How Netflix defines success for it’s shows

Alan Wurtzel, head of NBC Universal’s research team, suggested yesterday that broadcast networks need not worry about Netflix, considering “Jessica Jones”, the latest Netflix original show, had only 4.8 million average viewers per episode.

Even if this is true, it’s important to note that the absolute number of viewer should matter less for Netflix. Why? And what then should Netflix be looking at?

The answer is: Revenue per month per episode. Let me explain.

Let’s assume I really like “Jessica Jones” (JJ) and other superhero-type TV Shows. So, I pay Netflix $9/month and watch an episode every week (and that’s all I do). In this, intentionally exaggerated and hypothetical, scenario — I am paying Netflix ~$2.25/episode. If 4.8 million people are doing exactly this — Netflix can reasonably account that it’s revenue from each JJ episode is $10.8M ($2.25*4.8 million). Significantly more than $3.33M it cost them to make it (based on this story).

This also implies that the more I watch other content, the less value is attributed to JJ since it’s less and less the only piece of content that’s keeping me tied to Netflix.

Netflix is looking at this and similar data to measure it’s own success every day, for every show and for every episode.

The fundamental problem with broadcast TV is that it’s an advertising driven revenue model and they don’t have a direct feedback loop with their end-user (the consumer).

An advertising driven revenue model is a function of a) Viewer numbers and b) Viewer demographics. This drives the show format, content and everything around it. It is not directly related to a user’s preference — at-least not in proportional way.

A subscription driven model, on the other hand, directly allows a user to choose and pay for the content they want to see (admittedly, less so than if I was to explicitly purchase each show separately).

In the long run then, especially if subscription prices stay in the affordable range of a majority of the TV watching population, subscription content will always be ‘better’ (as judged by individual tastes and preferences) than broadcast content — which is meant to appeal to the lowest common denominator.