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    Network effect overestimated-New York Times

    When the model moved to streaming from 2008, the fixed costs of physical distribution were replaced by digital storage and fixed costs of distribution, but the sources of benefit remained the same. However, with conventional knowledge, the Netflix streaming model has unleashed a variety of supernatural powers from AI and network effects. As a result, Deutsche Bank analyst Brian Kraft gave Netflix a mysterious “platform status” in its 2019 research report, strengthening barriers to entry and supporting higher ratings. Such true followers, for example, say that streaming models not only allow Netflix to improve its already good recommendation engine, but in fact give Netflix the magical ability to algorithmically select hits. thinking about.

    This particular canard begins with the origin story behind Netflix’s first blockbuster song, “House of Cards.” As Times columnist David Carr explained, Netflix is ​​big data and artificial intelligence. In this story, competitors weren’t familiar with the three key data that made the House of Cards a hit. The popular movie directed by David Fincher, the movie starring Kevin Spacey, and the original BBC “House of Cards” series. With Netflix viewer. “In these three circles of interest, Netflix was able to find an intersection in the Venn diagram that suggests that buying a series would be a very good bet,” Kerr wrote.

    Such an ex post facto description of successful creative project selection suggests a false level of predictability. They inevitably follow a hit, just as a deafening silence follows the flop. Immediately after the “House of Cards” victory, Netflix worked on the more expensive series “Marco Polo”. Dropped by first buyer Starz due to the exorbitant cost and complexity of filming in China, the estimated budget for the first two 10-episode seasons was $ 180 million. No suggestions for algorithm bugs were provided when the show was cancelled.

    Since then, increasing spending on original content has been the most important change in Netflix’s business model. This is not a better business and reflects intensifying competition from companies such as Disney, WarnerMedia, ViacomCBS and NBCUniversal, where Netflix relied on licensed content. “Read the script and guess who should cast it. This is basically not that important for a tech company. We have the potential to build unique organizational capabilities.” Said Reed Hastings, CEO of Netflix. Told to Fast Company Around the time of the first “House of Cards” investment. His conclusion was not clearer. “I think it’s better to put other people at creative risk.”

    Netflix’s unleashing Kraken for content investment reflects a competitive need, not a newly discovered competitive advantage. Of course, the easiest way to see if the barriers to entry are up or down is to see how much entry has occurred since then. From early 2019 to the end of 2020, Netflix has nearly half to about a quarter of its US subscriptions to on-demand video services, according to the company. Data edited by The Wall Street Journal..

    Netflix has repeatedly tried to incorporate network effects into its core business model for almost 20 years. But it consistently failed and eventually gave up.

    Back in the era of mailed DVDs, Netflix sought to create it by establishing its own social networking. Netflix friends 2004. It didn’t gain traction, but the company continued to serve until 2010 before shutting it down. The number of subsequent programs using Facebook.One of them is Mark Zuckerberg personally Engaged in design, Was discontinued due to lack of user interest. Netflix completely eliminated user reviews in 2018. Hastings himself ultimately described his futile quest for network effects as a “competitive fantasy.”

    Network effect overestimated-New York Times

    Source link Network effect overestimated-New York Times

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