Please ensure Javascript is enabled for purposes of website accessibility

What Should Investors Make of Netflix's Latest Transparency Efforts?

By Stephen Lovely - Mar 15, 2020 at 12:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company's new rankings aren't of much use to the media, but they could help Netflix with viewers.

When Netflix (NFLX 5.03%) and its streaming peers took on traditional pay TV, subscriber counts and legacy TV profits weren't the only things to be upended. Among the collateral damage were traditional measures of TV audiences, including Nielsen's long-tenured and widely respected figures.

Nielsen has since created new metrics to measure ratings for Netflix and Amazon, among other streaming services, and Nielsen also now includes digital TV figures in its famous TV ratings. But that hasn't stopped Netflix and its techy-savvy peers from issuing their own rankings and metrics. Netflix, in particular, has been very proactive about releasing its own figures, which often claim massive audiences. Though Nielsen and other observers sometimes dispute these numbers, Netflix still manages to get plenty of headlines.

Media outlets are starting to catch on, though, and so are investors. We were among those who registered displeasure with Netflix's early 2020 announcement of new tracking metrics so generous as to be all but useless. Last month, Netflix offered an olive branch to investors and observers in the form of a new "top 10 list" -- one that, crucially, is also a customer-facing effort. What should we make of it?

Three rows of red miniature theater seats bolted to a laptop keyboard, with the seats facing the laptop screen.

Image source: Getty Images.

The new numbers

Netflix's latest metrics take the form of a top 10 list. Updated daily, this list tells investors, the media, and the public which shows are faring the best on Netflix in the United States.

The stateside rollout isn't the first for Netflix's top ten lists. The company tried out this strategy in the U.K. and in Mexico. Viewers there have "found them useful," Netflix's Cameron Johnson explained in a company blog post announcing the move, so they are being rolled out in the United States.

The move has been greeted by some in the press as a step toward greater transparency. But the top ten list isn't only -- or even primarily -- for investors and media outlets. It's an explicitly customer-facing innovation: The top ten list appears in Netflix's app, tempting viewers to watch that day's biggest hits. Titles in the top 10 also get a special badge on their covers when they appear elsewhere in Netflix's in-app menus.

What should investors think?

Is Netflix's new top ten list a move toward transparency?

Hardly. There are no raw numbers attached to it, and by definition, the list includes only titles available on that service. No outside parties verify the list in the United States or in any of the other countries where Netflix makes top ten rankings available.

It's easy to see how Netflix's top ten list could provide a false impression about a show or movie's popularity. Netflix now has a new metric to issue press releases about. And while Netflix tends to deny pushing titles with its recommendation algorithm, it would be naive to forget that Netflix has quite a bit of power to shape its own top ten list every day. Both licensed content and Netflix originals are eligible, but it comes as no surprise that Netflix's own content has dominated the list in the early days of the new feature.

Viewing hours matter

The same reasons to be skeptical of Netflix's new metric are reasons to be optimistic about its effects on the fortunes of Netflix's content. Investors should certainly not rely on this metric for information about the popularity of Netflix's shows, but the customer-facing aspects are the latest manifestation of Netflix's ongoing desire to promote its original content. As licensed content becomes scarcer in a fractured streaming market, Netflix needs more and more of its customers to be dedicating streaming hours to Netflix originals. It needs ways to hype up original shows and build popular shows into hits. The top ten list could help Netflix do so.

It's not very transparent, but it is clever, and its effect on viewers may ultimately be the most important thing for investors to watch. As for accurate viewership data, that will have to wait.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$190.85 (5.03%) $9.14, Inc. Stock Quote, Inc.
$116.46 (3.58%) $4.02
Nielsen Holdings plc Stock Quote
Nielsen Holdings plc
$23.53 (1.64%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.