Friday Mailing: Netflix's Disney-esque Ambitions May Be Losing to YouTube & TikTok, Too
[Author’s Note: Apologies for this being late. A few last-minute meetings and matters popped up.]
Insider reported ($ - paywalled) yesterday that “a series of recent moves in Hollywood signals that streaming's investment in kids content might not be paying off”, and that “Hollywood may be realizing that children's programming is "not a silver bullet" for acquiring or retaining subscribers."
I think the key paragraph in the piece is a quote from a kids and animation insider that “few kids hits have been minted on subscription streamers”. The insider added: "There's not so much a 'moderate success' in kids animation. It's either a big success or not at all. That's fine as a 24/7 network but it's a different environment to go onto Netflix where they're watching anything on demand that they want."
My take on an exposé of Netflix’s animation division from The Wrap back in April was that “Netflix’s feedback culture is not working, and it’s being engineered by Netflix employees to deliver self-defeating outcomes for the Kids & Family strategy.” The missing piece in the equation was why that was happening: why was Netflix growing and winning market share, despite failures of the division responsible for meeting the demand of ~60% of all Netflix subscribers who watch kids and family content every month?
But this Insider piece throws some cold water on that perspective.
Netflix’s Failures in Animation - A Quick Recap
I have written a few posts lately about the serious flaws and operational failures in Netflix’s execution of its long-term objective of beating Disney in kids animation.
I wrote when The Wrap story emerged:
There is no one problem with the animation story. But if there was one, it’s the operational disconnect between the stated objective of chasing Disney and the available evidence of how Netflix has executed against it. The Wrap story describes a Kids & Family division that saw “a boom of talent and creativity give way to corporate pressure, mixed messages and accusations of “staged data.”
Also, earlier this month in Netflix's Failing Disney Ambitions Invite The Keeper Test for Co-CEOs Hastings & Sarandos, I wrote about “the highly anticipated 'Matilda' animated series, based on the Roald Dahl novel” being sent back to development. I thought that suggested Netflix does not have as much confidence in the development processes or the business model within Netflix Animation as it once did.
I added: “At a deeper level, the implication is that the division responsible for the majority of Netflix's monthly consumption cannot deliver a return on investment on original IP or against the objective of competing with, if not surpassing, Disney (and, this parallels Netflix's failures with Millarworld IP, to date).”
These were skeptical takes based on available evidence.
A New Insight on Competition
This Insider piece offers little to disprove the premise that Netflix employees were perversely incentivized to deliver self-defeating outcomes for the Kids & Family strategy. Rather, a key new detail is how the scale of YouTube and TikTok may have shifted the definition of success in animation for Netflix:
Common Sense Media found in 2020, for instance, that kids 8 years old and younger spent 37% of their time watching online videos versus 29% of their time on subscription streaming services.
"YouTube and TikTok have become Gen Alpha's playground," [Common Sense Networks CEO Eric Berger] said, explaining that kids can easily seek out content about their interests and go deep on, say, dinosaur videos, on those platforms.
Netflix has always been open about YouTube as a competitor, writing about that point regularly in its letters to shareholders. Nielsen’s The Gauge showed the two neck-and-neck at 6.7% and 6.8% of U.S. streaming viewership in May 2022 (NOTE: The Gauge does not measure TikTok).
But, when we put the two-and-two together of the observation above that on Netflix kids are ‘watching anything on demand that they want” and on YouTube “kids can easily seek out content about their interests and go deep on, say, dinosaur videos, on those platforms”, a different problem emerges. Effectively, Netflix is a paid service with a similar value proposition to free services.
Rethinking “staged data” as “We can’t win”
Back in May I focused on the failures of Netflix’s (in)famous feedback culture and specifically the problem of “staged data”, which The Wrap described as data presented to producers and animators that was “meant to prove a point that Netflix has and squash conversation around it.”
In light of the Insider piece, the problem of “staged data” may instead reflect how Netflix’s paywall has become a weakness. Meaning, Netflix, YouTube and TikTok all offer users the ability to “easily seek out content about their interests and go deep on” them. There are substantive differences between all three but the main one is that only Netflix is paywalled.
In other words, the conversation Netflix animation executives were trying to “quash” with “staged data” was not around the specific animation properties. Rather, it may have been that the strategy and spend being pursued under Phil Rynda, the then-Director of Creative Leadership and Development for Original Animation at Netflix, was getting destroyed by ad-supported, free competition.
And, he and his team were trying to keep their jobs by telling creators “You can’t win” when, really, they were trying to hide the story of “we can’t win.”
Rynda and several of his staff were “let go” just before The Wrap piece came out. Are there still wins in kids animation for Netflix as competition from YouTube and TikTok increases?
The Insider piece suggests the trend is towards fewer wins. Perhaps ad-supported tier will change that, but given Netflix’s ambitions to compete with Disney if not become the next Disney, it may not be enough.