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Marcus Johnson (00:00):

Got an ecommerce 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 at awin.com/emarketer. That's A-W-I-N.com/emarketer.

(00:31):

Hey gang, it's Friday, August 1st. Marissa, Paul, and listeners, welcome to Behind The Numbers, an EMARKETER 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.

Marisa Jones (00:53):

Hi, I am excited to be here.

Marcus Johnson (00:55):

Hello. Hello. And we also have with us our VP of Content, living life up in Maine, it's Paul Verna.

Paul Verna (01:01):

Great to be here, as always.

Marcus Johnson (01:02):

Hey fella. 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.

Paul Verna (01:46):

Those plane trees are pretty awesome, I have to say.

Marcus Johnson (01:50):

It's not a forest, is it?

Paul Verna (01:51):

Well, New York is a forest. It's a concrete jungle. So that counts as a forest.

Marcus Johnson (01:57):

I guess in London's defense it has over 3000 parks, which is amazing.

Paul Verna (02:01):

That is amazing.

Marcus Johnson (02:03):

A lot of big ones. Hyde Park, Regents Park, etc. St. James Park. And then you've got a lot of pocket parks. Forest though, it is not. Anyway, today's real topic. We're talking Netflix.

(02:19):

All right folks. Netflix today. They grew Q2 revenue 16% year over year, which is close to a 17% growth that recorded last Q2. So pretty good. The company doesn't report subscriber numbers any more during earnings, so we turn to other engagement metrics to try to understand how they're doing. According to Nielsen's Gauge, Marisa, you had cited this in one of your recent article calls. YouTube is the most watch service on TVs counting for 13% of all TV time.

(02:53):

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. Marisa, 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?

Marisa Jones (03:15):

Yes. Netflix, I do think has a chance of catching up to YouTube, but it really depends on how Netflix makes its next moves and if it plays its cards right. Netflix needs to 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.

(03:57):

But beyond just investing in that and building its ad ecosystem to 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. 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.

Marcus Johnson (04:33):

Paul, with Netflix, is it going to be a copycat strategy? Is it going to be creators, podcasts, short form video, the things that have gotten on YouTube to where they are, or...? John Copeland of New York Times wrote the two giant video companies, YouTube and Netflix have far different strategies, but the same goal, controlling your TV set. So how do you think Netflix can overtake YouTube?

Paul Verna (04:55):

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 Marisa mentioned, creators, live sports, video podcasts. So there's a lot that Netflix is trying to do, including things that it's said it wouldn't do, which I think by now is a popular pivot for Netflix.

(05:32):

They did it with advertising, they did it with sports, they're almost doing it with live TV in France. So 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 ironic that these two companies are now seen as the big giants competing for prominence in the streaming space when as Marisa, just mentioned, they are very different and I think will remain different even as they try to use each other's playbooks.

Marcus Johnson (06:12):

Netflix, they are behind in terms of time spent according to Nielsen. I think, Marisa, 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 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.

(06:46):

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, they're 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 one fifth of TV time in the US., just these two companies.

Paul Verna (07:10):

And 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. We talk about Netflix in the 100s of millions, but YouTube is just off the charts. I don't have the current viewers stats in front of me.

Marcus Johnson (07:29):

They're playing the billions game.

Paul Verna (07:31):

Right. The other thing, and Marisa, pointed this out in an article she wrote, 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 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 and podcasts, but a lot of stuff that Netflix hasn't really done at that level. But Netflix definitely dominates when it comes to those big shows that they're so famous for.

Marcus Johnson (08:27):

Speaking about the traditional TV experience and streaming looking more and more like cable, Jessica Toonkel of the Wall Street Journal was writing that, "Netflix is exploring music shows and celebrity interviews in an unscripted TV push," explaining that they are partnering 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 moments. Paul, can Netflix's next wave of content keep audiences attention?

Paul Verna (08:57):

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. Any amount of churn is going to affect other streamers before it affects Netflix.,

(09:22):

YouTube, again, in a different category because it's mostly free. I think Netflix, what they're trying to do is pad around the edges and I think it's a great strategy, what they're doing and all of the things we've talked about, the podcasts, 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 billions and billions of views. And I think that is a space that Netflix had 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.

Marisa Jones (10:10):

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 built on ads, it's not caught up to that yet. There's a lot more real estate in the unscripted market.

(10:37):

It's 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.

Marcus Johnson (11:01):

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 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 two thirds 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 Marisa, can the streaming giants pivot to ads go uninterrupted?

Marisa Jones (11:46):

I still believe that its 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 support 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.

(12:09):

A lot of people don't like streaming as 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.

Paul Verna (12:36):

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 its 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.

(13:01):

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.

(13:37):

And should marketers be concerned, yes, but I think they already know this and they try to compensate for it in the best way that they can. I think marketers are going to be fine. They're going to have to work harder as they have been at every step of this evolution in digital advertising and marketing. And there's 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.

Marcus Johnson (14:05):

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, or expecting to make in four-year revenue. So they're in a good position there. Speaking of subscribing to Netflix ads or without ads. Marisa, you recently wrote a piece about the FTC's click-to-cancel rule, 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.

(14:43):

This click- to-cancel rule was trying to simplify canceling subscriptions and it's being blocked by the US Federal Appeals Court. You explained Marisa, 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.

Marisa Jones (15:10):

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 that 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.

(15:36):

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.

Marcus Johnson (16:05):

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?

Paul Verna (16:32):

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. It's very easy to walk into IKEA, but good luck getting out of that store, man. So it's the same thing.

(17:05):

I've tried to cancel some of these things and it is absolutely nerve-racking. But I thought one thing was really interesting here in your article, Marisa, there's a graphic that plots, it's like a scatterplot of how many clicks does it take to sign up versus how many clicks does it take to 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... Fox News takes 40 clicks to sign up. What's that about? How are they measuring those clicks? Is it like when you type in your name and address? I don't understand that. It's a side note because we're really talking about canceling but...

Marisa Jones (17:50):

There was, also 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.

Paul Verna (18:01):

Yeah, I believe that.

Marisa Jones (18:03):

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.

Marcus Johnson (18:12):

And it's a shocking amount of clicks. Some of them 10, 20, 30, 40, Marisa. To your point 50 in some instances. But, Paul, I think it's a great take is if you are any service really, and it is 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, 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 stay subscribed from a closer look study. So 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.

Paul Verna (19:00):

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. That'd be really interesting.

Marcus Johnson (19:10):

That would be very informative.

Paul Verna (19:11):

But with Netflix, the whole thing about Netflix is nobody cancels. So it's like that joke, how long does it take to tune a 12 string guitar? Nobody knows because it's never been done.

Marcus Johnson (19:24):

No one has ever. Netflix, one of the lowest 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.

(19:46):

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?

Paul Verna (20:07):

Is an interesting one because on the one hand, it doesn't seem like a great time for any kind of brick and 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.

(20:28):

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 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.

(21:05):

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 came and went.

(21:29):

I don't think it was in their stores, but it was merchandise around like Stranger Things and Wednesday. So will it play in a store? Who knows? I think it, again, it's just going to come down to how smart they are about how they do it., and definitely, it sounds like they're being measured about how they roll this out. So they're not doing 25 stores in the first year. They're doing a couple, and they'll test and see. 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.

Marcus Johnson (22:00):

Marisa, Netflix house, is this a needle-mover?

Marisa Jones (22:04):

I agree with Paul that 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 you can build an experience around, a Stranger things experience makes sense.

(22:24):

You're seeing streamers, for example, like Peacock, building a Love Island experience isn't really going to be as successful as something that 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.

Marcus Johnson (22:44):

It 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 one of the those, 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." Which is a great point. That's all we've got time for today's episode on Netflix. Thank you so much to my guests, of course. Thank you to Marisa.

Marisa Jones (23:15):

Thank you.

Marcus Johnson (23:16):

Thanks, Paul.

Paul Verna (23:18):

Thank you, Marcus.

Marcus Johnson (23:19):

Yes. And thank you to the whole editing crew and to everyone for listening into Behind The Numbers, a new Market video podcast made possible by Awin. We will be back, of course, on Monday. Happiest of weekends.