Information Cascades and Netflix
Netflix is a company that has imbedded itself into the lives of millennials. Many of us are all too familiar with the shame that accompanies a Netflix binge, especially when we doze off, only to awaken to the “Are You Still Watching?” message. Worse yet – the shameful message pops up, and we are still watching. Netflix successfully navigated the transition to majority digital streaming — unlike Blockbuster (fun fact: Blockbuster turned down and laughed at an offer to purchase Netflix). Netflix further established itself as a streaming company by consistently creating popular original content.
By the beginning of 2017, Netflix had recorded its biggest quarter in its 19 years, and had increased its company worth to about $60 billion. A large part of Netflix’s success is due to its original content; in response, Netflix is making the move to have half of their streaming content consist of their original content. In 2016, five of the 10 shows people searched for most often were Netflix originals. In the US, half of households with broadband subscribe to Netflix, whereas Amazon has only one quarter of households, and Hulu even less.
What is it that has brought Netflix to such a high level of success, especially compared to streaming service counterparts Amazon and Hulu? According to CEO Reed Hastings, “Very few people will join Netflix for just one title. But there’s a tipping point, one more title you’re hearing about, that causes you to join.” Then it’s a matter of keeping them coming back with another title everyone is hearing about. Or, as Hastings put it, “Lather, rinse, repeat.” This could be interpreted as an information cascade situation. Viewers become enamored with Stranger Things, Orange is the New Black, House of Cards, or any of Netflix’s other successful original series. Those viewers then give rave reviews of the series to others, either through social media or in person. Each person on the receiving end of the rave reviews might finally cave and create a Netflix account/watch the series, and so on and so forth. There are always a few negative reviews mixed in there, but many people hear more positive than negative reviews, and are influenced to try the series out for themselves. With this happening over and over with multiple accounts, Netflix is able to maintain its substantial growth. This is a sort of mass-information cascade, in which the information being passed on is (usually positive) reviews of each series, which in turn pushes the next users to watch the series and pass on reviews, and so on and so forth.
Somehow, Netflix has been the most successful at these information cascades. Perhaps it is because of their sheer quantity of original content and the monetary funding behind it; off the top of their heads, most people can name multiple Netflix originals. This is in contrast to Amazon and Hulu, of which most people cannot name more than one or two original series.
https://www.wired.com/2017/01/netflix-investing-original-shows-finally-pays-off/