Netflix Co-CEOs Reed Hastings and Ted Sarandos tackled a range of topical issues as they offered context for their less-than-expected gain in subscribers during the third quarter.
During their quarterly earnings interview posted to YouTube, Hastings was asked by moderator and Barclays analyst Kannan Venkateshwar about how the lack of a Stranger Things-type blockbuster affected the subscriber showing. The increase of 2.2 million subscribers was below company and Wall Street forecasts, and reflected a “pull-forward” in the first half of the year due to COVID-19.
“It’s just a little bit of math, Kannan,” Hastings replied, showing his assertive engineering nature. At the scale that Netflix has now reached, he continued, with more than 195 million global subscribers, the impact of big hits appears to be greater. On a larger base of subscribers, “you feel it more. From a practical standpoint, as investors, it’s a bigger deal. But remember, it’s variations on the growth.”
Netflix predicts it will have added 34 million subscribers by the time 2020 is done, the highest annual tally in its history. Hastings said metrics like subscriber retention, view time and frequency are just as important as the subscriber number.
“For at least the last five years,” he said, “we’ve realized there are no gimmicks. … It’s fundamentally about member satisfaction. If we please you on a Wednesday night, you’re more likely to come back on a Thursday night. You can juice a given title if you wanted to, but you’re going to pay for it downstream because not everybody got the best title for them.”
He said the goal is to produce what he called “diffusion of word of mouth,” with a wide swath of customers believing the service “is a better way to go.” With a hit show, “you capture a bit more of that” but the longer haul is the more important measure.
Sarandos said the shutdown of movie theaters in the U.S. and elsewhere due to COVID-19 has created “short-term opportunities” in terms of films to acquire from studios. But he said the subtraction of theatrical from Hollywood’s equation won’t last forever. “I wouldn’t look at this as being that radical a change,” he said, and didn’t see PVOD or other forms of distribution totally supplanting the traditional model.
“Consumers’ desire to see films at home has been growing and we’ve been able to satisfy it,” he said. “At some point, theaters are going to reopen and people are going to go back to theaters. I hope so. I’m a fan of doing it myself.”
The total number of shows on Netflix has gotten “significantly lower” over the past decade, Sarandos acknowledged.
“In the earlier days of Netflix, we were trying to figure out what we could stream and we were licensing in bulk and in volume,” he recalled. Today, “we really don’t focus much on the title count. In the early days of streaming, that was the marketing war was how many titles you had. But it turns out that isn’t that meaningful if people don’t watch them.”
As it began streaming in 2007 and shifted its emphasis to that effort from its legacy DVD-by-mail business, the company would license “800 films from somebody and nobody watched any of them,” Sarandos said. “It’s really not a chase for how many titles but are these the titles you can’t live without?”
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