Netflix: Regulation As a Tool of Control

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Netflix is the world’s pioneer and leading company for streaming services, yet users rarely think about how the company regulates its content and engagement with the service. Such regulatory tools include the company’s subscription model, availability of content in different regions, and personalization of viewing algorithms. Each tool of regulation affects the company and its users in different ways, by either harming or benefiting each stakeholder. One pattern that emerges in Netflix’s regulatory tools is that they are intended to control how users engage with the service, in order to maximize customer engagement.

One major tool of regulation for Netflix as a company is its subscription model. In 1999, Netflix began an online subscription service for DVD rentals through the internet. Subscribers could choose movies or television shows through the internet, and those selections would be mailed to users in the form of DVDs, along with prepaid return envelopes. Subscribers of the service could potentially rent as many DVDs as they wished for a flat monthly fee, but there was a limit on how many DVDs they could have at their homes at one time. In 2007, the company began offering subscribers the option to stream some of its movies and television shows directly through the internet, without having to wait for a DVD to arrive in the mail. The company partnered with video game consoles and Blu-Ray Disc Players to allow streaming over an internet connection to these devices, since Smart TVs had not yet been invented. In 2010, Netflix released the option of a streaming-only plan for its subscribers that offered unlimited streaming but no DVD rentals. While the price hikes in subscription fees over the years have disgruntled some customers, shareholders and investors have viewed them optimistically since price increases help pay for the constantly increasing content bill. Currently, Netflix has three plans with three different prices which have increased at different rates, as seen in the graphic below. The basic plan includes no HD and 1 screen at a time, the standard plan includes HD and up to two screens at a time, and the premium plan UHD and up to four screens at a time. Having a variety of subscription plans is also a type of regulation, as the price per month may limit which plan customers choose to enroll in besides how they factor in their viewing preferences.

Netflix regulates its users through subscription fees and different types of subscription plans. Credit: Vox

In 2010, Netflix began expanding beyond the United States to Canada, which incurred even more regulatory measures beyond its subscription model. When entering the global market, Netflix began offering different content based on licensing in specific countries, so users paying the same subscription fees had access to different content based on their location. By the start of 2016, Netflix had expanded its services to 140 countries, and content availability was based on licensing to that region. Early Netflix original series, such as House of Cards, were not available in most international markets because Netflix had not purchased international rights (Lotz). With the exception of China, Crimea, Syria, and North Korea, Netflix streaming is now available in every country in the world. Licensing is a form of regulation that is beneficial to Netflix as a company since it does not waste money on shows that are not predicted to be popular in that region or that have expensive licensing rights. On the other hand, regulation through regional licensing is detrimental to the user because the same flat subscription fee is limiting. The year 2016 was also pivotal because Netflix began blocking virtual private networks, which customers used as a workaround to watch titles only available in certain countries or territories. The crackdown on VPNs was a symbolic move in order to show that Netflix respects regional licensing agreements, since the company is dependent on licensing from studios and networks for the majority of its streaming content.

Additionally, Netflix regulates how customers use its service through viewing algorithms and tailored thumbnails. The service recommends shows that the user would likely enjoy, as well as content the user would never have heard of in order to get subscribers to use the service more. Especially with growing competitors entering the streaming market, Netflix’s recommendation algorithm serves to attract and keep customers, while closely monitoring what content is popular. While this type of regulation may be beneficial to the company and to the viewer, it may also be limiting as some subscribers are not exposed to certain shows or movies that others are exposed to on the service. Interestingly, customers will not see the word “recommendation” anywhere in the app or website, as the company’s tactics are quite covert. The Netflix team analyzes every action enacted by users; how they search, click, watch and even pause, in order to fine-tune their personalization technology. Netflix even personalizes users’ thumbnails of television shows and movies, in order to keep users engaged on the platform and clicking on their content. Netflix may tailor the thumbnail art displayed based on a user’s tastes, such as highlighting a movie’s comedic aspects by featuring a comedian on the covert art, or highlighting the romantic aspects of the same movie by displaying a couple.

The thumbnail for the same content may look completely different on two users’ Netflix services. Image source: Youtube video screenshot of “Why your Netflix thumbnails don’t look like mine

Netflix has also utilized regulation by introducing individual profiles through family accounts, which was launched in 2013. This regulatory system services the company by encouraging users to create their own profiles, which allows the company to employ even more personalized algorithms to increase usage of the service. The personalization system, called “Profiles,” was created to allow everyone in a household to maximize their viewing experience on Netflix. Each account can have up to five profiles, included at no extra cost to the subscription fee that the customer has chosen with their plan. Netflix’s chief product officer, Neil Hunt, spoke highly of the system, saying “no longer will your Netflix suggestions be mixed up with those of your kids, a significant other, roommates or house guests.” Though this regulatory system seems to benefit the company by drawing in more users through increased personalization, the system may also be costly to the company due to users feeling comfortable sharing their Netflix password. There is no direct or easy way for the company to regulate whether users of different profiles on the same account live in the same household. If users know they can create a separate profile for their friend or ex-partner that will not change their personalized algorithm, they may feel more inclined to share their password since there is no cost to their personal viewing experience.

Users can add multiple profiles, which is not limited by household. Image courtesy Melanie Weir/Business Insider

In sum, Netflix as a company attempts to regulate its service in a number of ways, including subscription fees, types of plans offered, content availability based on regional licensing, and personalization through algorithms monitored on individual profiles. The extent to which these regulatory tools are effective in the way Netflix’s controls its users varies. While personalization of each profile allows Netflix to control what content users see in order to keep them engaged, Netflix has not seemed to solve the problem of password sharing among its users now that they can create individual profiles under one account.

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