Are Algorithms Hurting Netflix?

This week, Netflix announced substantial layoffs. Moreover, content chief Bela Bajaria and film head Dan Lin have been pushed out this week too. What's wrong at Netflix? According to the Wall Street Journal, "Co-Chief Executive Ted Sarandos had complained internally for months that Americans were spending less time watching Netflix and that the service was short on new hit shows, people familiar with the matter said. He also has told colleagues that he wants the company, which has experimented with everything from videogames to podcasts, to strengthen its core TV and movie offerings."  

Netflix continues to have the lowest churn rate of any streaming service.   However, the Wall Street Journal reports that Netflix leaders are worried about audience engagement, and in particular, the tendency for young people choosing to watch videos on YouTube and TikTok rather than shows and movies on the streaming service.  

The key questions: Has Netflix's algorithm-driven approach to content creation harmed creativity?  The data may help the company reduce the failure rate of new shows, but does it also reduce the likelihood of finding that next big breakout hit?  Do the algorithms create "comfort" shows that are formulaic in nature?  Netflix has been somewhat vague about the extent to which the algorithms drive content creation, as well as the extent to which humans intervene to override the algorithms at times.  Still, the questions deserve to be asked.  Finding the right balance between data analytics and human creativity is a tricky task.  The same challenge applies to many businesses today.  

Obsessed with Sequels? Stuck with Incremental Innovation?

In the movie business, sequels and remakes have proliferated.  How many reboots of Spiderman, Superman, or Batman have been produced?   How many sequels of The Fast and the Furious?  Of course, some of these franchises have been enormously successful.  Pursuing sequels and reboots may be the profit-maximizing move in the short run. However, we might ask the question: Is the "safer" pursuit of sequels and reboots limiting breakthrough innovation?  The same type of question might be asked about other types of businesses.  

In a new study, Wesley Cohen and his co-authors examined the R&D and product launch strategies at pharmaceutical companies.  They studied roughly 60 companies over a 12-year period. They found evidence that companies can get "stuck" pursuing incremental innovation.  A Duke Fuqua insights feature story explains:

“If a company pursues clinical studies or trials for a drug in the same narrowly defined therapeutic class as their blockbuster drug, this may signal the company is strategically pursuing the same customer segment with a sequel of the blockbuster drug,” Cohen said. They found a significant blockbuster effect: one billion dollars of additional sales of individual products are associated, on average, with 17% more drug development projects in the same narrowly defined therapeutic class as the original drug. Moreover, one billion dollars of additional sales are associated with 30-80% more drug development projects that employ similar technology as the original drug.

The decision to pursue "sequels" in the pharmaceutical industry may be very logical, much as it may be in the movie business. The question, though, is whether there may be a harmful impact on breakthrough innovation in the long run. Cohen's co-author, Yoko Shibuya says, “In the short term, the optimal strategy might be to focus on your guaranteed customers. But this may mean investing less in new R&D with greater potential upside. Someday, you may regret not having invested in other product lines.”

Remote Job Postings Require More Skills

Do managers expect more when they advertise for remote jobs? Do remote job postings list more required skills and capabilities? Yes! In a new study, Shinan Wang and her co-authors studied more than 50 million job postings in Europe. Their analysis suggests that the remote work postings featured 25% more skill requirements than the non-remote job listings.

Why do managers want more skilled employees when advertising for remote work positions? The authors offer several reasons. For instance, remote positions attract a much larger number of candidates. Thus, firms need tougher screening criteria. Moreover, managers may find it more difficult to train remote employees. Thus, they need employees who can hit the ground running much more quickly.

In addition, I wonder if managers worry about the productivity of these remote employees. Applying tougher screening criteria may be one strategy for trying to insure that they have self-motivated and self-disciplined workers who will be highly productive in a remote work environment.

The authors offer a word of caution for young employees looking for work. Co-author Letian Zhang explains, “This may hurt the entry-level workers who need training. Those are the workers who might be left out because organizations, after becoming remote, may have a stronger preference for more-experienced workers.” Put another way, younger employees may be able to increase their odds of landing a job if they apply for non-remote work opportunities. Beyond that, I would argue that younger workers should be focusing on non-remote work because it offers better opportunities to receive on-the-job training, learn from mentors, build relationships, and extend their professional networks.