Netflix’s model of releasing an entire season of a new show at once is now fashionable among the digerati and mainstream media thinkers alike, but Wall Street isn’t entirely convinced.
Viewers have demonstrated a penchant for binge-watching previously aired TV shows, consuming entire seasons in an afternoon. But allowing them to indulge the same habits with new content has left some analysts skeptical.
In August, Oscar winner Kevin Spacey, star of original Netflix show House of Cards, told an audience at the Edinburgh Television Festival that, “if they want to binge on something like House of Cards, then we should let them binge.”
But a single release date provides only a one-time marketing bang, as opposed to the water-cooler chats, live-tweeting and frenzied recap culture of weekly television.
“The trouble with it for a show like House of Cards is it had its impact and everyone who wanted to see it saw it,” says Wedbush Securities analyst Michael Pachter. “When season 2 comes out, I don’t think it will significantly attract more subscribers. It’s diminishing returns, unlike a show like Breaking Bad where people have been playing catch-up for the past few seasons, so you keep adding customers.”
Netflix reported 630,000 new U.S. streaming subscribers in the second quarter, about 100,000 below analysts’ estimates. Netflix CEO Reed Hastings has touted the “virtuous cycle” where new subscriber growth funds more program spending, which attracts even more subscribers. But Bloomberg Industries’ media analyst Paul Sweeney recently told Advertising Age that the disappointing number of U.S. sign-ups casts doubt on that theory and, “if sub growth slows or worse, this virtuous cycle can become more of a vicious cycle.”
A disclosure in the company’s recent second-quarter earnings report also hints at a potential shift in its accounting practices based on these viewing habits, saying they “continue to monitor whether the viewing pattern is higher than initially expected in the first few months to suggest that we amortize at a faster initial rate.”
Pachter says bingeing on new shows isn’t a model for growth. “It keeps you a subscriber for a few weeks, as opposed to for life,” he says. “One of the reasons I continue to subscribe to HBO is that there is always a good show running. They keep me year-round because there is always something new I want to see.”