The service now accounts for 15 percent of global Internet traffic. How an algorithm turned a DVD hop into a film empire.
Netflix revolutionized television. The service spent 13 billion US dollars on film productions this year – more than any Hollywood studio. Where the budgets are tighter and the patrons less in the former dream factory, Netflix can spend the money to the fullest. The film stream-ing service alone cost 100 million dollars for the jungle book adaptation “Mowgli”, which has been available since December – Warner Bros has ceded the global rights to Netflix for this.
There are only a few hundred kilometers between the Hollywood studios in Los Angeles and the service based in Los Gatos. But the data and dream factory are worlds apart. Hollywood, the center of gravity of analog film production, views the rise of the service with a mixture of fear and admiration. Admiration because Netflix hits the nerve of viewers with mathematical precision. Fear because a competitor grows up in the service who is poaching in his own talent pool. Netflix has recruited director Ryan Murphy, the creator of hit series such as “Glee” and “American Horror Story”, from 21st Century Fox for $ 240 million.
137 million subscribers worldwide
Netflix makes Hollywood look old – the service needs neither cinemas nor a lobby and can afford to do without its own logo in Cannes. Netflix turns the living room into a cinema. The service has 137 million subscribers worldwide. In 2017, Netflix had sales of $ 11.7 billion. It’s not even half of what empires like Time Warner ($ 31.3 billion) and 21st Century Fox ($ 30.4 billion) do. But while the film studios are losing market share, Netflix is growing strongly. And that’s what the shareholders appreciate: The market value (currently: 115 billion dollars) was at times higher than that of Disney. Netflix has been profitable for ten years, and profits are rising steadily.
What many do not know: The beginnings of the service go back to the time of the VHS cassettes. In 1997, Reed Hastings founded Netflix as a type of digital film Rental Company. The computer scientist, he said later, wanted to borrow “Apollo 13” from the video library. However, because he missed the loan period, he had to pay $ 40 in fees. A business idea grew out of the frustration: a video rental by post. The post has now become the World Wide Web, which chases films as data packets through the Internet. The data-hungry service now accounts for 15 percent of global Internet traffic.
The recipe for success of the film machinery is an algorithm that decodes the viewing habits of users and recommends series to them. Over 80 percent of the series and TV shows on Netflix are found using this rating and recommendation system. The algorithm, which is the company’s most valuable trade secret, has been a mystery for years. Todd Yelling, product manager and eccentric mastermind at Netflix, only revealed this much: “What we can read from the user profiles is what people see, what they see afterwards, what they saw before, what they saw a year before, what you recently saw at what time of day. ” Netflix could be summed up as follows: TV looks back.
Every reaction is measured
The task: optimize the Netflix algorithm by 10 percent. Cinematch, as the algorithm was called, tried to predict future ratings based on user ratings. “Cinematch”, as Ed Finn describes it in his book “What Algorithms Want”, “did not care about actors, directors, genres or periods – every rating was a data point.” The winning algorithm combined a variety of variables such as day of the week and time of day that correlated with the ratings. Every reaction is measured.