There's nothing more frustrating than having hit shows, great ratings, but lousy financial results. No, I'm not talking about the plight that many broadcast radio companies are experiencing. It turns out there's another media brand going through similar growing pains.
That's right. Despite their big hits, their many awards, and the fact they now dominate the television conversation, Netflix just posted its worst quarterly results in years. And yet, when it comes to programming, it's hard to think of another network (or platform) enjoying more success.
Chances are good that over this past steamy weekend, you turned up the AC, and fired up Netflix on your TV, laptop, tablet, or smartphone. And the new season of Stranger Things is off to an amazing start – not just in viewership, but in buzz. Everywhere, the 80's nostalgia that permeates the show has captured the nostalgia zeitgeist. Netflix claims viewership since the show dropped over the July 4th holiday weekend set records:
.@Stranger_Things 3 is breaking Netflix records!
40.7 million household accounts have been watching the show since its July 4 global launch — more than any other film or series in its first four days. And 18.2 million have already finished the entire season.
— Netflix US (@netflix) July 8, 2019
And yet, Netflix missed its financial projections, as reported in their quarterly earnings call last week. Despite earning $4.9 billion in Q2, subscribership in the U.S. actually dropped, sending their stock price plummeting.
The network now has competitive pressure from the likes of Hulu, Amazon Prime, YouTube, soon Disney Plus, and other players vying to get into the lucrative video streaming distribution business. And a price increase in January may have caused some turbulence as well.
So, the inevitable questions arose – how long before Netflix starts slipping in commercials during shows?
After all, product placement (just watch Stranger Things) has become a lucrative “side car” as CEO Reed Hastings pointed out during an investor briefing. In fact, the Netflix founder insists we “think about product partnerships as a character” in shows.
That's a new one. So, could commercials be far away?
Apparently not, according to the statement released by the company in conjunction with its financials:
“We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”
Strong words. And a rare claim by a media entity that will continue to face pressure from new and well-heeled competitors, as well as with the costs of continuing to create competitive programming in a “peak content” environment.
On this blog, we have discussed the importance of radio stations committing to keeping their words. And the Netflix story reminded me of KNDD/The End's “#2MinutePromise.”
The Entercom/Seattle Alternative station is now 5 years into this campaign – or better yet, its pledge of performance. We highlighted this bold policy change when The End's team first got the green light from corporate in a post called “Spotless In Seattle.”
Since essentially cutting its inventory in half, KNDD has emerged as a consistent ratings winner, typically in the rarefied ranking of top 5 25-54 Adults – perhaps the most successful Alternative station in the country. But its challenge to demand higher rates for its limited but lighter and more valuable commercial load is reminiscent of Netflix's need to raise its monthly subscription fees, rather than hurt its product with advertiser messages.
Now, the pressure to remain commercial-free will have to be balanced with the ability to retain subscribers, while continuing to demand – and get – higher monthly fees.
For The End, the “#2MinutePromise” has become a highly promotable weapon in its marketing arsenal – a benefit that sets them apart from every other commercial radio station in Seattle. And Entercom's strong cluster in Seattle provides KNDD with more insulation than a “stand-alone” like Netflix, dependent on generally one source of revenue – those subscription fees, along with the “side car” of product placement.
As brands are learning in this overcrowded media landscape, there's an “action-reaction” effect to these types of decisions.
What would happen to KNDD's ratings (and sales) if it were to break its “#2MinutePromise?” Chances are, the management team would have to hold their collective breath and hope the strength of the station's programming – its music, its personalities, its community connection – would be strong enough to overcome the presence of more ads.
In Netflix's case, perhaps the damage created by adding more commercials is more finite. A recent story in AdAge by Garett Sloane – “Netflix Pledges To Remain Ad-Free Even As Subscriptions Slips” – suggests the carnage would be considerable.
A study by Hub Entertainment Research conducted last year reveals Netflix could lose as much as 23% of its subscriber base by breaking its no-commercials promise.
That's a stiff price to pay for any brand dabbling in the “What if's” of adding a little inventory.
It requires research, a strong brand connection, and a cool upper management hand to navigate the roiling waters of media, advertising, content, and distribution.
For radio, more insights into commercial ad modeling and its impact on the product, the ratings, and consumers would be most welcome. Too often, the demand on programming to “temporarily” add a minute or two in certain dayparts during particular times of the year has intensified. All this, in an environment where no one knows with any degree of certainty what impact these moves might have.
Two long stopsets at the “bow-ties” might be an effective tactic for maximizing meters, but it could be the worst strategy possible in the quest to please an increasingly fickle audience looking for an optimal radio experience.
I do know this – when we look across our Techsurveys – we do three of them every year, for commercial, public, and Christian radio – it's not difficult to analyze the radio stations with the strongest recommendation scores. You might assign listener loyalty and satisfaction to many different attributes. And you wouldn't be wrong. But the one feature public and Christian radio stations have is a much more limited commercial load. That seems apparent in the chart below.
Don't touch that dial.