Netflix Earnings Confirmed My Prediction—And Signaled Their Real Strategy
Behind the careful non-answers lies a plan to own the recommendation layer for all living room entertainment
[Author’s Note: I am sending out this essay a day late because I was curious to see how my prediction for the Netflix earnings call would play out.]
Netflix's Q2 earnings call validated my prediction from Tuesday: Management discussed YouTube competition only in the call itself, not in written materials—a strategic choice that reveals everything about their positioning. Their ambitions seem to be bigger than streaming, analogous to becoming a Kimberly Clark-type multinational in living room entertainment.
Basically, Netflix’s story is that revenue growth and improved profitability reflects better monetization of users, but user engagement is flat. Members watched over 95 billion hours on Netflix in the first half of 2025. That was only a 1% increase year-over-year.
Co-CEO Greg Peters offered three explanations for engagement being flat. First, “per owner household engagement has been relatively steady over the past 2.5 years.” Second, Netflix faces “increasing competitive pressure” from more streaming services. Last, free services are now “strong competition”. However, Netflix expects engagement will be better in the second half given a “strong” slate of content.
I argued on Tuesday that the most important question for yesterday’s earnings call was whether management would concede an expanded competitive dynamic with emerging, alternative models like gamified video-on-demand platform ReelShort and AI-generated content.
It did not. Instead, when asked about its competition with YouTube, Peters offered an interesting data point: In the U.S. there is “about 80% of total TV view share that neither Netflix or YouTube are winning right now.” Netflix believes that “represents a huge opportunity” for which it is “competing aggressively” and aims to capture more share.
With ReelShort and generative AI platforms emerging as alternatives, is that really a “huge opportunity”?
Aspirational, Not Practical
For Netflix, capturing TV view share involves TV, movies, live events and gaming. Regarding the last, Peters promised “a whole new set of interactive experiences” in the second half that Netflix is “either in a unique or differential position to deliver.”
