It depends on who you ask.
Netflix / Via cdn.clotureclub.com
Netflix on Friday will release the entirety of the second season of its Emmy-winning original series House of Cards. The release date is perfectly timed to leverage a long holiday weekend — not to mention a serendipitous snowstorm — into a feast of binge viewing.
By the end of next week, if the past trend holds, there will likely be a press release touting how viewing for the premiere increased sequentially over past shows in their first week on the service. Stories will follow proclaiming the second season a bigger hit for Netflix than the first.
What there won't be, however, are any figures to support these claims. There will be no data on how many people watched one, some, or all of the show. There won't be data on number of streams or hours watched. That's because Netflix notoriously doesn't provide those figures.
Such a stance, and the general acceptance of it, is unique in this brave new world that we now call video viewing. Under the old nomenclature of TV, for instance, not releasing ratings data simply would not be tolerated. Imagine, for instance, that the day after Mad Men returns on April 13, AMC sent out a press release claiming it was a huge hit — without providing any ratings figures. Television critics would first shit the bed, then crucify the network.
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Netflix gets a pass because its lack of disclosure is rooted in its business model.
"We don't release ratings because we don't sell advertising or negotiate for retransmission rights," said a Netflix representative, referring to the fees cable operators pay to television networks to distribute them. "Plus, measurement over the kind of time period used for ratings makes no sense in the on demand universe. We don't mind whether people watch a series in the first week, the third month or the fourth year."
More bluntly, other networks exist primarily on advertising revenue, and therefore need to provide ratings to justify the rates they are charging media buyers. But since Netflix doesn't run advertising around its programming, ratings are inconsequential. Similarly, Netflix currently isn't distributed by cable or satellite operators, and so doesn't collect a fee from them for carriage that would need to be supported by showing how many people are watching its shows.
"There's no revenue tied to ratings for Netflix, so I'm not sure it matters to its economic model if there are 2,000 viewers or 2 million viewers," said Needham & Co. entertainment analyst Laura Martin. "Original programming is a marketing hook for them to get people to realize the value of the bundle."
Implicit in Martin's comment is the notion that investors don't care how many people are watching Netflix's original programming — just as long as they keep subscribing. And last year they subscribed in droves, with just under 6.27 million members signing up for the service in the U.S. and another 4.81 million joining overseas, for a total of 11.08 million new subscribers last year.
Juxtapose that against a survey conducted by Wedbush Securities analyst Michael Pachter in October of last year that said of 66.5% of respondents who said they had watched an entire season of one of Netflix's original programs, only 26.5% said they preferred House of Cards. According to Pachter, that implies that only 5 million out of 20 million people who watched a Netflix original show thought House of Cards was the best of the bunch. Orange is the New Black actually scored higher, with 31.1% of respondents preferring that show. Netflix's other original shows include Lilyhammer, and Arrested Development, among others slated for debut this year.
What these two data points suggest, rather quixotically, is that the hype and attention around Netflix's original shows raises awareness among consumers, who then sign up for the service not necessarily to watch those shows but because they are attracted to all the other content (most of it supplied by traditional TV networks) the service offers. The fact that they offer it all on-demand and for a low price makes it even more appealing to consumers. The findings from a July report by research firm GfK underscore that dynamic: the study showed that based on data culled from regular Netflix users during a random week in April, shows from AMC and even NBC and Fox garnered more viewership than House of Cards, which for this particular week accounted for less than 1% of TV shows viewed by the users. (To be fair, the entirety of the first season debuted in February, so viewership was probably much higher than and died off after the binge.)
"Whether or not House of Cards is a hit, more people keep coming onto Netflix," said BTIG analyst Richard Greenfield. "If subscribers keep growing and margins keep expanding it looks like a smart decision."
There is another business rationale at play as well. If subscribers keep flocking to Netflix and its stock price continues to soar and its profitability increases, well then that is only going to end up costing them more money. The more money it makes from content other people are supplying, the more the people making that content are going to charge them.
"If the shows are massive ratings hits, the only thing it will do is drive up the price Netflix has to pay its production partners," Greenfield notes.
So keeping quiet helps keep costs down.
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