If Major Networks Acted Like Netflix, We Would Call Them Frauds

NEW YORK ( TheStreet) -- In May, I asked How Many People Actually Watch Netflix Originals?

Nobody demands this answer from the company. By and large, the media simply accepts Netflix's ( NFLX) claims that its original programming is successful. There's absolutely no quantifiable nexus between subscriber growth/revenue and the uptake of Netflix originals.

In one breath, Reed Hastings talks about unbridled anticipation for Arrested Development. In the next he refuses to tell CNBC's Julia Boorstin (see story at the link in paragraph one), how many people actually watched the program's rebirth on Netflix.

But, consider this, in its third season on traditional television an average of four million viewers watched each episode with under 3.5 million tuning in for that season's finale. And that was with penetration rates at about three times what Netflix sports today. Do you really think anywhere near 3 million to 4 million subscribers watched the return of Arrested Development on Netflix? Yet, Hastings expects us to accept claims of success without any hard verification whatsoever.

His answer -- we're not traditional television. We don't look at overnight ratings; we'll look at the numbers a year out. That flies in the face of his contention that Arrested was highly anticipated. I guess Reed thinks people wait weeks to watch the Super Bowl. They DVR it. They don't want to talk about what happened the next day at work.

So what about Orange Is the New Black? Looks good to me. It's easily, in my opinion, the most compelling Netflix original yet. But what does that mean?

Over at Time Warner's ( TWX) HBO, just under four million households, on average, watched each episode of Veep in 2012. It's critically acclaimed. Julia Louis-Dreyfus won a freaking Emmy for her performance. But it was only consumed by 3.9 million households. Contrast this with truly smashing successes such as Game of Thrones, which averages approximately 13.6 million viewers an episode. (Numbers are across all platforms).

Bottom line -- the folks at HBO could not get away with calling Veep a major success like Hastings and Netflix do Arrested Development and likely will Orange Is the New Black (which was renewed for a second season before season one even hit the air). They can only do so -- and not get called out as frauds -- when they accompany such talk with actual numbers. But, for one reason or another, Netflix gets a free pass, which will, ultimately, hurt investors more than 2011's implosion.

You have to ask yourself -- no matter what the coming quarter brings, why does Netflix feel the need to have one of its Wall Street permabulls, BTIGMedia's Richard Greenfield, moderate its earnings conference call? It's a question, along with how many people actually watch Netflix originals, investors should be asking before they keep faith in Hastings' smoke-and-mirrors machine.

-- Written by Rocco Pendola in Santa Monica, Calif.

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