To kickoff 2024, we here (ok, it’s just me) at For What It’s Worth are offering free advice to some of the major players in media.
I’m starting with Netflix, which may seem like an odd choice given it is the undisputed leader in streaming, the company that brought traditional media to its knees. What advice could they possibly need, beyond keep up the great work?
If you look at the business as a competition between Netflix and traditional media, Netflix needs no advice. But they aren’t the competition. The real threat to Netflix’s continued growth is YouTube and TikTok. These two companies come to market with massive economic war chests and billions of loyal users globally. Against YouTube and TikTok, in the chase for eyeballs, engagement, attention, and advertisers, Netflix right now is overmatched.
Yes, Netflix has built a streaming juggernaut, but it’s facing some serious challenges. Subscription growth, outside the one-time bump from the recent password sharing crackdown, has largely flattened domestically. The ad tier is off to a bumpy start. The company has made some impressive hires on the ad front who I’m sure will get things turned around. But there’s no question that from a content perspective Netflix can do more to make the platform more attractive and engaging to both consumers and advertisers.
The way to do that is to expand quickly into live programming, specifically sports and news. Netflix clearly understands the power of live sports. It started to dip its toe in the water with the recent Netflix Cup. But candidly the concept felt gimmicky, like one of those lame all-star skills competitions or a modern-day version of “Battle of the Network Stars,” and the execution was clunky. From a brand standpoint it didn’t live up to Netflix’s normal high standards.
The sports world is salivating at the prospect of Netflix spending billions on a rights package. But that would be a mistake in my view. Sports rights are leased content with deal terms constructed to give rights holders maximum financial return while severely limiting usage by the distributor. The best Netflix could hope for is either exclusive rights to a niche sport or a small, inferior slate of games from one of the major sports, neither of which will move the needle significantly.
A quicker, more elegant solution would be to cut a deal with ESPN to stream the entire network on Netflix. Building out a sports production unit is expensive and hard, as is negotiating piecemeal for rights. Yes, the cost of a distribution deal with ESPN would be prohibitive and require new subscription pricing tiers. But partnering with ESPN would allow Netflix to offer its customers the best live sports content available anywhere at scale, not to mention all the network’s ancillary sports highlights and talk shows.
For ESPN this deal would be a no-brainer in my view. There’s no chance Disney can sell enough one-off DTC subscriptions for a streaming version of ESPN to make it profitable. It’s just too expensive. There aren’t enough consumers who will pay the freight. To successfully navigate ESPN into the streaming era Iger and team need to lean into the time-tested strategy that built the network in the first place: partner with distributors that can market attractive bundles of content and networks to consumers at scale. No one is better positioned to do that then Netflix.
The logic is the same for news – don’t build it, partner with the best, in this case CNN. To my knowledge, Netflix hasn’t seriously considered news, but it should. Its competition is leveraging news in a big way. More teens get their news from TikTok than any other source. And YouTube generates billions of impressions from people looking for coverage of live news events. To compete, Netflix must get in the game.
I’m sure the Netflix executive team harbors serious reservations about diving into the hyper-partisan world of television news. From a brand standpoint Netflix understandably wants to avoid alienating viewers from either side of the debate. True, no news brand is pure from a partisan standpoint, but CNN is the closest we have to a down the middle television news outlet. From a distribution standpoint, and make no mistake Netflix at heart is a content distributor, news content is too sticky and engaging to cede to the competition.
To take it one step further, Netflix could experiment with offering live local news in select markets. Local news is decidedly less partisan and more coveted among viewers than national news. And let’s not forget, for all television’s recent struggles, local television advertising is expected to generate $176 billion in ’24.
Again, this is a layup for CNN. As much as Zaslav has talked about making CNN exclusive to Max, I don’t think that makes a lot of sense. It’s a great brand but in and of itself I don’t think it’s differentiating for Max from a customer acquisition standpoint. Recent media reports suggest that CNN’s new CEO, Mark Thompson, plans to fully overhaul CNN around a digital first strategy. Partnering with Netflix could be a key lynch pin of such a strategy. By doing so it would put CNN on the best television distribution platform out there today, allowing it to reach more people and promote whatever brand extensions Thompson has in mind.
No question any partnership deal involving Netflix, ESPN and CNN would be very complicated. As I mentioned, Netflix would have to expand its subscription tiers, not everyone will want to pay the extra premium required to get access to live ESPN and CNN. Also, I’m sure Netflix doesn’t love the idea of paying a fortune for non-exclusive content. But news and sports are must have and neither is ownable, no matter how you approach it.
By partnering with the two best brands in their respective categories, Netflix can quickly diversify and further establish itself as the undisputed source of world class content in streaming. And it has already proven many times over that it knows how to take legacy linear television content and make it more appealing to today’s viewers.
No company, no matter how successful, can afford to rest on its laurels. Fail to act now, and it’s likely we will be reading stories a few years from now about how Netflix missed its moment to take on TikTok and YouTube. Such a history would sound eerily familiar to what we read today of traditional media’s cataclysmic failure to take on Netflix when it had the chance.