If its ratings don’t really matter, why is Netflix suddenly canceling so many shows?

  • Written by MarketWatch
  • Published in Economics

Reed Hastings tends to be sanguine when asked about the video streaming service Netflix’s notorious refusal to release its ratings.

In May 2017, speaking shortly after the cancellation of Baz Lurhmann’s long-awaited 1970s musical drama “The Get Down” after just one series, Hastings, Netflix’s co-founder, chairman and CEO, told CNBC’s “Squawk Alley[1]” that he felt “our hit ratio is way too high right now. ... I’m always pushing the content team, ‘We have to take more risk. You have to try more crazy things.’ Because we should have a higher cancel rate overall.”

In the year since he made those remarks, Hastings has gotten his wish: 13 shows have been canceled over the course of the last 12 months. At the heart of the problem is the ratings issue.

Ever since the American-Norwegian crime drama “Lilyhammer” became Netflix’s NFLX, +1.33%[2] first original series to premiere in 2012, the company has been committed to voraciously generating new content in addition to its huge library of existing TV shows and movies.

Netflix’s business model is centered around its 125 million subscribers, not advertisers; user base is the company’s focus, not viewership.

Netflix, with a current market cap of $145.8 billion[3], expects to spend as much as $8 billion on original and licensed content in 2018 and is aiming to release 700 original series in addition to 80 original movies in 2018.

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The company’s disruption of the traditional TV business extends to its refusal to release ratings. Netflix’s business model is centered around its 125 million subscribers, not advertisers; user base is the company’s focus, not viewership.

And yet as its volume of original content has rapidly increased, numerous shows have misfired. While Netflix has enjoyed recent success with “Stranger Things” and “13 Reasons Why,” 2017-18 has also featured a litany of failures.

One industry source who works for a digital data company and spoke on condition of anonymity said he knew of three Netflix shows that failed to attract 1 million U.S. viewers in the first seven days of release: “Gypsy,” a drama starring Naomi Watts and Billy Crudup; “Girlboss,” a comedy inspired by Sophia Amoruso’s business memoir; and “Flaked,” a dramatic comedy starring Will Arnett about a troubled self-help guru.

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