“There’s something happening here,
But what it is ain’t exactly clear…”
-Buffalo Springfield, “For What It’s Worth,” 1967

Late yesterday, Alphabet released its Q2 ’21 earnings. Included was the single snippet of financial information for YouTube that Alphabet began reporting a couple of years ago: “YouTube ads,” which represents YouTube’s global advertising revenue (non-ad revenue such as YouTube TV and YouTube Music subscriptions, etc. are not included). YouTube’s ad revenue for Q2 ’21 was $7.002 billion, which was 84% higher than the $3.81 billion Covid-affected Q2 ’20 ad revenue, and 94% higher than the $3.60 billion pre-Covid Q2 ’19 ad revenue.

Yes, Covid dampened Q2 '20 ad revenue, as management had previously said. But still, you read those numbers right. An 84% year-over-year increase. On a very large prior number.

Consider a little comparative context for YouTube's $7 billion quarter: YouTube’s ad business alone is nearly the size of Netflix’s entire global subscription business, which generated $7.34 billion in revenue in Q2 ’21. But two years ago, Netflix’s Q2 ’19 revenue was $4.92 billion, which means over the past 2 years, Netflix has increased its second quarter revenue by $2.42 billion, or 49%.

YouTube has increased its ads revenue alone by nearly $3.4 billion, or 42% more than Netflix. Since Alphabet does not disclose YouTube’s specific expenses, it is impossible to calculate its profitability. But because virtually all of YouTube’s content comes from third party creators while Netflix’s annual content tab is approaching $20 billion, suffice it to say YouTube’s ad business is far more profitable than Netflix’s subscription business. It is also fair to project that in Q3 ’21 YouTube’s ad revenue will exceed Netflix’s subscription revenue.

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Last Thursday, when I received an email from Comcast PR with a release attached, announcing that Hulu + Live TV would now be available for Comcast’s broadband and Flex users, I did a double-take.

Of course, it is no secret that Comcast has long emphasized its broadband business over its traditional pay-TV business. Between a benign competitive environment and most recently the Covid catalyst, Comcast had soared to 28.8 million residential broadband subscribers at the end of Q1 ’21, up another 448K, while residential video subscribers fell by 404K to 18.6 million. The 10.2 million difference is the largest yet. It reflects macro-changes around cord-cutting and cord-nevering that have swept through the industry unabated and the rise of streaming and CTV.

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Welcome to this week’s edition of Inside the Stream, the podcast where nScreenMedia’a Chief Analyst Colin Dixon and I take listeners inside the world of streaming video.

Netflix reported its Q2 2021 earnings this week, and considering the most critical metric of U.S. and Canada subscriber additions/losses, the company did very well. Sure, it lost 430K subscribers, reversing a big Q2 2020 Covid gain, and also tripled its 130K loss from Q2 2019. But it could have been a whole lot worse if post-Covid churn had spiked which would have sent Wall Street into a tizzy.

After reviewing the numbers, Colin and I zero in on the fact that while Netflix has numerous revenue expansion opportunities, it seems uninterested in any of them. In fact, the theme of this quarter’s earnings conference call was Netflix’s 100% focus on SVOD. It has no plans to make money from its new video gaming service. Live sports is still mainly off the table. The new commerce extension won’t generate anything material. And a lower-priced advertising-supported tier? Well the analyst/moderator didn’t even ask about it.

Colin and I are really scratching our heads. It’s like Netflix’s management took a sacred oath: “We will not make money beyond SVOD.” “We will not make money beyond SVOD.” “We will not make money beyond SVOD.”

For my part I’m growing weary of these “religious” responses. I have been doggedly saying Netflix needs to launch a lower-priced ad-supported tier for ages. The CTV ad business in the U.S. alone in 2021 will be $13B, going to at least $28B in 2025. As the biggest player in brand-safe streaming, Netflix has an automatic claim on a portion of this revenue. Perhaps most important, there is simply no other catalyst as sizable for Netflix’s top and bottom lines. But it won’t entertain the option, asserting in the past that it will diminish the user experience, though it hasn’t provided any meaningful backup to support its position.

There’s a lot to be said for staying focused, but in our view, this is getting a little bit ridiculous.

Please let us know what you think!

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If you detected the wind pattern figuratively shift around 4:01pm Eastern Time yesterday, you weren’t imaging it. Rather, the shift was due to the collective exhaling of Netflix stockholders who were justifiably on edge about the company’s Q2 2021 earnings report, and in particular its subscriber additions, especially in the all-important UCAN (United States and Canada) region.

Q2 2021 was the first quarter to be comp’d against a full Covid quarter, Q2 2020. It is old news that Covid created many major distortions in the economy, but perhaps the biggest distortion (aside from the bizarre run on toilet paper) was the massive acceleration in streaming and connected TV. And few companies benefited more from shelter-in-place orders than Netflix, which in Q2 2020 gained over 10 million global subscribers, on top of the 15.8 million it added in Q1 2020.

To say that first half 2020 would be a tough act to follow in UCAN would definitely qualify for the understatement of the year award. Netflix said last year that it was experiencing a “pull forward” in demand. Results in Q1 2021 began bearing that out with global subscriber additions coming in at 3.98 million, obviously way down from the freakish first quarter of 2020, but also just a fraction of the 9.6 million global subs that Netflix pulled in back in Q1 2019.

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