As I talked about in my blog last week, Netflix can help television shows increase their viewership by increasing the availability of the content. However, Netflix has also negatively affected traditional TV ratings because its functionality gives it some competitive advantages.
Basic Cable (i.e. AMC, FX, etc.) and Broadcast Networks (i.e. FOX, ABC, etc.) are largely based on ad-sales and have to account for their advertising money very early-on in a show’s run. These networks need to consider the opportunity cost of the time slot that the show is airing in, and if they don’t find an audience quickly, then they have to cancel the show and replace it with programming that will make money.
Premium Cable (i.e. HBO and Showtime) and Subscription Video on Demand (SVOD) services (i.e. Netflix and Amazon) make their money based on subscriptions so they are afforded a greater period of time to find an audience for their shows. Premium and SVOD services, like Netflix, can amortize their investments in a show over longer periods of time, so they don’t need to make their money back immediately.
Netflix is not subject to the strict regulations that other networks need to adhere to, which allows them to take more risks with their original programming. Netflix is able to offer an environment that is more conducive to creativity than the strict regulations of networks; therefore, a lot of the talent is becoming more attracted to Netflix, which increases content quality.
Ad-Free and Brand-Free
Netflix has the advantage of offering content without commercial breaks or any other digital ads, which is very attractive to younger consumers. The lack of advertisements encourages binge-watching and makes consumers watch more. Netflix is also the only brand represented on the service. Netflix brands their content with “Netflix Original”, but network and cable shows are unbranded, which affects their brand awareness.
Netflix’s greatest advantage is their ability to accumulate a huge amount of data from their consumers. They use this data to determine consumer preferences, and create content that will appeal to different audiences. Netflix can use their own data, as well as data from social media to tailor their original content to increase the likelihood of a show’s success.
How Will Networks React?
In the short-term, Networks are talking about making changes to their contracts with Netflix, and changing the amount of commercials. Media companies are talking about waiting longer before selling a show to Netflix, or even waiting for the show to completely finish airing (through to the series finale or cancellation) before licensing it to Netflix. Media companies are feeling added pressure to maintain control of their content as the trend of “cutting the cord” continues. There is also talk of airing fewer commercials in the hopes of attracting younger viewers who are not accustomed to watching ads on TV.
In the long-term, I think there will be more reliance on social data, and greater investment in content. Social media is where networks and basic cable shows can compete with Netflix because they can create live events on social media and engage a large portion of their viewers at once. Netflix viewers don’t watch shows at the same rate; some binge-watch a new season of Orange is the New Black within 24 hours, while others spread out a season over weeks. Investment in content is also crucial; viewers are more sophisticated than ever, and they are seeking out the best content regardless of the medium. If Netflix has the best series, then they’ll subscribe, but if broadcast and cable networks offers quality shows, the viewers might not cut the cord. Some possible future trends:
1) Reduction or Elimination of the Pilot Season
The television landscape is not only crowded across networks, but within them as well. When Networks order too many pilot episodes or too many new series, they spread their resources too thin. The promotional campaigns are too numerous and consumers get overwhelmed with the number of options. Especially on social media; when you hear too much, you commit to nothing.
2) Using Social Data to Target Marketing Efforts
This strategy has already been used to great effect by Pretty Little Liars on ABC Family. Networks can study fan interactions on social media to better understand their audience. With this data, networks can market directly to the consumers based on how the viewers are likely to engage.
3) Tracking Social Engagement for Renewals and New Shows
Nielson already has Twitter ratings for TV, and using social data will only continue. Based on reactions to different shows, it’s possible that networks will use social data to make renewal decisions, and to predict the potential success of shows in development. Netflix has had great success using their data to predict the potential audience for their original content, like House of Cards.
4) Increase of Spin-offs and Franchises
Once a show gains popularity, networks often attempt to build off of the success by creating a spin-off show that appeals to the existing community. For example, AMC made the spin-offs Fear the Walking Dead and Better Call Saul based on the success of The Walking Dead and Breaking Bad. Netflix is also attempting to build a franchise through their Marvel properties. Creating shows that exist in the same world offers crossover potential, which allows networks to simultaneously promote multiple shows. When characters appear on multiple shows it creates a big social media event, which often increases viewership.