Welcome back to What I’m Hearing+, live from London, where I’m visiting clients, seeing family, and power-walking through as many museums as I can.

Tonight, in light of Netflix’s recent earnings call, I offer a close look at why the company seems to be courting Madison Avenue as much as Wall Street. Also: What does its new focus on engagement mean for companies playing catch-up? And how we’ve evaluated streaming businesses? All that and more, below the fold.

The rest, of course, is history. Save for a few rough quarters, Netflix seamlessly built an international business with some 270 million global subscribers and a $250 billion market cap. And the company’s success seemed so definitive and logical that it inadvertently convinced its competitors to play catch-up, amassing tons of debt—Disney, $4.5 billion; Comcast, more than $3 billion; Discovery, $40 billion—as they tried to keep pace in the streaming wars.

A couple years ago, however, Netflix began to pivot off the subscriber number. Sure, there were some self-serving motivations—like the fact that subscriber growth, particularly in the U.S. and Canada, was slowing. But the metric, itself, had also been corrupted as competitors were trying to impress Wall Street by stacking their overall growth narratives with seasonal subscribers paying fractional sums just to watch, say, cricket. These numbers weren’t totally bogus, but they were misleading and didn’t generate meaningful recurring revenue or enhance the important average revenue per user (ARPU) metric.

During last week’s earnings call, Netflix doubled down on this pivot by announcing it would do away entirely with reporting subscriber counts, including projections, by next year. “This change is really motivated by wanting to focus on what we see are the key metrics that we think matter most,” co-C.E.O. Greg Peters told analysts. “So we’re going to report and guide on revenue, on O.I. [operating income], O.I. margin, net income, E.P.S. [earnings per share], free cash flow.” As the company noted in its earnings letter, back in its earliest days, “membership growth was a strong indicator of our future potential.” But now, “success in streaming starts with engagement.”

The new focus on engagement is directed at advertisers and marketers, and attempts to reframe the definition of success on the company’s underperforming ad tier. In its earnings report, Netflix touted Nielsen data from April 2023 to March 2024 when noting that it had “the number one streaming movie (e.g., The Mother, The Killer, Heart of Stone) for eight of the first 11 weeks and the number one original series (e.g., The Lincoln Lawyer and Black Mirror) for nine of the first 11 weeks.” The report also emphasized the company’s success in cultivating “fandom,” using some bizarre metrics for trailers viewed on the platform. It boasted that its own trailers “generate over six billion impressions every month on Netflix—more than 40x what they get on YouTube.”

That last line is critical. The earnings report is pushing two narratives targeted at Madison Avenue—first, that Netflix’s engagement is far ahead of other streamers; and, also, its level of fandom is on par with YouTube. The company seems to be side-stepping its low overall ad-tier membership by trying to create sponsorable opportunities around top series, such as Love Is Blind. Netflix’s argument, which you can hear in Peters’ comments, is that heightened fandoms on Netflix make marketing far more beneficial from an R.O.I. perspective. This is a differentiator for the platform, and it may indeed increase ad spend over time. It’s not unfathomable that the ARPU of the ad tier will eventually outpace the premium tier. This has been the Hulu strategy all along.

For instance, Apple doesn’t break out paid subscribers on TV+, Music, Fitness+, or any of its other services. It doesn’t even really proclaim each quarter how much revenue it’s pulling from micropayments in popular games like Candy Crush. Instead, it breaks out total services revenue. Likewise, Amazon rarely breaks out any of its entertainment data; instead, it’s reported as part of its overall subscriptions revenue, too. Yes, media is a side hustle for those companies, but their management teams long ago convinced Wall Street that their revenue and engagement numbers spoke for themselves.

So what happens to the other players trying to wow Madison Avenue and Wall Street with their streaming pivots? Will Disney stop reporting sub numbers? In a word, no. These companies still need to prove growth. Disney can’t point to its Nielsen share of monthly viewing time, where Disney+ is sitting just above Tubi, in the same way as Netflix can. Sure, Disney can point to Hulu and Disney+ as one buy-in opportunity for advertisers, but that’s still a smaller viewership share than Netflix and it’s still not all on one platform.

Their revenue and profitability narratives aren’t there, either. NBCUniversal lost $850 million on Peacock in its most recent quarter. Disney, which may report a slight profit in its upcoming quarter, isn’t close to the $8 billion in free cash flow it has predicted from streaming. Yes, Warner Bros. Discovery is profitable on streaming, according to its adjusted EBITDA, but barely. These stories are cost-cutting stories.

So… how do you compete with Netflix? The answer used to be: Hit Netflix where it hurts. Sure, Netflix has the highest engagement—but nearly 50 percent of that engagement comes from titles Netflix doesn’t own. This was the pitch by Disney, Paramount Global, NBCUniversal, and others when they got into streaming. As Bob Iger famously put it, companies like Disney were providing weapons to third-world countries. That argument still holds. But Netflix’s stable engagement is largely based on its near 50-50 split between originals and licensed content, including in local languages in international territories. And yet, neither Wall Street nor Madison Avenue cares where the content is coming from—they just want to know who’s monetizing it best. Companies like Disney and HBO are defined by the adoration they command. Netflix, instead, is defined by the convenience it provides.

Long-term, that adoration and brand differentiation may be the saving grace for Disney and Warner Bros. Discovery, but in the short term, analysts want improved quarterly financials and advertising executives want more engagement, engagement, engagement. Convenience wins out on both every time.