Netflix's Biggest Competitor is Choice
(Courtnie Lewis)
I decided to read Netflix's 2019 annual report (Yes, I need to get a life). As I was reading it, one section caught my attention—competition:
"We compete against other entertainment video providers, such as multichannel video programming distributors ("MVPDs"), streaming entertainment providers (including those that provide pirated content), video gaming providers and more broadly against other sources of entertainment that our members could choose in their moments of free time. We also compete against streaming entertainment providers and content producers in obtaining content for our service, both for licensed streaming content and for original content projects.
While consumers may maintain simultaneous relationships with multiple entertainment sources, we strive for consumers to choose us in their moments of free time. We have often referred to this choice as our objective of "winning moments of truth." In attempting to win these moments of truth with our members, we are continually improving our service, including both our technology and our content, which is increasingly exclusive and curated, and includes our own original programming.”
When you think of Netflix, you think their competition is Hulu, Amazon Prime, Disney Plus and other over the top media services (OTT). Netflix thinks differently. Netflix includes video game companies and any other product that a consumer could choose in "a moment of their free time".
This could mean Fortnite, TikTok, Madden or even playing pickup basketball outside.
Netflix wrote in a letter to shareholders last year:
“Our focus is not on Disney+, Amazon or others, but on how we can improve our experience for others, ... We compete with (and lose to) Fortnite more than HBO. When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time.”
Exploring the Concept of Choice
To understand their reasoning, think about the concept of choice— Netflix's biggest competitor. Fortnite's user experience is simple. Go into the game, go to the lobby, hit ready and you are playing. That's it. Nothing else. If I want to play basketball, I can go outside, walk to my gym and start shooting around. TikTok is even simpler. I open the app and start scrolling.
Well, isn't Netflix simple? Open the app and start watching something. Yes, in practice. No, in theory. When do you actually go on Netflix and start watching something immediately? Rarely, if ever. How many times have you thought about watching something new to go back to reruns of the Office?
If it was so easy to choose content, there wouldn't be 653M results for "What to Watch on Netflix?" This is a problem that Netflix thinks about all the time.
Netflix has spent millions if not billions on their recommendation algorithm. 80% of watched content is based on recommended content. Netflix's former chief product officer wrote in a 2016 paper that the algorithm saves Netflix over $1B a year. Netflix only has 90 seconds to suggest content to a user before it leaves—underlying the importance of the algorithm.
Netflix doesn't only use the algorithm to retain users:
It emails users when new content is added they might enjoy
It sends mobile notifications when new content is added they might enjoy
It uses the millions of data points collected on users to create original content that might interest their users
But their newest initiative is very interesting. Recently, Netflix announced they are testing a linear channel for French users on the Netflix web app.
What Does This Mean?
Linear content is "a classic system when a viewer watches a scheduled TV program at the time it airs and on its original channel"
So cable television? Yes. This might seem backwards. Wasn't the point of OTT for anyone to watch content wherever they want, whenever. Yes!
But that is also the problem. As I wrote above, choice is the biggest competitor to Netflix. In psychology, this theory is the paradox of choice—too much choice causes the feeling of less happiness, less satisfaction and can even lead to paralysis. Termed by Barry Schwartz in 2004, the term comes from a study called the Jam Experiment:
“In 2000, psychologists Sheena Iyengar and Mark Lepper published a remarkable study. On one day, shoppers at an upscale food market saw a display table with 24 varieties of gourmet jam. Those who sampled the spreads received a coupon for $1 off any jam. On another day, shoppers saw a similar table, except that only six varieties of the jam were on display. The large display attracted more interest than the small one. But when the time came to purchase, people who saw the large display were one-tenth as likely to buy as people who saw the small display.”
More Isn’t Better
More isn't better. And that is the problem for Netflix. It has so many content choices, users don't choose. They just leave. Hence, the linear TV channel. Somedays you want to do nothing. When I had cable TV, I'd turn on the TV and watch Law & Order. I loved that show. I'd sometimes pick up an episode halfway through. Those days are gone. Netflix wants to bring it back.
The theory, people will discover content they otherwise wouldn’t have discovered. I would not have watched Law and Order if the reruns weren't on. But I'm now a huge fan, and all because of linear TV.
This is the TRUE problem that Netflix faces...choice.
Over the next decade I expect content, both produced and UGC, to grow at an exponential pace. While quality is important, it's also important to think about barriers such as friction. How does one discover quality content if the friction is high. And this is the battle that Netflix and other consumer applications face today. They don't only want high quality content, they want it without thinking about it. If you are trying to build the next billion dollar consumer application, just think: "Is choice your biggest competitor?"