BotW: Escape velocity for Netflix; the end of publicly funded broadcasting in the US; holdco consolidation
Welcome to Best of the Week kicked off at Gate 40, waiting for my delayed flight out of Sydney on Friday afternoon, and wrapped up this morning in windy Tasmania. It’s not a nice day for a state election.
Today: Netflix; why the local future is ad sales; the axe swings in the US, and holdco strategies.
Happy International Cake Day for tomorrow.
To get maximum value from a paid membership of Unmade, sign up today.
Your annual membership gets you tickets to September’s REmade conference on retail media; to October’s Unlock conference on marketing in the nighttime economy; and to Unmade’s Compass end-of-year roadshow.
You also get access to our paywalled archive.
Upgrade today.
Meanwhile in America
Netflix has hit escape velocity
As is now so often the case, many of the signals of the week came from America.
Netflix reported another set of astonishingly good quarterly numbers. This was only the second quarter where the streamer did not share its number of paying subscribers, closing out on 302m globally at the end of last year.
Instead the conversation has, as Netflix intended, become a much more financial one. And those finances are good.
Most remarkable is how fast the company’s profits are still growing. Revenue for the quarter was $11.1bn globally, growth of 15.9% on the same time a year ago.
And operating profit jumped even more, up by 34.1% to $3.8bn.
For most media companies, having a debt of $6.1bn would be terrifying but for Netflix it looks increasingly minor. Netflix outgrew its debt.
Two things are driving this new jump in Netflix profitability. First, the company has hit an escape velocity where each new subscriber contributes a bigger proportion to the bottom line; that’s also giving it the confidence to keep putting prices up. And second, the newer stream of advertising revenue is becoming meaningful.
Netflix rushed into advertising three years ago when a slight dip in paying subscribers meant it needed a new story for investors. Initially outsourcing its tech stack, and sales in parts of the world including Australia, to Microsoft, the company started slowly. In this update it confirmed that it has now rolled out its own Netflix Ads Suite across all its advertising markets.
Albeit from a lower base, Netflix said it expects to “roughly double” its ad revenue this year. It promised “better measurement, enhanced targeting, innovative ad formats and expanded programmatic capabilities”. It will also integrate the Yahoo demand side platform into its offering.
By changing its mind about advertising, Netflix almost by accident found a whole new profit line.
For Australia’s existing TV players, their established, on the ground, sales teams are a differentiator. Arguably that’s a waste if they can only represent their own products, particularly as they shrink. And arguably Microsoft is not the logical choice of a local Netflix ad sales partner.
It’s not glamorous but as outsourced sales houses are a part of the future for Australia’s local players, particularly as they consolidate. Nine made an early move in March, signing a deal to represent WBD’s Max. Ooh Media’s also doing this in the retail media space with Reo.
It’s a similar model to the UK where Comcast’s Sky Media reps both WBD and Paramount. In the UK, Paramount owns the free to air network Channel 5.
It may happen sooner than we think where we’ll see Paramount, owner of Network Ten, make a similar outsourcing move in Australia. It wouldn’t be the first time for Ten, which saw its sales operation run by Multi Channel Network (now Foxtel Media) during Lachlan Murdoch’s failed attempt to buy the network.
For brands and media agencies, fewer and simpler buying points would see them give more share to the local players. One factor behind the dominance of Google and Meta is the relative ease of buying.
Amazon, thanks to its dual-play of retail media and Prime Video, has enough local scale to justify its own sales team. So does DAZN, owner of Kayo and Binge. But the rest - the likes of Netflix, Disney+, BritBox and Apple TV+ - should be outsourcing to Nine or Seven.
Substack changes its mind
Another US-based media player that signalled this week that it has changed its mind about advertising is Substack. That’s the platform Unmade is currently on, incidentally. Substack has raised another $100m from investors at a valuation of $1.1bn.
In the New York Times interview to announce the deal, cofounders Hamish McKenzie and Chris Best said they were now open to advertising. Like Netflix, that’s a total turnaround. When I interviewed McKenzie for Mumbrella in 2021 he told me they had no intention of getting into ads, preferring to focus on building up paid subscriptions.
Colbert runs out of road
And in another sign-of-the-times from the US, the Paramount-owned CBS axed The Late Show, which has been hosted by Stephen Colbert since he inherited it from David Letterman in 2015.
Late night chat shows are a US phenomenon which never took in Australia. That’s partly because more Aussies are earlybirds rather than night owls compared to those in other countries. But there was also a matter of scale. Although audiences for late night programming were much lower than prime time, in a market like the US, they were still big enough and young enough to be lucrative advertising targets. Until they weren’t.
While it’s clear that the Colbert-helmed show was losing money, the timing of the decision hints at another reason, hotly denied: it may be one more sacrifice from Paramount for the Donald Trump administration to finally greenlight the Skydance takeover deal.
The end of mainstream public service broadcasting in the US?
And the axe kept swinging in the US. Yesterday Congress approved a bill which will see the end of federal funding of public service programming both on TV and radio, via PBS and NPR.
Along with the UK, Australia is one of the few countries which have decently funded public service offerings in the ABC and SBS.
In the UK, the BBC had to ride out a hostile Conservative government which also attempted to privatise the publicly owned Channel 4. It was only the fall of the Conservative government that led to Channel 4’s survival in public ownership.
In the short term, the ABC and SBS are relatively safe in Australia. Labor supports the principle of public service broadcasting and so, for the most part, does the Coalition.
But thanks to Trump, the funding of public service broadcasting is no longer a sacred cow. That’s dangerous for the counterparts of NPR and PBS around the world.
Wright moves
In holdco land, Havas tidied up its reporting lines after the disgruntled exit of Virginia Hyland from running Havas Media.
James Wright will now have Havas PR, creative, media all reporting in to him.
Publicis Group is already structured that way with Michael Rebelo at the top, and Patricio De Matteis is doing the same thing at Dentsu.
After the Omnicom-IPG merger-takeover, we’ll see Nick Garrett run that operation.
It leaves WPP as the exception. While Rose Herceg has the title of ANZ president, it’s a client-facing role without direct reports, with individual agency bosses reporting in to their own regional and global networks.
And speaking of Omnicom, the Australian Competition & Consumer Commission said it has no objections to the IPG takeover.
In a comment which should irritate independent agencies, it said: “The ACCC found that the remaining advertising, media and communications conglomerates, including WPP, Publicis and Dentsu, will continue to compete with Omnicom after the acquisition, as well as smaller independent providers of these services.”
That’ll be those independent providers who so rarely make it onto government pitch lists, state and federal. When the TAC Victoria creative shortlist came out last month it featured three Omnicom agencies, Clems, DDB and TBWA. Where’s all that independent competition?
More from Mumbrella …
Netflix CFO credits ongoing success to building assets, not buying them
Shift from traditional search drives Yango Creator
Apparent creative director departs for 'social impact future'
Publicis Groupe stock dives despite sunny forecast
The music licensing blind spot in social media marketing
Time to leave you to your Saturday.
If you’ve not had enough of me yet, the podcast of last night’s episode of MediaLand from ABC Radio National is now live. Our guest was Marina Go. We had a terrific chat about the future (and past) of magazines.
And I also made it into the studio of Fear & Greed as guest judge for today’s closely fought episode of The Weekend Edition in which Adam Lang and Sean Aylmer debated the top business stories of the week.
We’ll be back with more next week.
Have a great weekend
Toodlepip…
Tim Burrowes
Publisher - Unmade + Mumbrella
tim@unmade.media
