Cheatsheet: Netflix has a new growth story to pitch

Netflix is huge — and the company is finally willing to share some numbers (beyond subscribers) on exactly how big it is. But there’s more to glean from Netflix’s fourth quarter earnings beyond pure numbers, including how the company wants investors to think about its potential for growth, how it will compete with rival streaming services and why it’s sharing numbers to begin with.

The key numbers:

  • 139 million: Number of paid subscribers, adding 29 million subscribers globally in 2019.
  • 10 percent: Netflix estimates it owns around 10 percent of TV screen time in the U.S.
  • 80 million households: The number of membership accounts that Netflix said will have streamed at least 70 percent of “Bird Box,” a horror movie starring Sandra Bullock, within the first four weeks of the movie’s release.

A new metric for Netflix growth?
The big question that Netflix has to answer is whether its service can eventually get 200 million, 300 million or maybe even more subscribers globally. So far, the company has been doing well, consistently beating Wall Street estimates and adding subscribers every quarter. But if Netflix’s subscription growth begins to falter, it needs to demonstrate other ways for it to “grow.”

Which means we get a new stat from Netflix this time around: Netflix estimated that it now accounts for 10 percent of TV screen time in the U.S. Netflix’s math goes like this: Netflix said it averages 100 million hours of streaming per day on TV screens in the U.S. It estimates that TV screens in the U.S. are on about a billion hours per day (accounting for 120 million homes, with two television sets, and four hours of viewing — plus hotels, bars and other public viewing areas).

If Netflix is only getting 10 percent share of TV screen time in the U.S., that naturally means it has a ton of room to grow as one of the biggest providers of programming on TV screens. Keep an eye out on for Netflix’s user growth in the U.S., and how that correlates to how much the company talks about how much time domestic users spend on Netflix.

Netflix is competing with… Fortnite?
In the letter to shareholders, Netflix CEO Reed Hastings said, “We compete with (and lose to) Fortnite more than HBO.” For Netflix, this is savvy PR spin: Don’t compare the company to another TV network, think of Netflix as an entire medium that is competing with another form of media — or human activity. As Hastings has said in the past, Netflix’s biggest competitor isn’t some other network, but sleep.

This helps Netflix in multiple ways. Strategically it positions the company as something more than a TV network. It also allows the company to fend off questions about looming rivals (in the shareholder letter, Hastings also said, “Our focus is not on Disney+, Amazon or others, but on how we can improve our experience for our members”); and it helps Netflix kick the can down the road in terms of talking about the long-term sustainability of its aggressive content strategy (though, raising the price of subscriptions doesn’t hurt). Netflix might be competing for people’s time — but so are traditional TV networks and movie theaters and video games and everything else that Reed Hastings may or may not think Netflix is competing with in a particular quote.

Disney won’t license movies and TV shows to Netflix? No problem.
With Disney, WarnerMedia, NBCUniversal and other major media giants prepping streaming video services, a lot of industry chatter has gone toward what these companies will do with the movies and TV shows they license to Netflix. (These shows, such as “The Office” and “Friends,” are very popular on Netflix.)

Disney has already said that it plans to pull Marvel and Star Wars programming from Netflix once those licensing deals are finished. WarnerMedia, meanwhile, has said it will consider pulling movies and TV shows back. But it also recently accepted roughly $100 million from Netflix to keep “Friends” on the platform, non-exclusively, through the rest of the year.

Netflix said it’s not concerned by increased competition because it’s already been producing a ton of its own original programming, which has been outperforming licensed, windowed programming on the platform.

“For example, we launched our originals strategy for the unscripted genre only two years ago. Today, Netflix originals, like “Tidying Up with Marie Kondo,” account for a majority of total unscripted view share on Netflix, while viewing of all unscripted programming has increased meaningfully during that time,” Hastings said. “We are ready to pay top-market prices for second run content when the studios, networks and producers are willing to sell, but we are also prepared to keep our members ecstatic with our incredible original content if others choose to retain their content for their own services.”

(One thing to keep in mind: it’s unclear how many licensed unscripted series exist in Netflix’s library, which could skew the company’s stat on a majority of viewership going toward its own originals. But the larger point Hastings is making still applies.)

Why Netflix is sharing more viewership numbers
Netflix said 80 million member households will have streamed at least 70 percent of “Bird Box,” the horror movie starring Sandra Bullock, within the first four weeks of the movie’s release. Additionally, Netflix said shows “You” (which originally was a Lifetime show before being picked up by Netflix) and “Sex Education” will have been watched by 40 million member households each within the first four weeks of release. (Netflix counts a view here as a member household or account watching at least 70 percent of one episode.)

These are big numbers, even if they are hard to independently verify. That still doesn’t matter to Netflix. The big reason the company is releasing these numbers is to show talent — directors, actors and producers — that Netflix can bring in huge audiences. That’s going to resonate in Hollywood.

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