On Monday afternoon Netflix announced its quarterly earnings and CEO Reed Hastings dropped an interesting line when he was asked about competing with Amazon and HBO: "They're (Amazon) doing great programming, and they'll continue to do that, but I'm not sure it will affect us very much. Because the market is just so vast. You know, think about it, when you watch a show from Netflix and you get addicted to it, you stay up late at night. You really -- we're competing with sleep, on the margin. And so, it's a very large pool of time. And a way to see that numerically is that we're a competitor to HBO, and yet over 10 years we've grown to 50 million (domestic subscribers), and they've continued modestly growing. They haven't shrunk. And so if you think about it as, we're not really affecting them, the is why -- and that's because we're like two drops of water in the ocean, of both time and spending for people. And so Amazon could do great work, and it would be very hard for it to directly affect us. It's just -- home entertainment is not a zero-sum game. And again, HBO's success, despite our tremendous success, is a good way to illustrate that."
This entire answer is fascinating and it dovetails with many media thoughts I've been having lately. In particular, it corresponds with a note I wrote to myself last week as I struggled with my ability to catch up with TV shows I enjoy watching on my DVR, "What if there is too much good content out there to keep up?"
That is I think Reed Hastings is right about competing with sleep, but he's wrong about home entertainment not being a zero sum game. I think home entertainment is now a zero sum game and I'm going to explain that for you in a moment.
But before I get to that I want to add a couple of more data points for you to consider -- yesterday news came out that ESPN's ratings for shows it creates -- from Pardon the Interruption to Sportscenter -- were down 26% last week over last year and that they are now down 16% for the year. That's a monumental collapse of ESPN's ratings that also corresponds to a massive collapse in ESPN's subscribers.
But it's not just ESPN that's having trouble bringing in the same audience that it has produced in the past. Television shows in general -- and sports ratings on TV in particular -- have been down quite a bit across the board at the same time that pageviews on websites, after expanding every year since the Internet first entered homes, have now either stalled or began to contract as well.
What's happening out there?
Well, I've got a provocative thesis for you -- we've reached peak media consumption. That is, people can't watch any more shows or read any more content or listen to any more podcasts or radio or spend any more time on social media than they already do today. We've reached the apex of media consumption in American society. If that's true, and I think it is, this would mean that media consumption has become a zero sum game. We can't rely on people simply making time for more media in their lives, consumers are tapped out. Their content bucket is full. In order to add something new they have to take something old out.
Media has always been a competitive business, but if I'm right about this thesis than media is about to become even more competitive than ever before. Because in order to have your content consumed you have to replace what someone else is watching. And that's the exact opposite of what the VCR, the DVR, DVDS, movies and TV on phones, and on demand television has been designed to create.
Which leads me to my next question: what if everyone's ratings are going down now because there is just too much good media content in the marketplace? That is, there's an overproduction of quality which has inundated consumers and left them overwhelmed with options they can't keep up with.
If Reed Hastings is correct and Netflix is competing with sleep -- which is certainly true in my case based on the number of times I've chosen to watch another episode of "House of Cards," rather than go to bed -- what he's really saying is that all media is competing for our time. Since time is pretty much the one thing that we can't create more of in this world today. And if that's true, which I think it is, how much more free time can be created in a day to expand the audience hours?
We've already pushed sleep to the point where our entire country is operating on a substantial sleep deficit, so it seems unlikely that absent a technological innovation that renders sleep less necessary any more time in a day is coming from the elimination of sleep. And it also seems unlikely given how hard people work -- particularly white collar employees who are on call all day every day -- that suddenly work is going to disappear as a substantial time drain. So if you don't believe we've reached peak media consumption, where are these additional hours of media consumption going to come from?
Well, you might be thinking, "Okay, Clay, but work and sleep have always been obligations, how have we increased our media consumption in the early 21st century with these obstacles in place?"
I think the answer is simple -- with media everywhere. We all carry devices, our phones or tablets, that allow us to experience the entire Internet and every TV or movie ever made at any moment in time wherever we are. While we're standing in line to buy groceries we can pull up any movie ever made or any live sporting event and start watching it.
Think about how remarkable this is. I mean, it's absolutely extraordinary. But most of us have missed how remarkable it is because humans adapt to new realities so quickly. (I'm kind of the opposite. For instance, I'm still filled with child-like wonder about the fact that my phone can get on the Internet. And since I have no idea how any technology ever works, at least once I day I turn on the water in my house and think, "Isn't it amazing that we have clean water and all we have to do is turn a faucet?" Or early in the morning when I wake up for my radio show I turn on the lights in my house and think, "I can't believe that electricity works this flawlessly all over the country." And that water and electricity cost us basically nothing. I happen to also think the cost for the Internet should be virtually nothing and the Internet should be considered a national utility too, but that's a column for another day.)
My point is this -- if you went back in time to talk to yourself in 1992 -- the same year that Michael Jordan and the Dream Team were dominating overseas in the Olympics -- and you'd said, "This new thing called the Internet is going to change everything in your life. At first it's going to basically put every bit of information in the world on the computer screen in front of you. So instead of going to the library or pulling an encyclopedia off the bookshelf -- if you were fortunate enough to have an encyclopedia in your home -- you're going to be able to find the answer to anything with a few clicks on a website called Google. But that's only the start of how quickly everything in your life will change."
Come back in time with me.
Remember that in 1992 only really rich people had mobile phones and they were the size of a briefcase. By 2002, just a decade later, pretty much everyone in America who wanted one had a cell phone. And, oh by the way, you remember long distance phone calls? They don't exist any more. Same thing with pay phones. In fact by 2016 most young people will be so used to having a cell phone in their lives that they won't ever use it to actually talk on their phones. They'll just send text messages, video chats -- yes, your cell phone will be like a tiny Camcorder -- and use these phones to watch any movie ever made or watch live sports on a crystal clear screen.
If I would have told you all that in 1992 you would have thought that was remarkable, right?
Yet since it's all happened gradually you've just come to accept it.
And it was this concept of media everywhere on our phones and tablets which led to a massive expansion in the amount of time we could spend consuming media. So as the Netflixes, Amazons, Apples, and Facebooks of the world all took over our media universe they could rely on an overall surge in individual media consumption habits.
When media was available anywhere, at any time, it turned out we had a lot of extra time to fill. On the treadmill at the gym, on your commute to work on the train, sitting at your kid's baseball practice, basically if you found a moment to spare you could spend it bathing in media. And all of these media companies rushed to fill those hours of additional content, overloading us with more good media content than has ever existed in the history of the world.
But that leads me to an interesting question that I jotted down to myself last week: "What if there is too much good content?"
Right now I have seven episodes of "The Americans" and three episodes of "Billions" waiting to watch on my DVR. I love both of these shows, but I just haven't had time to watch them. Earlier this winter I watched the first episode of the sixth season of "Homeland" a series I'd already invested five seasons worth of time in, and it was so bad that I just said, "You know what, to hell with it, I'm not watching this season."
Why did I stop watching "Homeland?" Time constraints. Because I have to sleep and work and I don't have time to watch all the media that I'd like to watch considering everything else going on in my life right now. I've got three kids nine and under, a wife, a three hour daily radio show, a website to run along with affiliated Outkick businesses in apparel, the law and an online continuing legal education business, an afternoon Outkick the Show to do on Periscope and Facebook Live, many hours a week spent keeping up with top stories on social media -- the point is I'm pretty damn busy and I don't get the chance to just unwind and watch TV that often.
Now you can argue that I'm uniquely busy, but I don't think I am. Other young parents my own age are dealing with similar time challenges and I've heard more and more of them with this same lament -- I don't have time to watch or read everything that I want to do in this new media era.
What's more, it isn't just that you feel overloaded, it's that you feel bad that you can't keep up with the treadmill of constantly arriving new media. At some point there just isn't enough time to keep up.
That's why I think we've reached a fascinating point in time -- we can't consume more new media even as that tidal wave of new media content continues to grow.
Okay, so if I'm right, what does this mean for media going forward?
It means this -- truly great content has never had a potentially bigger audience, but things that used to simply fill our time -- the ESPN programming of the world -- is being tossed aside. Yes, the left wing political slant is a total miss and it is causing millions in lost viewers, but ESPN's biggest issue is the same biggest issue that all media companies are starting to face -- you have to produce two types of content now in order to succeed: 1. something that is so compelling you can't look away or 2. something that is so great it will have a shelf life forever. This prong is relatively easy to demonstrate, it's a show that is so good your kids or your grandkids are likely to watch it. That is, it will last for years as opposed to hours. (Sometimes categories one and two can overlap, "Game of Thrones," is a great example of filling both categories and that's ideal, but most shows can't do both. It's too hard.)
But even if you produce shows that fit in prongs one or two there are so many media companies producing so much content that chances are your audiences are going to constrict substantially. The era of the casual fan is over. All we have time to consume are the things we absolutely love, the things we choose over everything else.
Our media content buckets are full, in order to add something new we have to toss something else out.
Let me give you an example of the first category of show -- Donald Trump. Every single day there's a new controversy surrounding Trump. Love him or hate him he brings huge ratings for news networks on CNN, MSNBC, and Fox News. People can't look away because they find him so compelling. And all of this content is totally disposable. Trump's controversy from yesterday is old news because there's a new controversy the next day. Compare that with poor Hillary Clinton who had so few controversies that she never could leave behind the email scandal or Benghazi. Trump had a thousand "scandals" during his presidential campaign and the result was that none of them stuck to him. Hillary had only two and no one could forget them. Trump's genius, to the extent he has one at all, is that he knew that the American public had an insatiable demand for controversy and that he could actually end up winning the presidency through all the free media coverage of these controversies. That is, while everyone else worried about the gaffe that would destroy his or her campaign, Trump realized that the era of the single gaffe was over. The modern media was totally unequipped to handle a campaign made up of one gaffe after another. Cost him the election? Trump realized that by exploiting the modern media's penchant for gotcha journalism he could actually win the election.
Ultimately everything about Trump, including, potentially, his own presidency, is disposable content, right? None of it lasts. Not his opinion on the actual issues, not his political leanings, everything is brand new on every single day. You wake up and Trump might have done or said anything. That's compelling TV.
And the simple truth is this: no one is watching a CNN or Fox News or MSNBC show a week from now.
The same is true of sports. Every sports show, game or discussions of games, is pretty much in prong one, it's all totally disposable content. Other than ESPN's 30 for 30's can you think of any sports show that has just as much enduring value a year from now as it does today? I can't. That's because sports is made for the moment.
Even the games. Because as good as one game might be, the next game offers the opportunity for something new. And our demand for new stories is constant.
ESPN's ratings are tanking because their content isn't exciting enough. As much as they might want LeBron or Tebow or Carmelo to be their Trump, he isn't, and most of their analysts aren't compelling enough to make people stop what they're doing and watch. The result is ESPN's ratings are down not because of the decline of sports, but because sports is competing with every other event in an individual's entertainment bucket.
And the end result is this -- everyone's audiences are declining. The era of growth will soon be over if it isn't already. It's about to get much more brutal in the media trenches. The expansion of TV everywhere made media content explode, but the era of a rising tide lifting all boats is over. Now many boats are about to capsize.
You either love something with every fiber of your being and make time for it at the expense of something else or it dies. Because we've reached the absolute apex of media consumption. Unless sleep or work get eliminated, there's no more room for growth.
Netflix -- and every other media company -- isn't just competing with sleep, it's competing with life.