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.

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 10/25/2017 | 2:20:12 PM
2k flavors "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."

Does the metric account for the number of different users consuming video from a single account? Not all households use individual watch lists. I can see how a mix of viewing might make suggested viewing tougher to calculate.
mendyk 10/25/2017 | 2:43:39 PM
The Softbank approach Adi -- Looks like Mr. Hastings is going all-in on the Softbank business model -- build your empire on a massive debt pile, and don't worry about adding to it. To take a line from various sages, if you owe the bank $1,000 and can't pay it, you have a problem. If you owe the bank $1 million and can't pay it, the bank has a problem. In this case, just add a few zeros to the latter number.
242ak 10/26/2017 | 1:55:29 AM
Re: The Softbank approach Financial analysts are split on Netflix' growing debt. To be fair, most seem to think its manageable, but lately there seem to be a few more questions being raised about how long it can sustain this kind of subscriber growth and justify this kind of spending. While it's grabbing subscribers at this rate, I think Mr. Hastings' bankers will be fine, but the moment that slows, things could change fast. 
242ak 10/26/2017 | 1:58:49 AM
Re: 2k flavors Yes, and that's always a problem for reccomendation engines. Netflix encourages users to create individual profiles within each subscribing home, with different passwords -- but as you say, I'm not sure what percentage do. This is all really effective more for single user accounts.
KBode 10/26/2017 | 2:16:58 PM
Re: The Softbank approach Well it wasn't that long ago that Netflix launched into up to 200 countries, so I think there's a lot of international subscriber growth yet. And most agree that the company couldl bump prices another few bucks before users find the value proposition lacking. After that, it lkely gets complicated, especially as competition in streaming grows and broadcasters begin escalating the exclusivity wars. 
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.
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.
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 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 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. 
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