How Analytics Has Given Netflix The Edge Over Hollywood

A number of recent articles discuss Hollywood's concern over the recent wave of multi-million dollar Netflix deals with stars like Shonda Rhimes, Ryan Murphy or the Obamas to produce content for the platform. In contrast to the dynamism of Netflix, the traditional movie industry is hamstrung by a business model that depends heavily on sequels, prequels and remakes of popular movies from several decades ago and where success seemingly depends on random or unknown factors. The simple truth is that right now, thanks to several global hits and a steady revenue stream from its 125 million subscribers, Netflix can afford to take risks and produce any project it wants and hire the talent required to make it a success. The company's valuation, at $164 billion, has grown more than 70% since January, overtaking Disney as the world's most valuable media company, which is worth $152 billion, and with some key differences: Netflix employs fewer than 5,000 people, compared to Disney's almost 200,000, and also seems to have found the secret of permanent success for the vast majority of its productions. In October 2015, just days before Netflix entered the Spanish market, I wrote a position paper (in Spanish) predicting "a first year of moderate position taking, followed by intense expansion and progressive growth as it increases its product offering thanks to the recovery of the contracts of its best-known series and the development of its own productions." It now appears my initial optimism has been surpassed, due fundamentally to having introduced into the analysis a fundamental factor: the supremacy of models based on data analytics.