:
“Assuming most productions are paused for several months, some titles originally planned for 3Q and 4Q will be pushed out by one or two quarters”
“Assuming most productions are paused for several months, some titles originally planned for 3Q and 4Q will be pushed out by one or two quarters”
28/ Some intrepid journalists should run this down. It's in the confidential information--which is why it didn't--but gives a different flavor than "largely" unchanged.
29/ Still, to praise Netflix, their operations at getting these shows out really does impress me. I’ll do another thread on this, but a lot of tech companies have said, “Hey, let’s build a studio from scratch. It’ll be easy!” But it’s not.
30/ Netflix though, has figured it out. The sheer volume of content is impressive. Their whole operations impresses me. Being able to mange in the crisis is impressive. More to come.
31/ Folks who I borrowed or stole ideas from: @HedgeyeComm @NReviewed @kasey__moore and a bunch of others.
