Could a split season make Netflix Inc. whole? Stranger things have happened.
A change in programming for one of Netflix’s NFLX,
most popular shows, “Stranger Things,” may have saved the reeling streaming giant from an expected decline in subscribers by forcing them to stick around for the second half of the season. The first seven episodes of “Stranger Things” premiered on May 27, but the last two supersize episodes arrived a day after the quarter ended on July 1, and viewership numbers show subscribers are tuning in — in total, the season has reached 1 billion hours streamed, and is approaching the Netflix record held by “Squid Game.”
The release over two holiday weekends — Memorial Day and the Fourth of July — likely helped viewership, but the split appears more advantageous from a financial standpoint for Netflix. The company projected a loss of 2 million subscribers in the second quarter, yet by forcing “Stranger Things” fans to wait until the third quarter for the rest of the season, Netflix might have found a way to avoid that decline when earnings are reported July 19.
Read more: New season of Netflix’s ‘Stranger Things’ tops 1 billion hours watched
Wedbush Securities analyst Michael Pachter, a habitual critic of Netflix, called the split season the “strongest strategy to minimize churn by staggering the release of content over two quarters” in an interview with MarketWatch on Tuesday.
Netflix has largely stuck to dropping shows a full season at one time instead of the more traditional approach of releasing an episode weekly. This year, as Netflix executives have tried to counteract a slowdown in subscriber growth, they seem to have hit on a new approach that splits the difference.
“Netflix is clearing trying to elongate the cycle of tentpole content, and fend off subscription cycling,” Dallas Lawrence, a senior vice president at Samba TV, a television technology company, told MarketWatch.
“Stranger Things” was not the first show to split seasons, and Netflix is not the first to introduce that approach. Split seasons first gained widespread attention with the midseason finale of “Breaking Bad” in September 2012, followed by the second half of the season a year later. “The Walking Dead” has done the same for years, and Walt Disney Co.’s DIS,
Hulu has also employed the strategy.
Pachter pointed out that Netflix made a similar move with “Ozark” that will also benefit its second quarter, with that show’s final season released on Jan. 21 and April 29. In a May 16 note, Pachter said he believes Netflix is “positioned to exceed its guidance for Q2, particularly because of the staggered release date for ‘Ozark.’”
“My guess is that they saw signs of higher churn during the December quarter and chose to stagger the season [for ‘Ozark’] to mitigate the churn they were seeing,” Pachter said. “It probably did help, and the overall decline would probably have been worse had they dumped the whole season in January.”
A lesser decline or even a gain in subscribers would come as a relief to jittery Netflix investors, after a net loss of 200,000 subscribers in the first quarter and a forecast for many more departures pounded the stock in April. Analysts polled by FactSet estimate Netflix to report a loss of another 1.71 million in the second quarter later this month.
Splitting more seasons to keep customers from canceling subscriptions at a time when it would hurt the service the most could be the most immediate help as Netflix executives plan several moves to support the service as it hits a potential fallow period for growth. They have indicated they will also embrace a cheaper ad-supported tier, and crack down on shared multiple accounts, but those initiatives are likely months away from bolstering Netflix’s bottom line.
For more: Here’s what you need to know if you share a Netflix account
A split season for Netflix’s most popular shows “wasn’t necessary before. Netflix was growing in spite of themselves,” Pachter said. “But as a wise man said, ‘Necessity is the mother of invention.’ This is baby steps, and what they have to do.”
Netflix — which launched the binge-viewing phenomenon by dumping all its most-popular series’ episode at once — has increasingly been a victim of churn as larger media rivals like Disney, Apple Inc. AAPL,
Comcast Corp. CMCSA,
and Warner Bros. Discovery Inc. WBD,
bombard the streaming airwaves with top-shelf content on a weekly release schedule.
By staggering Season 4 of “Strange Things,” Netflix ensures the show’s vast following would subscribe for at least two or three months, says Ross Benes, an analyst at Insider Intelligence. But he hastens to add that the “tactic will only work with really sought-after shows” and it “won’t halt churn, but it could reduce it a little bit, particularly for those new sign-ups who are most vulnerable to opting out.”
Netflix is likely to continue its practice of dumping all episodes at once for most of its shows — “binge-watching is here to stay,” Samba TV’s Lawrence said — but could extend its split-season approach to more series.
“Netflix can learn a lot from staggered releases of ‘Ozark’ and ‘Stranger Things’ to determine whether there are other scripted series that would benefit from this strategy,” Tricia Biggio, CEO of entertainment-technology company Invisible Universe, told MarketWatch. “This should continue to be a strategy in such a highly competitive landscape of streamers.”
“Like anyone, they had to reconsider strategy. Cost-conscious consumers and inflation has created a pressure cooker for them,” Biggio said.
Season 4 of “Stranger Things” was easily the biggest for the show — nearly twice the runtime of the previous season — and required more time to produce, thanks in no part to the COVID-19 shutdown. The numerous delays prompted an earlier premiere, which led to breaking up the season, according to a source close to Netflix. Previous seasons of “Stranger Things” were around holiday weekends (Season 2, Halloween; Season 3, Fourth of July).
But both those seasons were delivered in one dump, leading to binge viewing.
“Splitting the seasons actually had a practical reason before, which was the COVID delays and all those projects that kind of led us to splitting some of the seasons,” co-CEO Ted Sarandos said during the company’s first-quarter earnings call in April. “But what we found is that fans kind of like both.”
See also: Netflix co-CEO Sarandos details streaming service’s plans to bring ads to platform
“So being able to split it gives them a really satisfying binge experience for those people who want that really satisfying long binge experience,” Sarandos said. “And then being able to deliver a follow-up season in a few months versus, in some cases, the new season of ‘Stranger Things’ is coming nearly three years after the last one, or more than two anyway.”
The Duffer Brothers, creators and executive producers of the hit science fiction horror drama series, explained the timing of the show and its length in a letter posted on Twitter Inc. TWTR,