Netflix Uses Data to Drive Creativity, and It Terrifies Hollywood

“There’s a whole thing going on in Netflix right now and in Silicon Valley saying, ‘We’re going to use algorithms to make creative decisions.’ I say ‘posh.’ You can’t. It’s not like making a computer program that can work in the fixed and formal rules of chess.” —John Landgraf, CEO, FX Networks

Is big data a help or a hindrance to creativity? I had the chance to explore the topic with Michael D. Smith, a professor of information technology and marketing at Carnegie Mellon’s Heinz College and Tepper School of Business and the author of Streaming, Sharing, Stealing: Big Data and the Future of Entertainment, cowritten with Heinz College professor Rahul Telang.

Netflix has a lot of data about what we like to watch. It began collecting data years ago, when it was in the business of sending DVDs through the mail. It turned to that data when it began commissioning original movies and series. It was able to make smart decisions about what genres, directors, and actors we wanted to see, and how to fund each project based on expected viewership.

That approach has led to some critics, like FX’s Landgraf, accusing Netflix of programming by algorithm, of replacing intuition, experience, and Hollywood know-how with a computer routine. To critics, the Netflix formula produces hollow results and ignores the value of the creative process.

What Smith and Telang show in their work is that Netflix doesn’t use data for creative decisions; it uses data to match content with viewers. Netflix is excellent at getting out of creative peoples’ way, Smith says. Unlike studios, it lets its talent do its work without a lot of notes or advice. When projects are completed, it uses its data to match them with viewers who will mostly likely enjoy them.

Doing so not only drives views, it also helps with discovery. Netflix churns out a lot of original content, and subscribers could easily feel overwhelmed if they had to wade through it all. But they don’t—they only see the titles Netflix is pretty certain they’ll like.

It’s something the big broadcasters can’t do, Smith notes. Broadcasters can only show one program at a time, so they go with whatever they expect to get the biggest return in each slot. Netflix doesn’t have to turn every show into a blockbuster, so it’s free to create niche hits that appeal to specific groups. The power of Netflix’s data is in microtargeting.

With that in mind, Netflix’s four-picture deal with Adam Sandler starts to make more sense.

Hollywood creatives have been surprisingly vocal about their dislike of Netflix. Consider that Steven Spielberg joined the Netflix hate squad in March, saying Netflix output should be considered TV movies and not be eligible for Oscars.

Some of this comes from wanting to protect the traditional theater model or the glamour of a theater opening. Some people look at Netflix’s data and think it has an unfair advantage.

“Netflix can do things that would be very difficult for Hollywood to copy,” Smith says. “There’s a quote that we use in the book where [Netflix chief content officer] Ted Sarandos is sitting around a table of TV execs and he says, ‘The difference between my business model and everybody else here is that we can hit singles and doubles and the business is just fine.’ I think what he’s saying is the traditional business of Hollywood is, blockbusters are everything. You’ve got to have the blockbusters. It’s hard to sell a piece of niche content in any of the existing channels. What Ted Sarandos is saying is that we can sell niche content. If I can find an audience who likes this and is going to subscribe next month, it doesn’t have to be a big audience. I just have to be able to find them.”

In the 2018 Oscars, Netflix had two big winners, Mudbound, which was nominated for four awards, and Icarus, which won best documentary feature. Both were movies Netflix acquired rather than commissioned, but the company still used its data to find each an audience (after brief theatrical runs). Some Academy members were vocal about not wanting to vote for a Netflix movie.

While studios condemn Netflix’s business model, they’re doing their best to reproduce it. The mergers and acquisitions we’re seeing these days are all about major media companies trying to own customers’ data so they can serve targeted content the same way Netflix does. Models are changing, and studios see they’re at risk if they don’t own the data, so there’s a race to best serve the viewers.

read more here: www.streamingmedia.com

2018 Will Be Netflix’s Best Year (yet)

Netflix’s growth, especially outside the United States, has been so robust that some analysts had to change their outlooks. “These forecasts are a lot higher than the last edition of this report,” says Simon Murray, principle analyst at Digital TV Research, of his Netflix Forecasts report. “Similar to many other analysts, we underestimated the fast take-up in international markets.”

That fast take-up suggests Netflix will have its strongest year ever in 2018 as it adds 28 million subscribers. Its growth should slow after that, Digital TV Research believes.

By the end of 2023, look for the SVOD leader to count 201 million subscribers around the world. That’s up from 111 million at the end of 2017. By the end of 2023, North America and Western Europe will make up 62 percent of Netflix’s customer base. That’s down from the 76 percent they made up in 2017 thanks to surging demand in other countries. For example, look for the Asia Pacific region to make up 14 percent of Netflix’s base by the end of 2023.

“Netflix expanded to 130 more countries (notably excluding China) in January 2016 to bring its total to 190 countries.” says Simon Murray, principle analyst at Digital TV Research. “The 130 new countries will have 40 million subs combined by 2023, quintuple the 8 million at end-2017. The 2023 figure corresponds to 20 percent of Netflix’s global total; up from only 7 percent in 2017.”

As for revenue, look for it to grow from $11.3 billion in 2017 to $28.8 billion by the end of 2023. Of that, $11.2 billion will come from the U.S.

Netflix Q1 exceeds expectations

Netflix’s Q1 numbers show that the OTT operator is growing as fast as ever. It added a net 7.4 million global subs during the quarter, only slightly down on the previous quarter’s record-breaking 8.33 million.

US new additions were also healthy at 1.96 million. Overall, this latest quarter year were the second-biggest ever, and the quarter-year exceeded all consensus expectations, and to a total of 125 million subs. International operations now generate 50 per cent of revenues, and 55 per cent of its subscribers.

Netflix generated $290 million (€234m) net income on revenue of more than $3.7 billion. That compared to net income of $178 million and revenue of $2.63 billion during the previous-year Q1 period.

Netflix’s CEO Reed Hastings and Chief Content Officer Ted Sarandos took the analyst call with Benjamin Swinburne of investment bank Morgan Stanley, and confirmed that they would be spending “upwards” of $8 billion this year on content.

As to the recent bundling of Netflix into the pay-TV operations of Comcast and Sky, Gregory Peters, Chief Product Officer, said: “We love the fact that we can work with these partners to access whole new groups of consumers, make it easy for them to find out about Netflix, to sign up and have a great way to access the service and watch more and more. So you’ll see us leverage that sort of evolving strategy not only in the markets that we’ve been in for many years, but also in these new markets.”

Netflix confirmed that it will be launching a dedicated service to mobile phones. Peters said: “We definitely want to have a mobile experience which allows us to access more of that market and access a group of consumers who basically only want to have their relationship with Netflix on a mobile device. And so whether that is making sure that our apps are lightweight enough so they load really quickly and have a great experience there, to making sure that our encoding is very, very efficient, so that even if you have a less-than-great network connection, you can still get a really incredible video experience on that mobile phone.”

read more here: advanced-television.com

Netflix’s real advantage is that it’s a tech company first

Netflix hasn’t been coy about its plans to take over Hollywood. The company has already said it could spend up to $8 billion on content this year alone. But, for all the awards House of Cards and Icarus rack up, one of the reasons Netflix has tasted success so rapidly is its streaming technology. That’s an area it has been perfecting in-house since 2010, when it became more than a simple mail-order DVD rental shop.

For Netflix, the tech is just as important as the storytelling. Regardless of how many shows or movies Netflix produces, it needs to ensure that its 118 million subscribers can watch them without issue — no matter where they are in the world, which smartphone they own or how fast their internet is. Netflix even recently re-encoded its entire catalog (said to be around 6,000 titles) to produce the best possible picture using the smallest amount of bandwidth, which was made possible by an AI technology it developed called Dynamic Optimizer.

During a tour of its Hollywood and Los Gatos headquarters, Netflix said that a typical episode of a show like Jessica Jones, which is roughly an hour long and is captured in 6K resolution, weighs in at 293GB of raw, unedited footage. That amounts to about 750 Mbps of data, which would basically kill your internet plan if you streamed it before it was compressed. The company says it used to be able to deliver content with “an enjoyable quality” at 750 Kbps, but last year it started using a new encoding framework that shrunk that to a mere 270 Kbps. In the real world, that means that if you have a 4GB data plan, you can watch 26 hours of Netflix per month, up from just 10 hours before. These improvements are especially important for developing regions where Netflix is trying to grow its business — particularly in Africa, Southeast Asia and South America.

Of course, Netflix isn’t the only one trying to develop the best streaming tech possible. BAMTech, the startup created by Major League Baseball’s Advanced Media and now owned by Disney, takes credit for being the first to stream in 60fps and in 4K. And its technology has such a solid reputation that it powers many of the most popular streaming services, including HBO Go, WWE Network and MLB.tv. Disney will join that list when it launches its own offering in 2019, which is setting up to be a major challenger to Netflix, with cheaper monthly fees, a library full of popular titles and BAMTech’s engine under the hood.

The quality of streams counts for only so much, however, and Netflix is well aware of this. As such, the company says its other main focus is to provide the filmmakers it works with the necessary tools “to create content at a high level, then distribute that around the world.” Netflix says that most of its original shows and movies are being shot in 6K — though it’s only delivering that picture in 4K right now. Still, not only does this allow it to be ahead of the curve (others, like HBO, stream only in 1080p), but it gives Netflix the ability to future-proof its content.

Netflix has also been a big proponent of high dynamic range, which delivers richer colors and deeper blacks. The company now has more than 300 hours of HDR programming, but it says the challenge is to not make content only look good on high-end TVs. Everything Netflix makes and streams needs to be just as perfect whether you’re watching on an iPhone X, a Galaxy S9 or an older, entry-level smartphone.

read more here: www.engadget.com

Three Strategies to fight Netflix

In just a few years’ time, the way we consume entertainment has changed drastically. Netflix and other video streaming services have taken the industry by storm, encouraging consumers to cut the cord and enjoy their content on demand. In fact, last year Netflix users collectively watched 1 billion hours of content each week, and more than 22 million U.S. adults were expected to drop cable services, up 33% from the previous year — a major blow to cable companies.

With streaming on the rise, how can cable outlets keep their current customer base coming back?

Stay Transparent

Open communication is key to maintaining a healthy customer relationship. When it comes to set-up fees, service upgrades or any extra charges, cable providers should be up front about a customer’s tab.

Unexplained price increases are a common cable customer gripe, and with monthly charges up an average of 53% in just a decade, according to S&P Global Intelligence figures cited by the Associated Press, customers are turning to alternate options. Nobody likes seeing an unexpected uptick in their monthly bill — be prepared to explain why things may be changing, and it’ll go a long way toward maintaining customers’ trust.

Tap New Revenue Streams

Who doesn’t like a healthy bottom line? By offering a valuable benefit like customized consumer electronics warranty products for TVs, gaming systems, laptops and more, cable companies can give current customers another reason to stay on board. Include this protection in a customer’s overall package, and you become much more than just a cable provider — you’re a one-stop shop for devices, service and coverage. Plus, you’ll be adding another line of revenue.

Don’t Be a Robot

While consistency in messaging is important when communicating with your customers, train your service reps to avoid being robotic in delivery. Sure, everyone has a script to read, but a simple gesture like asking the customer how their day is going can make a tremendous difference in the tone of a service call.

That interaction can have effects beyond one call as well. Angry customers aren’t hesitant to post bad reviews or recorded conversations online, potentially affecting your reputation. Take Comcast for example, where $300 million was pledged toward an updated customer service strategy. After multiple complaints, the cable giant promised customers incentives like $20 if a representative is late to an appointment, and a redesigned monthly bill to better answer customer questions.

read more here: www.multichannel.com

Netflix Will Have Ads, – Predictions From Top TV Ad Chiefs

Netflix will inevitably need ads, predicted Jo Ann Ross, CBS’ president and chief advertising revenue officer, during a fireside chat at AdExchanger’s Industry Preview on Thursday.
“Maybe they’ll offer a lower-cost version of their service [or a different model],” she said, “but if they’re spending that much money [on content], they will look for ways to monetize it other than through subscription.”

That proclamation was one of the many that Ross made during the two-day digital marketing conference in New York.

Another prediction: More networks will reduce their ad loads, which echoed a promise NBC ad sales chief Linda Yaccarino made a few months ago.

CBS has already experimented with lighter ad loads in its streaming video-on-demand service, CBS All Access, which offers 20% fewer ads than in its linear programming.

Yet, more consumers opt for CBS’ ad-supported tier than pay more for the ad-free edition, Ross said, leading to the conclusion that consumers don’t mind ads – as long as they’re attached to quality content and a good user experience.

NBC’s Yaccarino also appeared at Industry Preview during a separate fireside chat. Following are three takeaways from CBS’ and NBC’s top ad sales execs.

Subscription video and linear TV can coexist.

With the rise of subscription video on demand (SVOD), more consumers are bingeing on time-shifted content than ever before.

Bingeing is both good and bad for broadcasters.

On the down side, it’s harder to capture viewers in a live, linear setting when they’re playing catch-up on their favorite series after its original air date. That said, many brand advertisers still view linear TV as the most effective reach play.

“Where do marketers go when they want scale and immediacy? They come back to broadcast,” Ross said. “So it’s a negative and positive for us.”

The upfront isn’t going away. It’s getting data-driven.

Ross noted that the annual broadcast upfronts are increasingly about the data.

“Clients are taking huge, multimillion-dollar budgets and might carve out a portion to transact on data,” Ross said. “Clients and marketers want to be more targeted. They want to understand the attribution points that do lead to return on investment.”

And the brand safety issues plaguing digital video portals make the upfront process more attractive.

“You can proactively pick and choose the content you want your messages to run across in advance,” Yaccarino said. “In television, time exists … it’s perishable, and you’re talking about specific spots in a pod at a certain day and time. That time goes away if you don’t schedule ahead. It’s why upfronts are important.”

The broadcast community was a natural beneficiary of the tension last year between advertisers and online video portals, as big spenders like P&G and Unilever scaled back or reconsidered their online ad investments due to brand safety issues.
Since TV is transacted in a futures market and supply is finite, the chances of an ad showing up next to unsavory content are slim to none.

Measurement needs a makeover.

The lack of comprehensive industry standards across the fragmented worlds of linear TV and digital makes it difficult for TV networks to give marketers “the best possible opportunities,” said NBC’s Yaccarino.

Yaccarino has been bullish on finding alternative currencies to Nielsen as her network doubles down on outcomes-based selling and audience guarantees based on new data sets.

CBS’ Ross also called out the need for clearer visibility in measurement and a common metric that accounts for linear, live viewing, as well as over-the-top and on-demand viewing.

“Nielsen promised us a total audience rating,” Ross said. “They’re working on it, but we are not there yet. There’s so many different devices that you can’t measure accurately across them yet, which has been the challenge for Nielsen.”

read more here: adexchanger.com

OTT video takes center stage for TV networks at CES

After spending years treating over-the-top video streaming as something to address in the far-off future, TV networks are actively shopping their streaming apps to marketers and technology companies at CES.

CBS, for one, gave a 20-minute presentation to marketers touting its OTT products, which include the ad-supported subscription service CBS All Access, ad-supported news network CBSN and forthcoming services for CBS Sports and “Entertainment Tonight.” Turner, which has two ad-free subscription services and plans to launch a still-unnamed sports streaming service in the spring, has been meeting with distribution partners to discuss its growing OTT ambitions. Hulu, meanwhile, used CES to announce that it has 17 million subscribers across its subscription and live TV products, up 40 percent since May 2016.

“Years ago, there was Netflix envy; [these products] are our answer to that,” said Jennifer Mirgorod, evp of content distribution and strategic partnerships at Turner. “We’re able to say that we’re now playing in that space.”

Turner has two existing ad-free subscription services: FilmStruck, for classic movie buffs; and Boomerang, which offers episodes of “Looney Tunes” and other classic cartoons. These services complement Turner’s existing linear TV businesses such as Turner Classic Movies and Cartoon Network and Adult Swim, said Mirgorod, who declined to reveal how many subscribers each service has.

We’ve always had strong brands, but they have always run through distributors — we’ve never had that one-to-one relationship with the customer,” said Mirgorod. “The idea was to launch products that could be complementary to the regular linear business but also allow us to go direct to consumers.”

For FilmStruck and Boomerang — as well as the forthcoming sports streaming service, which will offer both live sports and other original sports programming and likely include advertising — Turner is meeting with OTT distributors such as Roku, Amazon and Apple. The conversations are centered on using data to grow subscribers across the different platforms, Mirgorod said.

Turner has also been meeting with streaming skinny-bundle providers such as DirecTV Now, Hulu live TV and YouTube TV, Mirgorod said.

“They’re all significant players now because they have real [subscribers],” said Mirgorod. “At one point, we were afraid that the providers would take away market share [from linear], but it ended up expanding the market.”

CBS, meanwhile, has been pitching marketers on the national-level scale that its existing OTT products already have. CBS All Access has more than 2 million subscribers, the company said. CBSN streams, meanwhile, were up 17 percent in 2017 over the previous year. (CBS wouldn’t say to what, though.)

“In years past, we’ve spent time talking about the specific consumers that were diving in early to the OTT market. This year is really has grown; we’re no longer just talking about the OTT consumer. There is so much internet video being delivered on devices to so many people of all age groups, we’re really now talking about ‘consumers’ in general,” said Marc DeBevoise, president and COO of CBS Interactive. “We were fortunate to have been early in OTT through our CBS All Access and CBSN services, both of which have experienced tremendous growth since launch, and we are continuing to invest in this space, in these services, their content and new services we will bring to market.”

Overall, CBS did “hundreds of millions” in OTT-related revenue last year, according to a source. Hulu’s ad revenue, meanwhile, surpassed $1 billion for the first time last year, the company said.

read more here: digiday.com

TiVo: 20% of time spent consuming video

According to findings from entertainment technology and audience insights specialist TiVo, the average global viewer spends 4.4 hours each day watching video. Coupled with the global average of 28 minutes spent each day searching for content to watch, that is nearly five hours per day of video engagement, which amounts to 20 per cent of daily life, building à la carte entertainment experiences that work best for them.

The company’s annual multi-country Global Consumer Trends study explores viewer engagement with the video content, services and devices that shape the evolving consumer entertainment experience.

The study also found that about 90 per cent of households are currently paying for traditional pay-TV service. However, more than 60 per cent are also subscribing to streaming video services such as Netflix, Amazon Prime and Hulu.

In the US, more than 50 per cent of pay-TV subscribers have been with their service for four years or more. Subscribers with the shortest tenure are also the least dependable: more than 10 per cent of those who have subscribed to cable for a year or less say they’re very likely to cut the cord in the next six months.

It’s not just the amount of content that has exploded in the last few years. People now have more screens than ever at their disposal to watch their favourite videos. Nowhere is this truer than in Latin America, where 50 per cent of all viewing now takes place on a digital device other than a television set, according to the study. By way of comparison, viewers in the US say that more than 75 per cent of their video consumption still occurs on their TV.

“Consumers today are acting as their own aggregator, piecing together what they need from a variety of video service and device combinations to suit their individual needs,” said Paul Stathacopoulos, vice president, Strategy, TiVo. “Success in this new environment will not be about a single content source monopolising the living room, instead it will be about adapting the business model to deliver value, integrated services and personalisation to meet the evolving consumer needs.”

read more here: advanced-television.com

Amazon to make more video revenue than Netflix in 2018

Amazon will overtake Netflix to generate more over-the-top (OTT) video revenue in 2018 thanks to its “growing array of ways to pay for video,” according to Ovum predictions.

The research firm said that Amazon’s combination of subscriptions, digital rentals, electronic sell-through and bundles of TV apps will see it generate US$5.8 billion in video-related revenue next year.

It expects Netflix, which led the pack in 2017, to generate US$5.3 billion in revenue through its subscription-only model.

“Arguably, the e-commerce giant is ‘cheating,’ as Ovum’s estimates count fees from Amazon’s ever-growing Prime bundle. But maybe that’s the point. Rules are meant to be broken and Amazon is the most daring offender,” said the Ovum report.

It also claimed that despite the hype, Netflix still won’t have a majority of OTT video subscribers in at least 19 countries by the end of 2018, with local providers to hold the top spot in various markets – such as Ipla in Poland, Showmax in South Africa and Iflix in Indonesia.

Among its other consumer and entertainment service predictions for 2018, Ovum tipped Apple to launch a new premium OTT video offering, initially in the US, as its share of US online video revenues via iTunes sales declines to less than 4% in 2018.

It also said it expects Facebook’s ad-supported Watch video platform to go international next year, but to have “minimal” global impact.

“While we expect Watch to roll out internationally next year, Facebook’s share of global AVOD revenue will remain negligible in 2018,” said the report.

“Facebook must attract compelling local content, refine its video ad experience, and offer more robust and reliable ad metrics before it can truly compete with YouTube and other premium AVOD platforms for consumer attention and advertiser spend.”

Overall, Ovum expects Netflix, Amazon, YouTube and other online-only services to account for 18% of total paid and ad-supported TV and video revenues next year and 60% of growth.

read more here: tbivision.com

Disney is about to go to war with Netflix

Disney may be closing in on a media-industry-rocking deal to acquire a collection of assets from 21st Century Fox. CNBC reports that a deal, which would include Fox’s movie studios, could be announced as soon as next week.

The deal comes as media companies look for ways to survive as consumers shift their attention to ad-free streaming services from Netflix and Amazon, cut the cord in increasing numbers and spend an inordinate amount of time glued to mobile screens and social media.

Disney’s already declared that it is going to war with Netflix by launching its own streaming service. Already Disney has some big assets to offer subscribers to this potential service, including movies made by its own studios and the rights to mega-hits like Star Wars. But it’s going to need as many big guns as it can get in that fight. If the future is less about cable bundles and classic TV advertising, and more about bringing content directly to paying subscribers, giants like Disney can’t stand pat. That’s where Fox comes in.

As one industry observer put it, “nobody knows what the business model of the future is. But if you have a lot of content, you’re either going to get people to pay for it, run ads in it, or license it to somebody. So this is a pretty good hedge for Disney.”

read more here: www.cnbc.com