Stocks: Netflix turns off TV as we know it

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01/24/2018 | 02:29 pm
Another milestone for Netflix this week. The California based video-on-demand company reached a $100 billion valuation after it released its quarterly figures for the final three months of 2017. Time to have a closer look at the rise of this highly successful online entertainment business.



A brief history

Contrary to what some of you may think, Netflix has been around for more than twenty years. It was founded in 1997 by Reed Hastings and Marc Randolph to offer online movie rentals. The company made its IPO on the Nasdaq in 2002 (under the ticker NFLX).

Fast-forward to 2007 when Netflix first introduced streaming, allowing its members to watch TV shows and movies on their PCs. Over the next couple of years, further expansion to devices such as the Xbox 360, PS3 and eventually the Apple i-product range follows.

It isn’t before 2012 however that Netflix becomes available in Europe and it’s only been available worldwide since 2016.    

Why it works

There are several reasons why Netflix is so successful. The sample below is by no means exhaustive but gives a good idea of the elements that play a role.

Artificial Intelligence (AI)

It’s no secret that Netflix uses an AI-powered algorithm that helps recommend content to its members. Let me tell you what this entails. Are you into science-fiction movies? Then you’ll see a lot of them appear in your ‘Top Picks’. Or perhaps you like to watch a detective (thriller-mystery) every once in a while? Then you’ll find a complete selection of related series, films, and documentaries under ‘Because you watched X’.

And the algorithm does more than that. Based on everything you’ve watched on Netflix you’ll get a so-called matching score, a percentage that indicates how likely it is that you’ll enjoy certain content. Talking about customization, right?

According to Jim Cramer, former hedge fund manager and co-founder of the TheStreet Inc, it’s this artificial intelligence model that sets Netflix (and several other companies) apart and makes them so popular: “Instead of someone telling us what they want us to watch and when we watch it, Netflix listens to what we want and then they produce it. We’re watching what we ask for.”

The digital age

In terms of timing, Netflix is a classic case of being at the right place, at the right time. Let’s start with the rise of the world wide web. The number of internet users globally grew from 16 million in 1995 to almost 4 billion in 2018.

Source: Internet Live Stats

 

Another important factor here is the arrival of the smartphone. Although basic versions of what we know today as a smartphone have been around since the 90s, it wasn’t until 2007 that they became widely known and used – indeed with the introduction of the first iPhone. 

Smartphones literally put the internet – and everything that comes with it – at our fingertips. Nowadays we can do virtually anything with and on our phones: watch (and record) videos, take photos, order an Uber, book a hotel, look for a new job and of course… binge-watch Netflix.

A great user experience

When it comes to the user experience, Netflix has put itself in the shoes of its subscribers once again. The platform is easy to navigate through, subscribers can create several profiles on a single account and they get unlimited streaming, to name just a few elements.

But there’s more.

Let’s say you’re watching the latest season of your favorite TV show for example. After the first few episodes you may have enough of the show’s intro and just want to see the next episode. Well, there’s a button for that, ‘skip intro’. It’s these details that add up and make Netflix (one of) the best streaming service out there. 

The future

It will be interesting to see what the future will hold for Netflix. Yes, its fourth-quarter results were good. The company added no less than 8.33 million subscribers to its member base. That’s 2 million more than Wall Street expected, bringing the total of streaming subscribers to more than 110 million.


And yes, Netflix has some very popular original content – such as the Crown and Stranger Things for example. The company plans on creating much more original content in 2018 and has hence upped its content budget to $8 billion.  

At the same time, there’s a lot going on in the market for entertainment. Other streaming services such as Hulu and Amazon are fighting to become the best in business, and companies like Apple, Facebook, and Disney (among others) are also becoming more active in this space.

One thing seems certain though: amid all of this online video-streaming the TV as we know it stays turned off. 

 
Sources:
http://www.internetlivestats.com/internet-users/
https://media.netflix.com/en/about-netflix
https://www.thestreet.com/video/14459256/jim-cramer-netflix-is-all-about-artificial-intelligence.html
 

Neelie Verlinden
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