Analyst: Netflix's Popularity Driven by Kids TV Content

"Netflix seems highly dependent on kids TV" content, and entertainment giants like Walt Disney and Viacom should in response make their content more expensive or more limited, Sanford C. Bernstein analyst Todd Juenger said in a research report Monday.

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He highlighted that focus groups conducted by his firm with more than a dozen parents have found that mothers are encouraging their children more and more to watch shows online and in other digital forms.

His advice for entertainment companies is to be cautious about how much kids programming they make available to the online video streaming provider and in which windows. "We remain firm in our belief Viacom and Walt Disney should limit their content availability on Netflix," Juenger wrote.

Netflix took issue with some of his arguments, particularly the suggestion that the company was too dependent on kids programming. "Children's content is popular, but no more so than sitcoms, movies or serialized dramas," the company said. "If you ask small groups of young male subscribers how important extreme sports is, they will likely respond that it is more important than kids shows. This report is based on interviews with 16 mothers, not a broad cross section of our members."

At the end of June, Bernstein hosted two focus groups of mothers to discuss kids TV viewing patterns and how viewing has changed over time as the use of DVRs and the availability of VOD options and new devices like iPads has increased.

"Moms are increasingly directing their kids to alternative viewing modes for content control, commercial avoidance and time management," Juenger summarized the findings. "The moms we talked to originally subscribed to Netflix for themselves, but have recognized the dwindling supply of content for adults and are now using the service primarily for their kids…The content selection is perceived to be significantly better for kids than for adults, and the lack of commercials and ability to control the viewing choices are seen as positives.”

According to the analyst, the focus groups described children as device agnostic,” happily watching on TV sets, tablets, computers, even phones, with indifference.” The result: “Our concern regarding Viacom and Disney’s kids’ networks has been reinforced,” Juenger said. “Viacom and Disney should do everything in their power to steer viewership toward modes with the best long-term economics, namely traditional TV and emerging forms of TV Everywhere VOD.”

He reiterated views that there has been a “negative impact of Netflix on Disney's and Viacom's kids' TV ratings,” predicting that the entertainment giants would sooner or later respond. “We would expect [them] to follow one of two paths when re-negotiating their contracts with Netflix,” Juenger said. “They will either limit the availability of kids' content to Netflix or try to compensate for the negative impact on ratings by
increasing the price of streaming licenses.”

Email: Georg.Szalai@thr.com

Twitter: @georgszalai