Netflix boss Reed Hastings says traditional TV will be dead in “five, 10 years.”
The co-founder and co-chief executive of the streaming giant made the prediction in Tuesday’s investor call as the company reported its second-quarter earnings – which surprised markets by showing a loss of one million subscribers, significantly lower than the 2.4 million Netflix had projected it would lose.
Asked what had driven the better-than-expected result, Mr Hastings explained that Netflix was “executing really well on the content side”, pointing to the success of titles like stranger things and Ozarks.
“We’re improving everything we do around marketing, improving the service, the merchandising, and all of that solely pays off,” he said.
“If there was a single thing, we might say stranger things. But again, we’re talking about losing one million instead of losing two million. So our excitement is tempered by the less bad results. But looking forward, streaming is working everywhere – everyone is pouring in. It’s definitely the end of linear TV over the next five, 10 years. So very bullish on streaming.”
Mr Hastings, who has been prophesying the death of TV for the past decade, has recently highlighted Nielsen data showing Netflix’s share of US TV viewing increasing.
The measurement firm’s monthly tracker, set to be published on Thursday, will show Netflix’s overall share for TV viewing in July at 7.7 per cent, up from 6.6 per cent in July 2021.
In its shareholder letter, the company also pointed to Nielsen data showing Netflix dwarfs the competition for total viewing time at more than 1.3 trillion hours for the 2021-22 TV season, compared with 753 billion for nearest rival CBS.
Later in Tuesday’s call, chief operating officer and chief product officer Greg Peters was asked how Netflix would make its upcoming advertising-supported tier “a better ad experience than what’s available on TV today”.
“I think we’re looking at this as an extension of two things that we think that we’ve historically done, which is, one, to be very consumer-centric and think about the customer experience,” he said.
“And then also just taking an innovation-oriented view, whether it’s sort of how we started in streaming to how we think about great quality of experience and the innovations we’ve led and I think in the discovery and choosing side. We’re going to take an iterative approach. This is what we call the ‘Crawl, Walk, Run’ model. So at the beginning, it will look what you’re familiar with.”
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In the US as well as Australia, broadcast TV viewer numbers have gradually declined, first with the increase in original cable TV content and later with the arrival of streaming services.
Earlier this year, a report commissioned by Australia’s Department of Infrastructure, Transport, Regional Development and Communications found subscription video-on-demand platforms had overtaken free-to-air TV for the first time on record.
The report from the Social Research Center showed 83 per cent of Australian adults made use of online video services, up from 81 per cent in 2020, while only 77 per cent were tuning into free-to-air TV, down from 80 per cent the prior year.
Netflix dominates the Australian streaming market with 67 per cent of respondents subscribing, compared with just 27 per cent for second-placed Disney+.
But while linear TV is struggling against Netflix, it has the obvious benefit of being a free, 24/7 source of quality content.
Ace TheVerge points out, one of America’s most watched shows, Grey’s Anatomyhas gone from an average of 20 million viewers per episode to a still impressive four million.
And in the US, broadcast TV is about to get a major upgrade in the form of ATSC 3.0, also known as NextGen TV, which supports 4K resolution, HDR, 120 frames per second and other features.
Shelly Palmer, a Syracuse University media professor and commentator, wrote on Wednesday that the only thing that could kill broadcast TV would be the loss of the NFL.
“Reed is one of the smartest people I know, so I know that he knows that the only thing that can possibly kill linear TV is the NFL walking away from broadcast TV in 2031 when the current contract ends,” he wrote.
“If the NFL re-ups – which is to say, if TV has the money, which it may not – then broadcast linear TV (broadcast television networks and the local television stations that propagate their television signals across America) will live on for the length of the new contract.”
On the other hand, he argued, if Netflix or another streaming service – or group of services – purchases the exclusive rights to the NFL in 2031, “then Reed is absolutely right”.
“Linear TV will die an accelerated (but still painfully slow) death – one filled with re-runs of very old shows, syndicated content, repurposed news stories presented by AI-generated newsgivers (or unpaid interns), etc,” he said.
“If you want to understand what a ‘no sports’ linear TV landscape might look like, study the radio business. It suffered TV’s ‘ultimate fate’ a while back, yet – against all odds – it’s still a $US10 billion ($A14.5 billion) annual business. why? Because it’s free to use.”
Netflix results boost sector
Netflix’s results and improved market outlook also spread to other companies in the sector – Disney’s price went up, as did American streaming company Roku.
The streaming giant had a particularly good quarter in the Asia Pacific, the regional umbrella under which Australia falls. In APAC, Netflix added 1.1 million paid subscribers and grew its revenue 23 per cent year-on-year, compared to global revenue growth of 9 per cent. It revealed its average revenue per increased membership in Australia.
The news was a welcome respite for the under-siege business, which has been riding a wave of bad press for months, intensifying since its previous quarterly results.
In the past three months, Netflix has reduced its operating costs by sacking hundreds of its workforce, revealing today those moves amounted to $US70 million in severity costs. It also wrote down $US80 million of value from its books, due to real estate.
In its shareholder letter, the streamer claimed it now has a better understanding of the market challenges – account sharing, competition, macro-economic pressures – which led to its disastrous previous quarter.
“First and foremost, we need to continue to improve all aspects of Netflix,” it said.
“This focus on improving our core service has served us well over the past 25 years, and remains our north star to drive continuous growth. It’s why we strive for an ever better content, marketing and product experience.”
Netflix fired a shot at its competitors by emphasizing it was a “pure-play streaming business” that was “unencumbered by legacy revenue streams.”
Netflix specifically said it wasn’t beholden to “extended or exclusive theatrical windows” and that it could let subscribers “binge watch TV if they want, without having to wait for a new episode to drop each week”.
While it didn’t name its competitors, those examples probably refer to the likes of Disney (which primarily releases its streaming series such as Obi Wan or mrs marvel on a weekly basis), and HBO Max and Paramount+ (Paramount released Top Gun: Maverickwhich has a longer theatrical window than the studio’s typical 45-day lockout period).
Those statements indicate Netflix feels the pressure to differentiate itself in a saturated market as it’s challenged for its once emphatically dominant position.
The streamer revealed more details of its upcoming introduction of a cheaper advertising-supported membership tier, which is now slated to launch in early 2023 and only initially in a handful of territories.
The company said it expected that the new offering would take time to grow sign-ups and ad revenue. “Over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues),” the company said.
Netflix last week announced Microsoft would be its global technology and sales partner for its ad-supported tier.
Netflix also gave an update on its crackdown on password sharing. It said it was “encouraged” by the early results out of multiple territories in Latin America where it is testing a way to charge the 100 million customers who share their passwords beyond their residential household.
It’s trying two different formats, one which allows subscribers to “add a member” while a new test run will roll out in Argentina, Dominican Republic, El Salvador, Guatemala and Honduras from next month where customers can “add a home”.
In a blog post, Netflix said it was “working hard” to figure out how to best charge for password sharing. It promised it won’t change anything in other countries until “we better understand what’s easiest for our members”.
The crackdown will begin in 2023.
– with Wenlei Ma