2022 is turning out to be a watershed year for the streaming industry, prompting changes in operations, content production and sales. On April 19, 2022, Netflix released its quarterly earnings report in a thud heard around the world. Earlier this year, its shares fell sharply when Netflix reported slower than expected subscriber growth. The loss of 200,000 subscribers was the company’s first subscriber loss in more than a decade and was well below estimates and the company’s own guidance. Not surprisingly, the news sent the stock tumbling. In the days that followed, Netflix shed more than $50 billion in market cap.
New Rating Systems
A lot has been written about this, with more certain to come, but lost in all of this coverage is the announcement of a seemingly minor product change — one that I believe is more telling than observers currently recognize. Until 2017, Netflix used the standard 5-star rating model, a system that is very familiar to consumers. Netflix pivoted from the 5-star rating system and replaced it with a very simple “thumbs up or thumbs down” model — similar to the model that Hulu is using.
Days before its earnings call, Netflix announced that it was launching a second thumbs up, adding that having three rating options will strike the right balance of simplicity while still giving enough range of emotion. This move makes a lot of sense. It provides users with a way to rate not only shows that they like or don’t like but those they love. Most importantly for Netflix, this gives it enhanced signaling from each of its customers, which it can then use to provide better recommendations to all of its customers.
This change makes a lot of sense for the company and should help improve the often criticized “percent match” score it provides. But I think there is a deeper problem — one that this change does not address and one that impacts streaming in general.
At the same time when consumers are overwhelmed by their seemingly infinite content choices, I believe the biggest reason they are disappointed with the recommendations they receive is only based on the ratings and preferences for shows on a particular streaming platform. Sure, these streaming companies may know how many millions of their subscribers liked (or now, even loved) their platform-specific shows. But of those who loved Bridgerton and The Queen’s Gambit, who among those consumers also liked The Marvelous Mrs. Maisel and Only Murders in the Building? Streaming companies might never know unless Amazon Prime and Hulu respectively decide they want to share that information with their competitors — an outcome that is highly unlikely.
So, even assuming that users are very diligent about providing feedback to each of their streaming services about what they watch, these companies are only capturing a tiny sliver of the consumer’s individual taste profile. The average streaming consumer in the U.S. now subscribes to about four streaming services. All of this is to say that while offering a two-thumbs-up option may improve Netflix’s recommendations, I think the real problem is much bigger and far harder to solve — not just for Netflix, but for all of the streamers. It provides a great opportunity for streaming companies and leaders in the media and culture spaces.
This fragmentation of content is probably why you almost never hear someone say “Choosing what to watch next is easy — I just play whatever a platform tells me I will enjoy most.” Instead, for the most part, we hear complaints about recommendations in general, no matter who is providing them.
As streaming industry leaders and experts at the intersection of culture and media, we need to ensure consumers can build their universal taste profiles without bias. This is not an easy hurdle to solve — one that takes a culture shift on a large scale to rethink how we approach ratings. One that not only receives input for anything they watch but that also provides recommendations regarding what to watch next for any show or movie, regardless of where it is available. We need to broaden our view of consumer streaming and how we can bridge the gap between ratings and recommendations.
The streaming industry, as with any other industry, needs a business model that will not only bring in revenue but also keep up with customer expectations. Like in so many other industries, these expectations include personalized service, and delivering on this consumer need requires information about consumer preferences. As a result, these companies will need to find innovative ways to capture information that extends beyond their own platforms in order to meet consumers’ expectations and build the profitable and durable business models needed for long-term success.