The problem with Netflix's viewership numbers
Posted January 18, 2019 2:24 p.m. EST
Updated January 18, 2019 2:36 p.m. EST
CNN — Netflix typically keeps its viewership numbers a secret, but the company offered the public a rare glimpse of how some of its original programming fared in an earnings report that came out on Thursday.
Media observers, however, were immediately skeptical.
"Sooooo we're just taking Netflix's self-reported numbers as fact now, cool, cool," New York Times TV critic James Poniewozik tweeted. "Related: I am on track to have six-pack abs within the month."
Daniel Fienberg, The Hollywood Reporter's TV critic, shared this skepticism in a response to a tweet Netflix posted, in which the streamer boasted that "'Sex Education'... is on pace to be watched by over 40 million accounts over its first month."
"It's official: Netflix tweeting utterly BS ratings — guessing on the first month ratings of a show that's been out for 12 days — is actually worse than no Netflix ratings," Fienberg said.
The president of the Chicago Film Critics Association reacted to Netflix's data with a tweet that got to the heart of the problem.
"Imagine if studios just told you how much a movie made without any sort of oversight or proof," Brian Tallerico said on Thursday. "Or if we didn't have public Twitter follower numbers and could just guesstimate our own. You see why these kind of Netflix-released numbers are silly."
Tallerico is right. What Netflix's viewership data lacks is nuance and third party verification.
Networks like NBC and ABC have in-house research teams to conduct analysis of their own viewers, but media research firm Nielsen also independently collects viewership data through a sampling of 48,000 homes and over 118,000 people. The sample group is designed to represent a cross-section of homes in the US.
There was no indication from Netflix in the earnings report that the numbers have been vetted by an outside source. A spokesperson for Netflix said they have no comment about the viewership data beyond what's in the report.
Traditional television networks rely on commercials to make money, which means they need to provide advertisers with numbers that they can trust. Netflix has no such incentive to share this data with the public because it doesn't run ads on its programs. Netflix makes money through subscriber fees, which are increasing by $1 to $2 this year in the US.
"[Viewership] is interesting data, but people care about this stock because of subscribers," Michael Nathanson, media analyst and founding partner at MoffettNathanson, told CNN Business. "You care about one number, subscribers, and you go home."
Netflix reported on Thursday that it now has 139 million subscribers globally.
Thursday's earnings report said that "Bird Box" was viewed by more than 80 million member households in its first four weeks. A viewer is included in the count if they complete 70% of the film, Netflix said in a footnote.
Still, that number does not tell a full story. Nielsen provides data that breaks down demographics, viewership location and peak viewing times, all of which help advertisers better understand their audience.
When Netflix reported in December that 45 million accounts had watched the Sandra Bullock-led film in its first week of release ("best first 7 days ever for a Netflix film"), Nielsen was able to match some of that staggering statistic. The research firm reported that nearly 26 million viewers watched the film in that time period, but Nielsen's number does not include viewers outside of the US, and it doesn't include viewing that happened exclusively on mobile, tablet or laptops.
So why is Netflix starting to release all of this data now? New York Times media reporter Edmund Lee says the streamer is staging a "huge charm offensive for Hollywood talent."
"Buying billboards along the Strip. Releasing films in theaters. And now, revealing viewership data, essential to making sure you're getting paid enough. The fight for talent is real." Lee said in a tweet after Thursday's report.
Netflix spent billions last year on content and on poaching top talent like Shonda Rhimes, Kenya Barris and Ryan Murphy. Netflix's Vice President of Finance and Investor Relations Spencer Wang did not explicitly state a content budget for 2019 during Thursday's analyst interview, but he signaled that there will be "higher content spend" going forward.
The company had a negative free cash flow of $3 billion in 2018 — in other words, it's spending a lot more than it is bringing in. On top of that, a host of legacy media companies and Apple will make the streaming market even more crowded when they launch their own services later this year.
The numbers Netflix released on Thursday could signal to investors, Hollywood talent and competitors that, yes, people are watching.
"These are less financial metrics as they are a cultural metric," Ted Sarandos, Netflix's chief content officer, said in the analyst interview. He compared these stats to box office numbers, and noted their potential to get people talking about the show or movie is popular at that moment.
Netflix also said in Thursday's report that it earned 10% of TV screen time, an impressive claim that it hasn't made before. The company said it arrived at that rate based on an estimation that TV screens in the US are on about a billion hours a day. Netflix claims it serves on average about 100 million hours a day on TV screens.
"I think about it really as us winning time away, entertainment time, from other activities," Reed Hastings, Netflix's CEO, said in the analyst interview. "Instead of doing Xbox or Fortnite or YouTube or HBO or a long list, we want to win and provide a better experience."
Netflix's presentation of its numbers does not tell the whole story, but that doesn't mean they're flat out lies either.
"If you put something in an investor letter that gets filed with the SEC, you're not going to lie," Nathanson said.