How Netflix, Amazon, Hulu Use Big Data to Change TV Watching

Source: How Netflix, Amazon, Hulu Use Big Data to Change TV Watching


To radically change TV-watching habits.

Traditional television viewership is on the decline, and fewer people are actually going to the movies. Meanwhile, streaming video services like Netflix, Amazon’s Instant Video, and Hulu keep adding subscribers and original programming.

It’s getting harder and harder to deny that digital content providers are dramatically altering the entertainment industry. So, how did they do it—and what will be required for traditional networks and studios to stay in the game?

Michael Smith and Rahul Telang—two professors at Carnegie Mellon University’s Heinz College of Public Policy and Management—explore these questions in their new book, Streaming, Sharing, Stealing: Big Data and the Future of Entertainment, published by MIT Press last month. In an interview with Fortune, Smith discussed the new book, Netflix’s hit, House of Cards, and the future of entertainment.

The following conversation has been edited and condensed for clarity.

Fortune: Your book describes the success of Netflix’sHouse of Cards as a turning point for the entertainment industry and digital content. Why was that such a big deal?

Smith: The making of House of Cards illustrates how a bunch of different changes coming together at the same time can be really disruptive to the traditional industry. The thing that Netflix had that nobody else in the industry had was they didn’t just know that there were a bunch of [fans of the House of Cards‘ lead actor, Kevin Spacey] in the abstract, they knew exactly who those Kevin Spacey fans were and they could use the platform to target them directly. So, Netflix went out and created nine separate trailers for House of Cards and targeted them directly to those users. So, I think part of the story is the power of detailed customer data to help you do a better job of marketing the content.

Has the thinking among traditional media giants—who have frequently downplayed the competition they face from services like Netflix—evolved at all in recent years?

There are a lot of very smart, very capable people, who I respect, saying we’re in a content bubble [and] there’s way too much content being made right now for what’s economically feasible. And, what we’re trying to gently push back in the book is the economics of the large-scale bundled subscription model that Netflix is pursuing, [where what the] economic theory says is you can profitably make things in a bundle that wouldn’t be profitable if you sold them separately. I think it’s just as likely that what we’re seeing is the new economics of what’s possible in a Netflix-style bundle. This isn’t a bubble of content production; this is the new normal of what’s possible.

What’s the biggest reason streaming services have a leg up over traditional media companies?

Netflix, Amazon, and Google all own their own data and they don’t share it with anybody in the entertainment industry.

People have made a big deal about the idea of “binge-watching” as the embodiment of the changing way weconsume media. But, what about the tailored content, based on users’ tracked habits? Which is more important?

Both. It’s understanding at a detailed level how individual consumers are accessing the content, and then using the platform to help them discover and find exactly the right content that’s going to meet their tastes. What the academic literature says is that consumers get an incredible amount of value from being able to find exactly the kind of content that meets their unique tastes—and that consumers’ tastes are incredibly varied, more so than what you can find with traditional broadcast channels.

So, what’s the future of entertainment? What will the industry look like in a decade?

We try not to prognosticate too much in the book. What I do think is true is, because of the nature of the data and consumer behavior, a lot of these channels become winner-take-all or winner-take-most-all kind of markets. I think we’re going to have a small number of very powerful players. Now, we’ve always had a small number of very powerful players—what we’re saying in the book is there’s a very high likelihood that it could be a different set of players if the traditional industry folks don’t move quickly.

Could there be consolidation among some of the big companies operating Hulu?

It’s possible. I honestly think that’s their best strategy, to come up with a separate platform. The separate platforms are certainly a good start. The problem is I have no idea what it CBS content versus ABC content, and even less so for movies. Both for marketing reasons and pure economic reasons, it’s much better to go with a common platform that brings together content from a bunch of different players than to try to go with individual platforms for all the different players.


Fire TV: Amazon’s Television Set-Top Box Revealed |

Fire TV: Amazon’s Television Set-Top Box Revealed |

The online giant’s small television set-top box, which costs $99 and begins shipping today, will stream movies, TV shows and music from users’ Amazon libraries, services like Netflix and Hulu, and apps like Pandora and iHeartRadio

Amazon has announced the Fire TV, a small television set-top box for streaming movies, TV shows and music.

The box is slimmer than a dime (standing up, that is), and can either sit in an entertainment center or mount behind the television. A small Bluetooth remote has a handful of buttons for media playback and navigation, similar to an Apple TV remote, but it also has a microphone for voice search.

As with Amazon’s Kindle Fire tablets, the software is partly based on Android, but it also uses HTML to support easy porting of apps from other television platforms. Apps for Netflix, Hulu Plus, YouTube, WatchESPN,, NBA, Crackle, Bloomberg TV and others will be supported at launch, and of course Amazon will have its own services on board, such as Amazon Prime Instant video and a store for purchasing and renting videos.

Doug Aamoth—TIME

Beyond video, Fire TV will stream music from users’ Amazon libraries and from streaming apps such as Pandora, iHeartRadio and TuneIn. Users can view photos as well, as long as they’re stored in Amazon’s Cloud Drive services.

Kindle Fire users can see information about what’s on the TV using Amazon’s “X-Ray” feature. Users will get a notification on their tablets, letting them tap to learn about actors and other information on a video, and see lyrics for music. Amazon’s FreeTime Unlimited service is supported as well, allowing parents to set time limits for their children and get recommendations on kid-friendly content.

As rumored, Fire TV will have a gaming component, and Amazon lists Disney, Gameloft, 2K, Ubisoft and Double Fine as some of the publishers that are on board. An optional Fire Game Controller will sell for $40, but users can also play games through the remote control or with a companion phone and tablet app. The games are mostly adaptations of mobile titles, such as Gameloft’s Asphalt 8, Minecraft Pocket Edition and Disney’s Monsters University; many are free to play, and the average price of a paid game is around $1.85.

Doug Aamoth—TIME

Amazon did recently acquire a game studio, Double Helix, and Amazon is now building games specifically for the Fire TV and Kindle Fire tablets. One example Amazon demonstrated is Sev Zero, a third-person shooter that includes some tower defense elements. (Amazon’s website shows how a second player can use a Kindle Fire tablet to view the map, collect resources and launch air strikes.)

Fire TV’s components are similar to that of a smartphone or tablet, with a quad-core processor, a dedicated graphics processor, 2 GB of RAM and dual-band Wi-Fi. It supports 1080p video and offers Dolby Digital Plus Surround Sound via HDMI or optical output.

Amazon says it set out to fix a few common complaints with existing TV boxes: Performance can be laggy, search is too difficult on a typical remote control, and closed ecosystems don’t always offer the services users want. The Fire TV’s powerful specs and remote control microphone may solve the first two problems, but with the exception of Apple TV, many other set-top boxes are open to competing music and video services. Still, the gaming element is a unique feature, and the focus on a simple, speedy interface could help Amazon stand out.

Amazon’s Fire TV costs $99—same as an Apple TV, but twice the price of the cheapest Roku device—and is shipping today.

The Next Big Ad War: Netflix vs. Hulu vs. Amazon | Viewpoint: Editorial – Advertising Age

The Next Big Ad War: Netflix vs. Hulu vs. Amazon | Viewpoint: Editorial – Advertising Age.

We’ve had beer wars, cola wars and, for those who remember, the legendary Macy’s versus Gimbels rivalry. Right now cellphone marketers are exchangingblow after blow. So who are the next combatants from the school of Coke andPepsi, or Apple and Samsung?

You can expect a lot more head-to-head ad spending from Netflix, Amazon andHulu.

So far the ascendant streaming services haven’t waged much of an ad war, but that seems likely to change. The subscriber counts and video content of all three are continually growingby leaps and bounds, increasing their competition, costs and potential rewards at a rapid pace. Netflix, which offered about 1,000 movies and TV episodes when it began streaming videos in 2007, now has thousands more for its 29 million US subscribers. Just last week it signed a deal with the Weinstein Co. for exclusive rights to its movies starting in 2016, a pact Harvey Weinstein called “probably the biggest” in the company’s history. One media analyst estimated the cost to Netflix at $30 million — [≈ Energy industry 2011 political donations] per year.

Amazon’s free-shipping-and-streaming-video combo, Prime, has meanwhile accumulated the rights to 40,000 titles and episodes since 2011 and more than ten million subscribers. Hulu ownersComcastDisney and 21st Century Fox just decided not to sell the service and instead increase their spending on it by $750 million [≈ box office sales of The Graduate, 1967]. The Hulu Plus premium offering generated $695 million [≈ box office sales of Mary Poppins, 1964] in revenue last year and counts about four million subscribers.

All three services are doubling down on exclusive original content, including Netflix’s Emmy-nominated “House of Cards” and its just-announced forthcoming Aziz Ansari stand-up comedy special.

Aziz Ansari is bringing a stand-up special to Netflix

Aziz Ansari is bringing a stand-up special to Netflix

As a result, we are all streaming video more and more. The average person spent8 hours and 20 minutes per monthstreaming video in the first quarter of this year, nearly three hours than a year earlier, according to Nielsen.

With every other vector on the rise, it’s only a matter of time before the consumer marketing gets much more serious. Netflix spent a somewhat respectable $160 million[≈ cost of F-22 raptor, a stealth fighter jet]advertising in measured media over the 12 months ending in March, over half of it on display ads online, according to Kantar Media. But Hulu spent under $40 million [≈ Health industry 2011 political donations]. And Amazon spent less than $10 million [≈ Small hospital] on Prime.

These ad expenditures are a fraction when compared to the dollars being invested in the more established products and hyper competitive categories such as automotive, quick service restaurants, movies and discount department stores.

The companies have also not yet begun directly targeting one another in ads. Netflix informs its investors that of its 100 most popular movies and 100 most popular TV shows, Amazon has only 74 and Hulu Plus offers just 27. In the future couldn’t it create an ad highlighting that selling point to the general public?

The streaming video space is rapidly expanding, moreover, beyond Netflix, Amazon and Hulu. Redbox Instant with Verizon and Wal-Mart’s Vudu service offer some competition, and there are likely more to come. A “Halo” TV-type series will be available on Microsoft’s Xbox gaming console, and YouTube has scores of professionally made and long-form video channels. And then there are the “TV Everywhere” initiatives from the traditional TV industry, which will presumably eventually become more coherent and heavily promoted.


Netflix, Amazon and Hulu should follow the example of Samsung, a mobile competitor that is in a product category battle with Apple. Its U.S. ad spending in measured and unmeasured media grew 58% last year, according to Ad Age DataCenter estimates — more than any other major marketer. Inone sign of Samsung’s success, many rivals now target the company in their ads instead of Apple.

How Hulu Bid Could Lead Apple, Google, or Yahoo to Dominance – International Business Times

July 23, 2011 3:02 PM EDT

Each tech giant has their case for obtaining Hulu in leading its company toward dominance on the web. Apple seeks interest in possibly jumpstarting their Apple TV services. Google may have a similar case along with solidifying its social networking features on Google+. For Yahoo, the former premiere search engine website seeks a comeback in both traffic and revenue with Hulu as their missing piece of the puzzle.

Hulu shines as a highly attractive online property by proving its value with over 1 billion ad impressions a month, according to Comscore, and impressive offerings of video content. The latest auction for Hulu has left many pondering on the potential combination of services that may birth from current bidders in Apple, Google, and Yahoo.

Google+ has been rising in popularity with their innovative approaches to content sharing and video chat. The addition of Hulu could concrete Google’s spot as the top online video website as a new flood of content may do wonders for visitors and advertising revenue. The search giant already owns YouTube, which rakes in nearly 150 million unique visitors a month, and will seek ways to integrate video watching within Google+. The Hangout feature in Google+ may open the door to online video watching with multiple friends at once. The platform makes watching video content and commenting on them through mobile devices easy and social. Content from Hulu combined with Youtube’s offerings can lure potential users to join Google’s growing social network.

Apple’s case for a potential bid for Hulu comes in the form of Apple TV and content for their upcoming lineup of mobile devices. Financially, Apple may hold the advantage in terms of having over $76 billion in cash on hand for a purchase. If Apple were to follow its current business model of renting out shows rather than making revenue on ads, then the Hulu acquisition can potentially transform into another Netflix service. Apple would then hold great advantages in terms of reach, marketing, and content distribution through iTunes. As GigaOm pointed out, the deal would definitely provide Apple with additional video content to offer through iTunes and increasing the company’s content value.

In terms of distribution, Hulu’s high definition, HD, quality content can be a valuable asset as Apple’s new platform of HD capable iPhones and iPads plan to hit the market possibly later this year. The iPhone 5 and iPad 3 are rumored to have HD display screens that can play 720p and 1080p videos. With Hulu already reaching out to media devices through it s Hulu Plus subscriptions, the millions of Apple mobile devices will only increase the content reach.

Of all the players involved with the current bid, Yahoo may appear to be the front runner as it has much to lose without Hulu. Yahoo would love to see more traffic and utilize its strength in media and content. .

In an interview with Adage, EVP of ‘Americas’ at Yahoo Ross Levinsohn spoke about Yahoo’s desired future plan, “to be the premier digital media company. We’re No. 1 or 2 in 19 categories. That’s insane! That doesn’t exist anywhere else in the world. You embrace that. You support that. We’re focused on premium content. Some of its original, some of it’s curated, some of it’s aggregated. And we’re focused on premium advertising,” said Levinsohn.

The Hulu acquisition would bolster the media aspect in Yahoo’s offerings as well as increasing their online advertisement revenue. Without Hulu, Yahoo may have less footing in their continuous role in playing catch-up with premiere rivals in YouTube or Apple.

Recent news ruled Microsoft out of the bidding for Hulu saying that the company would not continue with future offers in the second round. With Microsoft out, the remaining three big players will duke it out for ownership of a highly prized online commodity. According to reports, Yahoo would be willing to pay $2 billion in a deal that includes an exclusive package for TV shows and movies. Based on that, the LA Times suggested that Yahoo may be in the lead spot among other bidders.

via How Hulu Bid Could Lead Apple, Google, or Yahoo to Dominance – International Business Times.

U.S. Internet Piracy Is on the Decline [STATS]

U.S. Internet Piracy Is on the Decline [STATS].

Internet piracy is on the decline in the U.S., according to new research from NPD Group.

The percentage of the U.S. Internet population using a P2P file-sharing service to download music has decreased from 16% (28 million users) at the end of 2007, to 9% (16 million users) in the fourth quarter of 2010 — the very quarter that LimeWire was forced to shut down its file-sharing service. In the quarter previous, a federal judge ruled against LimeWire in a copyright infringement case versus the Recording Industry Association of America (RIAA).

Between Q4 2007 and Q4 2010, the average number of music files downloaded from P2P networks also dropped from 35 tracks per person to 18 tracks, NPD found.

LimeWire was used by 56% of those using P2P services to download music before the ruling (Q3 2010), and 32% by the time it shut down (Q4 2010). Many users have since turned to other P2P networks, such as Frostwire (which is used by 21% of those sharing music files via P2P as of Q4 2010, up from 10% in Q3 2010) and Bittorrent, which increased its userbase from 8% to 12% in the same period. It is not yet clear, NPD says, whether LimeWire’s shutdown has had a significant effect on the number of illegal music downloads.

“LimeWire was so popular for music file trading, and for so long, that its closure has had a powerful and immediate effect on the number of people downloading music files from peer-to-peer services and curtailed the amount being swapped,” Russ Crupnick, an entertainment industry analyst for NPD, observes. “In the past, we’ve noted that hard-core peer-to-peer users would quickly move to other websites that offered illegal music file sharing. It will be interesting to see if services like Frostwire and Bittorrent take up the slack left by LimeWire, or if peer-to-peer music downloaders instead move on to other modes of acquiring or listening to music,” he added.

NPD’s data is based off a January 2011 survey of 5,549 U.S. Internet users ages 13 and older.

Online piracy is a popular scapegoat of the music industry, which has suffered a 30% decline in global sales between 2004 to 2009, according to IFPI’s annual digital music report [PDF].

But given that only 9% of U.S. Internet users use P2P networks to download music illegally (that percentage does include those who obtain music through unauthorized online streaming services and download sites), one wonders whether that blame is merited.

Increasingly, consumers are being introduced to new, more convenient — and, for the music industry, often profitable — methods of obtaining music legally, such as download stores (iTunes), ad-supported streaming sites (Pandora, Spotify), subscription services (Rhapsody, MOG), video channels (Hulu, VEVO), and through bundles with broadband services (TDC in Denmark, Sky in the UK) and mobile phone handsets (like those made by Nokia and Sony Ericcson). All of this has translated into significant revenue — $4.2 billion in 2009, according to IFPI — although it is still not enough to compensate for the sharp falloff of physical format sales in recent years.