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Netflix will overtake traditional TV next year. That doesn't mean anything.


What is television? That's a great question. Netflix will surpass the reach of the big four American television networks in the next few months, according to a new prediction shared by Variety. The faintest rumor about Netflix's growing empire could shake how investors might place big future bets, but even analysts admit Nielsen ratings and Netflix viewing hours are incomparable.

The prediction hints at a bigger problem than it may seem: We can't say if Netflix is surpassing network audiences because we don't know how to define television. Here's why.

The way the TV industry thinks about its product is outdated

Many television executives think about video monetization in terms of which screen it appears on. That's a reasonable but increasingly outdated perspective. (Shutterstock)

Defining aired TV content as programmed versus streamed content was a good way for executives to define budgets — two decades ago. But "what content goes on which screen where" is still the method used to define content today because execs are stuck in a traditional mindset: "Over-the-top content" (OTT) is content you can watch that wasn't paid out of a programming exec's broadcast television budget, such as online-focused content by or from a cable network like HBO or an on-demand video provider like Amazon or Netflix. This extra-meta NBC segment on OTT, ironically funded by traditional programming, explains itself.

OTT is a truly terrible way to think of anything-but-television content in a world where the production of video is now in everyone's hands. Two other reasons it's awful: First, content aired on TV can be OTT if there is a new cost associated with distributing it elsewhere. And Netflix is a producer and distributor of OTT content as well as a distributor of a network's content. That doesn't make Netflix a television network.

If you wanted to see this apples to apples, you would compare views of Netflix (original programming only) to that of network-paid original programming (everywhere). Trouble is, it's a Herculean task to track views on the Internet for networks — a problem not even Nielsen has solved. Netflix doesn't release viewership stats, but the few estimates we've seen suggest they lag behind those of the networks.

So now you know why industry folks like to know how many people watched the Super Bowl. Block-specific reach and subscriber rates are still the best metric the industry has to understand audience reach — "market power" — in the same outdated way investors and network executives do.

We're down with OTT, and the networks know it

Licensing versus programming revenues, which have little to do with Nielsen ratings, is a different way of thinking about competition. Todd VanDerWerff perfectly described the dilemma facing television, which is one of imagination — not audience reach:

Television doesn't mean "a box" any more. It means "a way of telling stories."

And if streaming services are perfectly positioned to take advantage of that shift, and cable networks are only sort of positioned to do so, then the broadcast networks are running scared by default.

All this doesn't mean the networks can't innovate into a better position, revenue-wise — but until we have a better way of defining what TV means outside of an actual TV, we can only measure the tip of one iceberg when it's compared with the tip of another. For now, execs can talk about how we should define television, and they do. Below is a 2014 video of cable execs discussing how truly global OTT is: