Short-form videos on social media are both a problem and an opportunity for Netflix, co-CEO Ted Sarandos says

“When I look at the short-form viewing on YouTube and TikTok, some of it is adjacent and quite complementary to our viewing—our trailers, or creators expressing their fandom for our shows, like posting a Wednesday dance or ugly-crying watching One Day,” co-CEO Ted Sarandos said during the company’s Thursday call with investors and analysts, after reporting first-quarter earnings. 

Videos about Netflix content that go viral “actually increase the fandom of our shows,” Sarandos said. Having loyal fans is important to Netflix as it helps the company to build products and experiences around its content, like its nascent video game initiative and the brick-and-mortar Netflix House stores that will sell food and merchandise themed to its trending shows and movies. Of course, it also helps to attract and hold onto subscribers.

At the same time, Sarandos acknowledged the obvious rivalry that risks hurting Netflix’s business. “Some of that viewing is directly competitive with us,” he said. “The art of this has always been finding the right balance of both.”

Netflix isn’t the only streamer in competition with social media. Short-form videos—like those on TikTok, YouTube Shorts, and Instagram Reels—offer an alternative to traditional television programming. The videos can be highly addictive, researchers have found, because social media companies use algorithms to show users what most appeals to them, and the content feed is nearly infinite. 

In a Friday note to investors, AllianceBernstein analyst Laurent Yoon cited social media as a risk to Netflix’s business. Netflix may dominate streaming now, but that doesn’t mean it will do so into eternity. “Short form videos are taking users eyeballs, which could have a long term impact on engagement,” he wrote. 

Netflix wants to grasp consumer attention for as long as possible and is increasingly emphasizing engagement as a core metric for investors. Now that it has an advertising tier, the company can make more money from some subscribers based on how long a person watches content, and by extension, the commercials it shows them. And time subscribers spend scrolling through short-form videos is usually not spent watching Netflix as well.

Netflix’s first-quarter revenue and earnings ended up beating analyst expectations, despite the lure of social media to its users. The company generated $9.37 billion in revenue during the first three months of the year, up 15% from its year-ago number. The streamer also blew past the consensus estimate of $4.54 earnings per share, reporting $5.28, up 83% from the same time last year. 

Still, Netflix’s stock tumbled 9% on Friday after the announcement, to $558, due to a lower-than-expected revenue forecast for the second quarter. 

Netflix has its eye on content creators 

Hoping to better leverage social media, Netflix appears interested in developing shows and movies with people who have become social media stars, Sarandos hinted during the earnings call. Alliances would be a way for the company to cross over into social media without actually becoming social media.  

“These platforms have always been a way to have new voices emerge, and we’ve got our eye on them as well, to try and develop them to the next generation of great storytellers on Netflix,” he said.

The streaming platform has already produced a handful of shows with influencers, including Haters Back Off, a two-season 2016 comedy series featuring YouTuber Colleen Ballinger’s fictional character Miranda Sings. Netflix is also behind the 2019 series Tidying Up with Marie Kondo, a reality show about the Japanese home organizer Marie Kondo who became famous for her books and television appearances. 

Netflix may see the built-in audience that social media creators bring as a way to boost its subscriber count. Still, for now, at least, Netflix has a long way to go to get there. 

Rachyl Jones

Want to send thoughts or suggestions to Data Sheet? Drop a line here.

The rest of today’s Data Sheet was written by David Meyer.

NEWSWORTHY

Cybertruck recall. Tesla is recalling every Cybertruck it’s sold due to a rather nasty problem with accelerator pedals getting stuck. It had already paused deliveries after reports of the problem appeared in recent weeks, but now it’s recalling all 3,878 vehicles that have been shipped thus far, TechCrunch reports. And this is a recall requiring a physical fix, not the remote-software-update variety (of which one has already been applied to the Cybertruck).

FISA renewal progress. The U.S. Senate yesterday cleared the contentious reauthorization of Section 702 of the Foreign Intelligence Surveillance Act, in a procedural vote that still needs to be followed by a final vote, probably today. The question is whether the reauthorization bill will pass with or without amendments that expand the scope of the surveillance program to allow unprecedented spying on Americans, or that rein it in by demanding warrants for the surveillance of Americans. As The Verge reports, the White House favors expanding Section 702’s scope.

Google AI streamlining. Google is consolidating its AI models, research, and ethics teams into the Google DeepMind division, run by Demis Hassabis. CEO Sundar Pichai said in a note to staffers that the move was intended to “simplify decisions and help us work better and faster.” He also said Google was combining its hardware and software units into a new Platforms & Devices team, run by Rick Osterloh, which will also incorporate the Google Research teams that work on computational photography and on-device intelligence.

SIGNIFICANT FIGURES

€5 billion ($5.34 billion)

—The valuation at which Mistral is trying to raise €500 million, according to the Financial Times. The one-year-old French AI darling raised around €400 million four months ago, at a €2 billion valuation.

IN CASE YOU MISSED IT

Exclusive: Mercedes becomes the first automaker to sell autonomous cars in the U.S. that don’t come with a requirement that drivers watch the road, by Rachyl Jones

Apple removes Meta-owned WhatsApp and Threads from its China app store after Beijing deemed them national security risks, by Bloomberg

As Meta debuts its Llama 3 model, today’s generative AI landscape is a different animal, by Sharon Goldman

Deutsche Bank report questioning Tesla’s Robotaxi ambitions knocks $17 billion off EV maker’s value, by Ryan Hogg

Small Texas town foiled Russian hacker group that attacked its water systems, by the Associated Press

Taiwan’s surging energy prices are a warning for power-hungry American AI companies—and a boon for the biggest chip manufacturer, by Dylan Sloan

BEFORE YOU GO

Peeking inside Huawei’s latest smartphone. It’s a sign of the times that everyone wants to know what’s going on inside Huawei’s latest devices. After all, the chipmaking advances demonstrated in last year’s Mate 60 smartphone showed how China’s semiconductor efforts were more resilient against export controls than many had hoped. But The Register reports that Huawei’s new Pura 70 handset contains no surprises, with its Kirin 9010 chipset using the same 7-nanometer process as the Kirin 9000 inside the Mate 60. Looks like a nice phone, though.