The end could be nigh for Netflix

Contrary to popular belief and its eye-wateringly high investment in content, Netflix may be on shaky ground, leaving TV audience eyeballs still up for grabs, writes Wavemaker’s Jamie Connolly.

I don’t know if you’re like me, but I find that I spend as much time trying to find something to watch on Netflix, as I do actually watching it. In fact, I sometimes don’t find anything, and end up flipping back to traditional TV.

I know a survey of one puts you on dangerous ground when it comes to identifying trends in consumer behaviour, but Nielsen’s latest Total Audience Report in the US backs up my hunch – it showed that SVOD viewers are moving back to traditional TV. And, not surprisingly, there’s a catchy name for this growing sub-group of viewers: they’re called ‘go-backers’.

According to Nielsen’s report, 58% say they go back to their favourite traditional channels; 44% like to scan through traditional channel options; 39% scan the program listings and 31% browse their DVR recordings. By comparison, only one third of adult respondents said they browse their SVOD content menus for more content.

So what’s going on?

Netflix reportedly spent US$12bn on content globally in 2018. And yet we still can’t find anything to watch. That’s because a lot of the content is, frankly, rubbish. I’m reminded of what my mum used to say to me when I was growing up: “Son, money can’t buy class”.

It’s the old quantity versus quality conundrum.

As an industry, we’ve become very comfortable with the ‘assumed’ fact that traditional TV is soon to be dead, largely thanks to Netflix (and other SVOD and AVOD (advertisement-based video on demand) services).

In just about every meeting you sit in, someone brings up Netflix.

“No one is watching traditional TV anymore.”

“There’s a new model and Netflix is showing us all how it’s done.”

“We need to be more like Netflix in our thinking!”

We hear variations of these statements almost on a daily basis.

The AVOD players are also jumping on the bandwagon, putting together research pieces accompanied by slick presentations that may not make these sorts of claims head on, but in which the undertone is very clear: Video is still one of our most powerful assets, and you’re a dinosaur thinking traditional TV works.

The numbers mean more below the surface

A quick look at the figures seems to back up this view. Traditional TV audiences have been declining over the past five years, especially among younger viewers.

But there’s more to it than that. If you look a little deeper at the numbers, the simple answer inevitably becomes a little more complex. Yes, the 18 to 49 audience is seeing declines, but remember, the average audience delivery in 2018 on free TV is still around 484,062. Still impressive when compared to other media channel options to deliver a ‘seen’ and ‘heard’ audio-visual message.

Let’s not even get into viewability, brand safety, tech costs or Professor Karen Nelson-Field’s Benchmark Series study (yes, it states that video content on mobile generates sales, beat by BVOD, but traditional TV is still number one – so not all reach is equal).

Scratch into the numbers even deeper still and you’ll also see that not all demos are ‘abandoning’ TV. In fact, a close look shows that viewership for 55+ is actually up from 700,000 in 2010 to 800,000 in 2018 – but who wants to target this undesirable segment, considering they own 56% of private wealth in Australia?

A fight to end all fights

You’d be hard pressed to find a media executive who doesn’t agree that, when planned and bought correctly, TV is still highly effective at communicating and driving sales. But that doesn’t change the fact that TV is in a street fight and it needs to start landing some big blows.

The big question is how can traditional TV – especially local TV networks – stand any chance against the likes of Netflix over the medium to long term? After all, content is king, and Netflix has been steadily increasing its investment in content – from US$8.9bn in 2017, to US$12bn in 2018 and US$15bn this year, to a reported US$17.8bn in 2020.

Pundits quote these numbers with excitement, wonder and general giddiness as proof that Netflix has already won. But when we go below these eye-watering numbers, a more concerning question becomes evident – is Netflix’s business model sustainable?

Netflix isn’t making a profit, not even close. Its levels of debt are just as eye-wateringly high as its content investment dollars – US$6.5bn in long-term debt in 2017, and US$10.4bn in 2018. Could your business operate like this?

The Netflix model, much like Uber’s, is based on perpetual and continuous growth. I’ll leave it for you to decide how realistic this is. (Hint: it isn’t.)

The game is about to change

But even this 101 in business management isn’t the only issue facing Netflix, which has been standing on the shoulders of giants since its inception. The content owners that provided much of Netflix’s content have decided they don’t want to play anymore – it’s their ball and they are taking it home.

For example, Disney+ is launching on 19 November. How cute, I hear you say. But don’t underestimate the big-eared smiling assassin – Disney is planning to rip the guts out of SVOD competitors. Each year for the past three years, the top three best-selling movies have all been Disney-owned: Avengers: Endgame, Captain Marvel, and Aladdin; Black Panther, Avengers: Infinity War, and Incredibles 2; and Star Wars: The Last Jedi, Guardians of the Galaxy 2, and Beauty and the Beast.

Netflix will have to kiss these and other Disney movies goodbye.

But that’s just the tip of the iceberg – Friends, The Office and the majority of Netflix’s top shows are all heading home. AT&T buying Warner Media and all its HBO content is yet another player positioning itself to enter the game.

It may not matter how much Netflix spends on content when faced with a renewed drive from the likes of Disney and Warner Media to fight back.

Let’s get back to planning

Can Netflix still be considered the future of TV? Maybe, maybe not. What it has done is show us that consumers are happy and ready for an evolved approach to content delivery.

Is the future a subscription model, an ad-funded model or something else altogether? And what should we be doing right now?

For marketers who have product to shift, brands to build and a business to sustain and grow, let’s get back to real planning. Let’s develop sound marketing strategies, considered communications plans and appropriate media tactics and channels that solve our clients’ business objectives. Only then will we be able to talk about real winners.

Now, who has some good show recommendations for me? I need to plan my weekend TV viewing.

Jamie Connolly is group business director at Wavemaker Australia


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