How Netflix measures success
Netflix/House of Cards
Netflix has always had a different method of evaluating success than traditional TV networks or movie studios. While TV giants rely on ratings so they can hawk space to advertisers, Netflix is purely subscriber-based.
That means that the most important economic metric for Netflix is how much a TV show or movie contributes to Netflix's ability to sign up and retain customers.
The problem is that it's a hard thing to measure, Netflix Chief Product Officer Neil Hunt tells Business Insider. Hunt says to get close, the main metric the company uses to judge success is a variation on viewing hours called "valued hours."
This isn't simply a raw tally of how many hours people spent watching Netflix. It also takes into account what percentage of someone's total viewing that represents. In other words, if you watch a lot of Netflix, your hours are worth less to Netflix. This makes sense when you consider that the most vital unit to Netflix is a "subscriber."
Hypothetically, if one particular show is the only thing on Netflix a subset of subscribers watches, but they still pay every month for Netflix, then that show must be really important for them. And Netflix will consider that show valuable to the service.
But Hunt says that while this metric is probably the biggest single factor Netflix looks at, it's just one of many that make up the company's analysis.
Another crucial factor Netflix is trying to nail down is the concept of "enjoyment," or how much you liked a show. This hasn't been easy. We previously reported that Netflix has been looking to change its five-star rating system because the company thinks people tend to rate shows based on how objectively good they consider them, and not how much they enjoyed watching them.
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