
If its ratings don’t really matter, why is Netflix canceling many shows? - kevinbundschuh
https://www.marketwatch.com/story/if-its-ratings-dont-really-matter-why-is-netflix-suddenly-canceling-so-many-shows-2018-05-24
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olliej
My assumption is that for Netflix (and similar) it isn’t “ratings don’t
matter” but rather “competitive ratings don’t matter”. Traditional tv/cable
has to compare ratings for multiple shows at the same air time. If a giving
show has a lower rating than other shows at the same feasible time - they need
broad appeal because the opportunity cost involved in burning a specific time
slot.

Basically say you have a few shows, 50% of people like A, 40% each like B, C,
and D - note that there’s an overlap and underlay. If there’s a a single time
slot available, the only “correct” solution is to run show A for the 50%
popularity. If all the people who like D do not like A, then that whole group
(40% of the market) have no compelling reason to pay for your service.

Netflix doesn’t have the time slot problem which means the shows are not
competing. So they can provide A and D and both groups are happy, and B and C
are also available to everyone.

But importantly making a show does cost money, so there’s still a minimum
popularity you need to justify that cost.

~~~
forgot-my-pw
Agree.

Since it's all video on demand, ratings don't matter, but popularity still
matters. Production cost also matters.

As long as there's still a segment of the demographic that is watching, and
it's comparable with the production cost, the show shouldn't get canceled.

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philwelch
You can think of Netflix as following a third generation of ratings.

The first generation of ratings was just raw data: how many TV’s were tuned
into a given show at a given time? More viewers, more ad revenue. Simple as
that.

The problem was that some viewers are more lucrative than others. The second
generation of ratings added demographic data. This happened sometime in the
late 60’s/early 70’s, just in time to discover that the recently-cancelled
_Star Trek_ , despite its low ratings, appealed to a very lucrative
demographic.

Netflix has user-by-user, viewer-by-viewer ratings. Not just statistics per
the old Nielsen sample, but the entire population of data. Maybe even minute-
by-minute (unless you doze off). This is way more powerful than demographics,
because instead of targeting shows to “18-35 middle class white urban women”,
for example, you can target shows to “people who binge watch space operas” or
“people who enjoyed only the first two seasons of <<some show>>” or any other
large enough group you can tease out of there. And Netflix might only be
scratching the surface of what is possible with this data.

~~~
mmt
> Netflix has user-by-user, viewer-by-viewer ratings.

(Minor nit: They don't necessarily know how many viewers are watching a
screen)

But maybe that's because they don't care, since, does it really matter? If
they're not running ads, isn't every unit of screen-time worth essentially the
same amount, ignoring the variance in subscription prices for different
regions and resolution options.

Actually, I'd go so far as to argue that viewer time is worth, incrementally,
a _negative_ amount. I'd expect their goal is to have just enough content to
keep subscribers interested, rather than to maximize viewing time.

As such, it seems to me that their viewer data goes beyond being a different
generation of ratings, into a completely different thing. Maybe it's closer to
box-office (seats, not revenue) statistics for movies.

Now, I know they're not _actually_ ad-free, what with product placement, in
which case traditional "ratings" can translate to real money, but I'm not sure
if that's a large enough proportion of revenue (or reduction in content
production cost) to change their behavior.

~~~
philwelch
> Actually, I'd go so far as to argue that viewer time is worth,
> incrementally, a negative amount. I'd expect their goal is to have just
> enough content to keep subscribers interested, rather than to maximize
> viewing time.

That might be going a LITTLE far. Netflix subscribers who don't actually watch
Netflix not only don't give Netflix enough data to make programming decisions
from, but I'm willing to bet that an engaged Netflix subscriber is much, much,
much less likely to cancel than someone who barely ever watches Netflix. If
you think of viewer time as inversely correlated with probability of
cancelling, the obvious metric to optimize for is viewer time. You're never
going to watch so much Netflix that the marginal infrastructure cost is
meaningful to them.

~~~
mmt
Keep in mind, though, that I mentioned _incremental_ value, though maybe what
I meant was marginal?

I do agree that NF's business model can't really be compared to that of a gym,
with a goal of maximizing subscribers that (eventually) don't use the service
at all.

One of the big mysteries is how good a deal did they got for that outsourced
delivery infrastructure, as well as how much of it is metered (and how) versus
flat-rate.

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greedo
Because Netflix can't fund infinite shows, and needs to allocate their
resources that will attract and retain customers. It's not as if the crappy
show producers will let Netflix keep the shows for free.

~~~
greggarious
But maybe Netflix's advantage over a traditional TV channel like HBO is that
it can offer ten shows 1 million people will watch instead of one show 10
million will watch?

Traditional channels have limited slots. Obviously there's costs to produce
shows, but making 10 small budget shows that attract 10 different types of
viewer might be a better way to lock in subscriptions than a small number of
"prestige" shows.

~~~
ghaff
Possibly. But there's also a dynamic on Netflix (and HBO, etc.) of must-see-TV
shows (to steal a term from an earlier era) that pull someone over the hump of
signing up and then staying. You need the "filler" (which isn't really
intended to be disparaging) too. But a large number of shows which are OK/fine
doesn't get people to pull the trigger. Game of Thrones, House of Cards
(originally), Man in the High Castle, Orange is the New Black, etc. do.

------
docker_up
You only need 1 good show that would encourage people to keep their $10/month
Netflix subscription. So I assume that extremely high ratings has no
particular advantage, but they need to have very high breadth in terms of
population coverage, so that almost everyone has a reason to get a Netflix
account. At that point, you can calculate how profitable a TV show is, based
on number of users vs cost.

If you have a small but very targeted show that costs $1,000,000 to make, but
it attracts 10,000 users who would otherwise never get a Netflix account, then
the show is profitable after 10 months. If you have a show whose demographics
overlap preexisting shows, then its value decreases, unless you can have it
premier at different times of the year.

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jdlyga
Don't think if the show as "cancelled". It's the fact that Netflix won't
invest money in paying for another season of the show to be made. They want to
invest money in shows people watch the most and will keep them on the
platform. So yes, ratings do matter. But in sort of a different way.

~~~
overcast
That's the longest possible way of saying the following two words, "ratings
matter".

~~~
hirsin
The marginal value of a season with good ratings matters. The content is there
forever and two seasons of it vs three might not impact subscriber numbers as
much as two seasons of it and one season of a brand new show.

~~~
r00fus
This.

Kids shows are a great example - my kids don't (when pressed) care that they
don't have season 4 of Octonauts, they _do_ like seeing entirely new stuff.

For the price, I'm happy with what we get from Netflix. I much prefer it to
Amazon Video where I'm not sure if I'm going to have to pay extra because my
kids throw a fit (because it's _visible_ but not on Prime/free).

------
projectramo
To my knowledge, no one has ever said ratings do not count.

In the article, there was no evidence to indicate that anyone at Netflix had
made the claim that ratings do not count.

All they said was that they didn't release ratings, but everyone seems to know
that ratings count.

So the article's title is misleading. It should say "As we all know, ratings
determine whether a show is renewed."

~~~
afterburner
I'd enjoy a news source that phrases things like that all the time.

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pasbesoin
"Ever since the American-Norwegian crime drama “Lilyhammer” became Netflix’s
NFLX, +2.32% first original series to premiere in 2012, the company has been
committed to voraciously generating new content _in addition to its huge
library of existing TV shows and movies. "_

"huge", my posterior.

U.S. context: In the last couple of years, aside from a very few new
headliners (e.g. "Rogue One"), and some lingering headliners from older
contracts (e.g. "West Wing", Star Trek), and ever-fewer _good_ independent
productions, I find Netflix's streaming library to be the dreggs of barely
acceptable quality. (People will watch it when there's nothing better.)

Netflix streaming seems to be more popular than ever, but, "Jessica Jones",
"The Crown", and a few other Netflix productions aside, Amazon Prime is
bringing more engaging content into their lineup than Netflix is. (And that
isn't saying too much. Most recently, on Prime, I'm enjoying re-watching the
old "Kung Fu" show from the 70's -- in good if not spotless, widescreen prints
-- apparently, original filming was with cinema-format cameras.)

There are still some worthwhile titles on Netflix streaming (U.S.). But after
a few months, you've seen them all.

For those of you outside of the U.S., for all that your catalogs are smaller
-- so I read -- you should know that, in the U.S., almost no new major films
end up on Netflix. And almost all of the older ones are now gone -- contracts
expired. Per what I read and hear, some do still end up or remain in other
countries' NF catalogs.

~~~
mcguire
Absolutely. They're down on anime and older TV shows as well. Most of their
new "Netflix original" content have been Chinese and Korean movies with rather
limited appeal.

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michaelbuckbee
The language used, strategy and even just context of TV Broadcast/Cable
programming is this whole art/science/data mess that they are constantly
tweaking to try and get an advantage.

Ratings "don't matter" to Netflix in the sense of "our single camera family
based Thursday sitcom is 5 points higher than theirs but since they attracted
more males age 20-35 they're pulling in more advertising".

Netflix is playing a different game entirely.

------
pmyteh
Because salience still matters. A show with few viewers who _love_ it enough
to want Netflix might get renewed. A show with few viewers all of whom think
it's mediocre has no future in any commissioning system.

~~~
zck
Also, I'd imagine it makes a difference how _replacable_ shows are. A show
which is the only show watched by a user in a given month is probably more
valuable to Netflix than a show that is one of seventeen shows that user
watches.

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Notre1
I'm assuming Netflix's core KPI would be net subscriber count, and everything
that Netflix does, in some form, would be driven by that.

Going further, I'm guessing that there are (or will be) some shows that show
highly rated but producing more seasons would not draw in new subscribers or
decrease retention rate. It might be that there are shows where their data
shows that a large percentage of the fans of that show are unlikely to cancel
their subscription, in the case that new season is not produced, and that a
new season will not be the kind-of thing that will create new subscribers.

If wonder if Science Fiction might be a genre where the fans are unlikely to
cancel their Netflix subscription, but a multi-season run in also unlikely to
appeal to people that don't already subscribe to Netflix.

~~~
the_watcher
Yea, my guess is that the primary divergence is that Netflix probably
"weights" ratings of shows that are correlated with new subscribers and
subscriber retention. So a low-rated show that on boards a lot of new
subscribers or seems to change the behavior of a cohort who'd otherwise be
expected to churn would get comparatively more credit that a show that is
slightly higher watched in a vacuum, but driven by subscribers unlikely to
cancel their subscriptions in the absence of the show.

Basically, any show that can show that its continued existence will result in
subscribers that would not exist otherwise would likely see less ratings
scrutiny than shows that cannot show this.

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learnstats2
Ratings don't matter to Netflix - subscriptions matter. The article hints at
this but doesn't draw it out.

Netflix in general doesn't make its money from eyes on advertising - so
ratings are not a good KPI for them.

Netflix in general does make its money from subscriptions - so shows that
bring in subscriptions and those that are good enough to retain subscriptions
are the KPI they will be looking at. I find it likely that they have metrics
along the lines of what shows keep people clinging on to their subscription.

It seems likely to me that these two KPIs lead to very different conclusions
about what shows to commission and cancel.

~~~
the_watcher
My guess is that they are related enough that most cancelled shows are on the
low end of ratings. But I'd also guess that the relationship is nowhere near
as linear as a traditional network. The key to renewal at Netflix seems like
it should be proving that its continued existence results in subscriptions
that would otherwise not exist.

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nacho2sweet
Going wide with many shows instead of tall with a few shows with lots of
seasons is probably way more optimal.

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dahdum
Netflix tries to produce shows for every audience segment instead of big
mainstream hits. So the overall ratings don't matter as much.

~~~
dnomad
Actually I suspect that this is what it's changed. It's likely that Netflix
has abandoned the long tail. They are now focusing on shows that have
immediate, short term mass appeal.

Previously Netflix was able to invest in "quirky" shows that had strong appeal
to a small percentage of its user base. The classic examples here are indeed
Sense8 and Marco Polo. These shows were not blockbusters but they had a strong
and loyal following and that should be highly valued by Netflix. Particularly
when it comes to original content and as a subscription service, Netflix
_should_ be primarily focused on loyalty above all. These are the shows that
keep viewers subscribed and make unsubscribing painful.

But the economics here quickly become complicated as the culture evolves. In a
world where (a) many (most?) people are already have a Netflix account (b)
there are now many competing streaming services each of which have their own
exclusives and (c) the concept of "television" itself is gone, now you just
have "screens" all over the place and (d) there is an explosion (probably
bubble[1]) of original content and amateur content and (d) there is an arms
race for talent driving up salaries across the board... the end result is that
Netflix is now engaged in a month-by-month war not just to defend the many
subscribers it has accumulated but also to take (and retake) subscribers who
may have been drawn away to other competing steaming services that have access
to historic brands. Netflix no longer has the luxury of gradually building a
large, deep catalog that appeals to small segments of the market. It must
offer everything, or at least something extremely compelling, to all users,
every month, or those users will churn and be drawn away by competitors.

Netflix is likely moving towards the blockbuster model. In this light it
starts to make sense why Netflix is dumping hundreds of millions on feature
films and also focusing on big shows that can command huge audiences. The
blockbuster model is driven by a series of big events carefully scheduled
throughout the year to get users to show up in large droves when you need them
for something they don't really need. Competitors are doing the same. The
streaming business meets the blockbuster model and now you've got to produce a
blockbuster every month to keep people coming back.

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lev99
This is crazy, of course shows get canceled. Ratings are a huge portion of why
shows are canceled on cable because ratings are directly tied to revenue. I
guarantee Netflix is looking at revenue when deciding how to spend their
Original Content budget. Ratings would be a good indicator, but that's not the
stat to chase.

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matt_morgan
It's not about ratings, it's about subscribers. New shows generate
subscribers. Many subscribers stay on board with Netflix even after the show
that got them to sign on has been canceled. Ergo the more new shows you have,
the more subscribers you have.

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mistersquid
It seems Netflix uses an undisclosed season-by-season ranking to determine
which shows are continued and which canceled.

In many cases, I only watch shows that have positive reviews (e.g. IMDB) after
2 seasons or more. I don't know what percentage of Netflix subscribers are
like me, but I do wonder if the percentage is high enough that many good shows
will get canceled not because they will not be watched in the future but
because they hadn't yet gained a following.

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zantana
"The second season of “Flaked” was released earlier this month, but industry
observers anticipate it will become Netflix’s 20th canceled original show."

When was this written? That aired last year. Also IIRC Flaked was one of those
pre-canceled shows where it was announced in advance that the second season
would be the last.

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awat
They clearly matter not only in viewership but also in the whole stars vs
thumbs up system.

~~~
STRiDEX
i think its interesting that they can tell if someone has finished all
episodes of a series and would be waiting for a next one.

~~~
samatman
Yes. And the switch from "Will they sit through all the ads?" to "Will they
watch the whole story arc and give a thumbs up?" is the best thing that could
happen to the medium.

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mdeirmenjian
I mean, it would be a kind of crazy business model not to take into account
what the ratings of shows were...

Then again, Netflix is bathing in an ocean of cash, so they just might be
crazy enough to be throwing out anything and everything to see if it sticks.

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DannyB2
Because subscriptions matter.

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vermontdevil
The benefit of Netflix is that they can leave filmed shows on their platform
and cancel future production if interest wanes.

Then they can see if interest comes back and can build future shows based on
this feedback.

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grillvogel
because they are bleeding cash behind the scenes

