In every industry, people look to the leaders and try to copy them for it is normal thing to do for a person as well as in corporate strategy. In the world of movie production involving HBO and Netflix, according to Johanna Schneller, recently AT&T bought Time Warner and one of the media properties is HBO. The New York Times reported John Stankey who oversees Warner Media told a town hall meeting of 150 people that they will have to radically step up production this year. Mr. Stankey discussed the hours a day because we are competing with devices that sit in people’s hands that capture their attention every 15 minutes.

Ms Schneller disagrees with the idea because to her HBO has built a priceless alternative; a brand so reliable that people will try anything the service puts out, because they have that much faith in the network’s taste. Ms. Schneller sees Netflix as a generous throw it at the wall and see what sticks attitude. There has been some shows which are great but most are pleasantly good, not loyalty oath pledging fantastic.

The reason Netflix can produce more is highlighted in a book called AIQ by Nick Polson and James Scott, published by St. Martins Press, NY, 2018. In the book Netflix started out as a machine learning by mail. The company sent out red envelopes with DVDs and no late fees. Each envelope as the person to rate the movie between 1 and 5. As time went on, Netflix algorithms would look for patterns.

House of Cards was Netflix first try at producing a series rather than distributing it. When the production team pitched Netflix, after having been turned down by other studio who wanted to see a pilot to see how people reacted to it. Netflix said essentially we have run our data, and we do not need a pilot. To put that into perspective, in the year House of Cards premiered, the major TV networks commissioned 113 pilots costing $400 million. Of those only 35 went to be a series and only 13 ran in season 2. What did  Netflix know that the networks did not?

The pat answer is that Netflix had data on its subscriber base. (the networks had plenty of data to). Netflix had two things going for it: (1) the deep knowledge of probability required to ask the right questions of their data and (2) the courage to rebuild their entire business around the answers they received. Now days Netflix is where data scientists and artists come together to make awesome television.  Few organizations use AI for personalization better than Netflix. Personalization means conditional probability.

Linking to dividend paying stocks, Netflix and Warner Video are competing and both will churn out many hours to watch on TV or the tablet or smart phone. If the production company is correct more people will watch and advertisers will pay. If the show is being made to essentially fill up time slots rather than consider who is watching at what time and are they willing to buy a subscription? Turning out mediocre movies may keep an executive’s job, but if it does not draw the expected audience, perhaps the strategy of HBO will produce movies that were similar to the Hollywood era with a movie a week. and maybe one or two will be great. However the odds are against HBO becoming better than Netflix and Netflix and HBO reversing positions.

There are more questions than answers, till the next time – to raising questions.