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Streaming Wars: Mining Subscriber Data to Score a Hit TV Show

13 Mar, 2013 By: Erik Gruenwedel

When Netflix’s murder-mystery “Hemlock Grove” streams April 19, it won’t just be the subscription video-on-demand pioneer’s follow-up to acclaimed original drama “House of Cards.” It will also target a subscriber specifically entertained by graphic horror.

CEO Reed Hastings said as much Feb. 25 to an investor group in San Francisco, commenting that the Eli Roth-helmed “Grove” was probably too “gross” for most of people in attendance. And that’s exactly how Netflix wants it.

That’s because the Los Gatos, Calif.-based rental service understands a lot about its 33 million subscribers (27 million in the U.S.) — so much so, it can allocate resources developing and marketing original programming to niche audiences it knows have a better-than-average-chance of connecting with it.

Indeed, “Cards,” which stars Kevin Spacey as ethics-challenged House Majority Whip Francis Underwood, is Netflix’s most-watched serialized drama — a fact that underscores the company’s obsession with user data.

Netflix not only invented recommendation software directing subscribers toward preferable titles (including disc), it tracks the amount of time a sub watches, pauses and returns to a particular TV show or movie — and on which device. The service knows exactly what programming resonates with subs and what doesn’t. By doing so, Netflix builds genre-specific user profiles without the need for test audiences or focus groups.

Netflix chief content officer Ted Sarandos says original programming is not judged by overnight ratings, but rather by subscriber retention and growth. He said more people watch an episode of "Breaking Bad" on Netflix over time than on one night on drama’s broadcast home AMC Network.

Sarandos said Netflix knew before it agreed to “Cards” that Spacey rated favorably among subscribers, with many of his movies among the service’s top rentals.

“We establish early on whether there is an audience for the show,” he told a recent investor group.

Netflix also tries to separate from the pack by offering access to all episodes of a series at launch thereby encouraging binge viewing, which he said has become a topic of water cooler conversation at the office.

"You get the most [user] satisfaction by [them] having control of access," Sarandos said. "Get viewers engaged differently than you can on linear television."

It’s a strategy now emulated by over-the-top (OTT) services such as Amazon Prime Instant Video, Hulu Plus, Redbox Instant by Verizon, YouTube and Xbox Live seeking to establish a competitive advantage through technology and data.

After “Hemlock Grove,” Netflix will roll out a reboot of former Fox comedy “Arrested Development” in May. Thereafter, it is launching “Orange Is the New Black,” a prison dramedy from “Weeds” creator Jenji Kohan; “Derek” with Ricky Gervais; and, lastly, the sophomore season of “Lilyhammer.”

“With broadcast TV, they have to have a mega-hit, or they have to kill [the show],” Hastings said. “We seek to have home runs, but we can also score runs on lesser successes because we’re not programming to a limited shelf space, and we have a huge on-demand base [of subscribers].”

SVOD services have long recognized the value of tracking and analyzing user data. In fact, Verizon CFO Fran Shammo cited Redbox’s 30-million-plus user email database, culled from more than 43,000 kiosks throughout the years, as a strategic advantage and inducement to the joint venture.

“We needed a partner who is recognized … as a very, very good, if you will, DVD distributor, but wants to get into the streaming business,” Shammo told an investor group last year. “The Redbox population and its 30 million email customers are going to integrate all that.”

In fact, since launching the beta version of Redbox Instant, the company has solicited emails from individuals interested in testing the $8 monthly service, which includes four free kiosk disc rentals and transactional VOD access to select new releases on street date.

When TV literary agent Peter Micelli March 8 disclosed at an entertainment symposium that Redbox Instant was in discussions for original programming, it is safe to assume user data will be involved in determining what that content is, according to B. Riley Caris analyst Eric Wold.

“Given that both Netflix and Amazon are moving forward with original programming based on internal data, that is the one thing that can truly differentiate one SVOD offering from another,” Wold said.

Amazon approaches original programming a little bit as a popularity contest. Through its Amazon Studios subsidiary, the company has openly solicited pitches and scripts for dramas, comedies and children’s programing. To date, it has received more than 7,000 submissions and recently greenlighted 12 comedies and kid’s shows with a reported budget of $1 million per pilot.

The pilots will be streamed for free on Amazon Prime, Amazon Instant Video and Amazon-owned LoveFilm Instant in the United Kingdom and Germany. Pilots that register the strongest feedback will be given full series productions.

In addition, Amazon mines data from its transactional VOD service to determine what genres sell and could be transitioned for streaming. It recently acquired exclusive rights to FX’s “Justified and “The Shield,” in addition to PBS’ “Downton Abbey” and CBS’ “The Good Wife,” among others.

“We’re consistently looking for ways to make Prime better — and one of the ways we’re doing that is adding shows like these that we know customers love,” said Brad Beale, director of digital video content acquisition for Amazon.

Andrew Wallenstein, editor-in-chief of digital at Variety, recently told National Public Radio he believes crunching online user data will become the norm in Hollywood.

“It's not like they're not putting content on their own websites and Hulu and whatnot,” Wallenstein said. “This is really part of a much broader trend that's known now in the business world as big data.”

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