While many have pointed toward Netflix (NASDAQ:NFLX) as a cause of lower levels of TV viewing, that depiction is largely inaccurate. In fact, the on-demand presence of Netflix has enabled viewers to catch up with prior seasons of popular TV shows. This has led to a surge in TV ratings for current seasons of these shows when they are aired, because of larger audiences. Netflix has in fact played an instrumental role in driving up the ratings of many TV shows.
Friend or foe
Companies like AMC Networks (NASDAQ:AMCX) and Walt Disney (NYSE:DIS) have cashed in by licensing lucrative and popular shows to Netflix. In particular, Netflix struck an exclusive deal with Disney that will not only bring in revenues of an estimated $300 million a year, but also raise the viewership and profile of various shows under Disney's umbrella, including the ones under ABC Networks.
The fact that Netflix is helping cable and network shows instead of cannibalizing them can be gauged from the content creators themselves. The creator of the critically acclaimed hit show Breaking Bad, Vince Gilligan, has stated numerous times in various interviews that he attributed the success of Breaking Bad to on-demand services like Netflix, Apple iTunes and Amazon.com.
He even said that had it not been for the on-demand services, the show might have been canceled in its earlier years because it didn't have a large fan following at the time. The on-demand services allowed viewers to catch up on earlier seasons before watching later seasons on TV, which boosted the Nielsen ratings of these shows.
Driving up TV numbers
Yes, the $8-a-month Netflix streaming service has been instrumental in enabling many people to cut their cable and satellite services. However, the impact of Netflix on TV is a more positive and long-lasting outcome.
The wildly popular AMC show The Walking Dead got a record 16.1 million viewers for the premier episode of its fourth season. This included 10.4 million viewers in the age group of 18-to-49-year-olds, which is the preferred demographic group for video advertisers. The previous record for a single episode of The Walking Dead on AMC's channel was 12.4 million viewers for the season 3 finale. This large increase between the two seasons can be largely attributed to the binge-viewing audience of Netflix and other on-demand services.
As more and more viewers play catch-up on prior seasons of serialized TV shows, the ratings surge for TV companies. AMC in particular remains a major beneficiary that received substantial tailwind from the presence of Netflix. AMC's Breaking Bad got an audience of 10.3 million viewers for the finale, which was much higher than the average of the prior seasons. The viewership numbers alone suggest that Netflix is helping cable and network shows instead of cannibalizing them.
CEO Reed Hastings even said in his letter about the company's long-term vision that Netflix is a friend of multichannel video programming distributors, or MVPDs, and that it is not eating into the cable and satellite pie. He states: "In the USA, MVPDs have remained stable at 100 million subscribers while Netflix has grown to over 30 million members. The stability of the MVPD subscriber base, despite Netflix's large membership, suggests that most members consider Netflix complementary to, rather than a substitute for, MVPD video."
Becoming a key player
With more than 40 million subscribers on its platform, there is no doubt Netflix is a very influential and important player in the industry. Recent Emmy wins reinforce the rise of Netflix as an Internet TV network and give the company more bargaining power with content providers. Netflix is aiding TV companies not only by driving more viewers but also by generating more revenue for them. Soon the revenues earned from subscription services will be more material for TV networks like Disney subsidiary ABC.
Netflix is increasingly playing a major role in the broader TV industry. Numerous companies have wildly benefited from licensing their content to Netflix, and they have seen their ratings surge. The most notable remains AMC Networks.
AMC's ability to develop top-notch original content with solid ratings has been largely aided by Netflix. When Better Call Saul, the spinoff of Breaking Bad, airs, the show will have a sizable installed audience, partly thanks to Netflix. Netflix is not encouraging users to cut their cords; rather, it is a complementary service to existing cable. Netflix contributes revenue for the coffers of TV Networks like CBS, ABC, etc. and aids them to draw in record viewers. Netflix is a friend for TV and not a foe.
Fool contributor Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, AMC Networks, Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.