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Netflix's Busy Week: Debt, Data & Video Monogamy

Aditya Kishore
10/25/2017

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.

Borrowing big
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

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Michelle
Michelle
11/7/2017 | 7:52:09 PM
Re: The Softbank approach
It's almost as though they all believe subscribers will show up if they build the platforms. They seem to miss the point of cord-cutting. It's not to pay more for TV because you're buying each at retail price each month...
KBode
KBode
11/6/2017 | 2:52:39 PM
Re: The Softbank approach
Every indication I see suggests these companies are intent on learning this the hard way. I'd expect some real problems as every broadcaster under the sun starts to think they should offer their own direct to consumer option. 
Michelle
Michelle
10/31/2017 | 10:53:37 PM
Re: The Softbank approach
Exactly! The walled gardens of cable providers brought us this far and there was plenty of piracy along the way. I think it's a mistake for Disney and others to create yet another paid streaming service.
Phil_Britt
Phil_Britt
10/29/2017 | 12:55:14 PM
Re: The Softbank approach
@Joe,

Two things that keep me from cutting the cord:

1) Sports. I'm a reformed sportswriter. I'm not someone who watches six hours of football on a Sunday and four on Saturday, but do want to be able to see the teams I am interested in when available (not all college games I would like to see available are, but enough are to make a difference).

2) Weather concerns. I'm in a suburb where reception was poor enough to drive me to cable when most still had roof attennas. A few years ago, a power outage forced us to a local hotel with a satellite for the night. During the thunderstorm (Midwest, we get a lot of them), not only was TV "out," Internet was limited to less than dial-up speeds. I need the Internet for business, so such speed compromises unacceptable).
Joe Stanganelli
Joe Stanganelli
10/29/2017 | 11:55:41 AM
Re: The Softbank approach
@Phil: Yeah, same here for a while. Reminds me of when I cut the cord before much for Food Network content was available online. I simply did without. There comes a point where certain bits of content are "nice to have" but not justifiably affordable.
KBode
KBode
10/27/2017 | 1:27:03 PM
Re: The Softbank approach
Yes, I agree. My point being that, like you, people aren't going to pay another $10 just for one show, resulting in even more piracy than we have now. 
Phil_Britt
Phil_Britt
10/27/2017 | 1:04:26 PM
Re: The Softbank approach
Piracy will happen anyway, but it will be interesting to see if the services supply enough engaigng content for enough subscribers to pay the access fee. I like Star Trek, but I don't like it enough to subscibe to CBS All-Access, and there's no other content on it that I would even pay a nickel for.
KBode
KBode
10/27/2017 | 12:59:43 PM
Re: The Softbank approach
Yeah I think this push by broadcasters to silo all of their own content into exclusive streaming services of their own is going to be a problem for Netflix and consumers alike. Getting licensing access to that content is going to prove more difficult as the big dogs build new walled gardens for the modern era. And consumers may revert to piracy if they have to spend afternoon figuring out which of eighty different streaming services they need to subscribe to in order to watch one program. 
Phil_Britt
Phil_Britt
10/27/2017 | 8:19:26 AM
Re: The Softbank approach
While I agree that Netflix likely can charge more without losing many subscribers, the higher cost of content and some content providers like Disney deciding to go it alone could provide other major challenges.
Michelle
Michelle
10/26/2017 | 3:27:51 PM
Re: 2k flavors
They might have better data now if they added support for multiple profiles in the Roku app. Profiles aren't supported in a large number of thse boxes.
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