• Netflix's Q2 Video Q&A is a Model For Others to Follow

    Late yesterday Netflix reported its Q2 2013 results that were mostly solid, although U.S. net subscriber additions were a little lower than many expected. Beyond the results themselves, it was the method by which they were discussed that was noteworthy - for the first time via a live-streamed video Q&A session, powered by Google Hangouts (embedded below). CEO Reed Hastings, CFO David Wells and Chief Content Officer Ted Sarandos were peppered with questions from CNBC reporter Julia Boorstin and BTIG analyst Rich Greenfield.

    As Hastings said upfront, the format was meant to emulate a more informal, "fireside chat" style discussion, as opposed to the typical, highly structured quarterly audio conference call with Wall St. analysts. No doubt reactions to the video Q&A are subjective, but I liked it a lot and believe it should be a model for other companies to follow. Importantly, the Q&A was another example of the expansive role online video can play not just in entertainment, but also in communications.

    The biggest difference between the video Q&A and the typical audio call (beyond the obvious fact that you can see the executive's facial expressions and body language) was that both interviewers were able to hold onto a topic and ask relevant follow-up questions. This contrasts with an audio call where the analyst asks a question which is answered (sometime well, sometimes not), and then the operator immediately moves on to the next question. It also contrasted with Yahoo's video Q&A last week in which the CEO and CFO themselves chose which questions to answer and sat more formally in a set with a news desk.

    In some cases the ability of the interviewers to press Netflix executives yielded further insight on how they're running the business. One example was on the topic of churn. Netflix recently discontinued reporting quarterly churn, the number of subscribers who dropped the service. Since retention is a critical metric in subscription-based businesses like Netflix, the decision not to report it has been criticized.

    In a follow-up question on the topic, Boorstin elicited from Hastings the comment: "I don't even look at churn numbers; I'm looking at net adds all the time." This answer revealed how not reporting the churn number wasn't just a cosmetic decision, but rather really reflects the state of mind of the company's CEO. Personally, I found it somewhat surprising that a detail like knowing how many people are dropping the service each quarter isn't relevant to the CEO and I wonder if other analysts did as well. But that's an issue for another day.

    Admittedly the downside to the video Q&A approach was that the one specific question an analyst may have been dying to ask wasn't necessarily asked because questions were compiled and summarized by the interviewers. Still, having listened to many of Netflix's earnings calls in the past, I think they did a fine job of distilling the most important questions and topics. The only other issue in the video Q&A was that sometimes multiple speakers were speaking at the same time which was distracting.

    The video Q&A format would be even more effective in a quarter where there was a problem or shortfall that required more explanation (e.g. the quarter of the Qwikster decision). On the whole however, I thought it was another great example of how online video can be used to communicate more richly than audio and as an augment to text. It's refreshing to see senior executives willing to go on camera and be questioned vigorously by two smart interviewers. Although some questions were side-stepped as expected, it was still a valuable 40 minutes.