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TV's Eyeballs Are Disappearing. Does Netflix Have Them?

A worrisome theory from Wall Street: The TV networks have helped lower their own ratings by selling their shows to Reed Hastings' streaming service.

Asa Mathat
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Here’s a spooky/scary mystery for TV executives: Where did all my viewers go?

Bernstein Research’s Todd Juenger thinks he knows: Reed Hastings has them.

The analyst thinks that the big, unexplained drop in TV ratings that showed up this summer and has continued into this fall has a straightforward answer: People are spending less time watching TV and more time watching Netflix, as well as other streaming video services like Amazon and Hulu.

And he uses (fairly) straightforward math to make his case: Traditional TV viewing has declined by 13 minutes a day over the last year, and he figures Netflix viewers alone are spending 12 minutes more a day on that service.

Other analysts, along with TV industry executives, have offered other theories to explain the drop. The most comforting explanation, if you’re a TV programmer, is that the ratings drop isn’t real — people are still watching the same amount of TV, but it’s not being measured correctly.

But if Juenger’s argument is right, that’s very bad news for the TV guys. And not just because the eyeballs really have disappeared.

What makes it even worse for the TV guys is that they’ve helped create the problem, by selling off their old shows to Netflix and the other services.

For the past three or four years, the networks have been happy to offload their old stuff to the streaming services, in part because they needed to replace declining revenues for syndication and DVD sales, and in part because it was such easy, high-margin money.

And by making sure not to sell “in-season” shows — you still can’t see the most recent episodes of “Mad Men” on Netflix, and those aired last spring — they figured they were protecting their new stuff.

But between the original stuff Netflix is making, and the old shows the TV guys are putting there, it seems as though Netflix viewers are finding plenty to watch — and enough to keep them from TV.

So what if CBS and ABC and all of the other networks tried to stop the bleeding by cutting back on the stuff they’re selling to Netflix (and Amazon and Hulu)?

It could happen, Juenger says. But it would be very hard — for starters, the networks would be giving up hundreds of millions in annual profit that they’ve gotten used to. And they would have to act in concert (without appearing to do so, because that would send off antitrust alarms). Otherwise — if, say, NBC* stops selling to Netflix but everyone else keeps doing it — then they run the risk of losing ratings and digital syndication money.

Last week, NBC’s owners at Comcast took a step toward acknowledging the jam they’re in. “Competition combined with new technology is making it harder and harder to deliver the kind of ratings that we have all been used to,” NBCUniversal CEO Steve Burke told analysts.

And next week, when most of the other big programmers announce their earnings, we may hear more. See if you can pick up on any of the TV guys telling each other — without actually telling each other — that maybe they ought to start starving Netflix instead of helping it bulk up.

*NBC’s owner, NBCUniversal, is a minority investor in Revere Digital, Re/code’s parent company.

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