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Netflix CFO: Really, we didn’t kill Spongebob’s ratings!

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Don’t blame us for cratering Nickelodeon’s (s VIAB) ratings.

That was a key takeway from Netflix (s NFLX) chief financial officer David Wells Wednesday, as he addressed investors at the J.P. Morgan 40th Annual Technology, Media and Telecom Conference in Boston.

“The presence of a DVR full of Spongebob is probably more disruptive than Netflix, and that doesn’t come with Netflix revenues,” Wells said.

Also read: We’ve got hard data: Netflix really is killing Nickelodeon

Viacom-owned Nickelodeon’s once-buoyant popularity among youthful viewers has experienced inexplicably steep declines since the fourth quarter of last year. And speculation has run rampant that the channel’s streaming deal with Netflix is causing kids to choose on-demand repeats of Nickelodeon shows like Spongebob Squarepants over fresh episodes on the linear cable channel.

This theory picked up steam earlier in the month, when Sanford Bernstein senior analyst Todd Juenger released results of a robustly sampled controlled study. That data strongly indicated a correlation between Netflix viewing and ratings declines on not just Nick, but other kids platforms, including Disney Channel (s DIS). (It also showed that streaming of adult series like AMC’s Mad Men had a “catch-up” effect affect, priming older viewers for fresh shows on the linear network.)

In both Viacom’s first and second-quarter earnings calls, CEO Philippe Dauman rejected these notions, calling Netflix’s influence over the ratings drops “minimal.” He believes the drop is more attributable to research methodology on behalf of ratings tracker Nielsen.

Also read: Why Netflix can still win

For its part, Netflix hadn’t yet publicly addressed the issue until Wednesday, when Wells compared it to the “global warming debate.”

At the same time, he conceded that it’s a discussion that Netflix doesn’t want to take too lightly — if content partners like Viacom begin to believe that over-the-top viewing of their shows is diluting their core business models, that will directly affect Netflix’s ability to negotiate for programming.

“It’s in our best interest to work with them to find the right [distribution] model,” Wells added.

Other topics he addressed Wednesday:

— Despite Netflix’s expansion into Europe, Canada and Latin America, Wells said the point at which Netflix begins to ubiquitously negotiate global rights for content is still at least three years away. “We are progressing on some of the smaller deals towards global rights, but in terms of ubiquitous global rights, that’s still a ways away,” he said.

— Discussing Netflix’s sluggish expansion into Latin America, Wells said that beyond basic challenges like limited broadband penetration in some areas, Netflix actually suffers from a lack of competition in the region. Without other companies showing local consumers that “streaming video actually works,” Netflix endures the entire burden of marketing an consumer education. “Overall, Latin America is working,” he added. “It’s growing. We’re not losing to a competitor. It’s just not growing as quickly as we expected.”

— With Netflix noticing a trend among subscribers in which numerous household members are accessing its streaming service simultaneously through multiple devices, Wells said the company will introduced a “multi-streaming” plan later this year.  “It’ll have personalized interfaces, so when you watch, it’s directed at you and not your wife or your child,” he explained.

6 Responses to “Netflix CFO: Really, we didn’t kill Spongebob’s ratings!”

  1. Or maybe the show wasn’t the same as it was when Hillenburg was around and its quality started to break.

    If Viacom wants to save Spongebob, then at least find someone who knows the show’s original conception (before the movie) to take Tibbitt’s place as supervisor. If they managed to make Spongebob back to its former glory, then maybe the show’s ratings would rise again.

    • Vincent

      Bret the hole in that particular argument is that until the nick packages were handed to Netflix, SpongeBob’s ratings were the highest on the channel, and on cable in general. Both the old and new episodes. The month after Netflix offered the product is when the dip in ratings hit.

  2. Will Stewart

    Kids are turning off the linear cable channel and turning on Netflix for one reason: continuity, or rather, lack thereof. There is no continuity to children’s shows, therefore no reason to watch them in “linear” fashion. Just fire up Netflix and watch another episode. Doesn’t matter if it’s from 2012 or 2005, Spongebob is Spongebob. Nothing ever changes.

    Adult shows like Mad Men and Breaking Bad, on the other hand, have a continuous story line and compelling characters. “Catching up” on Netflix makes the adult viewer WANT to tune into the linear cable channel for the next show. I know, I’ve experience it first hand — I got my introduction to Breaking Bad via Netflix, and now I can’t wait for the next season to start on AMC.

    The solution: instead of 22-minute segments of mindless kid crap, produce compelling, continuous children’s shows that truly tell a story and that give the child a strong desire to watch the next episode … on the actual channel. As long as kid shows are self-contained, 22-minute pieces of brain candy that don’t tie together in any coherent fashion, Netflix availability will drain viewers from the actual channel.

    Yeah, I know … compelling kids TV. Not gonna happen. I guess Harry Potter and The Hunger Games didn’t teach the TV execs anything.