Netflix' captive audience Netflix’ business strategy – and ultimately its (platform) value – derive from the power of its recommendation engine to captivate ànd capture its audience.

The world’s most esteemed market research institutes apparently disagree on usage numbers of video-on-demand service Netflix during the first quarter of 2014. GfK reported that regular users in the US consume 7,1 TV shows and 3,8 movies a week on average, or about 1,5 hours a day. Netflix said it streamed 6,5 billion hours of video globally in the first quarter of 2014 which at 1,4 hours per day per subscriber is pretty close to the GfK survey. Yet GfK’s colleagues at Nielsen only counted about 20 minutes a day of video consumption! Where has the time gone?

In fact, GfK tells us that only 45% of those using Netflix were actual subscribers. Friends and family “borrowing” the subscriber’s account make up for more than half of total usage. So actual subscribers took up only about 40 minutes, which is in line with other tracking surveys. And: the 36 million subscriptions to Netflix in 2014Q1 provided access to 80 million viewers.

Is this bad for Netflix? Rather than “going legal” on those piggybacking viewers, the company tries to motivate each individual viewer to establish his or her own profile. Rather than defending an obsolete demand-and-supply business model, Netflix prefers feeding its recommendation engine with as many usage statistics as possible in a deliberate effort to optimise customer satisfaction and retention.

It understands full well that any video-on-demand service without a truly differentiating data-driven recommendation engine is doomed to be disrupted and bypassed by Popcorn Time & co. So the company bets on its subscribers’ willingness to pay for the services of an intelligent librarian and the experience of a genuine user interface.

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Nikolaas Bellens