Why the revolution will not be televised, but streamed
Netflix is proving that one stream can rule them all. Our technology editor talks to two of the juggernaut's most senior bosses
What is the science that Netflix uses to decide which programmes it should commission? Why will it not offer offline content? Are further price increases on the way? And is it getting close to broadcasting live events, such as sport?
Anyone who has watched the TV programmes 'Making A Murderer', 'House Of Cards' or 'Jessica Jones' needs no introduction to Netflix. The streaming service that started off with old movies and cut-price TV shows has transformed itself into one of the world's biggest television networks.
In Ireland alone, it is estimated to have almost as many subscribers as Virgin (formerly UPC). Globally, it has 70 million subscribers, a figure that looks certain to rise after adding 130 new countries to its marketplace last month. (It now streams in 190 countries.)
It's not just doing this with old episodes of Dallas or B-movies, either.
With own-made shows such as 'Making A Murderer', it now has some of the most talked-about programmes on telly. It has also started to include big movies at an early stage after their cinema and DVD release, such as The Hobbit or Marvel's Avengers.
And with a $5bn budget for 2016 that brings with it a promised doubling of its TV and movie catalogue this year, it looks like Netflix is set to cement itself as a staple in ordinary people's lives for some time to come. I recently sat down with the company's vice president of content acquisition, Elizabeth Bradley, and its chief product officer, Neil Hunt.
How big is Netflix's catalogue at present?
Elizabeth Bradley [EB], vice president for content acquisition: We tend not to comment because the size of the catalogue will be different today to what it will be next week or next month. But the catalogue should double by the end of the year. It will grow rapidly. We'll have 600 hours of new original content just in the next year, which gives you some frame for it. That's in addition to licensed content [external movies and TV series], which will keep growing.
Given you're getting really big now, would you ever consider expanding into broadcasting live events?
Neil Hunt [NH], chief product officer: We're not focused on live streams at all at the moment. When we get into the Chelsea Handler show, it still won't be live streamed, it will be a few hours old. And we expect it to be viewed as much in weeks and months, not in seconds. So live streaming is really not what we're focused on. We think that the big benefit of Netflix is when you want to watch it not coming to watch it live.
What about the ability to watch Netflix content offline - is that still off the agenda?
NH: I would probably would be less rigorous in ruling it out than I have in the past but it's not something that we're actively looking at today. It's something we'll contemplate in months to come perhaps. Offline content is a common question and it becomes more relevant as we roll out in parts of the world where connectivity is more scattered. I think we've done well by concentrating on online viewing and in making sure that the adaptive streaming technology we use works well.
Did you notice any change in subscription figures or trends when you put prices up last year?
NH: Not really. Since we grandfathered existing subscribers [at their existing rate for two years] the change is relatively gradual. We didn't really discern any kind of change in trajectory in growth. And so it seems like it has not had a significant impact.
Do you anticipate further price rises?
NH: I think you could say that we don't expect to freeze prices or lower prices. Nor do we expect them to increase dramatically. The right way to think about this is that we seek to find the right value proposition to attract the most subscribers with the best content. And we think that the right value proposition is at a place where we have enough revenue to play for a lot of really rich content.
EB: On the content side, in 2016 we'll spend $5bn. That's up from about $3bn in 2015.
You have huge amounts of data about the habits and preferences of your subscribers. How do you use this data?
NH: We have 150 million hours of viewing every day and 300 million to 400 million events where people decide to start viewing or stop viewing. So we're able to know what people like and how much of it they watch. We're able to aggregate that together. The kinds of things we do with that data are to sort it into abstract classifications or groupings of content. These will tell us that we have a lot of content with one particular factor and a little bit with another factor. That gives us the tools to know, for a new show, who's going to watch it and how much of it they're going to watch. Also, it lets us know how much alternative content those same people have to view instead. And that's the raw data we give to the buying team to help them decide how much they're going to pay for a new show or how much they're going to pursue a particular piece of content.
EB: Neil and his team can give us this data and it might tell us that we don't have as much stuff for, say, men over 50. So then we can go out and say let's go find someone who wants to create a show that might resonate there. An interesting recent example is Ridiculous Six. We made that bet because we're aware from the data that Adam Sandler resonates globally. He has a worldwide audience who enjoys his type of comedy. So that gives us the confidence to make a really big bet on it.
How do you record and evaluate such subscriber data?
NH: We have more than just a binary piece of data. We know how much you watch, how quickly you watch the next episode, whether you were present at the end of the episode and whether you interacted with the show, such as rewinding or pausing or turning away. And all of those things offer us potential signals about your level of engagement with the show. And that gives us a lot of valuable data about whether you loved this show or whether another show was a bad choice.
Do programme and film makers try to get this information from you to know which part of a programme worked and which didn't?
NH: There are certainly opportunities to see how the whole season was received. But it tends not to be at the granularity of this scene or that shot or this piece of dialogue. Some of that data is available but I don't think it's very actionable at all. The director needs to tell a coherent story and if the director is steered by such tactical data, I think you'd end up destroying the creativity that goes into it.
So we try to keep the data at a high level. We try to use it to tell which audience is going to be interested in which content and how to market it or how to target it towards our members. And also how much to spend on marketing it.
Do you use the data for any other type of product development?
NH: We have one day a year when my engineers get free reign to go and experiment on things. We've done some experiments with Fitbit. Probably the most interest one was a Fitbit sensor that can tell when you've finally binged too much and have fallen asleep. And it stops the movie.
How much 4K (ultra high definition) content can we expect to see on Netflix soon?
NH: We now have over two million accounts that connect to Netflix with a 4K device. About 10pc of the hours viewed are available in 4K to those who have the right device.
Of the 150 million hours viewed every day, 10pc of those would be in 4K if you had a 4K TV. We're building most of our big budget new originals for 4K and HDR so they'll be mastered for delivery in those formats. This will be a relatively small portion of our library initially. But we expect it to grow just as 4K has grown over the last two years and now represents 10pc of our hours viewed. HDR might grow even faster than that.
What's the relevance of high dynamic range (HDR) to Netflix content?
NH: I honestly think that HDR is going to be a more important innovation than 4K. At 4K, we have kind of topped out in terms of resolution. But we haven't applied the same development to pixels.
We're going from an 8-bit pixel to a 12 or 16 bit pixel, which is much closer to the dynamic range that you see in real world scenes. We're able to deliver HDR at 4K but also in HD and lower resolutions as well. So the bit rate required, the bandwidth of your internet required to see HDR picture at full HD is less than is required to deliver a 4K picture. So it's not only a more important innovation, perhaps, in some sense it's also one that will be available to a bigger range of people who don't have the 20 megabits necessary to do both at onces.
When you're developing new shows, does the move to phones and tablets for watching video play any part in the type of show you commission or even in how it's filmed? Might you get into 10-minute shows?
EB: It doesn't necessarily. We're conscious that a lot of people watching are going to be people who are used to short form YouTube style content. And there's going to be content for them as well. But wouldn't get into short form content specifically, no. We think YouTube does a great job at that.
Has 'Making a Murderer' resulted in any spike of interest for you?
EB: We have such a diverse set of things going on that for any one piece of content, it's pretty hard to attribute a spike to. We're delighted it's getting buzz but it's not the only one. 'Jessica Jones' got an awful lot of buzz.
Which European markets are most active for Netflix?
EB: We don't break the figures out.