Netflix's Risky Pivot To Moments, Growing Frenemy Dynamic With Meta & YouTube AI
On Monday Netflix announced Moments, a new mobile feature that lets members save, rewatch and share their favorite scenes across Netflix titles. The feature launched globally on iOS and will emerge in the coming weeks on Android.
Netflix’s chief marketing officer Marian Lee described the use case to Variety as “that feeling when a scene, character, or line from a show or movie just sticks with you, and you can’t help but text your friends, ‘You have to watch this, it’s so good!’” Netflix has enabled sharing with Moments on Instagram, Facebook, and other social platforms, too: “You can share a Moment as you create it or, from the My Netflix tab, you can select a scene and tap to share it across all of your platforms”
At first glance, Netflix is leveraging its technology to help generate better marketing and cultural awareness of its shows. Its clips have long been available on social platforms. It embraced YouTube as a direct-to-consumer marketing channel long before any of the legacy media companies did. It has been one of the most sophisticated and successful direct-to-consumer marketers on the platform and on other social platforms.
But, those videos were curated by Netflix’s marketing team with an eye to converting YouTube views to subscriptions. For the first time, the Netflix brand and library are now in the hands of subscribers who can fragment their favorite shows into short clips. They care more about attention and less—if at all—about Netflix subscriptions.
Both Meta’s and Alphabet’s earnings calls yesterday made it clear that Netflix’s Moments is also increasingly relying on artificial intelligence (AI) recommendation algorithms and competing with AI-generated content on their platforms. Moments may be a necessary evolutionary step alongside generational shifts in content consumption and creation.
But, at what cost to Netflix’s subscription model?
Key Takeaway
Both Meta and YouTube may be ideal partners for Netflix's Moments but also the reasons why it may be a short-lived, short-term solution.
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Meta’s Earnings Call
Meta CEO Mark Zuckerberg used the Q3 earnings call to explain how he envisions “AI to help people create content that just makes people's feed experiences better.” His answer to an analyst's question offers a helpful outline for thinking through the future of Netflix’s Moments.
First, he offered a history lesson in social media similar to one he described to The Verge last month:
“[I]f you look at the big trends and feeds over the history of the company, it started off as friends, right. So all the updates that were in there were basically from your friends posting things. And then we went into this era where we added in creator content too. We're now a very large percent of the content on Instagram and Facebook is not from your friends. It may not even be from people that you're following directly. It could just be recommended content from creators that we can algorithmically determine is going to be interesting and engaging and valuable to you.”
This answer reveals why Netflix pivoted to Moments now. In the past, the “You have to watch this, it’s so good!” was a recommendation from a friend. Today and for the foreseeable future, that recommendation will come from creators. Moments supercharges word-of-mouth from creators.
Zuckerberg added:
“And I think we're going to add a whole new category of content which is AI generated or AI summarized content or kind of existing content pulled together by AI in some way and I think that that's going to be just very exciting for Facebook and Instagram and maybe Threads or other kind of feed experiences over time.”
This implies Netflix's bet on Moments seems dicey within Meta’s Family of Apps ecosystem (Facebook, Instagram, Messenger, WhatsApp, and Threads). Netflix clips will both help creators but also compete with original content from creators. In the long-run, it will also be competing with original content from "hundreds of millions" of small business creators.
Alphabet announced earlier this month—and highlighted on its earnings call on Tuesday—that in early 2025, its Veo platform will enable creators to generate six-second standalone video clips in YouTube Shorts.
Meta and YouTube may be ideal partners for Moments but also the reasons why it may be a short-lived, short-term solution.
Netflix’s Marketing Frenemy
That is as much a marketing problem as it is a growth and user engagement problem. Free, word-of-mouth marketing from creators distributing Moments to their communities is a highly cost-efficient way of generating awareness. The IAB reported earlier this year that in 2023, the model became increasingly important to marketers. A key reason platforms are now seeing year-over-year advertising growth is because "social media and creator marketing growth across multiple platforms and new social media forms”.
Notably, Netflix has kept its marketing costs consistent at $20 billion per year for the past three years. Moments may keep those flat or lower them. It also may still be costly. Viewers will still need to leave a social platform to visit Netflix in order to view or sign up to watch the content being recommended to them.
In the former instance, the short clip may be enough. McKinsey reported in late 2022 that 59% percent of Gen Zers use short-form video to discover content for which they’ll then watch longer videos. Probabilistically speaking, it is a good bet.
However, Zuckerberg’s framing suggests Meta AI is increasingly positioned to dictate if and when those click-thrus to Netflix happen within its feeds. The path to sign-ups will have more “friction”—opportunities for the consumer to rethink signing up for Netflix—than watching the content on a platform. AI curating content within the feeds for consumers will further the curatorial relationship between creator and community.
Marketing conversion funnels are already probabilistic. Recommendation algorithms have always created a degree of randomness at the top of the funnel. The odds of converting a consumer decline as they get closer to a purchase decision. Meta’s and YouTube's growing reliance on AI as a curator adds unseen mathematical complexity for Netflix that only will add to that randomness.
Netflix’s Frenemy
This reinforces my conclusion last Thursday that “Netflix seems less in control of its own destiny”. It also reflects last month’s argument that Zuckerberg is spending $46 billion for Meta to become “the invisible ‘groundrules [sic], pervasive structures and overall patterns’ of the internet that Marshall McLuhan wrote about.
Both presents two problems for Netflix’s subscription moat. First, the broader market rationale for “walled garden” streaming services seems to rely less on a direct relationship with consumers and more on a direct relationship with creators who have aggregated their consumers.
Second, the question in the long-term—and that may be as soon as 2025—is what Netflix’s model will become in the age of AI content generation. Co-CEO Ted Sarandos told the Royal Television Society’s (RTS) London Convention 2024 last month that Netflix must cannibalize its own business and “constantly challenge ourselves, to break [the business] and move our business forward on behalf of our consumers.”
The question that Moments seems to imply is, what if Meta and YouTube are breaking Netflix’s business model for them?