In a very unexpected move, Reed Hastings, co-founder, chairman and chief executive of Netflix, announced last week that he welcomes Barb measurement of Netflix content.
Netflix has been notoriously secretive about sharing performance data, so it begs the question: why now? The service has enjoyed continuous UK subscriber growth for the past 22 quarters and now has 11.62 million UK households signed up to the service – almost three million more households than Sky’s 8.64 million.
This has all been achieved with its own first-party data. Third-party measurement from Barb would offer individual-level age, gender and demography insight beyond Netflix-device-level first-party data, albeit extrapolated from a panel of 5,300 homes and arguably of little additional value.
The question remains: why is Netflix relishing Barb measurement? Looking beyond Netflix’s recent upward trajectory, it is facing an imminent and omnipotent threat in the form of Disney+. Launching in November, although not in the UK until 2020, Disney+ is going to turn Netflix’s world into the Upside Down (one for all you Stranger Things fans).
Netflix has built a business streaming content from well-known movie studios before branching out into producing content of its own. However, films from renowned studios draw large audiences and subscribers to Netflix, and none is bigger than Disney, especially given its recent acquisition of 21st Century Fox.
Disney+ will be the exclusive home of Disney content, migrating off the Netflix platform entirely. That means none of the Marvel Cinematic Universe films (23 movies to date and many more in the works), no Star Wars films (including spin-offs such as The Mandalorian), no Pixar films and certainly no animated classics such as The Jungle Book, Lion King and Beauty and the Beast.
In fact, Disney owns eight out of the top 10 highest-grossing films ever. This box-office success translates to cheaper operational costs for Disney+, since many titles will have exceeded the production budget in box-office revenues, meaning Disney can afford to undercut Netflix's monthly subscription costs ($6.99 for Disney+ versus $8.99 for Netflix's base package; UK pricing to be confirmed).
The threat Disney poses to Netflix in terms of quality content and cheaper subscriptions could result in huge churn out of Netflix and into Disney+, sending subscriber numbers plummeting. Netflix relinquishing its previous positon on third-party measurement could be an attempt to better understand its existing customer base for retention purposes, or it could have an eye on opening a new revenue stream when the outlook for subscriber revenue looks bleak.
Advertiser revenue would be one way to do that – there is large appetite for it from advertisers and agencies. Estimates suggest the average Netflix user is saved from 160 hours of commercials each year – great for customers but at huge opportunity cost to the company itself. Accepting advertiser revenue would see Netflix continuing to grow and may begin to offset the out-of-kilter spend on content, which has resulted in multibillion-dollar losses.
The industry would demand third-party measurement before committing to advertising spend. This is where Barb comes into play. Netflix and the rise of subscription video-on-demand is largely responsible for the inverse decline in linear TV audiences.
Barb measurement allows Netflix to compete as a fourth saleshouse, trading in the same currency and capacity as ITV, Channel 4 and Sky. Yet Netflix has an ace up its sleeve, a commodity that has become scarce and therefore expensive in recent years – millennials.
Linear TV has struggled to deliver young audiences and has seen money diverted away into other media channels such as social media and shorter-form video such as YouTube. There is a lot to be said for the effectiveness of a proper "television" asset when you reach the target audience; Netflix offers reach among young viewers at scale in quality, brand-safe environments on "the big screen", when they’re engaged.
Netflix, by design, is an intellectual property-based one-to-one content delivery service. This makes it inherently addressable – something linear TV has failed to do at any scale as of yet. Think Sky AdSmart on steroids – copy that and it can be personalised with iterations in the thousands, compiled and delivered in real time. This is extremely powerful and the opportunity to optimise to enhance ad effectiveness is almost limitless.
Nothing is confirmed. However, this announcement from Hastings is a statement of intent that certainly indicates a potential future an ad-supported Netflix service.
Jon Manning is client investment director at Starcom