Netflix Is About to Skew Viewership Data With This One Simple Trick

Sam Reynolds

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Netflix (NASDAQ:NFLX) recently reported its earnings, and by all accounts the numbers were solid -- except for sagging subscription numbers in the United States. However, the most important announcement Netflix made during its earnings is the way it reports viewership data. 

Netflix says that under its new metric, it will count a "view" as anyone that has streamed a show for two minutes or more. Under its prior methodology, a viewer had to complete at least 70% of the show to be counted as a "view". Netflix says that this two-minute metric is enough to "indicate interest" in the show. Netflix also says that the "view" would be added to the broader count for the series.

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This change in methodology for viewership comes as Netflix announces data for The WitcherNetflix says that the video game adaptation would be one of the biggest TV shows in history, with “76 million member households chose to watch this action-packed fantasy.” That being said, per this methodology anyone that tuned out after the first scene of the series -- which lasts around two minutes -- would be counted as a view.

The streaming service needs to do all it can to boost its numbers. While Netflix has been in the streaming game for the longest, as Wccftech has reported the streaming market has become much more competitive -- and investors want to know which company stands to gain and lose the most in this new market. As an added sense of urgency for Netflix, the company has valuations built into the stock that aren't sustainable, according to GHP Investment Advisors President and Chief Investment Officer Brian Friedman -- a noted bear on Netflix. 

As the media ecosystem moves more towards streaming and away from traditional broadcasting, the role of third party market research companies in audience measurement is dropping. In the era where broadcast was king, the term "Nielsen" effectively synonymous with a show's ranking. The data, which was available to anyone willing to pay, helped inform broadcasters about the popularity of their show and, importantly, helped dictate the value of a show when it came time for negotiations with advertisers. In this current era, Nielsen's ability to measure viewership is more restricted; it relies on its clients to submit audio fingerprints of shows they are interested in measuring and the Nielsen attempts to match it.

Netflix has already been criticized for reporting inflated numbers for its shows, or not reporting them at all, and as market research companies have very little access this means that the entire ecosystem is a real black box. This means investors and content rights holders won't have any way to independently benchmark the company's performance meaning that more and more Netflix will simply be worth what it says it is.

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