Analytics at Netflix
By: Keshav Aggarwal
Tags: Big Data, Data Science, Data Analytics, Netflix

Netflix is one of the world’s leading internet TV service, whose business model is based on subscription rather than advertising which is typical of traditional television practice. Netflix’s profit is directly proportional to the number of its subscribers. In order for content license payment to be profitable, optimum viewing rates needs to be ensured by Netflix.

Netflix has a large user base of 180 million worldwide streaming subscribers, which enable Netflix to gather a tremendous amount of data. With Netflix brimming with data; it uses data analytics to its advantage in order to gain insights into their customers. This enables Netflix to optimize their marketing and deliver a better product to the customer. Analytics provide Netflix with quantitative data that they need to make better and more informed decisions for their user.

Netflix gathers user data on the basis of age, gender, location, their taste in media etc. By gathering data about consumer interaction Netflix can dive right in the minds of the user to know what they might like to watch even before they finish a show or movie. Netflix knows the time and date a user watched a show, the device used, if the show was paused, does the viewer resume watching after pausing? Do people finish an entire TV show or not, how long does it take for a user to finish a show and so on. Netflix even has the screenshots of scenes users might have viewed repeatedly, the rating content is given, the number of searches and what is searched for. With the help of Data Analytics, Netflix gives meaning to the data collected.

In addition to collecting data on subscriber actions, Netflix also encourages feedback from subscribers in the form of thumbs up/thumbs down system to encourage audience engagement.

Netflix has developed recommendation algorithm which suggests TV shows and movies based on user’s preference. The recommendation algorithm strives to help find a show or movie for the user with minimal effort. It takes into account users interaction with Netflix, other members having similar tastes and preferences and information about titles. Recommendation algorithm accounts for over 80% of the content steamed on the platform.

Netflix tries to retain its subscriber base with the help of the recommendation algorithm. Netflix through the data collected knows how much subscriber need to watch monthly for them to be less likely to cancel the subscription. For example, if Netflix has the data that a user is 75% less likely to cancel Netflix subscription if it watches the content for at least 15 hours a month and if the viewing hours drop below 5 hours then there is 95% chance of the user to cancel their subscription; then Netflix will try to incorporate mechanism which ensure that the user watches at least 15 hours. To ensure that the user continues to watch the show Netflix uses post-play, which automatically plays the next episode of the TV show unless the user opts out of it.

Licensing movies/shows can become expensive sometimes, so Netflix uses data to decide which movie to license. Netflix usually looks for those titles that deliver the biggest viewership relative to the licensing cost. This in turns means that Netflix forgoes title that aren’t quite watched relative to their cost. For this, Netflix ascertains through data the types of movies/shows people enjoy watching.

Data analytics also plays an integral role when the content creators come up with an idea about a new show or a movie. There are loads of data of the content created previously and how users perceived the previous content. Data Analytics helps to suggest possible solutions to the many challenges faced in the planning phase. These challenges could include identifying the shoot locations, time and day of the shoot and more. This enables Netflix to save a significant amount of effort in planning and also reducing cost.

Judicious use of Data Analytics is the main reason for the success of Netflix. Big Data plays a critical role in not just deciding the functioning of Netflix but also presents newer opportunities to grow. Big Data and Data Analytics are such an integral part of Netflix that we may call Netflix as Data Analytics company than a media company. Though still Netflix does not take all its decision based on Big Data as it still relies on human inputs for a lot of decisions. But Netflix’s success highlights the value of data analytics as it provides incredible insights into user’s preferences which allow them to make smart decisions and deliver maximum ROI on their choices.