Netflix Talks Disney Competition And Why Ads Ain’t Gonna Happen

Ad-free and sticking with it

Despite falling short of earnings-per-share estimates in Q4 2020, Netflix’s stock popped Tuesday after beating on revenue and the news that it’s nearing free cash flow profitability.

Netflix also reached a new milestone in 2020 with the addition of 37 million net new subscribers. Netflix now has more than 200 million subs worldwide.

But Netflix viewing still only accounts for a small share of paid TV penetration in most markets around the world and a small but growing share of overall viewing time.

Netflix represents less than 10% of television viewing time even in the US, its most penetrated market, said co-CEO Reed Hastings during the company’s Q4 2020 report on Tuesday.

“We’ve got a lot of subscribers here in the US, but we still have a lot more viewing time that we would like to earn,” Hastings said.

Earning eyeballs is essential as competitive streaming services roll off the conveyor belt and snap up subs.

Disney, for example, recently reported that it hit nearly 74 million global subscribers in 2020, up from around 50 million at the start of its fiscal year in Sept. 2019.

“Super-healthy” competitive dynamic

Disney’s success with Disney Plus is impressive, Hastings said, especially for an incumbent that’s had to pivot.

Rather than a direct competitive threat, however, Disney Plus is evidence of a “super-healthy dynamic” by which people will supplement their Netflix subscriptions rather than supplant them, said Ted Sarandos, Netflix’s co-CEO and chief content officer.

Consumers pay more for content, Hastings said, “because they’re hungry for great stories, and Disney does have some great stories.”

But regardless of owning Hulu, there’s some general entertainment content “I don’t think you’re going to see on Disney anytime soon,” Hastings joked, pointing to the steamy period drama “Bridgerton,” which Netflix says reached 63 million homes within 28 days of its Christmas debut.

Window of opportunity

By the same token, there’s no reason streaming can’t coexist with going to the movies when theaters start to open up again.

Especially if WarnerMedia’s decision to release its entire 2021 theatrical slate on HBO Max, starting with “Wonder Woman 84” late last year, becomes the new normal.

The move was decried by filmmakers, but “will really set a path” for simultaneous distribution, Hastings said. Just because people have the opportunity to watch a film premiere on a streaming platform doesn’t mean they won’t eventually hit the theaters in significant numbers.

Streaming and in-theater viewing are two very different experiences. It’s possible to cook cheaply at home, Hastings said, but people still eat at restaurants.

Even so, Netflix seems pretty excited about the end of exclusive theatrical windows.

“What you’re seeing today is exactly what we’ve been trying to do for a couple of years,” Sarandos said.

Next for Netflix

But here’s one thing Netflix isn’t trying to do: run ads. It’s not gonna happen, guys. Hastings said so definitively early last year and, besides, Netflix considers its subscription-only model to be the basis for its success and its stickiness.

The “simplicity of our ad-free, no additional payments, one subscription” model is “really, really powerful and really, really satisfying,” said Greg Peters, Netflix’s chief product officer.

“And so we want to keep emphasizing that,” Peters said.