Netflix: 6 HOT Words for Q3

By now, everyone knows that Netflix reported a disappointing second quarter last week with its first decline in domestic subscribers since the Qwikster miscarriage of 2011. As a result, last Thursday and Friday, Netflix lost some $20 billion in market cap.

In the four days since the announcement (from July 17 to 20), we identified six hot words related to Netflix whose frequency has ratcheted up in the media.

But first in order to get a baseline, we used Word2Vec to process 2311 articles that appeared on Dow Jones/Factiva during the six months prior to the release of Netflix's Q2 results. Each article selected mentioned Netflix at least five times and was classified by Factiva as a "Corporate/Industrial News" piece.

(Word2vec processes raw text and positions words in a high dimensional vector space where semantically similar words are placed at nearby points. Factiva is a global news resource with over 32,000 publications.)

Here are words closest to Netflix during the six month period. A score nearer 1 means the word is closer to Netflix:

('exclusive', 0.530),

('streamer', 0.513),

('original', 0.484),

('crown', 0.478),

('licensed', 0.473),

('uk', 0.464),

('india', 0.438),

('disneyplus', 0.418),

('hotstar', 0.400),

('rival', 0.396),

('competition', 0.393),

('hulu', 0.381),
('britbox', 0.354)

Note that over these six months media attention highlighted: 1) the importance of Netflix's exclusive originals (such as The Crown); 2) competition -- in India (Hotstar), in the UK (BritBox), and Disney's moves with Disney+ and Hulu.

But in the four days after the Q2 announcement, six words became particularly hot. We examined the uptick in these words by calculating their relative frequency compared to the six month baseline. The six words are: debt, cash, mobile, price, competitor, and advertising. Here are the results.

What this means, for example, is that the word debt was used 3.1 times as often on a relative daily basis during the July 17-20 period as it was during the prior six month baseline. The word advertising was used even more frequently (11.4x).

Here are some takeaways derived from our hot word analysis:

• Netflix's debt level, cash, and cash burn are receiving more attention. (As of June 30, 2019, Netflix has $12.6 billion in long-term debt, $5 billion in cash, and was burning through cash at a $3 billion/year clip.)
• Mobile is in the spotlight. (During Q3, Netflix hopes to reinvigorate growth in India by rolling out a lower-priced mobile-only screen plan. Mobile-only is likely to emerge as a hot area of competition not only in India, but around the globe.
• Pricing in the face of competitors massing at Netflix's borders is now a hot topic. We can no longer assume that Netflix can steadily increase its price. Pricing power is in serious doubt.
• Media attention is centered on Netflix's reiteration that it will remain an advertising-free environment: "We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false." Yet, industry experts argue that Netflix will not survive without playing more aggressively in advertising -- see, for example, Jeff Cole's insightful analysis here. Note that Netflix continues to experiment with product placement ads, including an effort by Coca-Cola to revive interest in New Coke with prominent placement in the third season of Stranger Things.

The remainder of Q3 may be more upbeat for Netflix as the company launches highly popular content such as Stranger Things, Orange is the New Black,  and The Crown.

But then Netflix better get ready for winter.