I have all heard of Netflix, and more so, I have all likely spent hours sucked into the

world of
one TV show or another that makes up the steaming system’s extensive collection of content.
With 75 million yearly subscribers, Netflix is a television powerhouse, home to some of the
most high profile shows in existence.
In 2006 Netflix announced the Netflix Prize, a competition for creating an algorithm that
would “substantially improve the accuracy of predictions about how much someone is
going to enjoy a movie based on their movie preferences.” There was a winner, which
improved the algorithm by 10%. However, Netflix never did implement the algorithm,
saying.The reality is that Netflix is a data-driven company. Saying that Netflix chooses
new content based on “whoever they can get a license with” is a very thin and vague
statement. Netflix does need licenses from studios, but they don’t just pick movies and
television shows at random.
Analytics at Netflix

The core job of analytics is to help companies gain insight into their customers. Then, the
companies can optimize their marketing and deliver a better product. Analytics gives
businesses the quantitative data they need to make better, more informed decisions and
improve their services.“There are 33 million different versions of Netflix.”– Joris Evers,
Director of Global Communications

As of July 2018, Netflix has 130 million worldwide streaming subscribers. Having this
large user base allows Netflix to gather a tremendous amount of data. With this data,
Netflix can make better decisions and ultimately make users happier with their service.

Traditional television networks don’t have these kinds of privileges in their broadca sting.
Ratings are just approximations, green-lighting a pilot is based on tradition and intuition.
Netflix has the advantage, because being an internet company allows Netflix to know
their customers well, not just have a “persona” or “idea” of what their average customer
is like. Let’s look at an example.

If you’re watching a series like Arrested Development, Netflix is able to see (on a large
scale) the “completion rate” (for lack of a better term) of users. For example, the people
at Netflix could ask themselves “How many users who started Arrested
Development (from season 1) finished it to the end of season 3?” Then they get an
answer. Let’s say it’s 70%.

How big of a ‘time gap’ was there between when consumers watched one episode and
when they watched the next? We need to get a good idea of the overall engagement of
this show.”

They then gather this data and see user trends to understand engagement at a deep level.
If Netflix saw that 70% of users watched all seasons available of a cancelled show, that
may provoke some interest in restarting Arrested Development. They know there’s a
good chance users will watch the new season.

In 2011 Netflix made one of the biggest decisions they’ll ever make. It wasn’t anything
material, but rather it was about content. They outbid top television channels like HBO
and AMC to earn the rights for a U.S. version of House of Cards, giving them 2 seasons
with 13 episodes in each season.
At a cost of $4 million to $6 million an episode, this 2-season price tag is over $100
million. Netflix has undoubtedly made other big money investments before (shipping
centers, postage costs, etc.), but nothing like this on the content side. So why did they
make such a big bet, and how did analytics factor into the decision? Let’s get into it.

Now you see how Netflix makes informed decisions based on data. Clearly, data cannot
make every decision; there are some situations where intuition has to take over. For
instance, data could not predict that a show like Breaking Bad would be a success. The
creator was a former writer on The X-Files, and dramas are 50/50. In these cases,
decisions are heavily based on the people and team behind the idea of the show. Whether
Netflix can make a successful show like this (one with little to no data) is yet to be seen.