CBS Just Took a Shot at Netflix

By Markets Fool.com

In 2013, TV viewers spent almost as much time watching episodes of a single CBS program, NCIS, as they did watching all of Netflix's original seriescombined -- House of Cards, Orange is the New Black, Hemlock Grove, among others.

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That's according to CBS researchers. Last month, at a UBS conference, the broadcaster shared data it had collected on the viewing habits of Netflix subscribers. Although CBS' findings weren't fantastic for Netflix shareholders, they shed some light on a mystery that has long haunted investors.

Netflix's secret
As a policy, Netflix doesn't release ratings data: The relative success (or failure) of its original series comes down, basically, to a gut feeling.

Given the strong critical reception, widespread references in both media and popular culture, and the fact that it has been renewed for multiple seasons, it seems reasonable to assume that Orange is the New Black has been a commercial success. But a niche success, on the level of HBO's Girls? Or a megasuccess, on par with The Walking Dead and Game of Thrones? Netflix won't say.

Management has steadfastly argued that its ratings are irrelevant -- given that its shows are released in season-long blocks, and that it doesn't sell advertisements, the demand for its programming over any particular window of time is largely meaningless.

There's certainly some truth to that, but the popularity of its original programming remains a relevant question. As Netflix faces increasingly competent competitors, demand (or lack thereof) for its original programming will be key to adding and retaining subscribers in the years ahead.

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CBS' findings
CBS estimates that Netflix's original series accounted for just 6.6% of the time adults spent watching Netflix in 2013 -- 1.1 billion hours in total on those original series. For comparison, NCIS (just one of CBS' many programs) generated 800 million hours of viewing.

But there are several issues with this comparison.

NCIS is one of CBS' most successful shows: It's a long-running, hit series that's racked up nearly 300 episodes over its 12 season run. NCIS has a strong following, has spawned multiple spinoffs, and has even received video game adaptations. Most importantly, it has consistently been among the most-viewed scripted shows on television since it appeared on CBS back in 2003. It's a network show, designed explicitly for a mass-market audience. A better comparison would be with a program from CBS' premium, subscription-based channel, Showtime, such as Homeland or Ray Donovan.

NCIS simply can't be compared to House of Cards and Orange is the New Black in their debut seasons -- it's cherry-picking at its worst. Yet, the 6.6% figure is relevant and somewhat concerning: In 2013, Netflix's adult viewers spent more than 93% of their time watching content that was produced by someone else.

Is Netflix at the mercy of its content partners?
That, ultimately, is the issue Netflix faces: How dependent is it on other people's content?

Extremely dependent, at least for now, but that could change if Netflix's management can execute. Netflix's chief content officer, Ted Sarandos, has predicted that his company will eventually be the largest producer of original programming in the world. Until that happens, Netflix will remain at the mercy of its content partners -- though as CBS itself acknowledges, it benefits from licensing some of its shows to Netflix.

Its originals may not have generated the sort of incredible buzz Netflix would've hoped for, but the company is only getting started. Not included in CBS' research were new shows released last year -- BoJack Horseman, Marco Polo -- nor the series slated for 2015 debuts.

CBS' findings ultimately provide an interesting snapshot, but fall short of predicting Netflix's future success.

The article CBS Just Took a Shot at Netflix originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and 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.