Do Netflix’s Financials Finally Make Sense?

Photo-Illustration: Vulture and Netflix

Hard to believe, but this column was officially born a year ago this week (January 16, if you’re keeping track). Our very first edition included an item about Netflix’s big haul at the Oscar nominations, so it’s somewhat fitting that on this birthday, Buffering kicks off with a look at the streaming behemoth’s latest quarterly earnings report. (Spoiler: Everything is still going swimmingly over there.) We’ve also got an exclusive first look at how audiences are responding to Disney+’s weirdly wonderful WandaVision, plus some news (and speculation) about Paramount+ and the latest classic title to hit Disney+. And whether you’ve subscribed to this newsletter since week one or are just now checking it out, thank you for reading.

Next month marks eight years since Netflix launched House of Cards, its first wholly original series. About a week before the show’s debut, the streamer announced it was starting off 2013 with a then-stunning 27 million U.S. subscribers (33 million worldwide), and that it expected Cards to be transformative — not just for Netflix, but for the entire entertainment industry. “We believe that February 1st will be a defining moment in the development of Internet TV,” the company wrote in a letter to shareholders. Well, yeah: By April 2017, Netflix would boast more than 100 million global subscribers, having tripled its member base in less than four years. And on Tuesday, the entertainment giant cruised past the 200 million subscriber mark, doubling its tally from 44 months earlier. It is safe to say the Netflix experiment is going well.

While this new milestone certainly did not pass unnoticed — The Wall Street Journal put its story about the news on its front page Wednesday — it says something about Netflix’s place in the entertainment world that such a jaw-dropping number doesn’t seem like that big a deal anymore. We just expect Netflix to keep cruising along, crushing its rivals with the most new shows and the richest overall talent deals. An accomplishment as significant as adding just shy of 37 million subscribers in 2020 — roughly the same total number of subscribers Hulu has right now, as LightShed’s Rich Greenfield noted — is almost expected now. The only time Netflix seems to make news these days is when it messes up, or misses the mark on a financial forecast.

And yet I think this week’s stellar earnings report deserves more than just a nice headline (or even a celebratory takeout steak dinner from Denny’s). Beyond the flashy round number of 200 million, Netflix’s latest report card once again underscored why its status as the world’s dominant streamer isn’t going to be challenged all that quickly, despite its many well-funded new challengers.

As CNN’s Frank Pallotta and CNBC’s Alex Sherman have already noted, the biggest piece of news for Netflix wasn’t its new subscriber tally but rather its statement that it has no plans to borrow any more money to fund its never-ending content expansion. “We believe we​ ​no longer have a need to raise external financing for our day-to-day operations,” the company said in its latest shareholder letter, italicizing and bolding the words for emphasis. ​As our new president might say, this is a big effing deal.

For the last decade, Netflix naysayers (both in Hollywood and on Wall Street) have been not-so-quietly saying the company’s reliance on deficit financing to pay for its quadrillion movies and TV shows and producer deals was a risky and unsustainable gimmick that could lead to the company’s complete collapse — a house of cards, if you will. Netflix execs have always countered by saying its massive debt — CNBC’s Sherman estimates a red-ink tally of $15 billion — would help create a virtuous cycle (more shows leads to more subscribers, which leads to even more shows), and that eventually, it would generate enough revenue through subscription growth to pay back all that debt and turn a profit.

So far Netflix’s bet has been paying off: Subscription growth is indeed generating enough coin to allow it to both forswear new deficit financing in 2021 and begin paying back some of its existing debt. This doesn’t mean the company’s financing strategy has been once and forever vindicated. It won’t be retiring all of its current debt, and market conditions could always change. Maybe a post-pandemic world won’t be quite as keen on paying for an increasingly expensive Netflix; perhaps a big chunk of the member base will decide it can’t afford a service without Friends and The Office, at least not every month. For now, however, the massive subscriber gains Netflix made in 2020 are allowing the company to at least temporarily silence the cynics who doubted its ability to spend its way to streaming supremacy.

Meanwhile, as much as 200 million–plus subscribers is a sexy stat for Netflix to tout, more impressive to me was another number buried in its shareholder letter: 31. That’s the percentage gain in total net additional subscriptions Netflix achieved in 2020 (when it netted 37 million new customers) versus 2019 (when it added a net 28 million customers). What this number means is that Netflix’s rate of growth isn’t slowing down as it gets bigger; it’s accelerating. Now, it’s true the pandemic likely gave the streamer an artificial lift, particularly in the first half of 2020, when much of the world was under strict lockdown. But the company kept growing throughout the year, even as movement restrictions were relaxed or lifted, and even as countries like the United States experienced a major economic slowdown. What’s more, competition for streaming revenue greatly intensified last year. Disney+ expanded to markets outside the U.S. (and has been a massive success), while HBO Max and Peacock signed on. Meanwhile, Netflix lost one of its biggest library titles at the start of 2020 — Friends — and it didn’t miss a beat.

None of this means Netflix hasn’t lost some subscribers to other platforms, or that it won’t see an uptick in defections as North American members react to the recent price hike. Netflix has had meh quarters before and it will have meh — or even bad — quarters (and years!) as the streaming industry continues to mature. But 2020 was definitely not one of those years. It may not make for as exciting a narrative as “Streaming Wars! Netflix Under Attack!,” but for now, Netflix supremacy remains reality.

Who’s Watching WandaVision?

Photo-Illustration: Vulture and Disney+

Disney+ last week debuted WandaVision, its very first (and very weird, in a good way) Marvel-branded scripted series. We probably won’t have any hard numbers on how many people watched for a while: Nielsen will issue its streaming report for the week ending January 17 in about three weeks, though it’s possible Disney could offer a hint before then (perhaps when it touts its latest earnings February 11.) But based on a report from streaming-data company Parrot Analytics, obtained first by Buffering, I would be surprised if WandaVision breaks any records for Disney+.

In case you’re not familiar with Parrot, it’s an independent data company that aggregates certain consumption data (how many folks are illegally downloading shows via torrent, for example) with other signs of popularity (social-media engagement, reviews from fans and critics) in order to assess how much daily demand there is for both linear and streaming TV content, both in the U.S. and around the world. According to Parrot, on January 15 — the day WandaVision’s first two episodes dropped — Netflix’s Cobra Kai was the most in-demand show here in the States, generating 106.3 times more consumer interest than the average series. Also in the top ten that day: HBO/HBO Max’s Game of Thrones, NBC’s Saturday Night Live, Fox’s The Simpsons, and Disney+’s The Mandalorian.

So how is WandaVision doingPer Parrot, the new Marvel release was the No. 38 most in-demand show in the U.S. on its launch day, generating 32.7 times more interest than a typical TV show. That number might not seem all that impressive, but is actually above the season-one premiere-day score for The Mandalorian, which ranked No. 46 in the States back on November 12, 2019. What’s not so hot: WandaVision has taken a much different trajectory than its Disney+ sibling. The Marvel show moved up to No. 30 on Saturday, but then ticked down to No. 32 on Sunday, and it fell even further (to No. 43) by Monday. By contrast, The Mandalorian trended up each of its first four days in release in 2019, reaching No. 9 by the Monday after its premiere. And as noted earlier, the Star Wars–branded show is still in the Parrot top ten even though its season wrapped in late December. What’s more, some high-profile new shows on other streamers, including Apple TV+’s Defending Jacob and CBS All Access’s Star Trek: Picard, both tracked higher during their earliest day in release than WandaVision.

And yet! Parrot also notes that the half-hour Marvel comedy/drama ranks among the top 0.2 percent of all global TV shows in terms of audience demand, and that it’s actually doing better around the world than in the States. The company says WandaVision also ranked in the top-ten most in-demand shows worldwide during all three days of its opening weekend, before falling to No. 13 globally on Monday. And even then, the show was still nearly 46 times more in demand than the average show worldwide. Given that streamers such as Disney+ and Netflix are just as (and maybe even more) interested in appealing to worldwide audiences than simply catering to Americans, it’s possibly a positive sign that WandaVision is playing well in other countries (particularly since the show is steeped in references to American sitcoms from the 1950s and ’60s). Indeed, Parrot says half of the show’s ten most in-demand markets are countries where English isn’t the primary language, including France, Brazil, and Germany.

I find Parrot’s data useful and interesting because, in the absence of the sort of concrete, comprehensive global-audience measurement data like what we’ve had for decades with linear TV, metrics such as “demand” or Nielsen’s “minutes consumed” offer at least some indication of how shows may be resonating in the great big sea of content. Streamers insist on keeping the actual viewership of their shows a secret, so anything that pierces that veil of mystery is helpful. That said, you have to remember two things about these alternative metrics: They do not accurately represent the actual average audience of a show, and even if they did, streamers don’t decide the fates of shows strictly based on overall audience size. They care just as much, if not more, about things such as how efficient a show is at delivering viewers (i.e., the more it costs, the bigger the audience needs to be) or whether a series helps attract a new subscriber or prevents existing customers from canceling.

What’s more, the value of a show like WandaVision isn’t solely in getting folks to watch every week. It is also about the streamer building a library of Marvel-branded content and signaling to audiences that Disney+ is going to go all-out in expanding its various franchises beyond the expected. A Star Wars spinoff based on a well-known character from the movies and anchored by a junior version of flipping Yoda is a no-brainer. Something as ambitious as WandaVision is more of a stretch. Disney+ may be a very broad-based platform, one built around some of the best-known intellectual property in the world. But to thrive, it will need to do more than just play the hits. WandaVision’s mere existence indicates that Disney+ plans to do just that.

➽ The Buffering review: By the way, here’s a quick WandaVision review from someone who likes but doesn’t particularly love post-1995 superhero-adjacent #content: The show is incredibly well-made, a big creative stretch and must-see TV for anyone who appreciates the nearly lost art of multi-camera sitcoms. Big ups from the Buffering home office.

Here Comes Paramount+

Mark those calendars: CBS All Access will make its long-anticipated transition to Paramount+ on March 4, with owner ViacomCBS scheduling a preview of the rebranded service on February 24. I’m increasingly excited to see what the company will do with its main subscription streaming platform, especially now that Pluto TV’s Tom Ryan oversees streaming strategy at ViacomCBS. Also, I love this tweet from venture capitalist and analyst Matthew Ball: He notes that the “save the date” for the February investor event includes what looks to be airplane hangar doors. Ball wondered if that’s a hint that the company is considering pulling a Warner Bros. and premiering Top Gun 2 on Paramount+ at the same time it opens in theaters (or maybe instead of a theatrical launch). More intriguingly, the ViacomCBS corporate Twitter account later retweeted Ball’s speculation. It sure would be a great way to get some buzz for the relaunch.

I have been praying for this for years, and it’s finally happening: Next month, Disney+ will make all five seasons of The Muppet Show available for streaming. Muppet diehards have been vocal about this major gap in the streamer’s classic TV library since Disney+ launched in 2019, wondering why the company wouldn’t pull this gem from the Disney vault, given how many other retro shows and movies are on the service. I’m guessing the delay had something to do with getting the show streaming-ready, but also, it makes sense for big companies to make folks wait a little for beloved old-school content. Had The Muppet Show been on Disney+ at launch, it would have been one of literally thousands of titles on the platform, and almost surely wouldn’t have made much of a splash. Now the Disney+ marketing machine has time to turn this into a legit event. (Note to self: Check with Disney+ PR about Miss Piggy’s interview availability.)

Do Netflix’s Financials Finally Make Sense?