Netflix In Netflux Flunks Recommendations

I wouldn't have predicted that I'd be seeking a new entertainment recommendation service right at the time that I've been using Netflix the most. Sadly, with its forthcoming split into two companies, Netflix has lost any concept of what it is, and it has just opened a massive window for someone to trump it.

Since returning from Asia on Sept. 11, I've been using Netflix more than I ever have. It's been a perfect storm of sorts. Jet lag kept me awake at odd hours, a stomach bug kept me home more than usual (thanks, Mongolian mutton), and rerun-heavy weeks before the fall TV premieres ensured there were few new shows worth watching. Naturally, I turned to Netflix to fill the void.

It proved to yield mixed results. I did watch a number of films on Netflix, mostly documentaries. I only did so after sifting through hundreds of recommendations for movies I'd never want to watch, while looking for several movies that weren't available via streaming. Alternatively, I'd sift through the more limited options from Time Warner on-demand, including selections such as the wonderful "Mao's Last Dancer" that aren't yet available from Netflix. And rewatching this season of "Curb Your Enthusiasm" on HBO on-demand got me through a very long night.

All of this leads to what makes Netflix different from its competitors. Netflix isn't a movie delivery company. It's an entertainment recommendation engine that provides fast access to its recommendations. Netflix once valued recommendations so much that it offered a $1 million prize in October 2006 to anyone who could substantially improve its recommendations, a reward claimed in September 2009. The history of Netflix from 1997 to 2009 hinged on recommendations. And these recommendations benefited from the network effect: as more people participated in rating films, the ratings continually improved for all Netflix subscribers.

Since then, Netflix has shifted its focus to streaming. There are several challenges with that. The first is that the best streaming companies we have in the U.S. are the cable companies, as their pipes are best equipped to transmit the content. I'm no fan of Time Warner, but most of the time, it works instantly, and the high definition quality is a great bonus. Even in this economy, with cord cutting an important trend to follow, it will take a long time for most people to wean themselves off  cable.

Then there's selection. Netflix has a great selection for DVDs, but the selection for streaming will always be hindered by obvious examples of what's missing. If you're looking for movies that Netflix doesn't have for streaming, and it happens over and over again, it triggers a conditioned response. You get used to the idea that it only has what it offers you, not what you're looking for. People are used to that from cable operators, but not from Netflix, which once was known for having just about everything.

What Netflix is left with is a dumb pipe. It's a delivery mechanism for a lot of streaming content, and most people can probably rationalize getting their money's worth if they watch a couple movies or a chunk of a TV series each month that way. That's fine, and I'm not canceling my Netflix subscription yet.

But now you have a slew of opportunities. Others can trump Netflix in providing even faster access to content (possible winner: cable operators), better guides to figuring out what's available across content providers (potentially a next-generation Google TV, or the Xbox), better recommendation engines (startups like, or teams that competed for the Netflix Prize), or amassing the widest range of content (Facebook may play a role here).

The old Netflix encouraged others to beat it at its own game. During the 35 months of the Netflix Prize, and in the aftermath, it was clear that no one could beat Netflix at recommendations. Its analysis of user-generated content was such a competitive advantage that anyone else who moved into Netflix's space wound up falling behind from the start.

Now, Netflix says recommendations don't matter so much, as the streaming recommendations won't be as good when decoupled from its DVD library. Recommendations will matter more for Netflix's DVD service, Qwikster. Yet Netflix cares so little about its new brand that it didn't even secure the seldom-used Twitter handle from Jason Castillo, who posts gems such as "About as tired as shyt n I can't sleep" and apparently may not have recovered from hitting his head with a wrench.

If Netflix continues to go in this direction and hangs its hat on the dumb pipe delivery mechanism, it's a commodity. Ratings aren't commodities, though; they're personal. They'll turn a dumb pipe into a Ph.D. scholar. Who will be smart enough to capitalize on this opportunity?

5 comments about "Netflix In Netflux Flunks Recommendations".
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  1. Roger Dooley from Brainfluence, September 20, 2011 at 4:30 p.m.

    Your analysis is bang-on, David. Most pundits are missing the value that Netflix delivers with its recommendation engine. Back in 2005, I predicted that Netflix would win in streaming when DVDs died because of its ability to transform community data into recommendations (

    So much for that prediction... as you note, with their split they lose the value of the data in their large DVD operation. They have lost sight of what sets them apart.


  2. Nate Carter from Neustar, September 20, 2011 at 5:25 p.m.

    Where does it say they will lose there data? I would assume that they would be able to share data across back channels of the two companies in order to keep their recommendation engine in tact.

    I think the real thing at play here is the fact that all media will be streaming/cloud based in the future. I have always gone to Rotten Tomatoes in order to decide what to watch. (Although after seeing Drive this weekend I may reconsider that strategy.) The question becomes where/how do I watch it. I like many of my early adopter friends "cut the cord" 3 months ago. Where I go to get my entertainment now varies. Netflix, Hulu are the big guys, but I don't mind going to a network TV site or ESPN 3.

    Netflix's challenge isn't to keep me coming back for recommendations. It is to keep me coming back for content. Having movies that I want to see. That is where the battle will be won or lost. The good news for Netflix is their competitors (cable companies) in the distribution space are always about 5 years behind the thought leaders in the space.

  3. Arnie Kuenn from Vertical Measures, LLC, September 20, 2011 at 5:38 p.m.

    Back in 2000, we built and patented a killer recommendation technology for books, movies and music. We never got traction before the bubble burst in 2001. It is more accurate than Netflix (we even showed it to them right before they went public. Check

  4. David Culbertson from LightBulb Interactive, September 20, 2011 at 6:02 p.m.

    Spot on!

  5. Pam Alvord from Kilgannon, September 21, 2011 at 5:55 p.m.

    Ignore the voice of your customer and abandon your value proposition and you are doomed to be the New Coke of tomorrow's marketing textbooks. A marketer's perspective on this weeks announcements from Netflix and The Ladders

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