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<\/a><\/p>\nNetflix\u2019s Data Approach<\/u><\/strong><\/p>\n We all know Netflix as the DVD-by-mail company with the little red envelopes. Visionary Netflix CEO, Reed Hastings, predicted that this business model would be a thing of the past and completely shifted the business model towards online streaming \u2013 its primary business today. But how did he do this successfully? The answer of course is data\u2026and lots of it.<\/p>\n After working at Netflix over the summer, the takeaway that stood out to me the most was that Netflix is not a media company\u2026at least in a traditional sense. Netflix is a tech company and their product just happens to be media-related. To be even more specific, Netflix is a big data company. Netflix has nearly 94 million subscribers around the world who currently stream on average 125 million hours of content a day. But they aren\u2019t just focused on simple streaming data. Netflix also collects data on when you watched, where you watched, how you watched, exactly when you stopped watching in the middle of an episode, what you searched for, how you browsed and TONS of other data. In aggregate, this leads to Netflix collecting TRILLIONS of data points! If this isn\u2019t big data, I don\u2019t know what is.<\/p>\n <\/p>\n Value Creation Through Data vs. Competitors <\/u><\/strong><\/p>\n Analytics, such as streaming data, gives Netflix insights into their viewers like no other traditional media company can get. Analyzing streaming data creates value for Netflix by letting them know exactly what viewers are watching and how popular certain shows are on the service. This allows them to negotiate effectively and figure out how much they should pay for content. If a particular show is driving a lot of usage on the service, then they know they can dramatically increase the amount they pay for the next season and still get a strong ROI and vice versa.<\/p>\n In contrast, cable TV networks have to rely on Nielsen TV ratings to understand how well their shows are performing. The problem with this is that TV ratings are estimates that are calculated using a small portion of the broader population. Of the 100+ million TV households in the US, Nielsen is collecting data on approximately 50,000. That means they\u2019re collecting data on less than 0.1% of the population! And though they consider it to be statistically significant data, wouldn\u2019t you rather know exactly who\u2019s watching what at any given time? That\u2019s the value creation that Netflix has that no TV cable network can match. On top of that, TV viewing is becoming fragmented on non-TV devices and Nielsen is still figuring out how to capture viewership on all other devices effectively.<\/p>\n Content Viewership Becoming Increasingly Fragmented Across Devices<\/u><\/strong><\/p>\n Value Capture vs. Competitors<\/u><\/strong><\/p>\n Netflix\u2019s data not only adds a lot of analytical value, but they are also able to capture it by making better business decisions than their competitors. For example, after collecting data for years on their streaming service, Netflix decided to enter the world of original content \u2013 effectively going from content distributor of long-tail content to competing with the biggest TV networks in Hollywood, including HBO. Their first two original series were House of Cards<\/em> and Orange is the New Black<\/em>. Both were outstanding hits and this was no coincidence. Netflix\u2019s data told them political dramas were doing well and that users particularly enjoyed content from Kevin Spacey. Thus, they had conviction like no other TV network would in this production. In fact, they were so confident that they commissioned two seasons of House of Cards<\/em> without even producing a pilot \u2013 something completely unheard of in Hollywood! Capturing this blockbuster series required them to outbid both HBO and ABC. This would not have been possible without the precise data they had available to them.<\/p>\n Future Industry Challenges and Opportunities <\/u><\/strong><\/p>\n Due to the lack of similar data for legacy media companies (networks and pay TV providers), we are seeing many of them suffer. Firms such as Viacom are finding it difficult to predict what audiences will want to watch on TV. As a result, their ratings are suffering and they are losing advertising revenue. If a new method of gathering more accurate data is not developed, they will continue to suffer and the beneficiary will be Netflix. Netflix is also extremely secretive of their data because they know how valuable it is and refuse to share it with anyone.<\/p>\n The real opportunity here is for Netflix to give the people what they want. Historically, creatives have held this power in their hands when deciding what shows and movies to greenlight. Netflix is actively trying to cut out creatives in the decision-making process and letting their users decide through their viewing habits. In a sense, every time you watch something on Netflix, you\u2019re helping decide what they will make next.<\/p>\n <\/p>\n Sources:<\/p>\n http:\/\/www.usatoday.com\/story\/tech\/news\/2017\/01\/18\/netflix-shares-up-q4-subscriber-additions\/96710172\/#<\/a><\/p>\n http:\/\/www.nytimes.com\/2013\/02\/25\/business\/media\/for-house-of-cards-using-big-data-to-guarantee-its-popularity.html<\/a><\/p>\n https:\/\/www.theatlantic.com\/technology\/archive\/2014\/01\/how-netflix-reverse-engineered-hollywood\/282679\/<\/a><\/p>\n https:\/\/www.wired.com\/insights\/2014\/03\/big-data-lessons-netflix\/<\/a><\/p>\n https:\/\/blog.kissmetrics.com\/how-netflix-uses-analytics\/<\/a><\/p>\n https:\/\/www.linkedin.com\/pulse\/amazing-ways-netflix-uses-big-data-drive-success-bernard-marr<\/a><\/p>\n https:\/\/thenextweb.com\/insider\/2016\/03\/20\/data-inspires-creativity\/#.tnw_ppsHYJ1X<\/a><\/p>\n http:\/\/variety.com\/2017\/digital\/news\/netflix-250-million-hours-1202010393\/<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n