Jo is away so Andy gets Emily perspective on Netflix's latest earnings report. In a recent strategic shift, Netflix are moving away from the subscriber count obsession and focusing on ‘engagement'. It's an interesting pivot, especially as the streaming giant grapples with the reality that their core markets are pretty well tapped out.

The big question now is how to keep demonstrating growth when you've already signed up most of the households you're going to get. Enter: engagement metrics. Netflix wants us to care about hours watched, not just how many people have accounts.

But that’s not the only strategic shift, Emily and Andy look at how vertical content and gaming fit into Netflix’s new playbook.

Meanwhile, the kids' content slate is having a moment. Ms. Rachel and Paw Patrol are quietly racking up serious viewing numbers, proving once again that children's programming might be the steady, reliable workhorse of any streaming service.

And then there's the possibility of Netflix acquiring Warner assets—a move that could beef up their content library and give subscribers more reasons to stick around. As Netflix figures out its next chapter, it's clear the playbook is evolving from "grow at all costs" to "keep people engaged and happy."

Takeaways:

1. The recent Netflix earnings report reflects a shift in focus from subscriber growth to content engagement metrics, indicating a new strategic direction for the company.
2. Despite a slight year-over-year increase in engagement, the overall performance remains underwhelming, suggesting challenges in sustaining growth in a saturated market.
3. The introduction of vertical video content is a significant move for Netflix, aiming to capture mobile viewership and compete with platforms like TikTok and YouTube.
4. Netflix's acquisition of Warner Bros. may provide necessary content diversification to enhance engagement and strengthen their position in the streaming market.
5. The Netflix kids' programming landscape is evolving, with significant shows like Ms. Rachel and Paw Patrol demonstrating strong audience engagement and popularity.
6. The ongoing development of Netflix's gaming strategy highlights their commitment to retaining viewer attention across multiple formats, enhancing overall user engagement.

Foreign.

Welcome to another Kids Media Club podcast.

I'm Andy Williams.

No Joe today, but Emily, we're here to have a chat about the Netflix earnings.

I think, yeah, no Joe today, but I will replace Joe with my enthusiasm about the Netflix earnings report, which is the kind of thing that I like to hop up and down about probably for like five years now.

So, yeah, Netflix, the first mover in streaming in the streaming wars, remains, I think, one of the most interesting entities out there in terms of what they're doing.

And yeah, there was plenty to digest their earnings last night for sure.

It's, you know, I stay up late, I get the tea on and listen and digest and read and write into the night.

What were your key takeaways then from it?

So a couple things, right?

So there's obviously there's the Warner Netflix thing and that's a whole different thing.

Right.

So let's just park that for a moment.

I have to say one of my key takeaways was around engagement.

So Netflix released the twice yearly engagement reports and this in January and July.

So that released last night.

Assuming, you know, the main reason for that, we can assume is that subscriber numbers are pretty saturated in many of their core markets and you know, they weren't going to be able to show any really compelling growth story based on subscriber numbers with consistency.

Let's say.

Obviously if they did some big launch or big platform adjustment adjustment in an individual market, then you know, they could, they can announce subscriber numbers.

It's not the law.

They just said they weren't going to do it consistently anymore as part of their, like earnings materials that they release to shareholders that have things like revenue and profit margin, that kind of thing.

They said, you know, the streaming wars were no longer about subscribers.

They were about content engagement.

Music to my ears, that was part of this whole content performance disclosure that they're, that, that they're now doing.

That's why we know so much more about the types of content that does well on Netflix.

To Top Tens and to these engagement reports.

I have to say last night there was a lot of qualifying around the content engagement in a, in the broad sense.

So they were saying, you know, were they down 1%.

They were.

They were down 1% overall engagement, up 2% in overall engagement.

They were then qualifying that with whether it was about original titles that were up a certain amount.

There just seemed to be this kind of frustration with how to characterize content engagement in a broad sense.

Were there any obvious kind of winners and lose losers in terms of how that.

What was kind of what was moving the dial one way or the other, do you think?

Was there any indication of that?

Well, to be honest, like, it felt like in.

In the broadest sense, you know, they said the view hours increased 2% year over year.

But like 2%, like, okay.

And I know that's like around a billion hours.

It's like it's a billion hours.

It's Netflix release, like in the engagement reports is around 70 billion hours.

So that's kind of a billion.

A billion and change hours.

And I know a billion is a big number, but like, 2% is like, not like something you can sink your teeth in and juice.

Right.

Like, it's just not.

It's just not that compelling a change, I would say.

Do you.

I mean, it kind of 2% feels like it could be a rounding error, maybe not, but it's not big enough that it's.

It's that it's such a statement that you can't argue either way.

Yeah, exactly.

And like, if we look at H2 20, 25, which is, you know, the half we've just been to, like, they had an absolutely stacked slate.

They had Wednesday, they had K Pop Demon Hunters that they didn't even know was coming.

The biggest movie on Netflix ever.

They had Stranger Things, Right, Like Stranger Things a Palooza, right?

Like the finale of Stranger Things.

We saw all of the individual seasons built bubble up.

I mean, Stranger Things is the biggest show to come out of Netflix.

I would argue.

I was going to say, for all that people said that the last season was going to disappoint.

My impression was that the numbers for Stranger Things last season were huge.

So like you said, there's a lot of big shows there.

You'd imagine that that would have had an impact.

Yeah, yeah, exactly.

And I think that, like, that is.

That is, I think, part of the frustration.

So, you know, they said that they're.

There were branded originals, saw 9% rise.

So that is probably going in the right direction.

But it is, I think it is hard when you oversee an ecosystem of content as vast as Netflix does that, like moving the needle.

It's very difficult.

It can be difficult to demonstrate moving the needle.

And that's what we find in the Netflix kids content performance reports like we found.

It's important when we're looking at what is doing well, to kind of bridle it and to kind of contain what we're looking at.

Because if you try to look at everything, it's just like trying to boil the ocean, right?

But if you're able to go, right, well, how efficiently is this genre working?

How efficiently are this.

Is this type of content working?

What does good look like for preschool?

What does good look like for an animated movie?

Right?

Like when you're able to kind of, as I said, bridlet or contain what you're looking at, that's when you can get insights.

But when you're looking at the overall picture, it's a lot more difficult to be able to kind of divine the direction the wind is traveling, if you know what I mean.

So I think.

But the thing is, Netflix had come out with this big statement.

We're going to be releasing all the data on our shows every six months.

And I think are finding the kind of shortcomings of that.

I don't know if maybe they were expecting other streamers to follow through and to kind of take the bait of also disclosing more.

And in that sense, you know, it would be very difficult for any other streamer to match up to the Netflix metrics of something like string things, but no one else has done that.

So it just.

Do you know what it was that was one of my key takeaways from earnings was this kind of sense of frustration, sense of overqualification around the broad content metrics.

And then on top of that, which I would say is also indicative of that frustration, they did release subscriber numbers, generally speaking, for the first time in a year.

325.

What story did that tell then?

Did it.

Did that.

They were.

They're up first, I think last year they were at around 300 million subscribers.

301, I think, this year.

So, you know, that was January of last year.

January of this year, they're at 325.

So they're demonstrating growth.

They say they.

They reckon they reach around a billion people on earth with their service, which would, I think would make.

Probably make sense, you know, but it just kind of felt like.

Let's just go back to the old thing we used to say that used to help us rather than like trying to exist in.

In the new engagement reality that they put themselves in.

So that was one of the key takeaways for me.

There's Lots of other things that were going on.

They're talking about product updates around things like obviously their ad, their ad set, their ad, their ad stack, their ad tech stack that they're.

They're trying to build out.

And what's the story there?

And what was the story there in terms of advertising and that side of things?

It's still something that they're in.

They're in growth mode on, for sure.

And.

And, you know, that's something that they're learning at.

There's lots of other stuff they're learning on too.

Right.

Things like live and things like.

The other thing I thought that was interesting as well.

So live and sports programming, that kind of thing, which they're definitely getting a lot better at.

If you consider, like the, I think was the NFL games before, where one of the first live events, there was a lot of lag.

They've done many more since.

So that's becoming much more of a natural place for them or a comfortable place them, should I say.

The other thing I thought was fascinating is that they're talking about getting into vertical video.

Everybody's getting into vertical right now, obviously.

Disney plus made that announcement at CES, TikTok are launching a bespoke microdrama app.

Netflix are not being left behind.

They're talking about new moves in vertical video this year, which I think also.

Also supports what they're doing around podcasting, because, you know.

Are you familiar with podcasts, Andy?

Yes, I've heard of them.

They're, they're, they're.

They're a kind of genre where people talk to each other around various topics.

Like kids media, for instance.

Like kids.

Precisely.

Precisely.

Yes.

But I guess the video version of podcasts is that kind of vertical.

As anyone who can see me is like, I'm cutting myself off here in the screen.

It's that vertical.

It's that vertical format.

So, you know, that's something that they're trying to develop.

So does that mean in some ways that just as YouTube is moving from the mobile to the living room, is that an example of Netflix looking to move from the living room into the mobile space?

I mean, will those verticals exist on their app then?

I think, yes, I think so.

It's interesting.

I think this social video moving to living room, led by Netflix, led by YouTube, has been driven by wanting to expand ad revenue and wanting to get those TV ad dollars.

I think a very pure and passionate pursuit of that, I would say.

I think premium streaming, moving to digital or mobile first video.

Vertical video, by extension, is Something that, you know, there's been a bit of maybe executive nose holding around.

You know, we are premium, we are taste makers.

We decide what works.

And that's not how, you know, digital ecosystems work at all, right?

Like that's, you know, in places like YouTube or TikTok, you know, the audience decides what's good or not.

And so there's been that kind of reticence to go the other way.

There's loads of, there's loads of shortcomings with that as well because they've been in the, in the subscriber model for so, for so long.

You know, the back end of the data that they, that Netflix or Disney have on their, on their, on their users is like far inferior than Google.

I think we've probably talked about this on the podcast, right?

Like Google have your YouTube, perform your YouTube, your YouTube journey.

They have like everything you do when you're logged into Gmail, which most people have, you know, a standard.

So the move that way is, is tougher for premium.

But the bottom line is I think you, you know those lean back moments that were filled by linear in certain ways for a long time, you know, having the TV on in the background, putting the TV on when you're just cooking dinner or whatever, right?

Those lean back moments are not really serviced by premium streaming.

Premium streaming is where you sit at 8 o' clock when you want to watch something.

And I think that's the move into vertical.

Moving to mobile is part of premium streaming.

Trying to inhabit more parts of your attention in a given day.

So yeah, and they need that.

Honestly, I think that's also where podcasts come in.

Like, I think there's a lot of those.

It's not, it's not that linear is totally dead, but I think between the decline of linear and the rise of importance of digital platforms for younger generations, like parts of digital are fulfilling things that linear used to do in ways like podcasts, right, like basically like a talk show in things like even life.

Like even if you think of like lifestyle or magazine style content, right?

Like all your, like your fitness people are, are on vertical.

Your, you know, your cooking people are on vertical, right?

Like even finance people, right, like they're all coming up on, on platforms like Tik Tok, where they used to be on, you know, this morning's couch.

Maybe they still are a little bit, but it's kind of the same, it's kind of the same need state.

So yeah, I always, I always felt like their, their acquisition of Gohanger, the Gary Lineker's podcast company.

It feels like that gives them the ability to bring the conversations around shows within their kind of ecosystem really.

So, so you can have kind of the rest is entertainment, but it exists under the Netflix umbrella.

Or you can have, you can have a podcast about football.

And I don't know whether there are any plans to kind of get into that space for Netflix, but if you wanted to get more and more into sports, you're starting to build the architecture, the commentary architecture that could kind of sit around that.

Yeah, exactly, exactly.

I think it's just, it's more, it's trying to build more reasons in the day for people to get on Netflix.

Like they've done really well, as I said, at owning 8 o' clock at night when you're sitting there to watch TV or you know, on a Saturday evening or whatever.

But you know, those in the middle of the day attention moments they don't own.

And YouTube and digital platforms have been taking up a lot more space there.

So yeah, the fight's on, which is kind of cool.

The other thing that they also are doing for that attention, that attention game is the gaming stuff, right?

Like, yeah, I was going to ask.

Something they're building out about the cloud based games.

Some of them seem really cool, right?

Like party games driven out of, driven out of the, you know, your smart TV Netflix interface that succinctly dials up your phone so that you can play things like Pictionary, you know, with your, with your mobile devices that come up on the TV screen.

Like that sounds really cool.

And there are the other movements they're making in gaming.

Although we all need to just get comfortable.

The fact that like Netflix do not see gaming as a business vertical to be making a P and L in of itself, it's still all in service of engagement overall rather than, you know, we need, we're going to launch the next, you know, Grand Theft Auto and make money or whatever.

Right.

It's, it's about keeping, keeping the viewer or the customer there and not losing another device.

The member.

So sorry.

Yeah.

And in terms of kids, did you get any insight into how, if there's any evolution in terms of how they're thinking about the kids space?

I mean the, the main thing for me on kids is the CRE.

I think the creator movements that we're seeing.

Ms. Rachel has come in.

So she is going to end up around.

She will end up a top five show on Netflix for, for H2, 20, 25.

I think she was around seven when she came in a H1.

So she's gaining ground.

And they launched Mark Rober's Crunch Labs on the service last.

Last year as well.

That's seen some good results.

So I think creator.

Those creator movements I think are quite interesting in terms of kids.

Um, other things we're seeing on kids are Paw Patrol won big with engagement.

They launched a US window on Netflix last July.

So their hours viewed are, you know, really, really high and up there.

Gabby Zeus continues to fight the good fight.

You know, the biggies, Peppa and that kind of thing.

They, they.

Those guys are all still in, you know, fighting it out, slugging it out with each other to try to, to try to gain ground, but they're all continuing to do very, very well.

Cocomel, I mean, ironically, it's still on the creator.

It's on the creator YouTube line, but that isn't.

That continues to be in decline on Netflix.

So, you know, maybe there's a question around the life cycle of that type of ip.

Although I, you know, I think there's.

I think.

I do think Ms. Rachel has an opportunity there.

Sesame street numbers came in as well that launched.

Yeah, they were.

Okay.

I need to look at it in more detail before I commit to a full, full opinion on it.

But I definitely don't think it was served by the volume of content that it had.

Right.

It was quite a low volume, just I think four or five episodes totaling two hours since September.

So that would be something that, you know, just doesn't feel like it's.

It's in volume on there now.

Listen, sometimes, like, something like Ms. Rachel not in volume seemed to do very, very well.

So.

And Sesame street wasn't in that.

That kind of league at all.

But whether it was in the league of.

I'm like, yeah, I need to go.

I'm still, I'm still crunching.

But, you know, I'm.

So I'm holding it on my opinion on it for, for a little, for a little bit.

I need to look at it a bit more tomorrow.

But, yeah, did okay.

But it's, it's definitely not like a runaway, like, Ms. Rachel situation.

I would say.

There'S no indication that, that, that there's.

I mean, it's tricky, isn't it, with Netflix, there's so much content that sometimes to talk about there being like a, A channel offer for kids, there's kind of, there's almost.

There's too large an array to really Have a coherent kind of one specific kind of tone of voice.

But do you get the sense that Ms. Rachel and Sesame street, that they're, that they.

That could be an opportunity to kind of have a range of kids content that's kind of in.

Within a sort of almost a.

A kind of a. I don't know, a house style or a kind of thing?

Yeah, I got taught that, you know, when the United Sesame street came through.

I think like Ms. Rachel and Sesame street have collabed before.

Their values are very aligned.

Yeah.

Mark Rober as well.

Honestly, like, and Mark Rober.

There was a Mark Robert and Elmo Christmas special that was the one other piece of content in addition to the four episodes.

The four episodes.

Four or five episodes of Sesame Street.

So that felt like, okay, you're going for live action American education that's charming and appealing and has like, has enough.

Yeah.

Has.

Has enough charm to be, you know, to have that actual appeal for kids.

Right.

That it's not just here's education and here's broccoli.

It's like, oh no.

Kids actually love these characters and there's fun stories within.

Parents approve.

And you know, so that felt like, like a big opportunity.

Definitely.

But that's, I guess why I'm like, the volume.

That's why the volumes of Sesame street content on Netflix is kind of a head scratcher for me, I would say.

And because they had bigger volumes or volumes with a bit more.

There'D be a bit more critical math, really.

Yeah.

Or a bit more regularity.

Like instead of doing just one drop that, you know, they've done two or three drops over the.

Over the half.

Well, that certainly would tend to juice it a bit more.

So.

Yeah, I don't know.

But like.

Yeah, so it's just a bit, A little bit of a head scratcher.

Yeah.

So that.

And then as you get older, with, I don't know, with K Pop, for instance, how did that feature in the, in the.

Yeah, they love K Pop.

I mean, like, who, who wouldn't love having that IP in, in the stable?

Although I, I do feel like it was very much like, yes.

And it can drive streaming.

And it can drive streaming, which is what I've said about Netflix before.

They are.

They still remain very, all in all, in service of streaming.

You know, even if it's like K Pop could potentially be a billion dollar, K Pop Demon Hunters, could be a billion dollar franchise over the next 10 years, you know, but yet they're like, but it drives member subscriptions and it drives you Know, it keeps, it drives down acquisition costs, whatever, and you're like, yeah, but like you could be making a million dollars out of this, you know.

So that's, that's going to be one of the interesting things for me as they move it like as this Warner acquisition comes to pass.

Like Warner is not just in the all in favor, all in service of streaming game.

They're in the theatrical game.

They're in the game.

They're in the consumer product franchise game.

And you know, that's that, that there can be conflicting.

There can be conflicting priorities in that.

I definitely know that from my time at Disney where, you know, media networks need to bow the need to other.

The needs.

Other needs of the business.

So that will be, that will be interesting to see.

So Now K pop T100 like, like star of the show there.

They have to be delighted with it.

I mean it's, it won the Golden Globe.

Amazing.

All kind of watching now for the Oscars, the other one, the other animated movie that didn't do as badly.

And again, I need to get into the detail of this in the next couple of days is in your dreams.

So.

All right.

That passed me by a bit.

Yeah.

So there was so Netflix had kind of with Leo a few years ago.

They kind of launched this of Thanksgiving Runway for animated movies and Leo starring at a voice talent ad and Sandra did very well animated movie about a gecko in a classroom.

Last year Spellbound, which was the big one from Skydance Animation actually didn't.

Yeah, didn't.

Didn't mut the custard in terms of Leo at all.

Under Very, very under that Leo performance in your dreams is not up at Leo, but it is above Spellbound.

So and you know, seem to do probably bit more decent numbers this, this, this time around, which I think is a good thing for, you know, Netflix Animation.

From a film point of view.

They had not seen K Pop Demon Hunters coming.

Their big bet for the year was in your dreams.

Right.

And so yeah, it feels like it did.

It maybe did a like a decent, a decent number.

It didn't have to just follow K Pop Demon Hunters.

Like that was not, it was not a job anyone wanted.

Right.

But you know, it feels like it.

It may have done decent numbers again.

Let's dig into that very, very soon.

Right.

And did you have it, did you have any sense that the Warner Brothers acquisition could address any of the, any challenges that were highlighted in this earnings report?

I do think so.

And I think that comes back to the point I made at the Start about this frustration with the overall engagement.

Right.

Like Netflix have done a phenomenal job at building a catalog of original and acquired content that's really, really excellent.

And if they can't, you know, they have, they have ignited great engagement, phenomenal engagement.

But if they are not able to kind of click the flints together to show growth in that yes, they definitely need to buy in and buying in Warner assets, we would, you would, one would hope, would, would kind of be the catalyst for some very strong growth in engagement.

And they need to be smart about how they structure it because, you know, maybe people just only have certain number of hours a day and, and 70 million odd is, is where it's going to stay and, but so like kind of being able to access people in different places or being able to access different types of audiences or different cohorts of audiences may be part of that.

But yeah, with that it definitely feels that the Warner acquisition is something that definitely should help, you know, address that frustration they're having with the engagement overall in terms of its growth.

No one's saying the engagement is bad.

I'm definitely not saying that.

But I'm just saying if they want it to juice narratives on Wall street and beyond, like 2% increase, it's just not that sexy.

Doesn't matter what way he slice it.

Yeah, I can see that.

I mean, and in some ways that becomes the, when you're as successful as Netflix, trying to get that sustain that growth becomes increasingly more and more challenging the bigger you get.

Yeah, definitely.

But it's also this whole like, I think that, you know, I think there's a lot of uncertainty in that ethos change that they have been able to be very single minded about every decision they've made so far to the point where they can write off.

They're not writing off K Pop Demon, who is as a franchise.

But they can say like, oh yeah, that'll be nice but so long as it drives subscriber growth.

And that's something there.

I think that, that, that could, that could really come and bite them in the acquisition of Warner because those assets work a particular way and they work that way for a reason because that's how it drives the, drives revenue.

It's the, it's the Disney franchise.

Fly with Fly.

Fly with the Walt Disney.

You know, we've all seen that like napkin drawing.

He's, he, he did in like you know, decades ago.

So that we're still following even now.

Yeah, but that, that's not how Netflix works.

And, and anyway, so that Evolution is going to be a riot to follow.

Yeah, that's fascinating.

That's great.

Oh, thank you for letting me talk at you about this.

No, thank you.

Thank you for letting me ask questions on that.

I feel like I've, you know, being able to get a consultancy on what's happening with Netflix earnings.

Yes, yes.

Well, my full thoughts on it will be in my newsletter, the Kids Streamer Sphere, the day after this podcast drops.

So consider that your primer and get in there to get all the juicy details.

But yeah, we'll be following this and we'll be following it.

We've got a number of other stories that we're tracking in the data for clients of the Netflix Kids content report.

So, yeah, you can always come to me for the juice after Netflix earnings.

Always happy to chin wag on it.

That was great.

Fabulous.

Thanks very much.

Okay.

And thanks to everyone for listening.

Will you please, like, subscribe and follow us wherever you listen to the Kids Media Club podcast?

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And we will see you guys next week.

Don't.

But.