Reed Hastings has a dream. Actually, it’s more of an obsession. The Netflix CEO wants his streaming video service to become the next HBO, but without the hassle of a cable subscription. It’s a bold plan, and if Netflix can pull it off, it’ll change the way you watch TV.
Netflix is gunning for the HBO original-content legacy. Its first exclusive series, Lillyhammer, debuted in January 2012. Critically acclaimed sitcom Arrested Development is being resurrected for an exclusive run on Netflix. Plus the first episode of the Kevin Spacey vehicle House of Cards will be directed by David Fincher.
All of this is big news for a company that started off by shipping DVDs to customers too lazy to return rentals to brick-and-mortar stores before incurring late fess. Netflix doesn’t just want to compete head-to-head with the established television networks with exclusive content. It wants to do it by using something that traditional networks don’t have: Access to your viewing habits and preferences. It knows who watches what and it’s making huge bets that their algorithm will help it determine which shows will be hits.
Plus, by delivering an entire season at once, the company would be putting all the power in the hands of viewers and could destroy “Event TV.”
But, securing original and exclusive content is a far cry from stuffing envelopes or making sure its network can handle weekend streaming traffic. Still, Netflix believes that it needs original content to keep ahead of streaming video challenges from Amazon, Vudu and even HBO GO. It wants to be the first real network of the Internet.
It better move quick.
Netflix accounts for 33 percent of peak streaming downloads, according to network traffic tracker Sandvine Inc. Its closest competitor, Amazon, accounts for 1.8 percent. That’s a comfortable lead, but even Hastings realizes the company must differentiate itself and keep ahead of the pack.
“If we do our job right, there’s always a reason to be a Netflix member on the original side in addition to the license side,” Hastings told reporters during the third quarter earnings call.
To get people excited about its original content, Netflix needs a hit, and its process of mining for gold is different from traditional networks. Shows like the Walking Dead are hits out of the gate, while others, like X Files, gained viewers as the show matured. Netflix, like all networks, wants a string of hits. But instead of generating a ton of content and hoping something resonates with viewers, it is using its vast data set of 29 million subscribers’ viewer habits and preferences.
While networks traditionally order a show based on whether it likes a pilot, Netflix ordered two full seasons (26 episodes) of House of Cards without seeing a single scene. It reportedly bid more than $100 million to secure first rights to the show, outbidding HBO and AMC because it is utterly convinced the show will be a big hit.
Why? Because it is counting on data mining and algorithms to provide an edge. The company knows how many people are watching Kevin Spacey and David Fincher movies and it knows how many viewers watch political thrillers. If that audience is large enough, getting exclusive access to House of Cards makes sense.
“We know what people watch on Netflix and we’re able with a high degree of confidence to understand how big a likely audience is for a given show based on people’s viewing habits,” company communications boss Jonathan Friedland said. “We want to continue to have something for everybody. But as time goes on, we get better at selecting what that something for everybody is that gets high engagement.”
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Netflix Gambles on Big Data to Become the HBO of Streaming
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Netflix Gambles on Big Data to Become the HBO of Streaming
