Tuesday, March 13, 2018

The Economics of Netflix

My comment on The Economics of Netflix’s Bright, a Netflix Original Movie Starring Will Smith (available on Netflix dot com) by spivonomist

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Netflix doesn't know the demand for its content.  Netflix knows exactly how many subscribers watched Bright.  Netflix knows exactly how many times each subscriber watched Bright.  Netflix knows exactly how many subscribers gave Bright a thumbs up/down.  But Netflix does not know the demand for Bright. 

Netflix could easily reveal the demand for Bright simply by giving subscribers the freedom to "earmark" their subscription dollars to their favorite content.  To be clear, this isn't the iTunes model.  Bright would not be behind a paywall.  Netflix subscribers would not have to pay to watch Bright.  Instead, each month subscribers would have the opportunity to allocate as many of their $10 subscription dollars as they wanted to Bright.  The total amount of subscription dollars allocated to Bright would be the demand for it. 

I'm guessing that each month you would allocate $0 subscription dollars to Bright.  Netflix has 100 million subscribers though.  They don't equally hate/love Bright.  Out of 100 million subscribers, one subscriber loves this movie the most.  How many subscription dollars would this subscriber be willing to allocate to Bright in one month... in one year... in one decade? 

Which movie/show on Netflix do you love the most?  How many subscription dollars would you be willing to allocate to it in one decade?  Personally, I love The Man From Earth.  In a decade perhaps I'd be willing to allocate $840 subscription dollars to it, assuming that Netflix didn't supply a movie that I loved even more.  Is this a reasonable assumption? 

Consider these three things...

A. Criticizing the worst content
B. Giving a thumbs up to the best content
C. Allocating many subscription dollars to the best content

Which one would most improve Netflix's supply of content? 

The biggest problem in the world is that most people don't understand the benefit of knowing the demand for things. 

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