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Emergence of Netflix as a global digital platform
Netflix was founded in the U.S. in 1997 as a video rental service firm and began streaming in 2007. Netflix has been one of the most successful OTT services and has played a key role as a very influential digital platform. Netflix is also one of the most exemplary platforms supported by Al, as “Al represents any technology that can be used to drive automated, complex decision making without requiring low level human input at the individual decision level” (Easton, 2019). This means that in broadcasting “this could manifest as anything from voice assistants and recommendation engines processing TV requests, through to more operational applications of Al such as automated webchat services,” which Netflix mostly presents (Easton, 2019).
The presence of Al is becoming more and more ubiquitous, and several mega platforms like Netflix, Facebook, and Spotify deploy Al-related solutions that interact with consumers (Yu, 2019). Netflix has indeed utilized Al and algorithms to develop its powerful recommendation system, which means that its impact in the global cultural markets is not restricted to the distribution sector, but the nexus of Al and culture. Netflix especially uses machine learning and algorithms to present personalized content suggestions to customers (Easton, 2019). Netflix supported by Al and algorithms dominates the entire cultural industries, from production to distribution sectors. Although it started as a distribution outlet, Netflix has produced its own original content to lessen reliance on outside studios while reducing content costs (Kumar et al., 2018). In other words, Netflix utilizes machine learning not only to identify potential projects its customers may like, but also
Netflix transforming global cultural norms 77 to develop worthwhile technical and business decisions, such as planning budgets, finding locations, building sets, and scheduling guest actors, which enable the creative act of connecting with subscribers. In order to actualize this, Netflix analyzes various data sets to predict the cost of several attributes of the production process from pre-production to post-production, including content, location, and scheduling (Kumar et al., 2018). It certainly enhances the possibility for Netflix to recommend the best suitable content to the customers.
Netflix has also transformed itself from a tiny video rental company to the largest OTT platform. As discussed in Chapter 2, Netflix borrows several different aspects from social network sites and user-generated content platforms; however, Netflix also offers several characteristics similar to digital platforms. As van Dijck et al. (2018, 9) point out, again, “A platform is fueled by data, automated and organized through algorithms and interfaces, formalized through ownership relations driven by business models, and governed through user agreements,” which puts Netflix in the category of digital platforms. In this regard, Jin (2015) also argues that digital platforms could not be fairly understood without contemplating three major areas: technological sphere, corporate sphere, and political sphere. What they commonly emphasize is that we need to understand Netflix by not only its technological aspects but also its commercial and cultural aspects. Netflix is the largest OTT service utilizing big data, algorithms, and Al to make commercial profit, both nationally and globally, and it is not only functioning as an intermediary, but also as a mediator to control the vicious chain of cultural spheres, starting in the field of distribution, but now also including production and exhibition.
Netflix’s business strategy to grab the customer’s attention has changed from “its original business model as exhibitor of film content” to “the business of being producer of serialized drama” (Jenner, 2016, 261). Instead of offering an opportunity to catch up with missed television programs and films, Netflix
offers the first—and for long periods of time only—chance to watch its original dramas, and by turning the familiar chain of first, second and third market distribution on its head, Netflix offers a distinctively different form of media distribution.
(Jenner, 2016, 261)
Netflix like other OTTs, including Amazon Prime and Disney+, as digital platforms, has greatly transformed cultural content and cultural industries. Netflix has continued to advance its unique business models and reshaped global cultural markets. By adding and utilizing several major components, such as Al, algorithms, and big data, Netflix has turned itself into one of the major media giants that change the norms of the cultural sector.
More specifically, Netflix has penetrated other countries since its successful launch in Canada in 2007. When Netflix started its service in Canada, many Canadians hoped that Netflix could offer unlimited movie and television episodes over an internet connection for $7.99 a month, which might allow them to ditch their expensive cable channels. However, Netflix chief executive Reed Hastings said, “That won’t be the case,” as Netflix is not “an effective competitor” to traditional television. During a press conference held in Toronto before the launch of Netflix in Canada, Hastings stated, “We are like a bicycle compared to their car. We’re a supplement” (Nowak, 2010). About ten years later, Hastings’ statement proves wrong, as Netflix is not only a strong competitor, but also a replacement, instead of a supplement. The growing trend of people canceling their cable or satellite TV service—known-as cord-cutting—has continued.1 Originally, Netflix might have seemed as a simple intermediary; however, it has turned into one of the strongest mediators as a digital platform, competing against traditional media. Netflix has consequently challenged the traditional media and their business models in global markets.
Netflix has continued to diversify its market. It first penetrated several Western markets, including the U.K., Ireland, Sweden, Denmark, and the Netherlands, while appearing in Latin America during the early 2010s. Netflix finally moved into the Asian market, including Japan and Korea, in the mid-2010s. Netflix entered Japan in 2015 and has a presence in most Asian countries (Low, 2017). Netflix is not yet available in China. It is also not available in Crimea, North Korea, or Syria due to U.S. government restrictions on American companies.
According to Netflix (2019a), its subscribers with a streaming-only plan could watch TV shows and movies instantly in over 190 countries in 2019, although the content that is available to stream may vary by location. Netflix kept getting bigger, although it was not growing quite as fast as it had been in the U.S., partially because of other competitors including Disney+ (Adalian, 2019). For Netflix, going global is its biggest asset, and increasing international subscribers is among its biggest challenges in the midst of fierce challenges from latecomers, including Amazon Prime, Disney+, and local OTTs.
With its global penetration, Netflix has rapidly increased its revenues, from $6.7 billion in 2015 to $20.1 billion in 2019, as the number of global subscribers has increased from 70 million in 2015 to 167 million in 2019. The number of international subscribers surpassed U.$. subscribers in 2017 (Netflix, 2017, 2018, 2019b, 2020) (Table 5.1). In December 2019, Netflix (2019d) released historical streaming revenue, membership, and average revenue per paying streaming membership by region for the first time. In an 8-K filing with the U.S. SEC (Securities and Exchange Commission), as expected, Netflix reported that in the Asia-Pacific region, revenue over the past two years grew 153% to $382 million at the end of the third quarter of 2019.
■ Paid Membership (1,000) Total Revenues ($1,000)
Table 5.1 Netflix membership and revenues (unit: 1,000) Source: Netflix (2017,2018,2019b, 2020).
Streaming subscribers grew by 148% over that time period, to 14.49 million paying customers in Q3 2019. Compared to this, the European region, including the Middle East and Africa (EMEA), showed that subscription revenue increased 132% over the last two years to $1,428 million for the third quarter of 2019. The number of subscribers in EMEA stood at 47.4 million as of the end of the third quarter, up 105% versus two years prior (Spangler, 2019). Asia has been the smallest market, but the growth rate of both revenue and the number of subscribers has been the highest around the globe.
In Asia, Korea is leading the growth, as the number of active streaming subscribers has soared. The service started in Korea in January 2016, and the number of subscribers increased by 5.23 times, from 630,000 in June 2018 to 3.3 million in September 2020, showing one of the fastest growths around the world (Li and Yang, 2020). As of October 2019, by age, people in their 20s are the largest segment at 38%, followed by those in their 30s (31%), 40s (15%), and over 50+ (17%) (Lee, M.K., 2019; DongA Ilbo, 2019). More importantly, the number of users of Netflix’s mobile app has rapidly increased, from only 80,000 in 2016 to 320,000 in 2017 and to 900,000 in September 2018 (Cho, Y.B.,2019). As is well known (Kim, 2011; Jin, 2017a), Korea is one of the most advanced smartphone-saturated markets, and Netflix also utilizes new media and ICTs in order to increase the number of its users in Korea. For Netflix, digital generations who are used to working and playing with digital technologies, including smartphones, are the major customers, and The Economist (2018) dubbed this phenomenon as “Netflixonomics”—the science behind getting people to subscribe to the video-streaming channel.
In its initial stage in 2016, locally based OTT services and cultural creators did not seem to worry about Netflix; however, the recent surge of Netflix has enormous impacts and potential to reshape the Korean cultural market. Locally based OTTs have competed against global OTT platforms, but local online video services are suffering from drops in subscribers, mainly because of the lack of content in Korean OTT platforms (Yeo, J.S., 2019a). Netflix has secured its momentum to grow in Korea, and Netflix has become a service that everybody, from the government to the cultural creators to the users, has reconsidered in terms of impacts in the cultural industries. As Elkins (2021) argues, Netflix is a political organization, as it engages directly in domestic and global struggles over ideological and technological power. In its programming, branding strategies, and attempts to influence global media content, trade, and infrastructure policies, Netflix promotes a broad vision of globalized cultural and economic liberalism geared toward cosmopolitan branding, international free trade, and economic deregulation.
Interestingly enough, Netflix has shown its strong growth in the recent COVID-19 era, while the majority of companies experienced a huge setback. During the first quarter of 2020, when coronavirus began to be rampant, the Dow Jones Industrial Average of the U.S. was down as much as 24%; however, Netflix’s stock outperformed, as it was up by 10% during the same period. Netflix shares soared as much as 60.5% between January 2 and August 31,2020, while the Dow index still recorded minus gains. Since people had to stay home, they heavily relied on home entertainment, including digital games and OTT platforms, and Netflix became one of the finest beneficiaries of the pandemic. In the COVID-19 era, people have had to practice social distancing as a response to the coronavirus crisis, which means that humans avoid face-to-face social relations and substitute them by mediated social relations, in which communication is organized with the help of social media and OTT platforms (Fuchs, 2020). Social distancing does not mean that people avoid communication, but “the substitution of face-to-face communication that bears the risk of contagion by mediated communication. Mediation becomes a strategy of both avoidance and survival” (Fuchs, 2020, 378). As Cohn (2019, 2) argues, “Such technologies and values fit comfortably with our current neoliberal (or simply capitalist) fascination with generating efficiency and simplicity in all areas of life through automation.”
As coronavirus has significantly changed contemporary capitalist society, Netflix, and in general, OTT platforms equipped with Al and big data, has become one of the most powerful mediators, resulting in massive profits in the hands of mega digital platforms. As is well known, Netflix pioneered the subscription-based video-streaming business model (see Chapter 6), and in the COVID-19 era, Netflix has aptly managed to add more subscribers. People in many countries have started to subscribe to Netflix because they want to enjoy various contents at the same time, known as binge-watching,
Netflix transforming global cultural norms 81 under the lockdown situation. Netflix, as an Al-supported OTT platform, has momentously capitalized on the COVID-19 pandemic.