A blog post by Graduate RA student Annis R. Sands. 

With the stiff competition for eyeballs in the subscription video on demand (SVOD) landscape, it was a little surprising to learn that two of Amazon’s chief SVOD rivals, Netflix and Hulu, used Amazon Web Services (AWS).  This is not to suggest that Amazon engages in unethical business practices to undermine its competitors. But rather it welcomes the question, how does Netflix and Hulu each use data as part of their own strategy?

Over the last twenty-four years, Netflix transformed from a subscription DVD rental operation that relied on the Hollywood studio system into industry leader challenging its former partners.  For a brief period between 2005 and 2008, Netflix operated Red Envelope Entertainment (REE), a division focused on distributing indie films (Rogers, 2009). But Netflix closed this division shortly after it first launched online service called “Watch Now” back in 2007 (Rodriguez, 2017).  

While Red Envelope Entertainment foreshadowed Netflix’s itch to produce original content, Netflix saw greater value in licensing content for its library.  As a publicly traded company, Netflix’s stock depends on its subscriber numbers. In turn, Netflix’s success depends on convincing subscribers that its library is “worthy of their monthly fee” (Lotz, 2017).  Netflix’s vast content library paid off in dividends because it granted Netflix intimate access to audience metrics later used when the company launched original programming.

The rising costs associated with licensing US-produced content and the rapid growth in international subscribers has forced Netflix to focus on scaling its global operations.  To reach its 125 million subscribers in 190 countries, Netflix uses a combination of Amazon Web Services (AWS) and its own content delivery network (CDN) called Open Connect (Netflix, “Open Connect”).

(August 2016)
Source: https://datacenterfrontier.com/mapping-netflix-content-delivery-network/
Queen Mary University, January 2018
Source: https://arxiv.org/pdf/1606.05519.pdf

Starting in 2014, started Netflix partnering with local ISPs and carriers offering customers exclusive access to Netflix (Scott, 2017).  Differences between the maps show increased Netflix penetration in Latin America, the Caribbean, India, Western Europe, and South Africa indicating the Netflix’s partnership with local ISPs outside of the US market.  This change is consistent an 2017 New York Times article that described how the Liberty Group expanded Netflix service in more than thirty markets in Latin America, the Caribbean, and Europe in exchange for percentage of revenue earnings (Scott, 2017).

While Netflix focuses on innovative storytelling to drive subscriber numbers, Hulu adopted a content strategy reminiscent of the traditional broadcast television and cable channels by focusing on ad-sales (Lotz, 2017).  Where Netflix planned to spend an estimated $8 billion for original programming and licensing, Hulu planned to spend $2.5 billion. Considering the fact that Hulu started as a joint venture between NBC Universal Television, Fox Broadcasting Company, and Disney back in 2007, Hulu’s role as an “online [programming] pipeline” for its parent companies minimizes the need for expensive risks (Lang, 2014, Solsman, 2018).  

While Hulu trails behind Netflix and Amazon in terms of how much they spend on content, Hulu’s CEO, Randy Freer, has indicated that Hulu has access to $20 – 30 billion worth of content from its corporate owners (Solsman, 2018).  The August 2017 announcement that Disney planned to pull all of its titles from Netflix when their contract expires in 2019 further explains Netflix’s aggressive investment on original programming and licenses (Bishop, 2017). There are glaring parallels between Netflix’s global expansion and when its fascination with producing original programming.  

Is Netflix’s expansion into international markets a strategy to remain relevant as Disney prepares to launch its own streaming service in 2019?  Hulu’s relationship Disney, one of its parent companies, offers it a strategic advantage over Netflix. With the recent announcement that Fox accepted Disney’s offer to purchase 21st Century Fox for $71.3 billion would mean a further ownership consolidation of Hulu by Disney (Hagey and Schwartzel, 2018).   Could this mean as suggested by Professor Parks, that Hulu will become the “portal” to Disney and Fox content (Lotz, 2017)?

Sources:

Josef Adalian, “How Netflix’s Original Programming Is Poised to Outpace the Top Cable Networks, in One Chart,” July 28, 2015. http://www.vulture.com/2015/07/netflix-original-programming-hbo-fx.html

David Carr, “Giving Viewers What They Want,” New York Times, February 24, 2013. https://www.nytimes.com/2013/02/25/business/media/for-house-of-cards-using-big-data-to-guarantee-its-popularity.html

Keach Hagey and Erich Schwartzel, “21st Century Fox Agrees to Higher Offer from Disney,” Wall Street Journal, June 20, 2018. https://www.wsj.com/articles/fox-disney-announce-new-deal-1529496937

Hastings, Reed. “How Netflix Got Started,” Interview by Alyssa Abkowitz. Fortune. January 28, 2009. http://archive.fortune.com/2009/01/27/news/newsmakers/hastings_netflix.fortune/index.htm

“Netflix Open Connect Overview,” Netflix.com. https://openconnect.netflix.com/Open-Connect-Overview.pdf

Bryan Bishop, “Disney’s streaming service has won, and it hasn’t even launched yet,” The Verge, November 11, 2017. https://www.theverge.com/2017/11/11/16637732/disney-star-wars-marvel-pixar-streaming-service-netflix

Timm Böttger, et al.  “Open Connect Everywhere: A Glimpse at the Internet Ecosystem through the Lens of the Netflix CDN,” ACM SIGCOMM Computer Communications Review,” 2018. https://arxiv.org/pdf/1606.05519.pdf

Rebecca Greenfield, “The Economics of Netflix’s $100 Million New Show,” The Atlantic, February 1, 2013. https://www.theatlantic.com/technology/archive/2013/02/economics-netflixs-100-million-new-show/318706/

Amanda Lotz, “The unique strategy Netflix deployed to reach 90 million worldwide subscribers,” April 4. 2017. https://theconversation.com/the-unique-strategy-netflix-deployed-to-reach-90-million-worldwide-subscribers-7488

Adam Rogers, “Fail: Netflix Shutters Its Distribution Division,” December 21, 2009. https://www.wired.com/2009/12/st-netflix-distribution/

Ashley Rodriguez, “Ten years ago, Netflix launched streaming video and changed the way we watch everything,” Quartz, January 17, 2017. https://qz.com/887010/netflix-nflx-launched-streaming-video-10-years-ago-and-changed-the-way-we-watch-everything/

Mark Scott, “In Global Expansion, Netflix Makes Friends With Carriers,” New York Times, February 26, 2017. https://www.nytimes.com/2017/02/26/technology/netflix-streaming-expansion-mwc.html

Joan E. Solsman, “At CES 2018, Hulu Says Netflix Isn’t the High Roller You Think,” CNET, January 10, 2018. https://www.cnet.com/news/hulu-ces-2018-randy-freer-handmaids-tale-handmaid/

Kyle Vanhemert, “The Secret Sauce Behind Netflix’s Hit, “House of Cards”: Big Data,” Fast Company, February 19, 2013. https://www.fastcompany.com/1671893/the-secret-sauce-behind-netflixs-hit-house-of-cards-big-data

https://datacenterfrontier.com/mapping-netflix-content-delivery-network/