[00:00:00] Marcus Johnson: The future of digital is being written now. Join EMARKETER on September 15th at City Winery in New York for a full day of analyst insights, conversations with leaders from top brands like Gotham FC, LG Electronics, Colgate-Palmolive, and SharkNinja. Plus, networking with senior marketers tackling AI, commerce media, and what's [00:00:20] next.

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[00:00:28] Marcus Johnson: Hey, gang. It's Monday, July 27th. Ross, Danny, and listeners, welcome to Behind the Numbers, an EMARKETER podcast. This is the show that keeps you up to date with everything media, marketing, and technology in about 20 minutes or so. I'm Marcus, and joining me for today's [00:00:40] conversation, we have two New York people.

[00:00:41] Marcus Johnson: One of them is in Westchester, Senior Digital Media Analyst, Mr. Ross Benes.

[00:00:46] Ross Benes: Hey, Marcus.

[00:00:47] Marcus Johnson: Hey, fella. Uh, and one of them is in the city, Senior Briefings Editor, Daniel Konstantinovic.

[00:00:52] Daniel Konstantinovic: Hello. How's it going?

[00:00:53] Marcus Johnson: Very good, mate. Very good. Uh, today's fact

[00:00:59] Marcus Johnson: [00:01:00] Around half of the oxygen we breathe is produced by tiny ocean organisms called phytoplankton. Oceans also absorb about 25% of the carbon dioxide released by human activities. I'm reading a book at the moment my friend gave me, and it's about a true story about someone who survived, um, at, at [00:01:20] sea for 14 months in a small boat, um, after they got into some trouble on the coast.

[00:01:27] Marcus Johnson: Um, and it's, it's miraculous. I can't believe I didn't hear of this story when it happened. It happened apparently in 2012, 2013. Um, and so I'm fascinated with the ocean now, and how terrifying and, and incredibly beautiful it is. [00:01:40] But half of the oxygen we breathe is because of the ocean. I think trees are getting too much credit.

[00:01:45] Marcus Johnson: We always talk about trees. Mm-hmm. Oh, they take in carbon dioxide and give us oxygen. Oceans are the real heroes.

[00:01:51] Ross Benes: And, you know, plankton, um, the only thing I can think of its representation in pop culture is the villain of SpongeBob, but it sounds like it's- Wow, that's so true ... doing a lot of good [00:02:00] for the, for the world.

[00:02:01] Marcus Johnson: It is, yeah. Mischaracterization.

[00:02:04] Ross Benes: So let's-

[00:02:04] Marcus Johnson: Plankton

[00:02:04] Ross Benes: needs better PR.

[00:02:06] Marcus Johnson: Yeah. Exactly. The topic of the next episode, trees. Do we really need them? Yeah.

[00:02:11] Daniel Konstantinovic: People are hugging trees. They're doing great.

[00:02:14] Marcus Johnson: I don't think we- we probably do need them. Sharks are older than trees, so technically we probably [00:02:20] still need them.

[00:02:20] Marcus Johnson: Anyway, today's real topic, the big three questions surrounding Netflix.

[00:02:28] Marcus Johnson: All right, let's set the table. How did Netflix do in Q2? They made $12.5 billion in Q2, growing 13%. That's a little bit slower than last Q2's 16% growth. Uh, in [00:02:40] terms of the US, US revenue, which makes up about 43% of Netflix's money, grew 10%. That's also slower than last Q2's 15%. But this episode is less about the financials.

[00:02:50] Marcus Johnson: That's just to set the table. It's more about the big three questions surrounding Netflix at the moment. Uh, Ross, what is one of the biggest questions you think, um, is on Netflix's [00:03:00] minds at, uh, right now?

[00:03:01] Ross Benes: Well, how do you prove to investors that you have a- another line of revenue that they should get excited about?

[00:03:07] Ross Benes: You know- Hmm ... they've taken a hit financially in recent quarters, especially this last one. Does that next thing come from theatrical moviegoing, licensing your shows, having your content studio produce content for [00:03:20] other companies? I, I'm not sure what the answer is, but I'm sure they're thinking about it.

[00:03:23] Marcus Johnson: Danny, you'd noted in a recent piece that Netflix's stock has been down 40% in the past year. Um, I'm sure this is a big reason why, uh, investors are nervous about, um, how well the company's do financially, but also in terms of engagement. Um, any thoughts here?

[00:03:38] Daniel Konstantinovic: Yeah, I think that's, [00:03:40] um, an interesting question.

[00:03:40] Daniel Konstantinovic: I mean, the stock being down just reflects the exact kind of investor, uh, restlessness or anxiety that Ross is talking about. Um, and I think it, it is pretty unclear what that extra revenue source can be. I would expect that with an example like, you know, creating content for other [00:04:00] platforms, I could see Netflix maybe being hesitant to do that 'cause they have this, uh, reputation as being the premium streamer, you know, this household name.

[00:04:08] Daniel Konstantinovic: Um, maybe not HBO-like, but at least a brand with that level of familiarity. And if we start licensing out our content more aggressively or producing stuff for [00:04:20] other, uh, channels and networks- Does Netflix lose some of that? Um- Mm-hmm ... or does it get diluted? I think they're kind of in a tough spot 'cause especially post-failed Warner Brothers Discovery acquisition, it just seems really unclear, like, what direction the company wants to go in.

[00:04:34] Daniel Konstantinovic: The plan seems to be business as usual, but now the business as usual [00:04:40] plan is driving a lot of skepticism.

[00:04:41] Marcus Johnson: I wonder if, and this leads me to one of mine, which is should Netflix be considering a free tier- Hmm ... and then just load up with advertising? Our sister company Business Insider reporting that Disney, not Netflix, but Disney, as a competitor, is considering adding a free tier to its Disney+ streaming service as it faces competition from YouTube more specifically, [00:05:00] uh, which Netflix also faces competition from.

[00:05:01] Marcus Johnson: Our colleague analyst Marissa Jones pointing out that free ad-supported streaming TV, FAST platforms, are capturing more of consumers' TV time, putting pressure on subscription-first services to rethink their value proposition.

[00:05:13] Ross Benes: Well, there were, uh, free tiers on subscription services, like Hulu had one for a long time, Peacock had one for a while, and [00:05:20] then they rolled them back, and now it seems like the trend is to bring them back again.

[00:05:24] Ross Benes: Right. Um, s- you know- Okay, yeah ... several are considering doing that. So you, you need substantial ad revenue for that to pay off. Um- Mm-hmm ... but I, I could see that being beneficial for shows that they have been out for a while and, and they, they aren't gonna get new [00:05:40] sign-ups for, but perhaps they could get someone to still watch them.

[00:05:42] Daniel Konstantinovic: Yeah, we've seen Apple try, like, a reverse version of that model where big new seasons of their hit shows have come out and they open up access for free for a short period of time, but doesn't seem to have moved the needle for them either, so maybe broadening access could be a good move. Um, you know, I keep saying that, [00:06:00] uh, maybe Netflix is worried about, um, diluting that, like, premium brand reputation, which is something that opening a, a free tier could certainly do.

[00:06:10] Daniel Konstantinovic: But is that something you really think they are worried about or should be worried about at this moment? Is it... I think it's something that a lot of, uh, us say or read out there, but [00:06:20] given the falling investor confidence, I wonder how serious of a consideration it might actually be for them.

[00:06:27] Marcus Johnson: It is something that has been attached to the Netflix brand, but I wonder if a lot of those- initial tags or, um, kind of concepts or thoughts around Netflix [00:06:40] are a bit outdated perhaps, and, uh, whether they need to move away from, from that idea and head more towards someone like a YouTube because they seem to be doing something right.

[00:06:50] Marcus Johnson: I wonder if, you know, the, the HBO kind of branding and premium content outlook, is that a model that is sustainable i- in the [00:07:00] future when you have people like YouTube? Or even, I mean, the three largest free streamers, YouTube, Tubi, and Roku Channel accounted for 19% of total watch time in the US on US TVs in April, according to Nielsen.

[00:07:11] Marcus Johnson: That's up from 17% in 2025. No one's associating content with those channels with particularly being premium, but it does seem to be working. Disney also trying to compete [00:07:20] with, with YouTube by launching short form video feature, um, to compete with, with YouTube Shorts. So I wonder if Netflix needs to maybe move away from that.

[00:07:28] Ross Benes: Well, Netflix is, um, at least their content strategy is becoming more YouTube-like. Like, you see, you know, with the podcasts and, and all the stuff they're doing with creators and, um, it just feels [00:07:40] like they're willing to experiment now with stuff that is working on social and on YouTube. Um, before they were more, um, exclusively like- You know, professionally produced shows and movies, you know?

[00:07:51] Ross Benes: And now they're, they're, they're branching out a little bit, and I, I think that's all being led by YouTube success.

[00:07:57] Marcus Johnson: Grace Harmon, one of our colleagues, uh, one of [00:08:00] our tech and AI analysts writing Netflix's business model is currently built around binge-watching, but consumer attention is shifting toward platforms that support multiple short viewing sessions every day rather than a few long ones every week.

[00:08:14] Marcus Johnson: So again, this idea of, you know, how people used to watch TV, how people used to think of maybe Netflix in a [00:08:20] premium way. The question I had was taken directly from, from Grace's piece, how much of a threat is the be- this behavioral change of multiple short viewing sessions every day rather than a, than a few long ones every week?

[00:08:32] Marcus Johnson: Like, is that model just of way of watching TV just, is that just too dated now? Is it just not the way that we consume content anymore?

[00:08:39] Daniel Konstantinovic: Maybe, [00:08:40] uh, you know, slowly over time it may move that way. Personally, I'm a little skeptical of, of maybe not necessarily appointment viewing, but you know, longer form viewing ever fully- Mm-hmm

[00:08:51] Daniel Konstantinovic: going away. Like, we're still seeing that time spent on these streaming services, even if it's ticking up slowly, is still ticking up. Um, but [00:09:00] certainly there is a lot of, um, popular new media that is easily consumable on, uh, social media and through, like, short form viewing, even if it's not original content.

[00:09:13] Daniel Konstantinovic: Like, if a new movie comes out, it's not very hard to go to YouTube Shorts or Reels or what have you, [00:09:20] and find many, many clips of it and, you know, maybe not watch the entirety of it there, but get like a big gist of it, and that definitely eats into the viewing habits of something like Netflix. And-

[00:09:32] Marcus Johnson: Yeah

[00:09:33] Daniel Konstantinovic: there is just limited time in a day, so if users are spending, you know, multiple hours scattered throughout the day on [00:09:40] scrolling, then that does just mean less time watching Netflix or whatever.

[00:09:45] Marcus Johnson: Yeah. It's a good point. Um, I'm gonna hog the floor a little bit, or hog the mic a little bit longer 'cause the next one I have actually follows on perfectly from this, and this speaks to Netflix saying, "No, actually, we think that the way people used to watch TV is still popular.

[00:09:59] Marcus Johnson: It is [00:10:00] still how people want to consume content, and what's old is new again, history repeating itself." Will people open Netflix to watch regularly scheduled programming? Anne Stehle of The Wall Street Journal noting that The Breakfast Club, the influential morning radio show co-hosted by Charlamagne Tha God will stream live on Netflix, making it the service's first daily live [00:10:20] program.

[00:10:20] Marcus Johnson: There's been, um, most of Netflix's live programming efforts have been concentrated on sports, NFL games on Christmas, boxing, MMA, WWE's Raw, um, and its live comedy specials, roasts, uh, late night talk show with comedian John Mulaney, but this is the first kind of daily regularly scheduled programming. Do we think that that could take hold?

[00:10:38] Ross Benes: Well, what's tough about non-sports [00:10:40] live programming is it's not usually terribly exclusive, and it's not always something people are willing to pay for. Like, like a, a, a talk show is something- Right ... I feel like people expect to get for free elsewhere. So, like, y- you gotta convince people why you need a s- the subscription service to access it.

[00:10:58] Ross Benes: I mean, there are some exceptions, [00:11:00] like, you know, Howard Stern had a, a pr- a good run on, um, Sirius XM. But for the most part, that format, whether it's radio or television, has been on free to air stations- Mm-hmm ... where, where you've seen the, the biggest hits, and, and I think that's a hard habit to break.

[00:11:14] Daniel Konstantinovic: You also have to prove an audience for these, um, non-sports live broadcasts.

[00:11:19] Daniel Konstantinovic: And [00:11:20] though The Breakfast Club- Yeah ... is, you know, obviously a really popular show and morning show, Netflix has to prove that they can build the habit of live daily viewership behind a subscription gate, even for a show that's already popular. Yeah. And it's not just for non-sports content. Netflix has tried to spin up its own marquee sports events that, uh, you know, it has [00:11:40] to prove that there's viewership for and, um, build an audience for from the ground up, even if it includes some really popular stars of whatever sport is on display.

[00:11:50] Marcus Johnson: Yeah, that's a really good point. They'll be watching this one, uh, with, um, The Breakfast Club, uh, really closely, 'cause they're considering adding live TV channels as well apparently according to The Wall Street Journal. All right, [00:12:00] Danny, let me hand over the mic. What, what else do you have for Netflix?

[00:12:02] Daniel Konstantinovic: Well, I guess it's a good segue 'cause my n- my first question was h- how big a part of Netflix's, uh, portfolio can live sports become?

[00:12:11] Marcus Johnson: Oh, okay. Nice.

[00:12:12] Daniel Konstantinovic: You know, there was an interesting, uh, quote in the analyst call from this most recent quarter saying that they plan for [00:12:20] live events to be, I think it was 5% of their, uh, content budget for the year, but they expect that that will only be 1% of viewing time. And their, you know, logic- Mm ... for investing heavily in live events is it increases the value of subscription.

[00:12:37] Daniel Konstantinovic: It in- it, uh, creates in demand [00:12:40] advertiser, uh, space. And that may be true, but we're seeing the ad business there spin up slowly than I'm sure they would like it to, than perhaps others have expected it to, which could signal that, you know, it's not driving these blockbuster advertiser numbers. And another, uh, interesting- [00:13:00] aspect of it is that they've pitched recent live sports events as a way to break into foreign markets.

[00:13:06] Daniel Konstantinovic: They just had the World Baseball Classic, question mark. I'm not sure the exact- That's it. Oh, wow, okay. Phew, I was sweating. Um, they just had that on Netflix- Nailed it ... which was, uh, a major event in [00:13:20] Japan. Uh, and you know, they're saying that this is a big opportunity for us to attract non-US subscribers.

[00:13:25] Daniel Konstantinovic: But then at the same time, our forecast shows that if Netflix makes the $3 billion in advertising revenues that it says it expects to this year, our forecast says that 2.5 billion of that will come from the US, and 500 million is presumably [00:13:40] left to foreign markets- Mm ... in that case. Mm-hmm. So, you know, sure, maybe it's making those inroads, but it's just not at, um, a speed that is easing investor concerns.

[00:13:50] Daniel Konstantinovic: And that just makes me wonder. You know, they have these big l- things like Christmas Day NFL games and, uh, the odd other, you know, Thanksgiving as well, but [00:14:00] is it something they can really rely on as like- Right ... the next chapter for growth?

[00:14:05] Marcus Johnson: Is it a long-term strategy? This is a good one. Um, Ross, Ross, do you have mate?

[00:14:09] Ross Benes: I've wondered the same thing with Danny. Is, is or d- it's just that, like, Netflix has these big kind of one-off events or two or three off events. Like they'll do MLB opening day and Home [00:14:20] Run Derby, but like, not much from the 162 game season. Otherwise, uh, you know, h- how do you build a sports viewing audience when you have like a random game here and there from a, a major league, but th- there isn't anything really consistent yet at this moment other than pro wrestling, which is, you know, sports adjacent, not really live [00:14:40] sports.

[00:14:40] Ross Benes: Mm-hmm. Um, the, the, the other thing I was gonna ask is, um, there was a report in Bloomberg about Netflix viewers trailing off when shows renew for a new season. So you know, you have a hit show, but you lose a lot of- Yes ... audience to go from season one to two and season two to three. How do you- combat that so that you can build [00:15:00] successful franchises that can stay on your platform for a long time after they aired when you right now, um, seemingly feel the need to cancel most shows pretty quickly because of that audience trail off.

[00:15:10] Marcus Johnson: Yeah, I like this one, and Danny, you had a piece that I was gonna reference because I have the same, basically the same one. You were writing Netflix's inability to land a new [00:15:20] smash hit after the finale of tentpole series Stranger Th- Things is contributing to slower engagement growth. Uh, we forecast US daily time spent on Netflix will grow just two minutes this year to 36 concerning investors.

[00:15:30] Marcus Johnson: You say Netflix has added subscribers, um, in the last year or so, suggesting the novelty of new programming announcements is more attractive to [00:15:40] customers than long series, or, uh, maybe it could be some other reason. So the question I pose, uh, which is what Ross is saying, I believe, is will Netflix need to focus on the novelty of new programming announcements over long series?

[00:15:52] Marcus Johnson: Like, is that their strategy? They're just gonna ... They're not gonna do long series. They're gonna rely on, um, a flurry of interesting, [00:16:00] um, marquee, um, splashy content.

[00:16:03] Daniel Konstantinovic: Yeah. Um, I have, I have two thoughts there. On the subscription front, um, perhaps the novelty of big, you know, new, um, IP or new shows based on existing IP is something that could attract new subscribers and is a splashy thing for them to do.

[00:16:19] Daniel Konstantinovic: [00:16:20] I think subscriber gains may also just be tight consumer wallets and Netflix being a well-established- Mm-hmm ... streaming name and the one that they jump to first over others. But as for the, you know, relying on novelty of new show, new show, show gets canceled year after year, I also wonder if that is a trap in of [00:16:40] itself because, you know, if you're just relying on brand-new releases every year or every season or what have you and then they don't get renewed and then the next one comes up and there's this expectation that it's like a one-off, maybe you'll start to see some of those same diminishing returns even on the new seasons of, uh, big new announcements.

[00:16:58] Daniel Konstantinovic: And maybe this whole... I, I'm, [00:17:00] I'm just kind of spitballing, but maybe this decline, um, season after season for Netflix shows Could be a sign of what, uh, you were talking about earlier, Marcus, with viewing habits just shifting and-

[00:17:13] Marcus Johnson: Right ...

[00:17:13] Daniel Konstantinovic: you know, the desire for coming back to a major series a year later is just not there in the same [00:17:20] way as it once was.

[00:17:21] Marcus Johnson: It could very well be systemic, and just, yeah, we used to have series that went, um, for, uh, for, for a really long time, and outside of Big Bang Theory, you know, or a handful, mo- most don't go for, for 25 seasons or whatever. Uh, Daniel, what else do you have?

[00:17:36] Daniel Konstantinovic: I had a question about bundles. Um, I'm wondering what a Netflix bundle might [00:17:40] look like or, uh, if a Netflix bundle does launch, what it might look like, or, or, well, whether it will even move the needle for Netflix.

[00:17:48] Daniel Konstantinovic: Um, I thought this was a really interesting story, uh, that Netflix is apparently considering bundle offerings and also live TV offerings, which again, is kind of mimicking the model of [00:18:00] YouTube or Hulu, which both have-

[00:18:01] Ross Benes: Seems like they're

[00:18:02] Daniel Konstantinovic: considering everything ... a TV service. Yeah, exactly. Like the root- But I think that's like the-

[00:18:05] Ross Benes: Yeah

[00:18:06] Daniel Konstantinovic: the root of what we're talking about, is this is a company that's like- What do we do next? Uh, let's try this, let's try that, let's try podcasting, let's try sports, let's try The Breakfast Club. Yeah. Uh, let's try bundles. It, it seems [00:18:20] very aimless, and m- they have some wiggle room to move around because of their strong position in the market, but it doesn't seem like they've really landed on something they can solidly chase.

[00:18:31] Daniel Konstantinovic: But yeah, bundles. I mean, this is something that's worked to attract ad-supported subscribers for basically all of the other leading streaming services. Mm-hmm. [00:18:40] Um, what could it do for Netflix? Just kinda my broad question.

[00:18:43] Marcus Johnson: I like this one. I read about this in, um, Marisa Jones's piece, um, when she was writing about Netflix considering, um, bundling similar to Prime, Peacock, and Apple TV and all, all the others.

[00:18:55] Marcus Johnson: She had some research from, uh, Hub entertainment research finding that 42% of respondents [00:19:00] were more likely to keep subscribing to bundled services. Only 14% preferred standalone subscriptions. So the question I posed was, has Netflix been left out in the cold when it comes to bundled services? 'Cause I feel like all the other ones you can bundle some way, shape, or form.

[00:19:14] Marcus Johnson: Netflix might have one, but is it more through, like, Verizon [00:19:20] where you can, like, bundle a bunch of services and Netflix is one of them, as opposed to it owns- Yeah ... you know, Disney Plus, plus Hulu, plus ESPN, et cetera.

[00:19:27] Ross Benes: Yeah, you can bundle with HBO, I believe.

[00:19:29] Marcus Johnson: Right. But,

[00:19:30] Ross Benes: like-

[00:19:30] Marcus Johnson: Right.

[00:19:31] Ross Benes: Yeah ... yeah, through, through your teleco.

[00:19:33] Marcus Johnson: All right, gents, uh, this is a solid list. Let's now pick our top three. So top three, uh, the big three questions for Netflix at the moment. Ross, [00:19:40] what needs to be one of them?

[00:19:41] Ross Benes: Well, uh, Daniel had this point about how serious is your sports strategy, and he cited the, the data that they mentioned in their earnings call where it was 1% of time spent despite 5% of content budget.

[00:19:54] Ross Benes: How do you build something more consistent even though you've had some early successes with particular [00:20:00] events? How do you go beyond that to have, like, a consistent, predictable sports audience that will be there throughout the course of a season?

[00:20:07] Marcus Johnson: Yeah, very nice. Danny?

[00:20:09] Daniel Konstantinovic: Um, I really liked Ross's first question about what the next, uh, avenue for revenue growth is for this company.

[00:20:15] Daniel Konstantinovic: Mm-hmm. I think that's kind of at the core of all these things we're asking. This is, is a company that's just [00:20:20] kind of, uh, desperately searching for the next thing, and all of these varied initiatives are, they seem like an effort to find that, and I'm just curious what it's going to end up being.

[00:20:31] Marcus Johnson: Yeah.

[00:20:32] Daniel Konstantinovic: If any one th- individual thing.

[00:20:33] Marcus Johnson: I'm gonna steal mine from Grace. And you guys were gonna talk about it as well, how much of a threat is the behavioral [00:20:40] change, uh, multiple short viewing sessions every day rather than a few long ones every week. And that kind of ties in a little bit with will regularly scheduled daily programming, especially behind a paywall of some description, work.

[00:20:54] Marcus Johnson: Um, what does that mean for Netflix's potential experiment with TV channels? So I think that behavioral shift [00:21:00] is a real interesting one, uh, and one to watch. That's our top three. Uh, that's all we've got time for for today's episode. Thank you so much to my guests. Thank you first to Ross.

[00:21:07] Ross Benes: Thanks, Marcus.

[00:21:08] Marcus Johnson: And to Danny.

[00:21:09] Ross Benes: Yeah. Thanks, Marcus.

[00:21:10] Marcus Johnson: And to the whole production crew. We've got Stuart who runs the team, and John helping us out with this one. Thanks to everyone for listening to Behind the Numbers: an EMARKETER Podcast. Subscribe and follow. Leave a rating and review if you can. Suzy will be here on Wednesday [00:21:20] with the unofficial monthly retailer awards for July, and I'll be back on Thursday hosting the In The Game show, talking all about the spectacle around sporting events.