Sure, it seems like an obvious question and people have been lining up for TV's funeral for years but there's still no body. Despite the doom and gloom predictions, people are still watching commercial TV with tentpole reality shows commanding mass audiences.
But this week's Netflix quarterly earnings announcement should have the TV networks shaking. It reported solid results but, more importantly, investors were so impressed with Netflix's streaming subscription model, its stock price immediately shot up 25% in after hours trading to US$216 a share. It has since marginally come down to US$213.
So what has investors so excited that they are pumping money into the company's value? Their rosy outlook is a combination of Netflix's focus on content and original programming plus the endless possibilities of very specific data sets it has on each of its members.
Culturally relevant
A few years ago you may have heard the name Netflix dropped on American TV shows and movies in relation to DVD queues. Back in the days when DVDs were all the rage. In fact, Christian Lander deemed it a “Stuff White People Like”.
But time, and consumer habits, have moved on, and so did Netflix. It still loans out DVDs through the post but the company's streaming service is going gangbusters. This is the model which may prove to be the biggest threat of all to the likes of Seven, Ten and Nine.
In the last few months, you would have to have been buried in quicksand to not know all about Netflix and its landmark series, House of Cards. And you can't even get Netflix, like so many other things, in Australia. The cultural cachet alone Netflix has drummed up from House of Cards globally is almost worth the $100 million it shelled out for two seasons.
Netflix knows it has a good product on its hands. It knows it has got what looks to be the model of the future. A report from CNN said Netflix's share price has climbed 125% this year. Its current market capitalisation is US$11.9 billion.
The company's chief executive Reed Hastings and chief financial officer David Wells said in a letter to shareholders: “With the broad acceptance of streaming and internet television, more of our marketing now focuses on the content we bring to members. The launch of House of Cards provided a halo effect on our entire service and spoke to the quality of experience members can expect from Netflix.”
It's all about the content
It added three million members to its service in the first three months of the year, including two million in the US. Netflix offered a free trial to coincide with the release of House of Cards and despite fears people would join and then cancel en masse just to watch the show, the company said less than 8,000 people out of millions ultimately dropped out. The rest stayed on. It has 29.2 million streaming members, surpassing HBO's subscriber numbers.
Netflix's content focus on original programming is the game-changer the internet TV industry has been waiting for. House of Cards was an incredibly well-produced TV series with big names attached – Kevin Spacey in the starring role was also an executive producer alongside the likes of director extraordinaire David Fincher and Oscar-winning writer Eric Roth.
And there's more. A horror series from Eli Roth, Hemlock Grove, debuted this month and the fourth season of cult favourite Arrested Development will make its premiere at the end of May. It also has original series from Weeds creator Jenji Kohan, Ricky Gervais, the Wachowskis and Babylon5 creator Michael Straszynski.
Actually, it's all about the data
Netflix is also distributing its content all at once. Instead of stretching 13 episodes out over 13 weeks, it has made all the episodes available at once, so its subscribers can consume it at will. And the primary driver of this is data. The company said an analysis of the data it has on its members showed people binged whole seasons of shows in quick succession.
And this is where the magic data comes in. Netflix has data on everything each and every single member has watched on its platform and how they watched it. It knows what each person's tastes range from and could potentially build powerful profiles.
“It is a massive change in content distribution,” said GroupM chief trading officer Danny Bass at the DNA conference earlier this year. “Neflix is at the frontline of what Big Data can do to move a business forward. They know every TV show their subscribers have ever watched on the platform and they didn't blink at $100 million. And that's just scratching the surface.”
“They're one to watch very closely for the next few years. I'm convinced it's the future. We need to look at a different metric of success. They might not get the $100 million it spent on House of Cards back but they might get it back in free marketing. People will look back and see this [as a game changer].”
Bass suggested Netflix could move to serve very relevant ads, because of the data it has, to its members for a reduction in fees.
What about Australia?
But if traditional TV in Australia is still firing – The Voice is still getting near two million an episode – then why should the commercial networks be worried? Because young people are increasingly turning off. Anecdotally, we've known this is true (take a straw poll of anyone under 35 and ask how much linear TV they've watched in the last week) but research released earlier this month backed this up.
According to a study commissioned by TV guide app On Air, only 39% of 18 to 24-year olds watch free-to-air TV exclusively, less than half of those aged between 45 and 64. As the generations pass on, the FTA TV networks lose more and more of their core viewers permanently. And the FTA networks – hampered by a difficult ad market – are not necessarily responding with haste to changing consumption behaviour among young people.
But the Australian landscape is different to the US. US viewers are used to paying for TV content, American pay TV penetration is over 80% whereas in Australia it's never gotten much higher than 30%. But Foxtel is pulling out all the guns to ensure this figure increases. It has several initiatives on the way including a pay-as-you go IPTV service to launch next month as well as existing platforms such as Foxtel Go and same day broadcast of high-value overseas shows.
So we're getting there. Foxtel initiatives plus efforts from Quickflix and FetchTV are moving internet TV forward, albeit slowly. In the meantime, figures have shown Australians are avid pirates of high quality programming from overseas. But what many Australian consumers are hoping for is companies such as Netflix and Hulu finally setting up shop here to compel local players to offer viewers what they want to watch when they want to watch it.
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.
Have something to say? Send us your comments using the form below or contact the writer at wenleima@yaffa.com.au
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.