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Producer David Fincher, actor Kevin Spacey, Chief Content Officer, Netflix, Inc. Ted Sarandos and actor Mahershala Ali attend Netflix's "House Of Cards" New York Premiere After Party in New York City. These are not the "quants" who made the show a success before it premiered.
At the New York Times, David Carr has a must-read piece about how Netflix used "big data" to score a hit with "House of Cards," its deliciously addictive political melodrama that's a remake of a 1990s British miniseries of the same name.
Carr uses a simple data-analysis tool to make his case that the "quants" — a term borrowed from finance that emcompasses number crunchers who use math to make money — are taking over the entertainment business where it intersects with technology. Netflix gathers data about what users like to watch, extrapolates from that data, and can seriously hedge it bets when making calls on programming like "House of Cards," the online streaming service's first effort at original programming.
Carr creates a Venn diagram that shows the Netflix audience's sweet spot: Director David Fincher, the popularity of the original series, and the attractiveness of actor Kevin Spacey, who plays the scheming, charismatic House Majority Whip in "House of Cards."
The secret sauce in all this is that Netflix realized, by quantifying audience behavior, that people like to binge on their viewing of TV series, such as 'The West Wing." So it made the now historic decision (for those of us who've watched "House of Cards" all the way through) to release the series' first 13 episodes all at once.
Netflix, which has 27 million subscribers in the nation and 33 million worldwide, ran the numbers. It already knew that a healthy share had streamed the work of Mr. Fincher, the director of “The Social Network,” from beginning to end. And films featuring Mr. Spacey had always done well, as had the British version of “House of Cards.” With those three circles of interest, Netflix was able to find a Venn diagram intersection that suggested that buying the series would be a very good bet on original programming.
Big bets are now being informed by Big Data, and no one knows more about audiences than Netflix.
How big was the bet? More than $1oo million, with Netflix beating out both HBO and AMC, which has already become the new HBO after the success of original series such as "Mad Men," "Breaking Bad," and "Walking Dead."
The major difference here is that HBO and AMC were, to a large degree, betting on talent and quality, with shows like "The Sopranos" and "Mad Men." Netflix wasn't not betting on quality. But it was betting like a blackjack player who can count cards, diminishing risk.
And a risk it was. The company was recently the target of hostile takeover speculation, by no less a storied corporate raider than Carl Icahn. In 2011, it made the widely ridiculed and swiftly withdrawn decision to spinoff its DVD rental business as a new company called "Qwikster."
Netflix stock has risen 66 percent since last year and 122 percent over the past six months. That's a turnaround that would impress even Ben Affleck. And a strong recommendation for big data and the quants assuming the rightful place in the business of entertainment.