Dr.

Vishwanath Karad MIT World Peace University

MBA PROGRAMME
CASE STUDY

Business Analysis: Case No. 3

Netflix – Big Data

Netflix Knows What You Want ... Before You Do

In 1997, a tiny company in Scotts Valley, Calif., came up with a radical business model. The big idea was to use data to
change the way average people consume media.

That company was Netflix. Founders Reed Hastings and Marc Randolph started with a humble DVD rent-by-mail
website. It took off. However, growth caused a dilemma: It didn’t have enough new releases in its inventory. So,
Netflix developed an algorithm based on members’ interests that de-emphasized popular titles.

By 2006, new releases represented less than 30% of its new rentals.

That’s the power of the new age of advanced computing. Data analytics and predictive modeling empower
entrepreneurs to build new business models with greater certainty. They deftly navigate traditional bottlenecks as
competitors become stuck. And what riches have been drawn to the idea. Recently, Netflix celebrated its 15th
anniversary as a public company.

Jonathan Cohen, principal brand analyst at Amobee, a global technology marketing firm, points out that Netflix’s
success stems largely from “using analytics to understand audiences” better than less savvy competitors. And as the
company made the transition from rentals to streaming media, it pressed those advantages.

When I’m chilling on the sofa, scanning my Netflix queue, ecosystems are the furthest thing from my mind. But Netflix
knows what summaries I’m reading, how long I spend surfing titles, what I ultimately watch, and for how long.

It’s using all of that network data to keep me engaged and to enhance my experience with recent favorites like the
Mexican political thriller Ingobernable, the British police procedural Paranoid, the animated spy spoof Archer, and the
animated Hollywood spoof BoJack Horseman.

It’s also using that data to develop, license and market new content. That’s where Ted Sarandos comes in. He’s the
chief content officer. He knows network data is invaluable because it allows Netflix to build a business model around
narrow-casting, a personalized experience for each of its subscribers. It doesn’t need blockbusters like ad-dependent
networks. That creates a lot of leeway. Even when it spent $100 million for 26 episodes of House of Cards, Netflix
knew the deck was stacked in its favor.

The political drama could be marketed to fans of the original British show. It could also be sold to the network’s built-
in fan bases for director David Fincher and actor Kevin Spacey.
Here’s a taste of what Netflix is collecting, and how much:

• More than 25 million users

• About 30 million plays per day (and it tracks every time you rewind, fast forward and pause a movie)
• More than 2 billion hours of streaming video watched during the last three months of 2011 alone
• About 4 million ratings per day
• About 3 million searches per day
• Geo-location data
• Device information
• Time of day and week (it now can verify that users watch more TV shows during the week and more movies
during the weekend)
• Metadata from third parties such as Nielsen
• Social media data from Facebook and Twitter

https://gigaom.com/2012/06/14/netflix-analyzes-a-lot-of-data-about-your-viewing-habits/

Netflix understood what its viewers wanted before they knew.

It’s an unconventional calculus Sarandos used to build a wildly successful content portfolio. In March he extended the
network’s four-picture deal with Saturday Night Live alumni Adam Sandler.

Recently Netflix crossed 100 million subscribers. That is roughly a threefold increase since the original House of
Cards content deal in 2013. Since that time, sales have increased from $4.37 billion to $8.83 billion.

And Netflix has become a powerhouse in the motion picture business. Last October, CNBC reported Netflix will spend
$6 billion on content in 2017. That is second only to Disney-owned sports broadcaster, ESPN. More telling, it is an
important part of the secondary market for episodic content.

Off-beat shows that originally aired on other networks like Mad Men and Breaking Bad gained cult followings on
Netflix. And that success allowed the independent network AMC to do more edgy content like The Walking Dead.

That’s a long way from a tiny company that shipped DVDs by mail.

Netflix’s algorithmic recommendations and personalized queues are now widely copied. In 2017, they’re standard
procedure for doing digital-media distribution.

This age is an exciting time for investors because so much is possible. Makers are not bound by old business models.
Data analytics allows them to dream up new ones. The good ones see the future.

“We could see that eventually AMC was going to be able to do its own on-demand streaming,” Netflix CEO
Hastings told the New York Times in 2016. “We knew there was no long-term business in being a rerun company, just
as we knew there was no long-term business in being a DVD-rental company.”

Netflix is a fact of modern life, and a great platform. It's still a buy on major pullbacks, which come along regularly.

https://www.forbes.com/sites/jonmarkman/2017/06/09/netflix-knows-what-you-want-before-you-do/#4eaa6ec552b8

Questions:
1. Outline Netflix’s changing business strategy.
2. Does it use Blue Ocean strategy, or Red Ocean Strategy?
3. Explain how digital transformation is used to create value for customers.
4. Highlight the role of Big Data in the company’s strategy.

MBA 602A Business Analysis 2