It’s a bit amazing to me that even after 15 years, people in Hollywood don’t understand some of the basics of how the streaming business model works. So many people continue to see streaming through the lens of the linear TV business and expect streaming companies to somehow behave in the same way as a traditional television network.

So if industry insiders don’t understand core parts of the streaming business, what chance does the average person have when trying to decide why their favorite show was canceled or given another season?

Back in the pre-streaming era, it was reasonably easy for viewers to track the success or failure of their favorite series. Nielsen released weekly ratings, and since television was primarily an ad-supported business, the equation was pretty clear. The higher the ratings for a show, the more ads the network could sell at a higher price. And the end result was that in most cases, the better the ratings, the more likely the series would be picked up for another season.

Things are much more complicated in the streaming era. SVODs (streaming video on demand) services such as Netflix, Peacock, HBO Max, and Paramount+ are primarily subscription-based services. So their goal isn’t necessarily to play a pure ratings game. Because the number of people watching a show has little correlation to subscriber growth or churn.

Services like Netflix are more like Costco. They have loss leaders, they pick up outside products in bulk and have house brands (or productions) they can offer exclusively to their subscribers. The streaming business is a bit like a video-based version of “Moneyball.” The success or failure of any individual title is less important than making the determination of how that title fits into the overall mission of the business.

Which is to sell subscriptions.

This is not a popular opinion in some entertainment circles, and it is especially a sore subject with journalists who focus on viewing numbers. They continue to see viewing numbers as the primary determining factor in whether a streamer like Netflix renews or cancels a show. In part because they suffer from a bit of a “when you’re a hammer, everything looks like a nail” syndrome. Since data matters so much to them, it has to be the most important part of this story.

For instance, I read a newsletter today from one of the best TV and streaming data reporters working in the entertainment industry, and this passage jumped out at me:

Streaming viewership data is a very strong predictor of what shows get renewed and what shows get cancelled. It’s not perfect (what is?) but the viewership data is strongly correlated with the future of these shows, paired with the show’s budget, of course. And if anyone tries to tell you that the streamers have super complicated metrics and algorithms that simple-minded creatives can’t possibly understand, they’re trying to sell you something. No, scratch that; it’s the opposite: they’re trying to underpay you. Don’t let them! (And if you’re in the media, don’t help the streamers underpay talent!)

To be clear, I am reasonably sure I am the “anyone” being referenced here. And I am in on his radar because of pieces I’ve written like this one, which sought to pull back the curtain a bit on Netflix’s decision making:

A primary Netflix metric is called the "adjusted view share," which is a combination of more than 30 factors that attempt to assign an overall "value" for any piece of content. An example I was given was that it's possible to track which content was most watched by brand new subscribers last month. That content would be considered more valuable because it presumably was one of the reasons why viewers subscribed. But if those viewers exit after a month or two, that lessens the value of the content. The assumption being that some percentage of the canceled subscriptions came from people who subscribed primarily for a specific show.

It depends on where people are watching. A show that is more popular in a region such as the U.S., where the ARPU (average revenue per user) is higher has a greater value than one that tracks more in regions where the ARPU is lower. Although that indicator is weighted less than some others and whether the content is attracting subscribers in a territory where subscriber retention costs are high also factors into the equation. Netflix also tracks how many people complete a TV show within a week, the percentage of people who rewatch a series (although if the number is too high, it's discounted as possible fan manipulation). And there are many more. Each of the factors is weighted differently and the weighting can apparently change as the company's strategy evolves.

While some of those factors have changed or have been modified at Netflix as they continue to improve their model, the truth is that every streamer looks at more than just the raw viewing numbers when making decisions about the fate of a show.

That’s not to say that ratings aren’t important. They are. And if your favorite show under-performs with viewers, it’s much more likely to get chopped.

The problem with journalists declaring winners based on ratings is that at best, there is a lot of signal noise. The best data comes from the U.S. market, which is fine if you’re tracking a show that is being licensed to other streamers globally (for instance, the new Taylor Sheridan drama The Madison). In that case, it’s easier to determine whether it was a success in America.

Things get much more complicated when you are looking at a global streamer such as Netflix. Viewing numbers outside the United States are often spotty. And even U.S. viewing numbers aren’t nearly as transparent as they should be. So it can nearly impossible to assemble a reliable dataset for shows that have viewing numbers which aren’t high enough to show up on one of the industry streaming ratings services.

So is there a way to know why your favorite Netflix show was canceled? Probably not, unless someone associated with the show knows the answer and is willing to talk about it publicly.

But the decision usually depends on those factors being laughed off in the passage above. Creators are increasingly told the factors that might influence the future of their show. Did people hit the button asking to be reminded when it premieres? Did they give it positive feedback? Did they complete the series? If so, how long did it take? If not, how many episodes did the average viewer watch before giving up?

Netflix also looks at viewing numbers for the show at three specific points: 3, 14 and 28 days after the premiere. Apparently, that gives executives a sense of the audience growth for a show (or the lack thereof).

I won’t get into all the other factors that might have an impact in Netflix’s calculations, because that would turn this into a novella. But whether some people like it or not, that decision to cancel or renew is about more than just the raw viewing numbers.

Netflix isn’t a traditional television business and it isn’t a studio. It’s the streaming world’s equivalent to Costco and if you think of the company that way, their business model will be a lot easier to understand.

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