Weekly Update

The mis-measure of Netflix

Netflix hasn’t said anything publicly about reports that Nielsen will begin passively measuring some Netflix and Amazon viewership next year using some sort of audio recognition technology. Whether that signals actual indifference to the news, or simply Netflix keeping its powder dry until hosts meeting of TV moguls in Utah next month to talk about the future of television is another question.

Netflix has long treated viewership data on particular titles as something close to a state secret, or at least a trade secret, to the point that it purportedly declines to share that information even with the creatives behind its original series. So my guess would be that it’s not thrilled with Nielsen’s snooping. Especially so since whatever numbers Nielsen comes up with will be incomplete by definition since Nielsen can’t track mobile viewing — a growing share of total Netflix viewing — and could therefore be misleading.

Get ready for a lot of, “Netflix officials would neither confirm nor deny a Nielsen report that [You Movie Here] was watched X million times,” in the past month.

Netflix has always maintained that it doesn’t release viewership data on a title-by-title basis because it doesn’t sell advertising, so the data are irrelevant, which is a fair point at least from Netflix’ perspective. As a subscription service, Netflix monetizes its audience directly. It doesn’t monetize viewership per se, either directly, through transactional VOD, or indirectly, through advertising.

But there has always been another reason for it not to release such data: the less rights owners know about the relative popularity of their content among Netflix users, the stronger Netflix’s position in negotiating for those rights. Nielsen is now set to disrupt that dynamic, which will doubtless cause headaches for Netflix’s content chief, Ted Sarandos. But it may not ultimately add much clarity to the process.

A few practical issues, in addition to the lack of mobile viewing data:

  • Nielsen will be relying on audio recognition technology  embedded in its existing ratings meters. But it’s unclear how closely Nielsen’s metered-household sample matches up against Netflix’s subscriber base. Nielsen can only work with the tools it has, but there’s no reason in principle to assume that its representative sample of TV households provides a representative sample of Netflix households as well. If the Nielsen panel turns out not to be representative of the Netflix universe then any projections based on that sample will have a very high — but unknown — degree of uncertainty.
  • Netflix is a global brand that exploits rights in multiple territories. When it licenses (or invests in) content both its perspective and the data it can draw on to determine the value of that content are global. Nielsen’s U.S. household sample will exclude viewing within the fastest growing portion of Netflix’s subscriber base.
  • In the traditional, ad-supported TV universe, broadcasters and programmers consent to having their content tracked and their audiences measured because those data are used to set advertising rates. Netflix has not consented to being metered, however. Nor, presumably, do its licensing deals include promises to disclose viewership data to the rights owner. If Nielsen’s unauthorized data gathering proves enough of a headache for Netflix, the network could look to counter-measures, such as insisting on no-metering or non-disclosure provisions in its licensing deals. It’s possible that publicly reporting ratings would even be considered a breach of confidentiality under its existing license contracts and provoke legal action.

The deeper problem, however, is that Netflix and most movie and TV rights owners simply don’t reckon value the same way. In the ratings-based world of ad-supported television that Nielsen was created to measure, viewership correlates directly with value: the higher your measured viewership, the more you can charge for ads. But the value of that viewership is also finite. By agreement, only viewing within a defined window of time (C-3) has value.

Even among non-ad supported pay-TV channels such as HBO and Showtime viewership has a direct correlation with value. The more people that watch HBO the greater its leverage with the pay-TV service providers that carry the network.

In Netflix’s subscription-based on-demand world, viewership is cumulative. Netflix doesn’t particularly care when a subscriber gets around to watching any particular piece of content. Measuring it at any given point in time might give you a number, but that number has little correlation with the content’s value to Netflix. It measures the value of a piece of content according to whether it helps drive subscriber growth or hold onto existing subscribers. And there, the race does not always go to the fastest or the biggest. Content that appeals to an otherwise under-served segment of the audience can be just as effective on that score, if not more-so, than content that appeals to a mass audience.

Netflix’s long-standing refusal to provide viewership data to rights owners, or even its own show-runners, is partly about leverage. But it’s also about trying to avoid getting dragged into a score-keeping system designed for a different game than the one it’s playing. Now that Nielsen is poised to start posting those scores anyway, Netflix may lose some of its leverage. But that doesn’t mean anyone else is going to gain leverage as a result.