This one nugget from Netflix’s viewership numbers could be a bullish sign for its ad business

After refusing to give comprehensive viewership data for years, Netflix finally released one metric this week.

Netflix’s NFLX, +2.91% “What We Watched” report provides the number of hours people spent watching the platform’s top 18,000 TV shows and films from January 2023 to June 2023, and some industry experts think it’s enough from the famously private streamer to tell us something important about its business tactics.

“I think they’re looking to jump their ad-supported tier,” Bob Mitchell, founder of Mitchell Partnership Alliances and adjunct professor at the Kogod School of Business, told MarketWatch.

Why? Since it’s mostly TV shows topping the list of Netflix’s total hours streamed, Mitchell suggests that the company’s ad-supported tier — which launched last year for $6.99 a month and includes roughly four to five minutes of commercials per hour — could benefit because shows better lend themselves to advertisements.

“Advertisers want to reach viewers,” Mitchell said. And he explained that, “Series are more valuable for advertisers” because they can spread out ads across multiple episodes. Plus, sitting through ads before a TV show episode is seen as a better viewing experience compared to ad-breaks that interrupt feature-length films, because finding natural breaks in a movie is more difficult than placing an ad at the beginning of a shorter episode.

And it turns out, every title landing in the top 10 of Netflix’s most-hours-streamed list was a series or TV show.

Experts suggest that TV shows have become a more dominant form of entertainment than movies, and Netflix’s viewership list proves that. Shows, even a limited series, give creators more time to fully tell a story, and they offer the on-demand flexibility for viewers to catch one episode when they have time, while also giving hardcore fans the ability to binge several episodes in one sitting.

Robert Thompson, the director of the Bleier Center for Television and Popular Culture at Syracuse University, told MarketWatch that consuming entertainment on screens from serial TV shows is “a more exciting form than a movie,” in part because a 10- or 12-episode series might be doling out an addictive story for 10 or 12 hours or more. “You can watch ‘Ginny and George’ for longer” than a two-hour movie, he said. 

Netflix was one of the last big streamers to create an ad-supported subscription tier last year. And now, Netflix, Amazon Prime Video AMZN, +0.94%, Disney+ DIS, +0.18%, Hulu, Max, Paramount+ PARA, -5.45% and Peacock all either have subscription tiers with advertisements, or they’ve announced plans to debut one soon.

Many of these streamers have only recently rolled out their ad plans, so it’s still too early to know for certain how successful they will be — but some platforms have already touted early wins. Disney announced that half of its new subscribers from March 2023 to September 2023 chose its $7.99 per month plan over its more expensive commercial-free plan, and Netflix announced during its October earnings that 30% of all new sign-ups in Q3 were for its ad model.

And the episodic nature of a series is a perfect fit for streamers’ ad models.

“There is a sense that these shorter series especially, the ones that are only 30-ish minutes, might be more amenable to ad interruptions,” Thompson said.

Netflix’s ad model reached 15 million total subscribers in November, something that could be a revenue boom for the company because of the membership margins. 

Brandon Katz, an entertainment industry analyst for Parrot Analytics, told MarketWatch in October that Netflix actually has better profit margins on its cheapest plan, which includes ads.

“If they push people to the cheaper, ad-supported tier because of the ad dollars coming in, that also has a higher average revenue per user than their basic plan, so that again makes them more money,” Katz said.

Netflix revealed in its viewership report that “Success on Netflix comes in all shapes and sizes,” an admission that the hours viewed can only tell part of the story, and it doesn’t take into account factors like the completion rate (did people actually watch an entire movie or series, or drop out part of the way through?), the size of the production budget and how many marketing dollars were put behind the title.

Netflix did not respond to MarketWatch’s request for comment.

“Popularity doesn’t equal profitability,” Dan Rayburn, streaming analyst from NAB Show Streaming Summit, told MarketWatch. “That doesn’t tell us what percent of your users watch the show, it doesn’t tell us how many ads you delivered against what portion of that content … [just] this is popular, OK cool, that’s it.”

Even people who believe this TV show-centric report could be bullish for Netflix’s ad business long term agree that more numbers are needed to tell the full story.

It’s “barely the appetizer to a full meal,” Mitchell said.

Shares of Netflix Inc. were down 2.28% during Thursday afternoon trading, but are 61.5% higher over the last 12 months.