It’s a weird moment for the megadeal, those massive, nine-figure production exclusives that streamers used to hand out like Tic Tacs: Ryan Murphy, Shonda Rhimes, Kenya Barris, David Benioff & D.B. Weiss headed to Netflix, while Warner Bros. and HBO Max locked up JJ Abrams and Greg Berlanti, and Amazon Prime Video landed Lisa Joy and Jonathan Nolan.
Now, cost-cutting is all the rage. When Netflix lost subscribers in Q1 and again in Q2, it became clear that streaming was as mortal as any business; the argument for $300 million deals, like Murphy’s, became a symbol of optimistic folly. And then: “Dahmer.”
Murphy’s limited series, “Monster: The Jeffrey Dahmer Story,” premiered September 21; over the next 28 days, it became Netflix’s second-most-watched English-language TV series ever, behind only “Stranger Things 4.” Murphy finally had a huge Netflix hit — and then he did it again. “The Watcher” premiered October 13 and while it would not replicate “Dahmer” numbers, it took over as Netflix’s No. 1 program for its first two weeks.
On November 7, Netflix renewed “The Watcher” for a second season; “Monster” got another two seasons, officially becoming an anthology series. So much for “limited.”
Murphy, it’s fair to say, is on a hot streak. As to whether his mega-deal is paying off for Netflix — well, that’s very tough to tell.
“Asking the ROI of a show is like asking a health club what the ROI of an extra treadmill is,” Michael Pachter of privately held investment firm Wedbush Securities told IndieWire. “They could show you some metrics about peak capacity, but without knowing the demand for treadmills, we would never know if it pays off to have six instead of five.”
If that analogy doesn’t work for you, Pachter’s got another: “It’s like asking Golden Corral Buffet the value of adding creamed corn. You can’t measure it until you track how many people showed up because of the particular content offered. That will take years to ‘know.'”
Unlike home treadmills, which tend to become wildly overpriced drying racks, TV series are “generally good investments,” he continued, “because they have the potential for multiple seasons and growing virality.” Limited series are less valuable due to their finite nature — unless, of course, they become backdoor pilots to an ongoing franchise like “Monster” and “The Watcher.” (“Movies have the least value,” Pachter added, “because virality is much shorter-lived and definitely doesn’t build.”)
John Hodulik of investment-banking firm UBS gives Netflix’s data analysts a bit more credit. They have “a pretty good idea about the ROI on each piece of content,” he said in a separate email to IndieWire. Netflix’s internal measurements go beyond basic viewership hours — especially the kind made public since last June when Netflix rolled out its weekly Top 10 rankings.
Clearly, we need a tie break. Michael Nathanson of Moffett Nathanson, a research institute now owned by SVB Securities, sided a bit more with Hodulik than Pachter, telling us Netflix has “some science” from which to draw upon.
Courtesy of Netflix
For example, the streamer has data that tracks the first piece of content a newly signed-up user watches; that can indicate the show that made a viewer choose to bring out the credit card. Netflix also tracks how frequently a user churns (cancels a service), which can be a key part of pattern analysis: Does the user join when a new “Stranger Things” season launches and cancels again when it’s over?
A Netflix spokesperson did not respond to IndieWire’s requests for comment on this story.
Calculating the money in vs. money out for an overall deal isn’t basic math. For those of us without Netflix’s internal data, it’s “impossible” to compute the ROI of individual — or an individual’s — programming: “There’s just so much original content,” Nathanson said.
Only last week, it became a little less impossible. On November 3, Netflix’s “Basic with Ads” plan launched in the U.S. and Canada. Netflix, like HBO Max before it and Disney+ in about a month from now, can now track a show or movie and calculate how much advertising it generates — you know, just like real TV. In some ways, that’s not much different than the calculus of viewership; CPMs (cost per 1,000 views) remain the basic metric.
There’s also this small benefit: “I guess they get a bit more color based on content that advertisers specifically want to avoid,” Hodulik said. What gigantic hit might advertisers have reason to avoid? Oh right, that one.