Kasus 04

Deciding What to Watch—Video Recommendations at Netflix

Netflix is the undisputed leader of video streaming services, accounting for more than half (53%) of
U.S. video streaming subscriptions. Amazon Prime Video (25%) and Hulu (13%) are the company’s
largest competitors. Netflix is also the oldest company in this group, having originally started as a
DVD by mail rental service. Unlike other companies that dominated the DVD rental business, Netflix
successfully made the transition to on-demand video streaming by investing in new technology and
redefining its business model. The service is now available in 190 countries and claims over 90
million subscribers globally.

Netflix executives credit the company’s recommendation system for driving the “Netflix experience”
and boosting profitability (Gomez-Uribe & Hunt, 2015; Raimond & Basilico, 2016). Surprisingly, the
origin of the recommendation system dates back to 2000, when Netflix was still a DVD rental service.
Recommendations during these early days were based largely on members’ movie ratings. Ratings
often reflect how people want to be perceived as opposed to how they act. For instance, rating data
will tend to overemphasize how much people like documentaries and foreign language films,
whereas behavioral metrics provide more accurate measures of how subscribers use the service.
Today, when Netflix subscribers use the online service, they see recommendations generated by
multiple algorithms that use descriptive information about the subscriber and their past viewing
behavior (Gomez-Uribe & Hunt, 2015). Netflix claims that 75% of the activity on the service is a
result of the recommendations it offers subscribers.

Netflix Analytics

Netflix enjoys a significant advantage over traditional television channels because the company
collects information about how subscribers use the service. Netflix can make marketing and product
decisions based on several behavioral metrics. You might be surprised at the details Netflix collects:

The device you use (tablet, Roku, smart TV, etc.)

Where (zip code) you watch from

The days and times you watch

When you pause, rewind, or fast-forward during viewing

How you search—the words and phrases used, how long you search, etc.

Whether or not you watch the credits following a show

How many episodes of a series you watched

Whether or not you watch all episodes in a series

How long it takes you to watch all episodes in a series

How many hours you spend using the service

What movies and television shows you watch

How often you use the service

In addition to making recommendations, Netflix uses the information to do the following:

Identify subscribers who are likely to cancel the service

Select new movies to add to their catalog

Decide if a television show should be renewed for another season

Identify movies and television shows to drop from the catalog

Determine the days and times to recommend certain movies or shows

Determine what to recommend immediately following the viewing of another movie or show

Determine how to describe movies and shows (i.e., long vs. short descriptions)

Recommendation Algorithms at Netflix

The Netflix home screen can offer up to 40 rows of recommendations to a subscriber. Each row is
generated by a different algorithm designed to personalize recommendations as well as determine
the order in which movies and shows are listed. Each row is based on a different theme or rationale
for the titles appearing in the row. Netflix even uses a Page Generation Algorithm to personalize the
type of row-level recommendations and their order when creating the page. Some examples of the
different recommendation rows include the following:

Genre Rows

Several of the rows appearing on the home page are based on movie or television show genres that
Netflix believes the subscriber will be interested in based on past viewing behavior. Genre rows are
generated by what Netflix calls its Personalized Video Ranker (PVR). The rows reflect three levels of
personalization: (1) the selection of the genre, (2) the selection of specific titles within the genre,
and (3) the ordering of the titles.

Continue Watching

Titles appearing in the Continue Watching row highlight episodic content that Netflix thinks a
subscriber might want to return to. The Continue Watching ranker evaluates recently viewed videos
for signals that a subscriber intends to resume watching or is no longer interested in the title. These
signals include things like time since last viewing, point of abandonment (mid-program, end of
program), if other titles have been viewed since, and type of device used.

Because You Watched

The Because you watched (BYW) row is based on the similarity of recommended videos to past
videos watched by the subscriber. The BYW row is determined by the Sims Ranker, which generates
an ordered list of videos, based on similarity, for every title in the catalog. Various personalization
cues are then used to further refine the subset of videos that actually appear in the row on the
home page.

Top Picks
The goal of the Top Picks row is to feature Netflix’s best guess as to the videos in its catalog that are
most likely to be of interest to the subscriber. The Top Picks algorithm uses cues from the individual
subscriber along with viewing trend information to recommend titles from among the most popular
or top-ranked videos in the catalog.

Netflix believes that its recommendation system plays a significant role in user satisfaction and
customer retention. A team of workers regularly updates the system with new algorithms and
modifications to existing ones. Their ultimate goal is to generate such high-quality recommendations
that subscribers will rarely have to search for videos to watch.

Questions

You read about four different types of recommendations that Netflix features on their home page.
Think of a new type of recommendation row that Netflix could use and the kind of information or
behavioral metrics that would be needed to generate your recommendations.

Based on the information in this case, would you say that Netflix primarily uses content-based
filtering, collaborative filtering, or both? Explain your answer.

Netflix is expanding globally. When Netflix first enters a market, the recommendation system can
face “cold start” or “sparsity” problems. Explain why this happens and suggests ways that Netflix
might deal with these challenges.

What metrics do you think Netflix could use to identify subscribers who are likely to cancel the
service?

Visit Netflix’s Technology Blog http://techblog.netflix.com. Identify three challenges that the
company faces in generating recommendations for its subscribers.

Sources: Compiled from Bulygo (2013b), Alvino and Basilico (2015), Gomez-Uribe and Hunt (2015),
Arora (2016), Cheng (2016), Lubin (2016), Nicklesburg (2016), Raimond and Basilico (2016). (Turban,
01/2018, pp. 195-196)

Turban, E., Pollard, C., Wood, G. (01/2018). Information Technology for Management: On Demand
Strategies for Performance, Growth and Sustainability, Enhanced eText, 11th Edition [VitalSource
Bookshelf version]. Retrieved from vbk://9781118890868