Image courtesy of Netflix
As it turns out, the revolution will be televised ... and streamed.
NBC (NASDAQ:CMCSA) on Wednesday, during its turn at the winter edition of the annual Television Critics Association (TCA) meetings in Los Angeles, shocked the room by revealing what it believes to be a reliable sampling of Netflix's (NASDAQ:NFLX) numbers.
This revelation came completely out of left field, so let me set the scene a little for you before diving into the data. Most of you who follow streaming companies know they are notorious for not releasing their ratings information. In the eyes of other traditional networks, that is seen as an unfair advantage, but to the streaming networks, it is their way of getting a foothold in the market.
Now to be fair, Netflix, Amazon (NASDAQ:AMZN) and the like don't have any legal obligation to its shareholders or really anyone to release its ratings information. It is well within their rights to hold onto it as a pseudo-trade secret.
As you can imagine, that bothers the traditional networks to no end as every scheduling decision they make is scrutinized. Misery loves company, and they want the streamers held to the same standards. Yet, the other side of the coin is that some see it as unfair the streamers can declare they are superior but not back up how they came to those conclusions.
NBC, for example, is the leader in the ratings when it comes to the 18-49 demographic, and CBS is the leader in total viewers. Both have the data to back up those claims, and any investor, analyst or viewer can look at the numbers and see it is because of shows like The Voice and NCIS that consistently win their time slots.
Netflix is basically saying it has shows like House of Cards and Orange Is The New Black, and because it says they are being watched, you should believe it. No traditional network can get away with that, but Netflix, Hulu and Amazon can.
So you can see why it is infuriating for ABC (NYSE:DIS), CBS (NYSE:CBS), NBC and Fox (NASDAQ:FOX) (NASDAQ:FOXA), among others, to be consistently told they are a dying format when not all the evidence is in play. Now yes, you can look to subscriber counts, award recognition and the buzz around its programming, but you still are only getting half the story. That brings us back to today.
Let me be clear to start, I'm not trying to attack or defend Netflix with this piece. I'm trying to be impartial so you can make your own decisions. Please keep that in mind when/if you post a comment. My goal here is to explain what NBC set out to do with this stunt and what we learned about both companies as a result.
So with that said ... here we go.
What NBC Did
NBC worked with a tech group called Symphony to mine Netflix's data over a four-month window off a 15,000 person sample size. Now, as explained by Variety, what Symphony does is "measure TV viewing using audio content recognition technology - software loaded on to users' phones that tracks viewership by capturing the soundtrack of the program." Now, note this is a VOLUNTARY download. The 15,000 people in this trial weren't spied on without their knowledge.
From that sample, NBC and Symphony were able to gleam how many people watched a specific series in the 18-49 demo. To give you a comparison, Nielsen, the ratings company that monitors traditional media is in around 14,000 homes, so NBC and Symphony used a larger sample size than usual.
The difference here is that Nielsen seeks out specific people in specific situations (i.e., single, married, kids, no kids, etc.) to ensure it has a solid cross-section of the population, and Symphony's users simply opt in. That doesn't make Symphony's information any less valuable or discredit it, but it does limit what you can learn from it.
What Did NBC Reveal?
NBC revealed the estimated viewer counts of audiences watching Netflix programming including such shows as Jessica Jones, Narcos, Master of None and Orange Is The New Black. In fact, it took it a step further and also sought out data on Amazon's newest release The Man In The High Castle.
Here's what it found. Of those shows, Jessica Jones was watched by an average of 4.8 million viewers an episode, Master of None followed with 3.9 million and Narcos with 3.2 million. Orange Is The New Black then followed with 644,000. Alternately, Amazon had 2.1 million viewers on average per episode of The Man In The High Castle.
What This Means?
Now remember, this is a four-month sample, and this started a few days AFTER Narcos debuted, and over two months after Orange returned, so we are not seeing the full deck here. This is a cross-section of a specific time.
At different points, Netflix and Amazon have both said that Orange and High Castle were (respectively) their most watched shows. If accurate, that would mean that Amazon is averaging under 2 million viewers for all of its series including the acclaimed Transparent. With Orange, we have no idea what it means because we only know where the numbers were at that time.
Now keep that in mind when I tell you this. The data also showed most of the viewership for these shows came in its first week and then declined in subsequent weeks. To give you an example, Master of None drew 11% of audiences in week one and dropped to 8% in week two. Narcos started at 17% and then slipped to 4%.
The other number that jumped out was that of those stats (for Netflix) during prime time, only 20% of people in the 18-34 demo were streaming Netflix, whereas 46% preferred watching traditional TV.
The point NBC is trying to make is that people are binge-watching and then moving on, whereas people consistently come back to its programming every week which makes them (in some areas) a more valuable investment.
What's The Impact?
Reaction so far has been mixed. On one hand, this is the information people have been clamoring for, but on the other, it's incomplete, and we haven't heard anything from Netflix (at the time of this posting). People are also a little freaked out that this data came from audio signals gathered from our phones (again though voluntary gathered).
Yet, looking at the numbers, you can see why NBC is so giddy to share them. If Netflix's shows don't reach over 5 million viewers an episode, then that means as NBC President of Research & Development Alan Wurtzel said "the reports of our death have been greatly exaggerated." In other words, Netflix, Amazon and Hulu are not stealing as many viewers as once believed. He went on to say "the notion that the broadcast model is broken or dying - it really isn't."
He's right and wrong. He's right in that 5 million viewers isn't going to scare anyone, but he's wrong in that 5 million viewers is still more than the amount of people who watched the fledging NBC comedy Telenovela last Monday night (3.61 million to be exact). As Vox.com pointed out 5 million is also more than the amount of viewers Parks & Recreation had for its series finale (4.71 million).
Remember, the data works both ways.
What Wurtzel and NBC are trying to do is dispel the notion that streaming services are going to take over the world. Instead he's trying to show they are a partner that can work with the networks. This isn't a "either/or" situation (unless you want it to be). It's essentially similar to subscribing to HBO, but instead of watching it through your cable provider, you are watching it through your Internet provider.
All of that seems to get lost in the shuffle because NFLX held back information which only made us want it more. Realistically though, did anyone really think Netflix was pulling in 15 or 20 million viewers on average for its shows? I mean this shouldn't have been a big shock.
The numbers revealed are actually very respectable, and in many cases, higher than what a cable network or premium network earns for its programming. It's not easy to launch a network, and Netflix has helped create a business model that works, and in some ways, that is backed up by this data.
The truth is though that despite the curtain being lifted a little bit, nothing is going to change. Netflix's shows are still very high quality, and they are still going to get buzz, and they are still going too nominated for awards. As a result, they are still going to get subscriptions.
What I'm interested to see is how Netflix will respond. Remember, NFLX also gets a turn at TCA, and that day comes on Saturday. You can bet these numbers will come up and you can bet the company will have answers.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.