Running head: NETFLIX BIG DATA ANALYTICS DRIVING INNOVATION

Netflix Big Data Analytics Driving Innovation

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Introduction

Netflix is an American subscription-based audiovisual streaming service and recently a

production company that was launched in 1997 and based in California. With close to a quarter

of a billion subscribers, a broad range of genres in television series and films, and availability in

more than 190 countries, the company faces unique challenges in customizing content for its

broad and diverse customer base (Fernández-Manzano et al., 2016). It is accessed on numerous

internet-based platforms that make it convenient for its varied consumer segments and this

capability allows the company to access useful information to enhance user experience. Netflix

applies big data analytics to customize content, offer useful suggestions, target advertisements

and engage customers in innovative and productive ways.

Context

The digital content provision industry is dependent on numbers of viewers who actively

access the services whether it is the traditional TV static broadcasting schedules, video playback

options, or modern video on-demand streaming. Therefore the biggest challenge to attract and

retain viewers for Netflix has always been providing them with content they consider valuable

and worthwhile to avoid customer dissatisfaction and subscription cancellations. However, until

2001, Netflix recommendations were mainly location based and viewers had to manually reset

content to locally ‘appropriate’ ones (Fernández-Manzano et al., 2016). However, with the use of

big data analytics, the company has excelled in broadening regional portfolios without

compromising on culturally diverse preferences thus meeting customer needs and expanding its

profitability.

Consumption of the company’s large library of films, TV series, and documentaries is

dependent largely on the customer. Netflix has placed its customers at the center of its decision-
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making approach and big data has been instrumental in creating relevant content during

production and suggesting relevant content to customers during streaming. Use of big data has

been instrumental in developing innovation that can identify and predict industry and customer

trends based on factual analysis of history, activity, and patterns rather than guesswork. Some of

the metrics Netflix considers include user habits, searches, ratings, content watched, device used,

navigation processes during watching such as pausing and stopping the video (Maddodi, 2019).

They help enhance user experience, content consumption, and continued subscription.

Big data analytics drive decision-making for data-driven companies like Netflix. At the

center of these decisions is personalizing content for customers and creating content that

consumers are more likely to consume. Not only can the available data be used to improve

services and make them more effective, the decisions are also made faster thus enhance

efficiencies that create competitive advantages. An example of how the company used such

information for production is its original series House of Cards. The company commissioned the

series based on big data analysis of viewers’ tendencies and preferences and while others

assumed it was a gamble, they had internal information based on big data analytics that the show

would succeed (Sadeh, 2019). Reliable information drives innovative ideas that are bound to

succeed.

The big data generated and analyzed by Netflix algorithms have enabled the company to

create capabilities in personalize user content, recommend content, predict performance of future

productions, personalize marketing trailers and changing thumbnails, and enhance technical

decision-making (Mixson, 2021). Top of these capabilities is the “recommendations” of

personalized content the viewer is likely to watch. Based on various data, the system applies

algorithms that can predict what the viewer would watch, list previously accessed content,
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market regionally ranked popular content, and provide navigation tools like search engines to

access the most desired and personalized content for the viewer. Impressively, 80% of the

content viewers stream are due to the recommendation system (Mixson, 2021). Big data has

made this innovation possible and may provide new opportunities for driving up customer

retention and sales growth.

Opportunities

Netflix has reinvented itself over time to turn its strengths in blockbuster DVD

distribution into a mammoth video on-demand streaming platform. As a company in the

entertainment industry, it is important to always satisfy customer complex and ever changing

entertainment needs. The company therefore turned this challenge of maintaining viewership

numbers into an infinite opportunity. Netflix has successfully shifted focus from high-demand

blockbusters and made little known titles more desirable through predictive big data analytics

that broaden content and keep customer numbers high at all times (Markman, 2019). This

opportunity is sustainable since the company continues to stock and update its library with good

chances a good number of viewers will reach them through the analytics despite the popularity in

the general market.

Netflix’s biggest secret that has taken it to the top is its customer retention capabilities.

Its innovation in understanding customer needs and recommending relevant and personalized

content have kept customers subscribing to the platform and attracting new ones leading to a

steady growth in its subscriber base. Customer retention has been made possible through the

company’s ability to sell content without disruptive advertisements, ability for customer to

choose content at their convenience, provision of children specific channel, and provision of a

wide variety of high quality films and series. With these competitive advantages, the company
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has created opportunities through big data that has enabled it to retain most of its customers

which is a challenge to many of its competitors.

As the company grows and diversifies, the most impressive aspect of the company’s

diversification is its successful venture into film production. Film production provides Netflix

infinite opportunities to integrate its services and dominate the film industry. Moreover, its use of

big data analytics promotes success for its productions since the predictive analytics improve

chances of good reception and financial success even before the production process (Mixson,

2021; Sadeh, 2019). Such diversification activities have created new possibilities for Netflix to

dominate the market through forward and horizontal integration. For instance, the company can

produce its own film, market it on its platform through trailers, ‘distribute’ it effectively and

efficiently to all parts of the world and allow consumers to access it conveniently without

involvement of other parties thus maximizing profits.

Issues

Ability to generate and use big data is not always the solution for data-driven companies

as they seek to develop innovations and create competitive advantages. Even though big data

provides opportunities to understand customer needs and deliver tailor-made recommendations,

simply having the data does not mean the data is always useful (DeSouza & Smith, 2014). There

are a lot of issues related to transforming big data into useful information. Metadata (information

about the collected data) is critical in transforming the data into accurate information that would

actually give the company the targeted capabilities (DeSouza & Smith, 2014). Moreover, the

transformation process is very costly and getting a useful algorithmic model that will filter and

analyze the data in meaningful ways attracts huge development costs. For instance, the
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development of Netflix’s current predictive algorithm cost $1 million in a competition and

contracting a company for the same services would cost significantly more (Maddodi, 2019).

Another issue with the use of big data for innovation in companies is the consequences

of the use. Use of data sometimes causes unintended consequences with regards to its quality,

disparate meanings, and legality (DeSouza & Smith, 2019). Poor quality data become less

meaningful and result in unintended outcomes such as unhelpful recommendations. Ethics of

data collection and use for commercial purposes is a sensitive issue that is pertinent in big data

collection, storage, and analysis. Privacy of data collected is paramount and has legal,

technological and conceptual implications and may involve how the data is used and with whom

it is shared (Almeida & Calistru, 2013). Data security relates to protection on sensitive and

personal information and this can be easily breached through collection and processing and

sometimes sharing of big data as some companies do to expand their client base (Almeida &

Calistru, 2013). Companies generating big data therefore face numerous challenges in ensuring

the outcomes are compatible with goals and do not create more problems.

With big data, more data means more information and better ability to attend to

customer’s needs. However, with every extra data, it becomes more difficult to store, manage,

and afford the data capabilities because it requires more data capacity, more sophisticated

systems to sort and analyze, and more financial input to manage larger data (Almeida & Calistru,

2013). Technology budget limitations therefore inform on the need to collect only useful data

and filter out the rest. Making compromise may be difficult because it is difficult to assess the

opportunity cost of forgone data but companies may need to consider data of basic importance

and expand the database gradually as more information about the usefulness of other data

becomes available.
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Impact

Data analytics have a huge potential in changing the dynamics of not only data-driven

companies like Netflix but also the industry at large. Big data analytics have grown Netflix from

a startup in blockbuster distribution segment to a giant that can influence uptake of less known

film titles across its large database (Markman, 2019). With the use of its predictive analytics, the

company can recommend useful suggestions that the viewer would otherwise not access or

consider. This not only expands consumption of content but also optimizes available resources.

Moreover, the big data capabilities have enabled Netflix to establish itself as a production

company with the ability to predict performance of its products even before they are marketed

(Sadeh, 2019; Mixson, 2021). These capabilities due to big data analytics have had significant

impact on the company and the industry and from them more impactful opportunities can be

created.

Data analytics have also impacted profitability of businesses since through provision of

appropriate and relevant customer needs, the companies can retain its customers and attract

more. This impact can be spread to the customer too and inform on subscription price drops

because with acquisition of more subscribers, the company can leverage on economies of scale

and reduce prices making its streaming services more affordable and attractive to more

customers. The data analytics have the potential of transforming the company in more ways

since the company may engage in more ways within the movie industry and beyond.

Predictability of product and service performance and ability to provide customers with exactly

what they need may allow the company and others in the industry to strategically broaden their

operations and geographical cover. For instance, the company may use information from

countries it has not yet reached to penetrate the markets and expand even further.
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Conclusion

Big data analytics helps drive innovation and solutions that stem from challenges

companies face. Netflix leverages on big data analytics to provide customers customized and

personalized recommendations of what would suit their video on-demand needs as well as

generate its own content that is poised to succeed. The problem of customer satisfaction and

retention is addressed to such customization and it allows the company to grow its subscriber

base progressively. However, big data come with other issues and concerns such as data

management, ensuring the data is useful, data privacy and security, as well as cost implications.

With proper technological management and further research, the company can expand its

capabilities and tap on new opportunities that may impact its operations, its customers, and the

industry at large.
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References

Almeida, F., & Calistru, C. (2013). The main challenges and issues of big data

management. International Journal of Research Studies in Computing, 2(1), 11-20.

Desouza, K. C., & Smith, K. L. (2014). Big data for social innovation. Stanford Social

Innovation Review, 12(3), 38-43.

Fernández-Manzano, E. P., Neira, E., & Clares-Gavilán, J. (2016). Data management in

audiovisual business: Netflix as a case study. El profesional de la información

(EPI), 25(4), 568-576.

Maddodi, S. (2019). NETFLIX bigdata analytics-the emergence of data driven

recommendation. Srivatsa Maddodi, & Krishna Prasad, K.(2019). Netflix Bigdata

Analytics-The Emergence of Data Driven Recommendation. International Journal of

Case Studies in Business, IT, and Education (IJCSBE), 3(2), 41-51.

Markman, J. (2019). Netflix harnesses big data to profit from your tastes. Forbes,

https://www.forbes.com/sites/jonmarkman/2019/02/25/netflix-harnesses-big-data-to-

profit-from-your-tastes/?sh=39b65eb066fd

Mixson, E. (2021). Data science at Netflix: How advanced data &analytics helps Netflix

generate billions. AI Data Analytics, https://www.aidataanalytics.network/data-science-

ai/articles/data-science-at-netflix-how-advanced-data-analytics-helped-netflix-generate-

billions

Sadeh, G. (2019). How Netflix uses big data to create content and enhance user experience.

Clickz, https://www.clickz.com/how-netflix-uses-big-data-content/228201/