Netflix's Busy Week: Debt, Data & Video Monogamy
Netflix ain't been chillin' this week. It's been in the headlines for heaping on more debt, offering a sneak peek at its data-driven personalization trickery, inspiring more loyalty than any other OTT provider and being interrupted more by the call of nature than mating calls. We've pulled it all together into one handy little summary.
The biggest news out of Netflix Inc. (Nasdaq: NFLX) this week was its issuance of $1.6 billion in additional debt financing. The company has recognized that investors are almost entirely focused on its ability to keep pulling in new subscribers, and that in turn is heavily driven by original content. Netflix will spend $6 billion in 2017 on content, and it plans to increase that to $7 to $8 billion in coming years. It's also planning to produce a slate of 80 movies that will rival the output of most major Hollywood studios combined.
That's a lot of money. And that means Netflix needs to figure out how to get its hands on some cash pretty quickly. Plan A was to raise prices, which it did a few weeks ago. And issuing more debt is presumably the next step in funding its original content strategy, and therefore its growth. But there are now occasional murmurs heard about its growing debt burden, and its ability to maintain enough growth to justify its spending in the longer term. (See Netflix Hikes Rates, Tries to Outrun Debt.)
Dude, where's my taste community?
In other news, the company discussed it's granular approach to personalization. Todd Yellin, Netflix's head of product, described the various ways in which the company helps develop individual experiences for each customer in an interview with Fast Company.
For example, Netflix adapts its poster art and marketing for the show Stranger Things based on the types of content a viewer likes. Fans of action movies see one image, viewers of comedies see another and documentary enthusiasts see different images. Yellin described the endless rounds of A/B testing and experimentation the company conducts, to best understand how to position the show to different users all the way to ensuring as authentic an experience with localization -- dubbing and subtitling for foreign audiences.
Netflix has also found that its previous attempts to segment viewers by region or market, assuming people who shared a language, country and culture would have similar tastes. But in fact, it found that "taste communities" have little connection to national borders. It has now created a set of 2,000 taste communities, based on the kinds of shows its viewers watch, and suggest similar shows to them.
For example, people who enjoyed Stranger Things rather bizarrely also enjoyed teen shows like 13 Reasons Why, Riverdale and Pretty Little Liars. Netflix is now promoting the show to these viewers.
You're the one that I want
And then there's the issue of loyalty. Viewers of Netflix are most likely to be SVoD monogamists, subscribing only to one OTT service. Hulu LLC and HBO Now viewers, however, are far less committed. Sixty-two percent of HBO Now subscribers also subscribe to Netflix, as do 61% of Hulu subscribers. But 80% of Netflix subscribers only use Netflix, with just 17% subscribing to Hulu, and almost none also using HBO Now.
The research by credit card tracking firm Second Measure used data from September 2017 for its analysis, and tracked subscribers of Netflix, Hulu, HBO Now, DirecTV Now, CBS All Access and SlingTV. It wasn't able to break-out Amazon Prime Video numbers, since those are part of a broader Prime subscription, and it does not currently track You Tube TV.
Netflix and nature's call
Netflix is also the most preferred way of viewing TV shows, according to a study from Qualtrics, an "experience and insights" company. Only 23% of respondents preferred Live TV, while 30% would rather watch their shows on Netflix. Recorded TV was picked by 16%, Amazon was preferred by 15%, and Hulu by 11%.
Rather disappointingly the "Netflix and chill" phenomenon appears to be overrated, with only 13% selecting sex as a reason to interrupt a TV show. Toilet breaks, at 22% and food, at 19%, were far more likely.
Qualtrics surveyed more than 500 regular TV viewing adults for this study. It was conducted in September 2017.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation