The 'Binge Viewing' Fallacy and the Ugly Death of Netflix

NEW YORK (TheStreet) -- If the CEO of Netflix (NFLX), the endlessly entertaining Reed Hastings, was a dance-club-dwelling bachelor on the prowl, he would score every single night of the week. If Netflix's content guy, Ted Sarandos, rode shotgun with him, Hugh Hefner would have nothing on the duo.

The Playboy Mansion could barely hold the meat market conquests of these two, assuming, of course, they could somehow bottle and transfer the charm they use on the media and transfer it to the world of available women. Like capturing the way you smell when you come back from the beach in a bottle of cheap perfume.

That's how the always-excellent Businessweek teased, on Twitter, an article about ratings for the series finale of "Breaking Bad."

The piece doesn't editorialize much so I'm not sure how the author feels about that 50,000 datapoint.

But, when you think about it, it's pretty paltry. Granted, that's an intense marathon binge view of the entire fourth season of Breaking Bad, but still 50,000 represents -- rough math here -- less than 0.2% of Netflix's subscriber base. That's worse than paltry. So, if we assume another 2 million or even 5 million unique subscribers watch reruns of Breaking Bad on NFLX over time, what does that really mean?

Of course, it's good news for AMC Networks ( AMCX) ...

But wait ...

As much as I love eating up the things Hastings and Sarandos tell us like a plate of al dente rigatoni, I must stop down for a minute ...

Not everyone agrees with the power and glory of the people watch reruns on Netflix, subsequently boosting current season viewership trajectory. Here's an excerpt from Albert Fried analyst Richard Tullo's latest research on NFLX and AMCX:
Moreover we also think Breaking Bad is a driver of NFLX success as opposed to NFLX driving Breaking Bad.

The average Google Trend of Breaking Bad is about 10x greater than the same trends measured for House of Cards and Orange is the New Black.

We think Breaking Bad is a better driver of AMCX revenue as compared to NFLX and it's also a driver of NFLX costs.

Netflix pays how many millions of dollars for reruns ( wait ... right, we don't know!), a small segment of its subscriber base -- even if we're way generous -- watches them and somehow this is a good thing? Not at $8 a month with the sum representing the only meaningful line of revenue in Netflix's business model.

Anyway, 50,000 or 5,000,000, we don't know real numbers because Netflix refuses to give us much of anything. I'm not even certain Sarandos divulged that 50,000 figure. And I reckon anybody within spitting distance of Netflix's numbers most likely signs some sort of document that prohibits them from speaking.

But what is "binge viewing" anyway? It's a term Reed Hastings and Ted Sarandos created to hijack something that came before Netflix streaming and certainly didn't happen because of Netflix. Certainly, as another available option, Netflix helped amplify the notion of what amounts to time-shifted, on-demand viewing.

Just dig for some numbers. Most major networks report ratings, at least in some form, by breaking them out into categories such as live viewing and then live viewing plus X number of days. They capture the viewing that takes place outside of the traditional linear model and, unlike Netflix, report it.

For instance, the excellent documentary series VICE on Time Warner's ( TWX) HBO routinely delivers a few million subscribers (I bet more than House of Cards!). Forty percent of that total happens live; much of the rest is time-shifted through platforms such as HBO GO.

I have been "DVRing" hockey games and "binging" on episodes of Seinfeld since long before the DVR was ever invented. I have loads of useless VHS tapes in dust-collected boxes to prove it.

This "phenomenon" is nothing new. It's been happening for-(a long time)-ever. Netflix didn't create the spectacle, they're merely participating in it. But, because of their unparalleled showmanship and relatively outsized egos, Reed Hastings and Ted Sarandos managed to come up with the term "binge-viewing" and, like the uncritical lap dogs they are, cats like David Carr at The New York Times chirp this rhetoric back out like puppets.

It's hardly a virtuous cycle; it's vicious. Toxic. Poisonous. Even unjust if it causes bad timers and poor position managers to lose even a dime on NFLX stock.

Netflix continues to spend loads of cash -- hiding the realities of its business off of the balance sheet and in "contribution profit/margin" -- to do nothing more than prop up the mirage that it matters more than it actually does. And the sad part is that, when this all implodes -- again -- it really won't matter much to Hastings and Sarandos. I presume they were able to pay cash for their beach houses.

The major networks -- or something like the consortium led Hulu -- could put Netflix, for all intents and purposes, out of business tomorrow.

They haven't yet for two simple reasons: 1.) the time isn't right; and 2.) quite a few network executives and Hollywood producers are more than happy to binge on the easy money Netflix is more than willing to pay them. It's akin to cocaine-fueled all-nighters held in arena dressing rooms during the height of popularity for bands like M�tley Cr�e.

When the time comes to blow up the long-standing cable/satellite-company-pays-hefty-retransmission-fees-to-the-networks-and-passes-the-cost-on-to-consumers, cash-cow model, the traditional media guys will do it. In fact, they're slowly, but surely planning their exit from this arrangement.

The people at Time Warner and similar big media outlets are not stupid. They're not sitting around -- like the music industry appears to be -- watching with bliss as the world passes them by. They know the score, but, contrary to what The New York Times media reporters tell you, they dictate the pace.

That should be the headline, not Hastings and Sarandos' poorly delivered, but more-than-willingly regurgitated one-liners.

Because the fallacy these guys and the media -- the real culprits here -- continue to perpetuate will cost investors money. It's a good thing the run in NFLX stock has been so pronounced; hopefully the cushion will mitigate a considerable portion of this ruse's collateral damage.

-- 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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