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Behind the Numbers: an EMARKETER Podcast
The Big 3 Questions For Netflix — Ad Impact, Netflix House, and a Spotify Deal? | Behind the Numbers
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- [00:00]
A
In a fast moving market, you have to know what's working. You must. With Nielsen Ad intel, you'll know the where's, whens and hows of advertising across industries and channels. Maximize your ROI and achieve better results. Stop guessing, start winning. Nielsen Ad Intel. Hey, gang. It's Monday, November 3rd. Ross, Danny, and listeners, welcome into behind the Numbers, any market video podcast made possible by Nielsen. I'm Marcus, and joining me for today's conversation, we have senior analyst covering digital ads and media living in the Westchester vicinity is Ross Benish.
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B
Hey, Marcus.
- [00:39]
A
Hey, fellow. Also a little further south in Brooklyn, joining us we have the editor of the Marketing and Advertising Briefing hour. Marketing and advertising Briefing is Danny Konstantinovich.
- [00:51]
C
Hello. Yeah, actually in Queens now, so still a little bit south of Ross, but you gotta get it right.
- [00:58]
A
I know, I never listen. I also gave him the wrong title before we started. I know you at all, Danny. His name is also Daniel. Nothing about him is true. Today's fact. How much time do we actually spend watching things happen during a football game? American football. So I'll ask you guys. There was a Wall Street Journal analysis of an average game of football, and it lasts 3 hours and 12 minutes on average. Total time from starting to watch to end of watching. But if you tally up the time when the ball is actually in play, the action amounts to how many minutes?
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B
17.
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C
Oof. That's pretty low. I was gonna guess like 30, but I also don't watch football, so I have no reference.
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A
11. Wow.
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C
I mean, that's crazy.
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A
Minutes. An average play in the NFL lasts just four seconds. And Ross, you would have been right if you'd said the average NFL broadcast spends 17 minutes on replays. Ah, watching replays, which is obviously more. You spend more time watching replays than the actual live game. 75 minutes are spent watching players, coaches, referees basically loiter on the field. Just shots of them walking around. And the average NFL game includes 20 commercial breaks containing over 100 ads, and that take up a total of one hour of viewing time.
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B
Wow.
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C
Well, I guess we need all those shots of the refs walking around the field because they're all so jacked and muscly. They're all so strong. I don't know what they're preparing for, but maybe I should be too.
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B
This is why you have to go to like, Buffalo Wild Wings or something like that where they have a bunch of games going on simultaneously.
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A
Yes, you can. Thank God for you can, you know.
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B
Go from game to game and see, maybe might see an hour's worth of Football. If you sit there all day and watch a hundred games, who knows?
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A
I bring my book to the bar and people have said to me, like, why are you bringing your book to watch football? This is the reason. Because nothing is happening most of the time.
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B
And yet during a review, like if they review a play, you probably read half a chapter.
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A
Yeah, you can get through quite a lot. Anyway, today's real topic, the biggest questions surrounding Netflix in Q3 and beyond. All right, folks, we have a new format for you. And in this episode around this time, earnings season, we cover the big tech giants and see how they're doing, look at their financial performance, other things that are going on with the company. But we wanted to focus a bit more about on the biggest questions surrounding these companies. So we'll have the usual suspects coming up over the next few days. Google, Meta, Amazon, etc. But we'll be asking what are the biggest questions surrounding these folks? Focusing a little bit less on the performance. We'll still talk about the earnings, but in the context of these big questions. So I have a list of three. We're going to talk about those. But Ross and Danny might disagree. Maybe there are other things that they think are should be top of this Big three questions. List the first one though, gents, I want to reference our briefings writer Marissa Jones, noticing that Netflix said it's on track to double ad revenues this year, claiming Q3 was its strongest quarter yet for ad sales. Ross, we'll go to you first. What stands out the most at this point regarding Netflix's ad business?
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B
That they've expanded live sports considerably. You know, it went from just like hot dog eating competitions to like the occasional boxing match. But now you have like some NFL games, you have a little bit of major league baseball coming up. And I think when more rights come up for renewal, they will be a bidder. They've shown that it's not quite so experimental. It's something that they said they wouldn't get into years ago, but clearly they have ambitions in live sports and the reason they have those ambitions is to grow the ad business.
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A
Yeah, yeah, yeah.
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C
And they also said they would never get into advertising years ago. And yeah, about their ad business.
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A
Yeah, well, they're not going to do it then. They're going to do it soon. That on the, on the sports piece. I realize this fight happens partly because I'm not a boxing fan, but Netflix said Canelo vs Crawford boxing match September 13 that drew an estimated 4.41.4 million total viewers worldwide, making it the Most viewed men's championship boxing match this century. Also live attendance of over 70,000 people, which broke the records for Las Vegas's Allegiant Stadium.
- [05:49]
B
But yeah, you know, it's easy to like sports. Boxing has been a pay per view model. So like when Floyd Mayweather had his big bouts, even with Canelo, who was one of the fighters in this particular fight, people were paying like $70 just to access it. So the fact that a match of that magnitude is on Netflix, it was bound to break it because boxing, premier boxing matches aren't on. They're not even on cable tv, like they're on a pay per view model. So the number of people was always kind of low. This gives it a much bigger platform. And Crawford, I mean, he'd be an American icon if this was the 70s. But boxing's popularity is declined quite a bit. Most people don't even know who he is.
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C
Yeah, I was not familiar with him.
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A
I have to do. Yeah, no, I've heard the name, but never undefeated.
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B
He's gone up and down. Weight classes can't be.
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A
So I mean this is a high profile match anyway. So that would have put in some.
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B
Oh yeah, it would have been a big pay per view if Netflix wouldn't have had it.
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A
It's a good point though. Do you think that when some of these sports rights come up for renewal that Netflix might get preferential treatment because it's, it can reach this many people all at once? I mean, it's one of the biggest platforms video wise, outside of YouTube. So do you think that there's a good high likelihood, like if you had to bet money that they'll get one of the top four major sports, NFL, NHL, NBA, mlb, when the next rights come up?
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B
Well, I think a lot of it's on what the price is that they bid on. You know, Formula One, for instance, went with Apple TV because Apple TV paid the most. But they're not delivering the biggest audience. Right. Which you know whatsoever. Like if you look at their MLS games, MLS on Apple TV has gotten far fewer viewers than it had on ESPN and on Fox Sports previously. So like, I think it depends on the league. If they just want revenue now, a lot of them probably won't care that much. But you do make a point, like if you're looking to like gain viewers and expand your sports reach, you know, Netflix and Amazon are like very attractive for, for that reason. So I could see it happen. But they'll still have to, they'd still have to come in with a pretty Sizable bid, even if they have that platform.
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A
Yeah.
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C
And I think what Ross is mentioning is part of why the WWE saw Netflix as such an attractive partner. You know, it's a bid to increase the popularity of the sport with Netflix viewers, which is, you know, the largest streaming service in the U.S. i, in a way to Ross's point again, that a service like Apple tv, you know, probably couldn't provide. So I think that will make Netflix an attractive option. Option. Excuse me, but I think that the sports rights picture has gotten a lot more complicated. I think that these leagues have really shown a desire to split up the rights among several services. You know, because you're getting more money coming in from those various services and you have things like ESPN and the NFL partnering to some degree that could influence where rights for, you know, the top, top, top ticket sporting events go.
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A
Well, two things really quick. The first thing is I wondered if, you know, for the viewing experience that might change, that they might prefer one rights holder over one platform over another because viewers are going to get frustrated. But I saw that, I think it's the NBA then now if you go to NBA.com you can click on the game and it will show you kind of like just watch, but you, but it will show you which platform that game is going to be on. And then if you're signed in, it will take you straight there. Or maybe it will ask you to sign up for a subscription.
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B
That's a helpful feature, but like it's crazy that you need that feature.
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A
It is, it is, yeah. So it seems like this is going to be the future because to your point, you can have them bid against each other and it makes more money for the sports franchise to do it that way. But we mentioned we're talking about Netflix viewers. The ad supported viewer base for Netflix come out of nowhere. Projected to reach 48 million this year in the US is up from 40 million last year and just 8 million in 2023. So our forecasting team, expecting it to be 20% of Americans in four years time are going to be ad supported viewers on Netflix. So it's a big audience even for the unsupported folks. Daniel, what about for, for you, what jumped out to you the most regarding Netflix is ad business?
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C
For me, I think programmatic ad buying has been a really interesting development for Netflix this year. We've seen them make a big push into expanding programmatic ad buying access across the world and I believe 12 major markets and it seems like this is done fairly well for them. I mean, it's opened up an easy channel to buy ad inventory on Netflix. It's bringing new advertisers into the fold. I think that there will always be an interest in advertising on Netflix as long as it remains this leader of streaming and this household brand name. So I think it helps it keep churn relatively low. It is synonymous with streaming in a way that, you know, Disney or HBO Max are just not. And when consumers who, especially in the US Are facing some staring down some tough economic conditions in the next, you know, foreseeable future, I should say if they start making some tough decisions about, you know, what entertainment costs do we cut, they are likely to hang on to one to two streaming services just based on how consumer behavior has kind of shifted around streaming in the past during concerns about inflation and other economic pressures. So Netflix is, you know, less likely to be hurt by viewers cutting costs, cutting streaming costs, rather.
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A
And they just, I mean, they, they also just have so many hit shows and, and, or TV shows and movies. It's not like they're resting on their laurels and just hoping that that brand recognition will kind of continue to propel them forwards. But they've got, you know, multiple seasons, not final season of Stranger Things. They've got Squid Game season two. They've got NFL games. Ross, I think alludes to they're coming on Christmas. They're still pushing the envelope. Envelope when it comes to content. K Pop Demon Hunters, which I kind.
- [12:08]
B
Of.
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A
Just not dismissed but didn't really think much of. And then I come to find out that it's their most watched film in Netflix's history. 325 million views. That would be basically everyone in America if it was all unique. If it was unique. 300 million people watching that and also hit the top of the box office. It's release weekend as well. So do we agree with this one being one of the biggest three questions for Netflix at the moment? This question around their ad business, does that, does that stay up there in the top three, do you think?
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C
Yeah, I think so.
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A
Okay.
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B
Ross.
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A
Agree. Top three.
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B
Yeah, it's, you know, aiming to be their second big revenue stream. It's mostly still coming from subscription fees. So, you know, if they're trying to diversify, advertising is the best shot. And that's where they've put the most effort and gotten the most attention. So I think it'll be a top three question for the next several quarters. Repetitively.
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A
Mm, I'll just keep this script. Then we'll just.
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B
There you go. Just. Thank you for call me up in three months we'll say the same thing.
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A
Yeah, and it's, yeah, it's, we forecast that it's going to be about, you know, they don't break this out, but we think it's going to be about a 2 billion over $2 billion business this year. In a year or two, a $3 billion business that would be about 5% of its, of its revenue. So it's not nothing into what Ross is saying, like they're trying to make it more significant. Line item. Okay, that's one for one then. My second big question I think is around Netflix House. Is there video streaming giant's new physical location or locations, I should say, where folks can engage with popular Netflix shows and movies through immersive experiences including VR themed food and drinks and exclusive merch. Jennifer Mars Variety explaining that the permanent entertainment and shopping venue venues will be free to enter, but the majority of the virtual experiences and hands on activities will be ticketed offerings. The first one opens in Philly at the King of Prussia Mall November 12 this year and then the second one opens in Dallas at The Galleria Dallas December 11th. Danny, how big of a deal do you expect these new Netflix House locations to be? Out of 10?
- [14:25]
C
I would rank it fairly low. Maybe like a 4 to 5. I'm not so bullish on this development. I think that it's certainly not a bad move for Netflix to make. I mean there is a large amount of spacious cheap mall real estate available for them to launch locations like this. And I think that it helps strengthen the Netflix brand as this kind of all encompassing entertainment brand, a family friendly entertainment company. You know, you can bring your kids to the Netflix house. It reminds me sort of like a Disney theme park esque experience but with obviously much lower operation costs presumably and returns as well. Most likely.
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A
It's kind of like Disney Store meets Disney theme park.
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C
Yeah, I think that's a great way to describe it.
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B
Ross.
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A
Higher than 4 to 5?
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B
Oh no, I'd give it lower than that. I give it more like a, you know, two to three because I think it's a nice marketing ploy. This is a nice way to push like their brands. It's, you know, it's kind of like the tie ins they've had with Dunkin Donuts and various other things. When Stranger Things was, it was a newer show. I just don't see this being a gigantic revenue generator that it's something that analysts or investors are going to be focusing on every quarter. It looks like it's just like a nice to have little feature to promote your product.
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A
Okay.
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C
Yeah. And at the moment it's also just a small handful of locations. So it's not like this is a massive nationwide rollout of Netflix retail locations.
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A
Nope.
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B
Yeah, this is, you know, it's. They got a long ways to go before this would be like a segment. Like the way. Yeah. Parks is for Universal or for, for Disney.
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A
Yeah.
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B
You know, like this is just like such a, such a smaller scale.
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A
Yeah, yeah. The rollout slow as well. I think they're going to have a location in Las Vegas next, but that's 2027 and that's going to be the third one. But I wonder if they're probably looking at this as like a loss leader. Like, you know, kind of flagship store on Michigan Avenue or Madison Avenue or Madison Avenue, Fifth Avenue in Chicago and then Fifth Avenue for New York. Like this is something where you're probably going to lose money. But for brand recognition, it's, it's absolutely worth it to keep people engaged with the brands and come out of the online world and have a physical presence. Do we think it's top three questions at the moment? Because they're opening, I guess the. Technically they're opening in November, which is Q4. But I did say. And beyond nice this makes it. Or do we want to replace it with something else?
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B
I would swap it out. I would ask about video games, which I also don't think are doing that much for them at the moment, but they've put a lot more money into that and more emphasis.
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A
Yeah.
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B
So, you know, my question would be how much revenue are you making on video games? If, if anything, like, like what justifies the continued push and what do you see as the long term strategy? Because that's a, a different market than the streaming video one, but yet one that they are kind of dabbling in.
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C
Yeah, I would, I would love to talk about this a little bit. You just said like my activation phrase because I, I had a brief obsession with Netflix's video game business and yeah, I don't think it seems to be going very well. And I think, you know, mobile games maybe make more sense for Netflix than some of the other games produced by studios it has acquired that have a much longer or more unpredictable production time. This was a, these seemed like very costly investments Netflix to make to get into this space. And I think the economic model for big video game production just doesn't sync up with, you know, the quarterly revenue focus and advertising focus that Netflix seems to be taking now.
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A
All right, we're Swapping out Netflix House for, for its gaming business. How much is Netflix making from, from its gaming business? How's that going? All right, I've got one more for you guys. Talking about their new partnership with Spotify. So our briefings analyst again, Marissa Jones, writing that Netflix is making its first big move into the podcast business in a deal with Spotify that will see the popular streaming platform showcase a selection of Spotify video podcasts in 2026. Ross, how much will this or how much will Netflix's new Spotify deal move the needle for Netflix in particular? Out of 10?
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B
3 out of 10 at best. This is a bigger deal for Spotify in particular for the ringer portion of Spotify, but it's not, I don't think it's that big of a deal for Netflix. This isn't exclusive content to Netflix. You can already watch or listen to all of the ringer podcasts elsewhere for free if you want to. And you know, shortly after they made this announcement, there's a free channel of these podcasts from Spotify being made available on Samsung TV plus. So like, video podcasts to begin with are very hit and miss. You know, I don't know how many people like want to watch other people talk. If you're, if you're, if you're, you know, watching me on YouTube right now, God bless you. You're one of one of 75 people.
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A
It's not, it's closer to 80, but that's okay.
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B
But I just don't see this being a main type of content that Netflix viewers gravitate to. I think it's awesome deal for like, like I said, the ringer because they, they can get an audience extension out of this. They're on Netflix now. They're on Samsung TV plus. I'd say that bigger deal for Netflix is partnering with creators or, you know, other types of content producers that aren't traditional studios. They're making content for, they're getting content for cheap here. If you're just taking a podcast already exists and put it on your platform, that doesn't cost you a whole lot of money. If you're taking YouTubers videos that already exist and repurposing them, that's not going to have the licensing fee that like a, a giant, you know, Warner Brothers or Disney Movie has. And they have been doing more of that. So they have been changing the types of content and this is indicative of that. So it's part of a bigger trend I think matters. But this particular deal I don't think matters. So Spotify has done a bunch of video announcements in the last decade and very few of them have lasted.
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A
Real quick, are you surprised that Spotify would be interested in helping Netflix get ahead or get into the podcast space?
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B
No, because I'm not surprised because like I said, I think this helps them expand the reach of those podcasts that they own. I don't see it. I don't think it's going to drop drive time spent on Netflix by like, you know, several percentage points or something like that. I think it's driving. If you're looking at like the change in audience, I think it's going to change the audience of the Spotify podcast more than it's going to change the audience of like, total Netflix viewing.
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C
Okay, yeah, I, I sort of agree. I think, you know, I would give it a similar score, maybe around like 4 to 5. This definitely has more of an impact for Spotify than for Netflix. Spotify is under a lot of competition from YouTube right now in video podcasts. I think it's feeling a lot of investor pressure about slow ad growth. And, you know, this, the Samsung TV deal are a way for Spotify to, you know, show that we are tapping into video, which is, you know, some of the best ad inventory. And we're trying to compete with YouTube, like we're the audio company, but this video platform is our. Is gobbling up viewership for video podcasts. So I think, yes, it has a bigger impact for Spotify, but I do think that video podcasts are not like, say, a movie or even a TV show. I think that it's. It can be more akin to like a comfort watch, you know, like a Netflix you were putting on. I know this is no longer on Netflix, but Seinfeld or something while they do the dishes or fold laundry or whatever. I think a video podcast fills that same function where you can listen, but when something that signals visual interest happens, you know, you tune back in on your screen.
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A
Yeah.
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C
So I think I'd say a podcast.
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B
Podcast does the same too.
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C
Well, without the video component.
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B
Yeah. Like, if you're just going in and out, not looking at the screen, what do you even need the video for?
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C
That's true. I suppose you can just Spotify and.
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B
Have the background, you know, screensaver, background if you want.
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C
If you're. If you're a platform, I guess the video just helps you sell that space for more money.
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A
Folks do prefer. There is some research, 42% of US adults preferring podcasts with video elements, up from 31% a few years ago. There's still not the majority, but there is, there is an interest, especially from younger folks in that video component. But whether it fits with the Netflix audience is another story entirely. All right, so top three questions for Netflix and Q3 have down a lot of questions around the ad business. So I think that's one. We swapped out Netflix House for the gaming piece. So how much or how is Netflix's gaming initiative going? And then finally it seems less about the Spotify piece and more to what you were saying, more a focus on kind of bringing in creators into the fold and helping them come up with shows and get garner a broad reach on a more maybe brand safe premium platform.
- [24:06]
B
I would say it's necessarily brand safe, it's just cheaper to do that.
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C
I think that's something that Amazon has also had great success with. I mean, look at the Mr. Beast show. That's obviously a more expensive production than, you know, getting your average YouTuber over. But that's a personality that was, you know, born and raised, so to speak, on YouTube and inked a deal with one of its competitors. So there's an opportunity for Netflix to slide in there. If I could propose a replacement. Question for number three. Yeah, sorry Marcus. And I'm going to propose that we replace you right after this.
- [24:43]
B
There's a lot of proposals already in.
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C
The west is the potential for Netflix to be involved in a carving up of Warner Brothers Discovery. There's been some reporting that there is. There are kind of competing ideas among the two co CEOs of Netflix about whether or not Netflix should get involved in this. WBD is obviously interested in a potential sale. And if you're Netflix, all of those really big tentpole franchises that Warner Brothers Discovery owns the rights to have to be of interest. Right. And not just for future productions, but also for the backlog of existing, you know, let's say DC superhero movies, just to name one example of like a prime property that it owns. So if Netflix can get in on that and expand its content library even more, I think that would be a really significant addition to its portfolio. And it's something that I'm very curious about watching.
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A
Huge franchises. Yeah. Harry Potter, Game of Thrones. Ross. I mean, how. I wasn't sure how seriously to take Netflix's interest in the company.
- [25:48]
B
Netflix, Netflix doesn't want the whole company. If they can get the part that they like without having to take the TV networks.
- [25:54]
A
Right.
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B
That would like be so much more attractive.
- [25:56]
A
I think it makes the list. So ads, gaming and wbd, all the biggest three questions we think for Netflix at the moment.
- [26:06]
C
And I will be the new host of behind the Numbers.
- [26:09]
A
Going that is also true, which I'm just now.
- [26:11]
C
Three questions.
- [26:12]
A
How about tune in to Danny and the show next time to talk about all the other tech giants and what the biggest questions at the moment are for those guys. But this is all good time for for this episode. Thank you so much to my guest. Thank you. To Danny, my replacement.
- [26:26]
C
Thank you. Always a good time.
- [26:27]
A
And to Ross.
- [26:29]
B
Thanks, Marcus.
- [26:30]
A
And to the whole editing crew and to everyone for listening to behind the Numbers, the market video podcast made possible by Nielsen. Susie will be here on Wednesday hosting the reimagining retail show. Sam.