Netflix is one of the most disruptive digital companies. It moved from the margins of DVD provision from its inception as a mail service in a way that eventually helped to drive its bricks-and-mortar competitor, Blockbuster, out of business. It continues to remap the content provision industry by creating an array of popular content, from House of Cards to Orange Is the New Black.
It is also the first global digital content provider, with operations worldwide that cut across conventional divisions to provide a user interface, content, and delivery systems. Global growth is key to its future expansion from its current subscriber base of 75 million.
Netflix provides an intriguing glimpse into how a company with excellent digital business strategy approaches these levels of integration and prepares for the future.
Mining Data for Content Preferences, Not for Regions
Like many digital companies, Netflix mines its customer base for data. When a series debuts, for example, there are up to 35 “header” shots that identify it to the global audience. Each is mined for how often they lead to streaming behavior from the viewer. This data, in turn, is used to reduce the number of shots to eight, and then, within just over a month, to just one. The one that generates the most streams becomes the permanent header.
The company does not focus on conventional attributes such as age, gender, or geography. A recent article in Wired pointed out that if geography worked as a predictor of content popularity, Japan might be responsible for most of the streaming of anime content. Instead, Netflix data indicates that only 10% of its anime streams in Japan. The other 90% is streamed across the globe.
Netflix uses proprietary algorithms. Their algorithms divide their customers into a multi-thousand set of clusters according to demonstrated customer preferences as expressed through their choices in streaming content.
Some Global Bumps Along the Way
That is not to say that Netflix won’t experience some global bumps on its way to expansion. While content preferences may not be restricted to geography, laws and regulations are. French law prohibits streaming a new release until three years after it hits theaters, which cuts down on its available catalog there significantly. Regulations may keep it out of China or require that it partner with a Chinese company to enter China. The ability to do that is far from certain.
Furthermore, in emerging markets, the catalog is currently only in English and available only via credit cards or PayPal, which are far from globally universal.
Finally, there is global competition. Wired estimates that in every new country Netflix enters, it faces up to 10 regional on-demand provider, who already know the local market and its customs.
Still, no one is counting Netflix out of global dominance. It came a long way establishing the 37% of downstream internet traffic it now commands in North America. It also came a long way to be a leading player in on-demand new content. (At one point, Netflix’s chief content officer articulated the company’s goal in that area: “to become HBO faster than HBO can become us.”)