5 Streaming Data Points That Matter More Than Netflix Ratings

I read a piece about Netflix today from Verve and I'm not going to link directly to it, because it feels as if doing so would be taking a cheap shot. It's not a very informative piece, but it's not bad journalism. It's just another one of those cookie-cutter pieces about Netflix. You link to some other critical pieces about Netflix, add some comments from an analyst who has "concerns," and ta-da! Instant Netflix hot-take.

The problem with these pieces is two-fold. Young journalists have been taught to include lots of links in their stories, because "attribution is good journalism." That is true, but focusing on attribution also leads to the tendency to write pieces that are similar to previous works. If you're not careful, journalists can end up writing pieces built around the ideas they can easily find links for attribution and that results in group think and more than a few very similar articles.

The other problem with relying on attribution for your main points is that using other people's work as your intellectual underpinning means you don't end up doing the research and contemplation necessary to actually understand the subject matter. There have been hundreds of Netflix pieces posted in 2019 and I bet the journalists who actually understand its business and the metrics that matter could be counted on less than two hands.

A lot is made about the fact that Netflix doesn't publicly release ratings data and much of the complaining is overblown. Yes, none of the streaming services (Netflix included) release specific viewing numbers for shows and that tends to drive industry reporters a bit nuts. They argue it's impossible to quantify whether a streaming series is successful or not if you can't compare viewing numbers. But that argument fundamentally misunderstands the streaming industry and the metrics that matter.

For traditional television, ratings are the best metric for measuring the success of a show. Higher ratings generally lead to more expensive ads running in the show and that (at least in theory) leads to more money. Sure, it's an imperfect measure of success and there are lots of variables, including the cost of the show and whether the network owns it. But ratings are a metric everyone understands.

But for streaming services, how many people watch a show is only one factor in measuring a show's success. And most streaming executives will argue it's a less important metric. Especially in the case of streaming services like Netflix that don't include advertising. What makes a show successful for Netflix is a mix of factors and unfortunately, most of them are never going to be made public. Does a show encourage new subscribers to join? When people start watching, do they finish the series or do they stop a couple of episodes in? And when people do watch the entire season, how fast do they consume it? These are just some of the metrics that matter and none of these involve ratings. 

There are two caveats here. One, Netflix should be privately sharing viewing data and other important metrics with producers and studios to help them better understand the process. The company is apparently getting better on that front, but many producers I speak with still see the Netflix decision-making process as the television industry equivalent to picking a new pope.

Secondly, Netflix in particular understands that releasing ratings numbers will ironically only lead to more confusion. It's not just that most of their shows are consumed all at once. They are also a global service and it's difficult to create viewing numbers that can get past the apples & oranges nature of its business model. And since they are a global service, a series that has low viewership in the U.S. (which critics would label a failure) could easily be very successful internationally.

So given all of this build-up, which streaming service measurements would it be nice to have? Here are just five and I could easily add another five or ten to the list:

1) Churn Rates And Costs Of Customer Acquisition
In some ways, streaming services are no different than Whirlpool or Facebook. The ultimate measure of success comes down to two metrics and these are ones we will likely never see discussed publicly. How much does it cost to get a new subscriber and what is the monthly churn rate (how many people unsubscribe)? Your service can have a dozen "hits," but if it costs you more to attract and retain subscribers than you can bring in from them over the lifetime of their subscription, then you will never make money. 

2) How Many Active Subscribers Does The Service Have?
There are a couple of factors here and both of them provide clarity for how vital the service is to their subscribers. What percentage of the subscribers are watching at least five hours a month? This measurement weeds out people who keep paying for their service and never get around to using it regularly. This number is especially important when it comes to Amazon, since it's not clear what percentage of the people who subscribe to the Amazon Prime service go on to take advantage of the free Amazon Instant Video streaming service.

3) How Many Subscribers Does The Service Actually Have?
Most of the large streaming services provide reasonably accurate quarterly subscriber numbers. But it's much less transparent with the smaller niche services and in the case of CBS All-Access, it's numbers are combined with its sister Showtime, so it's unclear just what its actual subscriber numbers might be.

4) How Many Of The Subscriptions Are Discounted?
This is a question that is of special interest with Hulu, which offers a number of subscriptions at a discounted rate or as part of a bundle. For instance, you can get Hulu bundled for free with a Spotify Family subscription or get the ad-supported version free when you subscribe to Hulu Live television. Disney also has announced it will bundle Hulu into a package with ESPN+ and the upcoming Disney+ service for a discounted rate. Nearly every streaming service offers some sort of promotional or discounted pricing, but Hulu in particular seems to have a large number of less-than-market-rate subscriptions.

5) Where Are The New Subscribers Coming From?
Thanks to the success of Amazon Channels, every platform from Roku to your cable company have added the ability to subscribe to streaming services through them. But that third-party subscription integration comes at a price. Typically, a few dollars per new subscription. But aside from the initial flat payment (which can fall into "costs of customer acquisition" part of question #1), a more important metric is the percentage of total new subscribers that are coming from these third parties. If it's high, that suggests the service has exhausted its pool of easy to capture new subscribers. Which points to an eventual slowing or stalling of growth.

As I said above, there are lots of questions about the streaming industry which deserve more attention than pure viewership numbers - like the way CBS All-Access is structured in part as a way to jack up retransmissions payments to CBS affiliates. 

Ratings are easy to understand and that's why reporters and readers like them. But when it comes to streaming services, those numbers are more fun to talk about than a reflection of success. But hey, that won't keep people from writing about them.