How Netflix Uses Big Data to Drive Big Business

Netflix, at its core, is a very simple concept. They provide access to stream thousands of films, television shows, and documentaries on demand through the customer’s internet connection. All this really requires is a cloud data center that their customers can connect to. In principle, it is simple.

Yet, the sheer scale of the operation creates enormous complexity and requires some immensely powerful computer systems to pull it off effectively. The fact that it works and it works so well is an achievement in both logistical planning and computing.

Like Ouroboros, the snake eating itself, it is precisely the size of the operation that continues to feed its continued growth. Netflix uses their vast collections of user data to decide upon the direction for the company, and that vast collection of data is compounded and expanded every day as users continue to make choices about the content they watch.

 

A Snapshot of Netflix Today

Netflix is big. We all understand that, but how big can it really be? Even your largest approximations likely fall short of the reality.

 

  • Number of Countries: Before January 2016, Netflix was available in just over 100 countries worldwide, but early this year made a huge leap forward by adding another 130 countries. Users can now stream their favorite TV shows and movies in 243 countries.

 

  • Number of Users: As of the end of Q1 2016, Netflix announced that they had 81.5 Million subscribers.

 

  • Number of Titles: The actual number of titles in the Netflix library is hard to pin down. It varies from country to country, and there is certainly overlap in titles between them. Furthermore, this list is regularly changing as contracts expire and content is added or pulled from the roster.We shall instead narrow our inquiry to the United States and contrast it against another country. In January when these numbers were pulled, the U.S. alone had access to 1,081 television shows and 4,579 movies, and we can expect the current number to fall somewhere in that vicinity.The United States, not surprisingly, has the largest library available to them and the numbers range from 1,081 / 4,579 in the US. compared to 33 television shows and 200 movies in Albania.

 

  • Titles Played: As these millions of users watch Netflix around the globe, it totals to 400 billion titles a day and 8 million titles a second.

 

Much like the Great Wall of China or the Grand Canyon, if something is large enough, you can see it from space. All of these numbers are awe-inspiring, but they pale compared to their larger effect on the internet. If millions of people are watching billions of shows during the day, it consumes a significant portion of the entire internet traffic. During peak hours, Netflix actually accounts for as much as 37% of the entire internet bandwidth.

 

Why Vary in Titles by Country?

There are a number of factors contributing to the disparity in available shows and movies by country. The first factor is cultural taste. Some films and shows are going to perform better or worse in certain countries. For example, Netflix’s first original production, House of Cards, is the story of an ambitious Congressman in Washington D.C. struggling to carve his way through the American political system and seize power. It was a runaway hit in the United States and was nominated for nine Emmys in its first year.

Yet, House of Cards is not going to perform as well in Europe or more specifically, the UK. It lacks the cultural tie. To address that, Netflix intends to produce content geared towards foreign cultures. For example, Netflix is planning to release The Crown, a drama about Queen Elizabeth II, in November with a reported budget of $170 Million.

The second is a matter of licensing. Netflix does not own any of the films or shows it makes available to its audience—with the exception of Netflix’s original series like the aforementioned House of Cards. They must negotiate for distribution rights with the organization that actually owns the title, and they must do so for each and every show or film in their library. When you factor in international distribution laws and the sovereign laws of all 243 countries Netflix operates in, the whole endeavor becomes dizzying.

 

Netflix and Big Data Analytics

8 million clicks a second creates an enormous amount of data, and Netflix is not going to let it go to waste. Famously, Netflix leverages its own user history and interactions with their platform to drive their decision making process going forward. Here are just two ways they use Big Data to drive big business.

 

  • Cover Photos: Have you ever noticed the cover photos for titles change? Sometimes it is the box art from the prepackaged DVD, and other times it is a completely original image seen nowhere else. Netflix will actually use A/B testing to determine which image is better for their business. Here’s how it works. 
    • Netflix will disseminate both images to their audience. As you scroll through the library, you are randomly assigned on of the images in contention. 
    • After a period of time, Netflix will gather the analytics on both images, and see which image inspired more users to click. 
    • The winning image will become the permanent image for the title, but if performance slags, they may reassess the artwork.

 

  • Netflix Original Series: Netflix’s first original work was House of Cards, but the choice to produce this particular title wasn’t some spark of artistic clarity. It was a calculated decision based on data. They looked at three things. 
    • Cast: Using their analytics, they found that titles including Kevin Spacey performed exceedingly well on average. 
    • Director: David Fincher’s work not only generates clicks, but viewers tend to watch his titles all the way to the end. 
    • Narrative: House of Cards is actually a retelling of a British television series, which is an adaptation of a book all by the same name. The British series had been on Netflix for some time and also regularly performed well.

 

With this information in hand, the decision to produce a title involving some of their user’s favorite actors, directors, and stories was a simple one.

At every level of their organization, Netflix uses data like this to guide their decisions. While intuition and instinct may be valuable business assets, it is hard to argue against direct evidence, and they have nine Emmy nominations to prove it.

 

For Further Reading:

How Big Data Is Earning Your Vote in 2016

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