← Behind the Numbers: an EMARKETER Podcast
Behind the Numbers: an EMARKETER Podcast
Is Netflix the Future of Living Room Entertainment? “Not So Fast,” Says YouTube | Behind the Numbers
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- [00:00]
Marcus
Got an e commerce challenge? Who doesn't? AWIN has got you covered. With AWIN's affiliate platform, brands of all sizes can unlock endless marketing opportunities, reach consumers everywhere, and choose partners that fit their goals, control costs, customize programs, and drive real results. Learn more@AWIN.com eMarketer that's AWIN.come Market. Hey, gang. It's Friday, August 1st. Marissa, Paul, and listeners, welcome to behind the Numbers, a new marketer video podcast made possible by awin. I'm Marcus and first, let me thank Rahul for covering me whilst I was out on vacation. Thank you to you, sir. Join me for today's conversation. We have two people. Let's meet them. We start with our newsletter analyst based in New York, it's Marissa Jones.
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Marissa Jones
Hi. I'm excited to be here.
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Marcus
Hello. Hello. And we also have with us our VP of content, living life up in Maine, it's Paul Werner.
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Paul Werner
Great to be here as always.
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Marcus
Hey, fellow. Today's fact, London, England is a forest. Apparently by FAO definition, a contiguous area with over 10% tree canopy cover, London qualifies as a forest. In fact, greater London today boasts approximately 21% canopy cover, making it one of the largest urban forests worldwide. Today, London is home to around eight to eight and a half million trees, with plane trees among the most iconic. I don't know what that means. That's not true. I'm disappointed with myself for this one.
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Paul Werner
Those plane trees are pretty awesome, I have to say.
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Marcus
It's not a forest, is it?
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Paul Werner
Well, New York is a forest. It's a concrete jungle. So that. That counts as a forest.
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Marcus
Yeah, I guess. In London's defense, It has over 3,000 parks, which is amazing.
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Paul Werner
That is amazing.
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Marcus
A lot of big ones. Hyde Park, Regent's park, et cetera, St. James park, and then you've got a lot of pocket parks. Forest though, it is not. Anyway, today's world topic, we're talking Netflix. All right, folks, Netflix today they grew Q2 revenue 16% year over year, which is close to the 17% growth it recorded last Q2, so pretty good. The company doesn't report subscriber numbers anymore during earnings, so we turn to other engagement metrics to try to understand how they're doing, according to Nielsen's gauge. Marissa, you would say cited this in one of your recent articles. YouTube is the most watched service on TVs, accounting for 13% of all TV time. So YouTube's out in front, but Netflix in second place with a little over 8%. But it's not the only metric. To measure how these two streaming giants are doing against each other. Marissa, will Netflix be able to catch YouTube in the streaming wars, in your opinion, based on, I don't know, whatever metric you think matters most, yes, Netflix.
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Marissa Jones
I do think has a chance of catching up to YouTube, but it really depends. It really depends on how Netflix makes its next moves and if it plays its cards right. Netflix needs to kind of identify the gap that it's missing and what YouTube's doing that it's not doing. Because Netflix still does lead in paid streaming offerings, so it isn't that far behind. It is what a lot of people think of as the go to streaming service. And a lot of people don't necessarily think of YouTube as a streaming service on the same level. I think Netflix in the future, it's already eyeing video podcasts, which is something that YouTube leads in right now. And people are preferring video podcasts. So that could be a great opportunity. But beyond just investing in that and building its ad ecosystem to kind of catch up to YouTube, it's important that Netflix knows how to entice creators as well, because creators have established their whole identity, a lot of them on YouTube, um, so it really has to be able to build its offerings and separate itself from YouTube's short form focus. If it's able to target creators who are maybe looking to go beyond the limitations of what they see on YouTube, then it does have a chance of catching up. But a big focus is not necessarily whether it can attract viewers, but whether it can attract creators and convince them.
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Marcus
Paul, I mean, Paul, when Netflix, is it going to be kind of a copycat strategy? Is it going to be creators, podcasts, short form video, the things that have gotten YouTube to where they are or. John Coblin of the New York Times wrote, The two giant video companies, YouTube and Netflix, have five different strategies, but the same goal, controlling your TV set. So how do you think Netflix can overtake YouTube?
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Paul Werner
You know, I think these two companies are obviously in a very heated competitive battle and I think they're driven by mutual envy. I think each wants to be more like the other. And for Netflix, that does mean everything you mentioned and everything Marissa mentioned, creators, live sports, shorter or podcast, video podcasts. So there's a lot that Netflix is trying to do, including things that it said it wouldn't do, which I think by now is kind of a popular potential pivot for Netflix, because they did it with advertising, they did it with sports, they're almost doing it with live TV in France. So, yeah, I think Netflix is trying to do all of those things. But YouTube is also trying to dominate the CTV space, which I think it's doing a great job at making that transition. It's been a long time and they've done it very gradually. But it's kind of ironic that these two companies are now seen as the, the big giants competing for prominence in the streaming space when, as Marissa just mentioned, they are very different and I think will remain different even as they try to use each other's playbooks.
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Marcus
Yeah, Netflix, they are behind in terms of time spent, according to Nielsen. I think. Marissa, you said that in your article. They were slightly behind in terms of time spent per day by a couple of minutes as well. They have less users, less viewers as well. So they're behind in a number of metrics. However, as you can see from this chart on the screen, we forecast that Netflix will add around 100 million global monthly viewers, going from 730 million to about 830 million roughly from 2024 to 2028. And Jeremy Goldman, who wrote a piece for us on this, was saying that could be close to 10% of the global population. So even though they're behind YouTube, there's still such a significant audience. And these two together, really just in a league of their own. These two companies, YouTube and Netflix, accounting for 1/5 of TV time in the.
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Paul Werner
U.S. and there's a couple of additional, there are a couple of additional data points that give more nuance to the competition. One is just the fact that YouTube has such a larger user base. I mean, we talk about Netflix, you know, in the hundreds of millions, but YouTube is just off the charts. I don't have the current, you know, viewer stats playing the billions game. Yeah, right. The other thing, and I think this, you know, Marissa pointed this out in the article, in an article she wrote, but so it's about the fact that the gap between time spent on these platforms narrows quite a bit when you just measure nighttime. So that to me speaks to Netflix always being kind of like that living room experience, the one hour dramas, the half hour comedies. More like a traditional TV experience, but very premium. Whereas YouTube still isn't really that they're taking steps to get there, but they're still leaning a lot on creators and they're leaning into live events and music videos and just a lot of stuff that. And podcasts, but a lot of stuff that Netflix hasn't really done at that level. But Netflix definitely dominates when it comes to like those big shows that they're so famous for.
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Marcus
Yeah, yeah. Speaking about the traditional TV experience and streaming looking more and more like cable. Jessica Tunkel of the Wall Street Journal is writing that Netflix is exploring music shows and celebrity interviews in an unscripted TV push, explaining that they are partnering on on a number of projects like music award shows, live concert series, big celebrity interviews, and shorter turnaround documentaries to capture the news of the moment. Paul, can Netflix's next wave of content keep audiences attention?
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Paul Werner
I think so. Look, Netflix already has audiences attention, so when we're talking about what they're trying to do against YouTube, again, I think we're talking about different scales and different experiences. So I think Netflix has the advantage that they already are. They're going to be the last one standing. Like, you know, any amount of churn is going to affect other streamers before it affects Netflix. YouTube Again, in a different category because it's mostly free. But so I think Netflix, what they're trying to do is pad around the edges and I think that's a great strategy. What they're doing and all of the things we've talked about, the podcast, concerts and what the discussions are with Spotify, I think are really interesting because. And again, let's use YouTube as an example. The best performing videos on YouTube have always been music videos, with very rare exceptions. But the music videos are the ones that get like billions and billions of views. And I think that is kind of a space that Netflix has not really explored. And I think they're in a good position to do that. And a partnership with Spotify, to me, makes a lot of sense to try to get there.
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Marissa Jones
I would also say I think it's a smart move as long as it's filling a void that viewers are looking for, which I think it is. But it's a smart move in terms of there's so much more ad real estate. And it's really a good part of Netflix trying to build its ad offerings. It's seeing a lot of success with its ads so far. But obviously in comparison to something like YouTube that's like built on ads, it's not caught up to that yet. There's a lot more real estate in the unscripted market. It's very, a lot less saturated than the scripted market for advertising. The production costs are lower, obviously it's more cost effective. So it really is a great opportunity for Netflix to build its ad offerings, draw in more diverse viewership who might also subscribe to its ad tiers. So it's definitely, I think, a good opportunity and a worthwhile push.
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Marcus
Yeah, Netflix has worked out some of the kinks with regards to its ad offering. But the pushback here, if I may for a second, is that maybe it's not going to be smooth sailing down the road. Jeremy, who I mentioned earlier, was writing that Gen Z doesn't like streaming ads. He was questioning whether marketers should be worried because of that. He was explaining that 2/3 of US viewers across age groups say live TV ad breaks are more tolerable live TV than those in on demand streaming, per Hub research. And also on top of that, according to Deloitte, Gen Z remains the least likely generation to subscribe to ad supported tiers of streaming services. So, Marissa, can the streaming giants pivot to ads go uninterrupted?
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Marissa Jones
I still believe that it's pivot to ads can go uninterrupted. I think the big thing is that Netflix isn't doing something that no other streamer is doing. Pretty much every streamer now has an ad supported tier at a lower cost as an offering to users. So it's not something that's going to be so off putting to users. And it is still going to be one of the last services people cut. A lot of people don't like streaming ads necessarily, but most people do to some level accept them, especially for lower costs, as just a part of the experience. And as fewer and fewer households continue turning to linear and cable, Netflix is the biggest name in streaming. So if people are getting frustrated with all these streaming services having so many ads that they're going to cut services that they're frustrated, Netflix is still probably going to be one of the last names that they cut.
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Paul Werner
And also Netflix still has the advantage that if people want to completely have an ad free experience, they can. They obviously have to pay more. Everything that Netflix is doing is aimed at increasing it's ad business. So all of the video types and the live sports and even the live TV experiment in France, all of that is aimed at boosting that part of the business. I think that the ad experience is going to look somewhat different on streaming platforms than it did on linear tv. But at the same time the ad loads are going to get heavier because that's just the way it always goes. The ad loads were not as heavy on TV as they became and nobody ever liked ads anyway. So this is not just a Gen Z thing. People still avoid ads. They walk away at halftime or during ad breaks. So that's going to happen no matter what. And should marketers be concerned? Yes, but I think they already know this and they tried to compensate for it the, in the best way that they can. You know, I think marketers are going to be fine. They're going to have to work harder as they have been, you know, at every step of this evolution in digital advertising and marketing. And this is going to be no exception. As the streaming space continues to evolve. It's going to present some challenges, but a lot of opportunities for marketers.
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Marcus
Yeah, marketers should be fine. Netflix too, it seems they're expected to generate about 4 billion in ad revenue this year, according to some consensus estimates from Visible Alpha. That's less than 10% of the money that it makes are expecting to make in full year revenue. So they're, they're in a good position there. Speaking of subscribing to Netflix ads or without ads, Marissa, you recently wrote a piece about the FTC's Click to cancel rules. So people subscribe. It seems pretty easy to subscribe to a lot of services, but a lot harder to cancel them if you want to. This click to cancel rule was trying to simplify canceling subscriptions and it's being blocked by the US Federal Appeals Court. You explain, Marissa, that the ruling would have stopped companies from forcing customers to jump through hoops to cancel services and required businesses to get consent before charging folks for memberships, programs with free trials and auto renewals. Marisa, help us understand why the click to cancel rule got struck down in the end.
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Marissa Jones
Well, it's definitely not because of consumer preferences because obviously consumers don't want to have to go through all these hoops to cancel and they might even have a more favorable opinion of a brand if it's very simple to cancel. But the bottom line is that a click to cancel rule like this is not a win for companies who are relying on subscriptions for the first party data that they need to strengthen their ad ecosystem and boost their ad revenues. So the click to cancel rule being struck down is really aiming to give protection to these companies who are looking to reduce churn, who are looking to run effective programmatic and retargeting campaigns. So that's really the bottom line. It's great for providers. It might not be aligned with what consumer preference is, but we know what the bottom line is because there's been such a wave of advertisers and providers speaking out and trying to fight this ruling ever since it was introduced.
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Marcus
Yeah. One of their explanations, if you will, as you put in your piece, is from the NCTA Internet and Television association and the ANA association of National Advertisers. They seem to be worried that Consumers would accidentally cancel their accounts if the process was oversimplified. It's funny, Paul, because no one seems to be worried that you could accidentally open an account with just a few clicks. Paul, what's your take here?
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Paul Werner
Yeah, I think what led it to be struck down is just simply that the lobbying power of the advertiser and media platform communities is a lot stronger than that of consumers. And I think we're living in a time when consumers have less and less say in power in general over corporate decisions and government decisions. So it's par for the course. I call it the IKEA method. You know, like, it's very easy to walk into Ikea, but good luck getting out of that store, man. So it's the same thing. I mean, I've tried to cancel some of these things and it is absolutely nerve wracking. But I thought one thing was really interesting here. In your article, Marissa. There's a graphic that plots. It's like a scatter plot of how many clicks does it take to sign up versus how many clicks does it take to click cancel. And I was amazed not at how many it takes to cancel with a lot of these because again, I've experienced this, but there are a couple here where it takes like, I mean, fox News takes 40 clicks to sign up. What's that about? Like how are they measuring those clicks? Is it like when you type in your name and address? Like, I don't understand that. Yeah, it's kind of a side note because we're really talking about canceling.
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Marissa Jones
But yeah, there was also kind of as a side note, one thing I found interesting as I was doing research for that article is that an Amazon account can be created in 10 clicks and takes 56 clicks to cancel.
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Paul Werner
Yeah, I believe that.
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Marissa Jones
But at the same time, people aren't going to stop using Amazon just because of that. So it really only stands to benefit companies by striking down this ruling.
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Marcus
Yeah, and it's a shocking amount of clicks. Some of them 10, 20, 30, 40. Marissa, to your point, 50 in some instances. But Paul, I think it's a great take is, you know, if you're any service really, and it's taking more than 10 clicks, that's probably an issue. And a lot of these services were taking much more than that. Netflix said it took close to 20, but yeah. Marisa, to your point, how do consumers feel about this? I really like the data you had. 41% of consumers have reported difficulties finding cancellation options. Over 30% had to contact customer service and close to 30% felt pressure to say subscribed from a closer look study. So it's, it's gone away for now. Maybe there'll be so much consumer pushback that it will rear its head at some point in the future.
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Paul Werner
I would love to see a scatter plot with how many clicks does it take to cancel versus the amount of churn on that platform and see if there's any correlation. Yeah, yeah, that'd be really interesting.
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Marcus
Very informative.
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Paul Werner
Yeah, but I mean with Netflix, like, you know, the whole thing about Netflix is nobody cancels. So like it's like that joke, how long does it take to tune a 12 string guitar? Nobody knows because it's never been done.
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Marcus
No one has ever. Yeah. Netflix. One of the lowest.
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Paul Werner
Yeah.
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Marcus
Of a quite significant margin of churn rates. Let's end here. Netflix to open its first two Netflix House more locations in Dallas and Philadelphia this year and a third location in Vegas by 2027. So some brick and mortar facilities for Netflix. Daniel Konstantinovich writing that this was announced in 2023. Netflix houses are in more locations where fans can eat, shop for merch and participate in activities themed after Netflix Originals like Wednesday and Stranger Things. Paul, what's your take on these Netflix house locations and how much can they move the needle?
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Paul Werner
This is an interesting one because on the one hand, it doesn't seem like a great time for any kind of brick and mortar mortar push. On the other hand, and Danny cites this in the article, there's a lot of cheap commercial real estate available in malls right now. I think it comes down to the strength of the IP and how good the experience is. If you look at two of the most prominent examples of brands that have launched non retail brands that have launched retail stores, you have to go to Disney and Apple. Disney, I thought, did a great job, although they have been downsizing that operation for a lot of the reasons that are affecting commercial real estate overall. And I think Apple has gone out of their way to make, you know, what is generally considered a really cool experience in the stores, though they also have some challenges in that they sell a lot of iPhones through carriers. So that limits how much they sell in the Apple stores. But I think Netflix, they have a chance to do this around some of their really popular franchise shows. So it's really going to come down to how great is the experience, how creative can they get about drawing people in, but it's not going to be trivial. And I think Netflix actually had a push to sell merch a couple of years ago that sort of came and went, I don't think it was in their stores, but it was merchandise around like Stranger Things and Wednesday.
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Marcus
Yep.
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Paul Werner
So, you know, will it play in a store? Who knows? I think again, it's just going to come down to how smart they are about how they do it. And definitely they, you know, and it sounds like they're being measured about how they roll this out. So they're not doing like 25 stores in the first year. They're doing a couple and they'll test and see, you know, they're a smart company. So if it doesn't work, I don't think they're going to be afraid to pull the plug on it.
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Marcus
Yeah. Marissa, Netflix House, Is this a needle movie?
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Marissa Jones
I think I agree with Paul that like, it really is going to depend on the quality of these experiences and how well it relies on its most popular titles. But I also do think Netflix is one of the only streamers who's really positioned to be able to even experiment with something like this. It has the titles that kind of you can build an experience around a Stranger Things experience. Makes sense. You're seeing, you know, streamers like if, for example, like Peacock Building, like a Love Island Experience isn't really going to be as successful as something that like Netflix can do and they're not going to have the means to do that. So I think if any streamer was to try and tap into this market, Netflix is the best position to do so.
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Marcus
Yeah. Yeah. Seems a bit odd at first blush. But then Danny notes in the piece that other streaming competitors. Paul, to what you're saying, Disney, not just with their stores but with their theme parks and Warner Brothers Discovery have expensive theme park businesses that have deepened consumers connection. He says with tentpole intellectual property, Netflix House can tap into the same appetite for experiences with less overhead and lower cost entry. Great point. That's all we've got time for for today's episode on Netflix. Thank you so much to my guests. Of course. Thank you to Marissa.
- [23:16]
Marissa Jones
Thank you.
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Marcus
Thanks, Paul.
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Paul Werner
Thank you, Marcus.
- [23:19]
Marcus
Yes, sir. And thank you to the whole editing crew and to everyone for listening into behind the Numbers new marketer video podcast made possible by awin. We'll be back, of course, on Monday, happiest of weekends.