Therese Poletti
Netflix wants Wall Street to see it and YouTube as the top two streaming companies and to label all other streaming services as second-tier companies.
In its second-quarter investor letter on Thursday, Netflix (NFLX) shared its latest chart from Nielsen viewership research, which showed that Alphabet’s (GOOG) (GOOGL) YouTube was the top channel for U.S. consumers spending the most time watching content, with Netflix a close second. But Netflix wasn’t shy about talking about YouTube, noting how the two platforms influence each other.
“According to Nielsen, streaming now accounts for 40% of all television hours watched in the United States, with Netflix and YouTube being the clear leaders in direct-to-consumer entertainment,” Netflix said in the letter. “Together, the two services account for nearly half of all streaming television hours watched in the United States.”
Nielsen reported in June that YouTube accounted for 9.9% of U.S. TV viewing time, with Netflix coming in second with 8.4%. It may seem odd for Netflix to tout YouTube’s high viewership, but the company offered an explanation.
“Our teasers, our trailers, our behind-the-scenes footage, that sort of stuff is very popular on YouTube,” co-chief executive Ted Sarandos said in an analyst interview with the company, “so we feed off of each other really well.” The interview was also streamed live on Netflix’s YouTube channel.
The “other streaming” category came in third with 6%, followed by Amazon.com’s (AMZN) Prime Video in fourth place with 3.1%, and Walt Disney’s (DIS) Hulu with 3%, with Disney+ accounting for 2% of U.S. TV hours.
Netflix said it plans to spend $17 billion on content in 2024, and Disney recently cut spending as part of overall cuts. Netflix’s sheer size and scale ensures it will remain the most successful streaming giant. YouTube is primarily made up of a vast amount of user-generated content, while its $73-per-month YouTube TV service is more like cable TV, offering live sports, news and family channels.
“Critics often ask whether Netflix needs so many shows and movies, and the answer is a resounding yes,” the company added in its investor letter. “With 278 million member households, an average household with more than two people, we produce programming for an audience of more than 600 million.”
Analysts also point to the influence and scale of Netflix, having spent nearly two decades building its streaming business.
“Netflix has clearly won the global streaming wars, as evidenced by yet another strong performance and increased guidance, especially relative to streaming peers,” Pivotal Research Group CEO Jeffrey Wlodarczuk said in a client note. “Going forward, the key for Netflix will be to continue to push its advantage and keep the flywheel moving, because the bigger it is, the more influence it has over peers and content creators, and the better its product will be.”
For some analysts, the only talking point in the earnings report was the fact that Netflix’s advertising revenue is still in its nascent stages and doesn’t yet account for more than 50% of revenue.
“We’re only 18 months into advertising, so we happen to be growing from a relatively small base,” said Spencer Neuman, Netflix’s chief financial officer, “so it’s just going to take time for us to have this major revenue impact across our business, which has long been primarily subscription.”
Netflix didn’t disclose how much of its $9.55 billion in second-quarter revenue came from advertising, but YouTube has a big lead on advertising, reporting that advertising revenue contributed $8 billion to Alphabet’s first quarter before traffic acquisition costs.
But Netflix’s message this quarter was that the company is bigger and better than its streaming competitors, and the evidence was hard to ignore.
-Therese Poletti
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07-20-24 1007ET
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