{"id":16135,"date":"2019-04-22T01:29:48","date_gmt":"2019-04-22T01:29:48","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=16135"},"modified":"2019-04-23T10:57:55","modified_gmt":"2019-04-23T10:57:55","slug":"will-netflix-eventually-monetize-its-user-data","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/will-netflix-eventually-monetize-its-user-data\/","title":{"rendered":"Will Netflix eventually monetize its user data?"},"content":{"rendered":"<p><span><a href=\"https:\/\/theconversation.com\/profiles\/jason-mittell-142015\">Jason Mittell<\/a>, <em><a href=\"http:\/\/theconversation.com\/institutions\/middlebury-1247\">Middlebury<\/a><\/em><\/span><\/p>\n<p>Even in the wake of a <a href=\"https:\/\/finance.yahoo.com\/news\/netflix-earnings-q1-2019-183928130.html\">recent mixed earning report and volatile stock prices<\/a>, Netflix remains the media success story of the decade. The company, whose user base has <a href=\"http:\/\/infographic.statista.com\/normal\/chartoftheday_10311_netflix_subscriptions_usa_international_n.jpg\">grown rapidly<\/a>, now boasts almost 150 million global subscribers.<\/p>\n<p><a href=\"https:\/\/scholar.google.com\/citations?user=I2Zb3TsAAAAJ&amp;hl=en\">But as someone who studies the television industry<\/a>, I\u2019ve always wondered how Netflix can provide so much unlimited ad-free content for such a low monthly rate, which currently averages around US$14. <\/p>\n<p>After all, didn\u2019t <a href=\"https:\/\/www.theringer.com\/movies\/2019\/2\/6\/18212482\/moviepass-mitch-lowe-khalid-itum-interview-2019\">MoviePass just fall apart<\/a> using a similar model of offering ad-free content for a monthly subscription fee? And Netflix is <a href=\"https:\/\/www.cnn.com\/2019\/01\/18\/investing\/netflix-cash-burn-stock\/index.html\">burning through cash<\/a>, with negative cash flow of $3 billion in 2018 alone. <\/p>\n<p>What if we\u2019re looking at Netflix through the wrong lens? What if its primary long-term business model is not as a media content or distribution company, but as a data aggregation company? <\/p>\n<p>Seeing Netflix this way might better explain its current strategy and clue us into the company\u2019s future plans, while <a href=\"https:\/\/www.nytimes.com\/interactive\/2019\/opinion\/internet-privacy-project.html\">raising red flags about ethics and privacy<\/a>.<\/p>\n<h2>Spending more and charging less<\/h2>\n<p>For a century of screen entertainment, there were only a few ways for Americans to pay for media:<\/p>\n<ul>\n<li>\n<p>You could purchase a book, album or DVD, \u201clease\u201d a movie theater seat or rent a tape at a video store;<\/p>\n<\/li>\n<li>\n<p>You could pay with your attention by consuming ads alongside \u201cfree\u201d radio or television programming;<\/p>\n<\/li>\n<li>\n<p>Or you could subscribe to cable TV, and pay a large monthly fee to access an array of scheduled programming.<\/p>\n<\/li>\n<\/ul>\n<p>Netflix doesn\u2019t follow any of these three models. Instead it most resembles HBO\u2019s subscription service, which similarly provides ad-free original programming alongside a library of older content for a monthly fee. <\/p>\n<p>While they may seem analogous, there are key differences. HBO is part of a larger media company, which gives it access to vast content libraries. And even though HBO charges more than Netflix, it spends far less for original content. In 2017, <a href=\"http:\/\/fortune.com\/2018\/07\/08\/netflix-original-programming-13-billion\/\">HBO spent $2.5 billion to Netflix\u2019s $8 billion<\/a>. The latter\u2019s spending grew to $13 billion in 2018.<\/p>\n<h2>Relying on subscribers, not ads<\/h2>\n<p>Pouring money into content might generate hits, but not direct profits: Netflix\u2019s sole revenue stream is subscriptions, so its primary goal is to gain and retain subscribers. Having <a href=\"https:\/\/www.theatlantic.com\/entertainment\/archive\/2016\/02\/netflix-ratings\/462447\/\">popular content generates buzz<\/a>, and Netflix hypes its brand by using <a href=\"https:\/\/www.vox.com\/culture\/2019\/2\/6\/18212781\/netflix-viewership-explained\">self-reported numbers<\/a> to claim that its original films and series like \u201cBird Box\u201d and \u201cSex Education\u201d attract millions of viewers. Yet Netflix only yields the same monthly fee per household, regardless of how much subscribers watch. <\/p>\n<p>This makes Netflix distinct from other media companies that use highly profitable hits to generate revenue. This will then subsidize the production of new films, television shows, albums and video games. <\/p>\n<p>Meanwhile, competing streaming platforms Hulu and Amazon Prime Video have other revenue sources \u2013 <a href=\"https:\/\/www.businessinsider.com\/hulu-netflix-secret-weapon-2017-6\">advertising<\/a> and <a href=\"https:\/\/variety.com\/2018\/digital\/news\/amazon-prime-video-channels-tv-revenue-estimates-1203083998\/\">retail<\/a>, respectively \u2013 and their larger diversified companies can better leverage hits.<\/p>\n<p>Netflix needs to produce and acquire desirable content to make the service indispensable. But making original content is expensive. Hiring talent and producing movies and television series costs the company <a href=\"https:\/\/variety.com\/2019\/digital\/news\/netflix-content-spending-2019-15-billion-1203112090\/\">more than $15 billion annually<\/a>. Netflix spends much more cash than it brings in, leading to consistent negative cash flow and a <a href=\"https:\/\/finance.yahoo.com\/news\/netflix-earnings-q1-2019-183928130.html\">mountain of debt that amounts to more than $10 billion<\/a>.<\/p>\n<p>Even though <a href=\"https:\/\/www.netflixinvestor.com\/financials\/quarterly-earnings\/default.aspx\">it reported a record $1.2 billion in profit in 2018<\/a>, those profits are based on an accounting model that ignores many costs and debts. This has led some financial analysts, like <a href=\"https:\/\/www.nytimes.com\/2018\/10\/26\/business\/netflix-audience-stock-debt.html\">NYU professor Aswath Damodaran<\/a>, to believe that Netflix\u2019s business model is unsustainable. <\/p>\n<p>\u201cThe more Netflix grows,\u201d he wrote last fall, \u201cthe more its costs grow and the more money it burns. I\u2019m not sure how it\u2019s ever going to turn that around.\u201d <\/p>\n<p>So with only one stable, inflexible revenue source, how might Netflix\u2019s business model become more sustainable? <\/p>\n<h2>More analogous to Facebook?<\/h2>\n<p>One theory is that Netflix is playing the long game, pitting itself against social media companies like Facebook and YouTube, rather than just film studios or TV networks.<\/p>\n<p>Media commentator <a href=\"https:\/\/redef.com\/original\/5b400a2779328f4711d5675e\">Matthew Ball<\/a> argues that Netflix is in a race with the social media giants to occupy \u201cevery minute of leisure time available.\u201d<\/p>\n<p>Yet Netflix\u2019s financial model is the inverse of Facebook\u2019s and YouTube\u2019s. The social media giants generate <a href=\"http:\/\/www.businessofapps.com\/data\/youtube-statistics\/\">huge advertising revenues from free, user-generated content<\/a>. Perhaps Netflix could balance content costs with higher subscription fees and its growing global user base. It seems unlikely, however, that this model could lead to anything beyond small profit margins.<\/p>\n<p>But what if the parallel between Netflix and Facebook runs deeper than cost and revenue?<\/p>\n<p>From its inception as a DVD rental service, <a href=\"https:\/\/www.buzzfeednews.com\/article\/nicolenguyen\/netflix-recommendation-algorithm-explained-binge-watching\">Netflix has touted its competitive advantage through its algorithm<\/a> \u2013 the predictive engine that claims to deliver the most user-specific content from its vast library. Netflix has always been a technology firm first and foremost, invested in mining its library of vast user data to deliver what viewers want to watch.<\/p>\n<p>For instance, the <a href=\"https:\/\/www.wsj.com\/articles\/at-netflix-who-wins-when-its-hollywood-vs-the-algorithm-1541826015\">Netflix engineering team strives<\/a> \u201cto have customers click on a show in the first 10 seconds.\u201d Such obsessive interface tweaking helps promote programming \u2013 <a href=\"https:\/\/finance.yahoo.com\/news\/why-netflix-winning-2019-bullish-160207852.html\">as Ball notes<\/a>, \u201cthe most valuable real estate in the world is the top fold of Netflix home page.\u201d But it doesn\u2019t generate revenue.<\/p>\n<p>This emphasis on viewing optimization, internal promotion and maximizing engagement resonates with another recent Netflix offering: the \u201cBlack Mirror\u201d episode \u201c<a href=\"https:\/\/www.hollywoodreporter.com\/live-feed\/black-mirror-bandersnatch-endings-explained-1171556\">Bandersnatch<\/a>.\u201d Netflix\u2019s highest-profile experiment in interactive narrative, \u201cBandersnatch\u201d allows viewers to choose how the story unfolds from dozens of options.<\/p>\n<p>Netflix collects data from viewers of \u201cBandersnatch,\u201d charting the narrative choices they made during the episode. Such viewer activity feeds into Netflix\u2019s tracking efforts that it uses to make programming decisions and customize promotion to each subscriber. <\/p>\n<p>A logical next step would be product integration. Based on your choices within the narrative around specific brand names, <a href=\"https:\/\/www.theverge.com\/2019\/1\/2\/18165182\/black-mirror-bandersnatch-netflix-interactive-strategy-marketing\">Netflix could then sell customized micro-targeted product placements<\/a> within programs \u2013 a strategy that could actually lead to increased revenue.<\/p>\n<h2>A data gold mine?<\/h2>\n<p>Based on all we know about <a href=\"https:\/\/www.theguardian.com\/technology\/2016\/aug\/31\/personal-data-corporate-use-google-amazon\">Silicon Valley\u2019s aggressive monetization of user data<\/a>, what else could Netflix do, beyond product integration, with this valuable information?<\/p>\n<p>Netflix logs everything you have ever watched and how you watch \u2013 every time you pause, what programs you consider watching but choose not to and when you\u2019re most likely to binge on \u201cFriends\u201d reruns. <\/p>\n<p>When linked to website trackers, Netflix could, for example, cross-reference that viewing data with your social media accounts, your purchasing habits, your search history and even your emails. <\/p>\n<p>In the <a href=\"https:\/\/www.nytimes.com\/2019\/04\/10\/opinion\/sunday\/privacy-capitalism.html\">age of surveillance capitalism<\/a>, such data could be worth a fortune to marketers, political campaigns and advertisers.<\/p>\n<p>As far as we know, Netflix has not started using its data to track us online, package us to marketers or cross-reference our private messages (even though <a href=\"https:\/\/www.theverge.com\/2018\/12\/18\/18147616\/facebook-user-data-giveaway-nyt-apple-amazon-spotify-netflix\">Facebook has provided Netflix access to this information<\/a>). And I doubt Netflix will violate its core brand by incorporating ads into its interface. Partnering with or acquiring a marketing firm to suffuse every subscriber\u2019s online experiences with micro-targeted ads seems more likely. <\/p>\n<p>All of these potential uses of viewing data are still speculative. But since profits regularly eclipse tech companies\u2019 ethical standards, it\u2019s important to be asking these questions before, rather than after, the damage is done.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img loading=\"lazy\" src=\"https:\/\/counter.theconversation.com\/content\/115273\/count.gif?distributor=republish-lightbox-basic\" alt=\"The Conversation\" width=\"1\" height=\"1\" style=\"border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important\" \/><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: http:\/\/theconversation.com\/republishing-guidelines --><\/p>\n<p><span><a href=\"https:\/\/theconversation.com\/profiles\/jason-mittell-142015\">Jason Mittell<\/a>, Professor of Film &#038; Media Culture, <em><a href=\"http:\/\/theconversation.com\/institutions\/middlebury-1247\">Middlebury<\/a><\/em><\/span><\/p>\n<p>This article is republished from <a href=\"http:\/\/theconversation.com\">The Conversation<\/a> under a Creative Commons license. Read the <a href=\"https:\/\/theconversation.com\/will-netflix-eventually-monetize-its-user-data-115273\">original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Jason Mittell, Middlebury Even in the wake of a recent mixed earning report and volatile stock prices, Netflix remains the media success story of the decade. The company, whose user base has grown rapidly, now boasts almost 150 million global subscribers. But as someone who studies the television industry, I\u2019ve always wondered how Netflix can [&hellip;]<\/p>\n","protected":false},"author":44,"featured_media":16132,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[293],"tags":[6214,1870,308,652,593,1930],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/16135"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=16135"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/16135\/revisions"}],"predecessor-version":[{"id":16136,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/16135\/revisions\/16136"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/16132"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=16135"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=16135"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=16135"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}