For decades, the Nielsen ratings have served as the primary method of measuring audience size and composition for the television programs aired on broadcast and cable networks. The audience measurement system has endured a significant amount of criticism over the years from viewers and industry professionals alike. Lately, however, online video streaming through companies like YouTube, Hulu, Amazon, and perhaps most notably, Netflix (NASDAQ:NFLX) represents the first indication that the Nielsen ratings could one day become entirely obsolete. While that day may be years, if not decades away, the immediate concern is how to actively equate audiences streaming video from the Internet with those watching television.
Netflix CEO Reed Hastings recently said that the company's most watched piece of original programming is Orange Is the New Black. While this may be true, it is nearly impossible to know the statement's true significance. Because Netflix is not obligated to release viewership numbers, Hastings' statement means very little when comparing the company's content to competitors using the Nielsen ratings. Still, the video streaming company has managed to use this, among other ambiguous statements, to its advantage despite being far from forthcoming with viewership numbers.
In other words, investors and the general public, cannot point to poor viewer numbers if they don't have any to point at. Although unlikely, for all we know, Netflix's hallmark original programs, like House of Cards and Orange Is the New Black, may yield numbers comparable to shows like HBO's Boardwalk Empire and AMC's The Walking Dead — which recently outperformed every other program on both cable and broadcast television in the Nielsen ratings.
Why doesn't Netflix use traditional ratings?
For starters, there is a fundamental difference between video streaming companies like Netflix and television networks like AMC Networks, or NBCUniversal. Netflix offers a paid service to generate revenue, whereas traditional television networks rely predominately on commercial advertising for revenue. So, while television networks worry about the Nielsen ratings in order to attract lofty advertisement rates, Netflix doesn't seem to care as much about the number of people watching a particular program. It's far more concerned with the number of new subscribers it gets.
In essence, it is almost as if every piece of programming on the streaming site has the same number of viewers — 40 million globally by the latest count. These numbers are given by the company, and tend to drive investor relations. In fact, the company's ability to attract new subscribers has ultimately led to its surge in stock price over the past several months.
Hypothetical Netflix ratings
As far as the public is concerned, a Netflix original series may only have 1 million viewers for any one given hour. While that number could be much larger, it could also be smaller. However, if that 1 million number is constant throughout the day, then an original series could have up to 24 million viewers. Even if the number were split in half, the show would still be among the most watched shows on broadcast, cable, and pay-per view television, including The Walking Dead and ABC's Pretty Little Liars.
What we do know
Although this sort of blind figuring of Netflix viewers may be fun, it is much more proactive to pay attention to the information that the company actually gives the public.
We know that Netflix attracted 1.3 million new U.S. viewers last quarter, and another 1.4 million internationally. These numbers, along with the company's 14 Emmy nominations, show that its original programming is undoubtedly successful.
That said, while Netflix recently surpassed HBO in number of U.S. subscribers with more than 31 million, it still trails the company in worldwide subscribers along with Emmy nominations and wins. Currently at 114 million, HBO has nearly 75 million more worldwide subscribers than Netflix.
While Netflix may be on a surge, it appears that the competition is only heating up. Content from both subscriber-based companies like HBO, as well as broadcast and cable competitors like AMC and ABC, remain largely incomparable to the Internet streaming sector. Netflix can try to spin its viewership and come out with as many press releases as it wants, but until there is a viable way to relate online viewership to traditional television, it'll remain an apples to Orange comparison.
Jamison Hill has no position in any stocks mentioned. The Motley Fool recommends AMC Networks, Netflix, and Walt Disney. The Motley Fool owns shares of 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.