Is Netflix a friend or an enemy to traditional television?
On one hand, the streaming service has added billions of new dollars into the television business in recent years, building up its offerings by licensing programs from TV groups. But as Netflix increases its total number of subscribers, some analysts and industry executives are starting to voice a concern — that a steady rise in streaming is fueling the deterioration of traditional TV audiences and related ad revenues.
That was the question media executives grappled with on Monday at the UBS Global Media and Communications Conference. Against the backdrop of a 3 percent decline in television viewing so far this season, David Poltrack, chief research officer at CBS, unveiled research showing that streaming on Netflix and other services has started to cannibalize the amount of time viewers spend watching traditional television. Households with Netflix watch significantly less traditional television than homes without it, he said.
“The growth of streaming is seen at this point to be the major disruptive force in the media landscape today,” he said.
Amy Poehler in “Parks and Recreation.” Fans who watch on Netflix pose a problem for broadcast TV.
Netflix and other streaming services are greatly reshaping both how people watch television, as well as the broader economics of the TV business. Underlying that change is a shift away from watching television with ads to streaming television on services like Netflix that have no ads. Those viewer declines come despite an increase in original network programming.
Television advertising growth has slowed across the industry during the last year. On Monday, WPP’s GroupM advertising firm released a forecast predicting that traditional television’s share of the total ad market would fall for the first time in 2015.
“The ratings have just disappeared,” said Todd Juenger, a media analyst with Bernstein Research. “You have audiences leaving ad-supported television for non-ad-supported television, and I don’t think that they are coming back.”
Mr. Juenger said he expected the trend would only grow worse for the television groups as they made more content available across Netflix, Amazon, Hulu and other streaming services. “That spirals down the road,” he said.
Mr. Poltrack argued that while Netflix certainly was a competitor for viewers, it did not compete for advertising dollars and also provided a valuable new revenue source for licensing content. Syndicating past shows to streaming services also can help build a viewer base for new programming, he said.
“Wouldn’t you prefer that your competition relied on old episodes of your programs as opposed to new content from someone else?” Mr. Poltrack said. “You have to look at the big picture. Yes, Netflix is a formidable competitor. But they’re a valued partner as well.”
Ted Sarandos, chief content officer at Netflix, said that there was no question that television viewing behavior had changed. He said that it was clear that people liked watching programs on demand and the ability to watch multiple episodes in one sitting.
Rather than debate what is driving that change, established television companies should change their business models, Mr. Sarandos said. As an example, he said that cable operators should invest in new technologies that would allow people to watch TV episodes weeks after they have been broadcast, but allow advertisers to insert up-to-date commercials.
“If you want to fix the economics of ad-supported television, you have to fix the product,” Mr. Sarandos said.
The CBS research provided a rare look at what viewers were watching on Netflix. The streaming service does not release viewer data, saying that doing so is irrelevant to its business because it does not sell advertising or negotiate with cable operators for channel position.
The study revealed that less than 10 percent of adult viewing on Netflix was of its much-buzzed-about original series, like “House of Cards,” its political drama, and “Orange Is the New Black,” the dark comedy about prison. A significant amount of other Netflix viewing is popular current television series, including NBC’s “The Blacklist” criminal drama, ABC’s “Once Upon a Time” fairy tale drama and NBC’s “Parks and Recreation” comedy.
“It’s been more than one year since Netflix introduced a true, new hit program,” Mr. Poltrack said. “That batting average is below the batting average of the pay cable network, as well as the broadcast networks. Netflix is a player in the original content business, but they do not appear to have found any magic formula for success in that business.”
Mr. Sarandos said that Netflix was preparing a slate of new original programs for 2015 that are on par with “House of Cards.”
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