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Why One TV Exec Isn't Afraid of Netflix

By Adam Levy - Jan 21, 2016 at 6:11AM

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NBCUniversal's Alan Wurtzel says Netflix and traditional TV are in different businesses.

Source: Netflix.

Despite having 45 million subscribers in the U.S., Netflix (NFLX -1.52%) doesn't pose a serious threat to broadcast television, according to Alan Wurtzel, president of research and media development at NBCUniversal. He believes the two different business models -- ad supported versus subscription revenue -- force the companies to adopt different strategies, and those strategies can co-exist.

Is the Comcast (CMCSA -1.11%) subsidiary really safe from the growth of Internet TV?

Comparing ratings
At the crux of Wurtzel's argument that Netflix and YouTube aren't major threats to broadcast television are some ratings data from Symphony Advanced Media. Netflix doesn't provide any more than the bare minimum viewing data to the television studios it licenses content from, and television networks are often left in the dark if their shows are produced by another company. Symphony uses audio recognition software running in the background on users' smartphones to tell what they're watching.

Wurtzel says that Netflix shows like Jessica Jones average 4.8 million viewers in the 18-49 demographic. That's similar to shows like ABC's How to Get Away With Murder and Modern Family. He also shared that Master of None drew 3.9 million viewers per episode, and Narcos drew 3.2 million.

With ratings that low, NBC doesn't think it has much to worry about. Shows like The Voice regularly get more than 10 million viewers. There's also NFL football, which draws an average of 20 million viewers per game. NBC is in the business of appealing to the masses, and Netflix's content appeals to much-smaller groups.

Netflix chief content officer Ted Sarandos rebuked Wurtzel's claims and Symphony's data, calling them "remarkably inaccurate."

The business model
Wurtzel also pointed out that Netflix's viewers are prone to bingeing on series, and those viewers then return to "watching TV the way God intended."

In Netflix's fourth-quarter letter to shareholders, CEO Reed Hastings poked fun at Wurtzel's claim that broadcast television is "TV the way that God intended." "Our investors are not as sure of God's intentions for TV," Hastings wrote, "and instead think that Internet TV is a fundamentally better entertainment experience that will gain share for many years."

Nonetheless, Wurtzel says that the impact on broadcast television is minimal. That's especially true if you factor in time-shifted and OnDemand viewing, which allows viewers to catch up with episodes they might have missed while on a Netflix bender. Netflix series and original films are often focused on niche audiences, which means there's not "enough stuff on Netflix that is broad enough and consistent enough to affect [broadcasters] in a meaningful way on a consistent basis," as Wurtzel put it.

But that's not necessarily bad for Netflix. The company relies on the subscription-based model, which means it needs to have must-see content. Niche-focused series keep subscribers coming back every month; they just don't have a major impact on broadcasters targeted toward huge audiences.

The threat to broadcasters is that Netflix and other OTT services become enough for the typical TV viewer. Netflix plans to nearly double its number of original series this year, and it will increase total hours of new original content by 33%, to 600. The growth in original content helped Netflix increase its average view time per day by 13%, to 1.8 hours.

If those numbers don't scare Wurtzel and other TV execs, something's wrong. Indeed, NBC launched it's own over-the-top service, Seeso, to highlight its comedy series. Comcast is also a joint owner of Hulu, and it's rolling out its own OTT service, Stream, as well. These investments don't quite jibe with Wurtzel's comments about Netflix.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. 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.

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