Humbled Netflix Made a Bonehead Mistake

NEW YORK (TheStreet) -- In due time, Netflix (NFLX) sentiment should regress toward a less euphoric mean. But, of course, the media isn't prepared to face reality just yet.

After what can be nothing other than an Emmys disappointment for Netflix, most of the media's lead stories still look like something this:

Netflix Wins Emmy for 'House of Cards' or Breaking Bad's Emmy is a win for Netflix, too.

Reed Hastings could take up methamphetamine production as a hobby and this uncritical media would find a way to spin it righteous and positive.

Last time I checked, Time Warner ( TWX) is the publicly traded firm that owns Home Box Office (HBO). And it crushed Netflix on Emmy victories. But, in the financial media, stories that focus on TWX's success remain outliers. That's little more than abject journalistic failure.

Whether Netflix won the important Emmys (Best Actor, which went to HBO, and Best Drama, which went to AMC Networks ( AMCX)) or not, I was prepared to say the same thing:
Emmy nominations, Emmy wins, Emmy losses, Emmy snubs -- none of these things matter at all. Not even a little.

It's fantastic that Netflix was nominated. It's equally as fantastic that it won in a major category and picked up a couple Creative Arts Emmys. It would have been a bit more fantastic had it won best actor and/or best drama.

If it was shut out -- or had a less-than-thrilling showing like it did -- that wouldn't have mattered either. While it would not have been "fantastic," it would have amounted to little more than a bruised ego or something of the sort.

Same goes for HBO, AMC and the others. Because, again, winning Emmys doesn't matter.

HBO's most popular series -- Game of Thrones -- did relatively poorly on Sunday night. Meantime, VEEP, a show with an audience not even a third the size of GOT's, took home some biggies. Same with The Newsroom. Behind the Candelabra also crushed it.

The problem with the whole Netflix Emmys storyline is the media's insistence to spin it not only as meaningful, but as positive minus any level-headed analysis or critical thought. It's as if the media is on some artificial NFLX high and thinks it's a drag, man that anybody would dare attempt to criticize.

Hopefully, Sunday night provides Netflix with perspective. Hopefully it kicks Hastings' bravado down several notches. Maybe he will realize the inanity of his ways. He made nothing short of a bonehead move when he set up comparisons to HBO.

By situating HBO as the benchmark -- in quite arrogant fashion -- he created an impossible task. Nothing short of dazzlement can be quite good enough for Netflix. Yes, with the Emmys, but, more importantly with what actually matters -- viewership.

As the media fawns over Netflix and overhypes "the changing television industry," it fails to press Hastings for answers to the most crucial question: How many subscribers watch your original programming? Because if we're to believe this strategy can retain current subscribers and attract a considerable number of new ones, it's imperative to know how many folks watch.

But Netflix will not tell us. And, if my sense about how things work over there is as spot on as it has been for the last two to three years, I know why.

It's not because the numbers are all that bad. It's because whatever they are, they will look bad against HBO. And that's Reed Hastings and his linemate Ted Sarandos's fault. They made a rookie mistake.

If, for instance, two million unique subscribers watched an episode of House of Cards, I would, all things being equal, consider that pretty solid, particularly for an upstart original programmer attempting to execute a model different than and inferior to HBO's.

But all things are not equal. Nor are they digital.

A big Emmy award winner for HBO -- VEEP -- only does about 4-5 million subscribers. Same goes for Girls. If House of Cards comes in at less than that, let alone something like half, it looks really bad when you consider the dichotomy Hastings and Sarandos have created. And it looks downright awful against the numbers shows such as True Blood and Game of Thrones (10 million-plus subs) put up.

Netflix should have situated HBO as its big brother. It should have positioned itself as being the company HBO executives call when they decide to pass on a show, but think it's still worthy to see the light of day.

Reed, Richard Plelper, HBO CEO here ... Listen, we're not going with this thing XYZ pitched us, but it's pretty strong. Just doesn't fit for us. You should give it a look.

Because certainly, HBO executives have not only better eyes, but proven and verifiable track records for predicting original programming success.

Hastings could have created a scene where he kept expectations necessarily low, while orchestrating a culture of cooperation between Netflix and HBO. It's not like HBO would trumpet Netflix as the future of television in public forums, but there's no question in my mind the network could have served as a productive model, a willing guide to Netflix as the definition of television continues to change.

Instead, Reed Hastings created an adversary out of HBO. That's just an all-around stupid strategic move. If you thought Netflix performed poorly on the same stage as HBO, AMC and others at the Emmys, wait until material disappointments start to surface. It will make 2011's NFLX stock crash look comparatively tame.

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

Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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