Judging by online chatter, it’s tempting to assume that almost everyone with Internet access is watching Love, or Making a Murderer, or catching up on House of Cards before the new season. It can feel like there’s a certain amount of pressure to watch, too, in order to stay abreast of the cultural conversation.
In reality, the odds are that only a fraction of people you know have watched Netflix’s latest “hit series.” But it’s impossible to tell, because Netflix is notorious for keeping its viewership numbers confidential. One reason is because the streaming service doesn’t want to reveal proprietary information about its products. But another is that Netflix simply doesn’t care about ratings—at least not in the way other television providers do.
In January, NBC claimed to have discovered a way to estimate Netflix’s viewership, which revealed that NBC’s top shows are more popular than Netflix’s, and thus that the reported death of broadcasting has been overstated. Predictably, Netflix claimed NBC’s revelations were “remarkably inaccurate,” leading to the type of intra-industry feud that generates good headlines. But beneath the scuffle, the more interesting story is what the feud says about television popularity today, Netflix’s unique business model, and why viewers really should care.
For starters, the business models for American broadcasters like NBC and streamers like Netflix (or Hulu, or Amazon) are drastically different. The core product for NBC and other commercial broadcasters is viewers—or at least estimates of viewership they can sell to advertisers via the crude common currency of Nielsen ratings. Broadcasters sell audience eyeballs to sponsors, and so they need to know what programs are popular so they can price their ads accordingly. For decades, the broadcast networks have been competing for ratings points to maximize their ad sales, a battle that became increasingly fierce in the 1980s with the rise of cable television. For NBC and its kin, popular programs mean profits, as they’re effective bait to deliver viewers to sponsors.
Netflix, meanwhile, doesn’t care about viewers, only subscribers—its revenue comes from maintaining and expanding the ranks of people who find spending $10 a month to be a worthwhile investment. It accomplishes this not by creating individual hits, but by offering a slate of programs with broad appeal and reach, including original series and movies, as well as a back catalog of older television and film offerings. Like other online-streaming companies, its ultimate goal is to provide sufficient material to justify the ongoing subscription cost, persuading customers to buy into the brand itself. An individual hit is certainly useful toward that goal, but only insofar as it helps expand the service’s reputation and reach.
Neither commercial broadcasters nor online streamers view “television programs” as their products—for both, programming is a means to their ends of selling audiences to advertisers or subscriptions to audiences, respectively.
For broadcasters, popularity (at least as measured through the inexact ratings system) equals profit, since every increase in viewership means increased ad revenues with no additional costs to produce and procure programs. For streamers, actual popularity is less important than perceived popularity—Netflix gains the most by having its programming seem more popular than it is, as that helps generate interest from potential subscribers, and helps current subscribers justify their monthly fees for access to the hottest programs. Netflix’s refusal to release actual viewer numbers serves this end, as it can market a series as a “hit” without any reality checks to deflate that perception.
Why does this matter for TV viewers without any financial stake in the industry? Popularity typically fuels the cultural conversation, with new releases serving as essential touchstones for what friends and neighbors might be consuming—consider Star Wars: The Force Awakens or Adele’s 25 as examples of how hype and sales mutually reinforce each other in film and music. Television functions quite differently: The most popular programs often garner far less attention than niche offerings. Some of the biggest broadcast hits today include Blue Bloods, Scorpion, and The Goldbergs, but those series are rarely described as “must-watch” programs, even though they’re among the most-viewed shows on television. The Nielsen ratings for an average episode of NCIS are five times the number for the hugely hyped series finale of Mad Men, proving how cultural attention and actual viewership often diverge sharply.
For a subscription service like Netflix, where promoting a brand is equivalent to building value, it’s far more important to dominate the conversation than have millions of people actually watch its programs. Netflix has done a masterful job generating buzz, awareness, and demand for itself, meaning whether or not its programs are popular hits doesn’t really matter—at least to its shareholders. But television viewers should be aware of what and how they’re being sold: For broadcasters, they’re the product. Netflix is selling a brand that asserts its own value without actually proving its ultimate worth. That doesn’t belittle the quality, appeal, or even popularity of its programming, but it does make it important to be aware of its strategy.
Such a business model points toward Netflix’s possible future. Currently, it functions more like a tech company than a media brand, meaning its key assets are its user base, its hype, and the vast bank of data it has related to its customers. Actual revenue and profits are secondary to building that base. In the coming years, Netflix will likely be forced to decide whether to more closely mirror the media business (where content and monetized viewers are key assets), to try to carve an identity for itself as a hybrid media/tech company (a balance that Apple and Amazon are both struggling with), or to follow the path of most tech companies: acquire, or be acquired by, other companies.
Prognostication is a fool’s game, but here’s one distinct possibility: Netflix acquires more traditional media production and distribution companies. Acquiring a film studio or television broadcaster might seem like an odd move for a company whose identity is built upon being an upstart alternative to traditional media, but it would allow Netflix to produce its own programming rather than just distribute what it licenses from other studios. Additionally, the company claims that its great advantage is its incredibly detailed data about viewer preferences and behavior. Leveraging that information to guide a broader slate of media productions would potentially allow Netflix to tap into more than just $10 per month from its customers.
The track record for technology companies acquiring media companies isn’t particularly strong, due to inherent differences in business models and corporate cultures (the AOL-Time Warner merger serves as an example). But Netflix might think its success working with Hollywood as a distributor of both DVDs and streaming might set it up to succeed where other tech companies have struggled.
Thus Netflix’s core product is its own brand name, allowing it to draw and retain subscribers, increase global reach, and potentially make it the powerhouse anchor of a media conglomerate. So the next time an article asserts that the new Gilmore Girls or Fuller House are what everyone is talking about, remember that what’s really being talked about is Netflix itself.