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Network TV Still Doesn't Get Netflix Inc

By Jeremy Bowman - Jan 25, 2016 at 7:16AM

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Will the latest Netflix naysayer please stand up?

Netflix Inc (NFLX 2.72%) CEO Reed Hastings is no stranger to trash talk. Once, he joked that HBO CEO Richard Plepler's Netflix password was "Netflix bitch," but Hastings and Co. were recently on the receiving end of some fighting words after NBC exec Alan Wurtzel claimed that Netflix was not a threat to his company at a recent Television Critics' Association Conference. 

Wurtzel told the group, "Reports of our death have been greatly exaggerated," and trotted out data to back up his claim, saying that the Comcast (CMCSA 1.52%) subsidiary's top shows like Law and Order: SVU pulled in twice the viewers of Netflix's hit shows like Jessica Jones. Wurtzel's final assessment was that Netflix viewers binge for a few weeks, but they always come back to traditional TV, or "TV the way that God intended," as he put it.

Netflix laughed off the claims as content chief Ted Sarandos called the data "remarkably inaccurate," adding that the "methodology and the measurement doesn't reflect any sense of reality of anything we keep track of." The leading streamer has always played coy about the number of viewers its individual shows receive since revealing hard numbers could impact contract negotiations. Netflix has also argued that it helps the creative side by eliminating the burden of delivering ratings.

1 billion hours a week
In its fourth-quarter earnings report out this week, Netflix revealed that its users streamed 42.5 billion hours of entertainment last year, up nearly 50% from the year before.

Image source: Netflix.

That figure should pass 52 billion this year as Netflix is expected to add more members this year than in any year before. In other words, Netflix members will stream more than 1 billion hours a week this year, and with 60% of its members inside the U.S., we can estimate that Americans will stream 600 million hours this year. Netflix members households spend on average about two hours a day with the service. Analysts estimate that Netflix will pass the four major networks, NBC, ABC, CBS, and Fox, to become the most popular "network" in the country.  

What Wurtzel doesn't get
Those 600 million hours are coming directly from the eyeballs of traditional TV viewers. Not only is Netflix set to surpass the networks in viewership this year, but it's growing fast. Wurtzel may be right that viewers return to his company's programming, but Netflix is set to double its original programming this year, meaning there may not be a point at which viewers finish "bingeing" and return to linear TV. That seems to be the company's goal, after all.  

Netflix is set to grow its domestic subscriber base by more than 10% this year, and viewing time per user should continue to increase. There will remain important differences between Netflix and linear TV that will make the shift gradual. Some users may prefer flipping through channels as opposed to selecting their own programming on Netflix. The streamer will continue to avoid the news and sports programming that are a central component of linear TV, but Netflix is much cheaper than cable, offers ad-free programming, and allows users to watch at a time and place of their choosing. The advantages are clear, which is why Netflix is gaining viewers and networks are losing them.

Reed Hastings sounded prescient when he said last year, "And we will come to see that linear TV declines every year for the next twenty years, and that Internet TV rises every year for the next twenty years, a lot like mobile phone over the fixed-line telephone."  

Like any other technology, television has always been evolving. Internet TV is just the latest development. Wurtzel and the others need to get on board. 

Jeremy Bowman owns shares of Netflix. 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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