WBD - Netflix Releases Useless Data But Still Considered The Gold Standard

2023-12-28 10:30:00 ET

Summary

• Why Dan Rayburn calls Netflix's recent data release useless.
• The numbers do not offer meaningful insights into the business, such as completion rates and unique viewers.
• Despite its flaws, Netflix remains the industry's gold standard due to its reliability and quality, while competitors struggle with rebranding and acquisitions.

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Dan Rayburn on why Netflix's recent data release is more useless than unprecedented (0:20) and why NFLX is still the industry's gold standard (4:35). This is an abridged version of two recent conversations .

Transcript

Rena Sherbill: Dan Rayburn, welcome back to Investing Experts. Welcome back to Seeking Alpha. Great to have you back on the show.

In terms of the numbers that Netflix ( NFLX ) recently released, do you have any thoughts to articulate there?

Dan Rayburn : Those numbers are pretty useless. There's really no value in them. I thought it was interesting how many analysts were calling them, Netflix is releasing unprecedented detail. It's a game changer with comprehensive stats and it's like, no, it's not. It's total number of hours viewed. And that by itself is a flawed metric to judge success. And don't listen to me, listen to Netflix.

In Netflix blog post, when they announced that they were releasing these numbers twice a year, Netflix points out in their blog post that total hours viewed is not the only metric to judge success of content. Popularity doesn't equal profitability.

So it's not offering any transparency into their business. It's not truly measuring engagement. We also are not getting that content broken down on region. It's not broken out by country, a region of the world.

The other thing that people have to understand is the way they count series, the way they count titles. So what is the completion rate? We don't know. How many of these viewers are unique? We don't know. What percentage of all hours viewed had ads delivered against them?

We don't know.

So you really have to break down those numbers in terms of what's popular because some of them are very skewed because it's counting one particular movie against a series that might have 10 episodes. And obviously, some of these shows are 30 minutes in length and others are two hours as far as the movie goes.

So the data is not very helpful. It doesn't really give us much indication of anything. Some people are also forgetting that this was a requirement Netflix now had to do because of the strike .

They have to provide. Now, they didn't have to provide it publicly, but it's not surprising they did that because somebody would have ended up leaking the information anyway. They say that the strike did not push them to do this, but yeah, I don't really agree with that because we know they had to do it. It was one of the terms they agreed to.

They had to release under NDA basically total number of hours viewed on a global basis for productions that had a certain level of production cost to them. So did they release more than they had to in the report? Yes, they did. But again, it doesn't really give us much indication about the business.

As analysts in the market we want as much information we can as to who's viewing what, when, how, where, on what device, to what engagement rate. Remember too that Netflix changed their methodology for how they define a viewer.

So sometimes when they come out and they say, X percentage of Netflix users watched this new movie we just released. Their definition of a viewer is you watch two minutes. So the movie is two hours long. As long as you watch two minutes, they define you as a viewer. So the methodology for all these companies is different as well. What we would love to see is broken down what true engagement is.

So it's great that 40% of all your users might have watched this particular movie you just released, but of those 40% that watched it, how many actually completed it? And then what percentage of all your content has ads in it? Today, it's still small. They said, they have 15 million users on the ad plan.

So notice they didn't say subscribers, they said users, different. We expect that to grow over time. We know that's going to take a couple of years to really grow. Netflix has publicly come out and said that to Wall Street multiple times that this is a multi-year endeavor on their part to where advertising revenue has a material impact on their business.

But down the line, that's more interesting number that we really want to see and investors want to know is how well are you monetizing your content from an advertising standpoint? And that's something we just, we don't know. We have no insight to, but it's not just Netflix. None of the other companies give insight into that either.

Netflix is still considered the gold standard in our industry. And the reason for that is when was the last time your Netflix didn't work? Do you remember? I bet you don't. It works. It looks good. They don't have outages.

Now, they've had a some here and there over the last couple of years nothing too major. They did have an issue with one of their live events that they did, but Netflix for the most part just always works and always looks good. A lot of the other services are trying to get to that level of reliability.

The other thing with Netflix is since day one, what has it been called? Netflix with one app? Look at some of these other services. How many different brands has HBO had? HBO, HBO Go, HBO Max, now it's Max, Warner Bros. Discovery ( WBD ) with Discovery+, which has been integrated into Max. Max was only on-demand content. Now they're adding sports. That's all just in a three-year period.

So part of this too is consumers think of a service for the following type of content, and then all of a sudden it's like, oh wait, now it's being combined or there's a different app or it's a different brand. Disney ( DIS ) just announced they're going to come out with a new app just for Hulu and Disney+ combined with all the content, which they're going to beta test in December.

So a lot of these competitors to Netflix have also just completely changed their brands, they've done acquisitions in the market. That makes it a bit confusing as well. So Netflix is still considered the standard – gold standard. Everybody's trying to get to Netflix from a reliability, quality standpoint.

And yet, look at Netflix. They made the mistake of getting into the advertising supported market too late. Now there's still plenty of time, but their arrogance there was, look, consumers don't want ads on Netflix and are not willing to pay for it. Well, they learned the hard way, that's not the case.

Hence, why they've come out with an AVOD model that now has 15 million subscribers. So I don't really rank them based on who's doing well and who isn't. I think it's important for investors to look at that from a financial standpoint. Also, are you looking at this from a short-term or long-term gain?

We are going to have major players in the space that are not leaving. Apple's ( AAPL ) not going away. Google's ( GOOG ) not going away. Disney's not going away. Comcast ( CMCSA ) isn't going away.

So this idea in the next year or two, like three, five years, I hear some people say, “Well, everything will be condensed down to two players.” That's just not reality.

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