Why Does Netflix Decide To Cancel A Show? Spoiler: The Answer You Have Is Probably Wrong

I probably write about the streaming video sector more than just about any other media journalist. I have a daily newsletter that focuses a great deal on the SVOD market and I am frequently writing about the industry, including a number of smaller niche players such as Topic or Crackle. I'm less concerned with the viewer numbers of the latest hot project than I am about the nuts and bolts of the industry. How does the UX of a streaming service affect its ability to retain subscribers? How does a service attach value to each piece of original content and what are some of the under-covered issues that stand in the way of growth?

I am also fascinated with the state of streaming outside of North America. Hollywood-produced entertainment has been a dominant global force for over 75 years and as Americans we tend to see everything through that lens. But there is an entire globe's worth of entertainment that we Americans have just started noticing in the past few years. I try and both surface new and interesting international content for my readers as well as cover the workings of regional players American audiences should know.

As a result, I have spent a lot of time talking to streaming insiders about the innerworkings of their business. More often than not, on background or off-the-record. But all of it gives me at least a bit of a sense of why streaming services make the decisions they do - especially when those decisions seem confusing to people who try and put decisions made by the streaming services through the lens of the familiar Hollywood entertainment business.

To be clear, one thing linear television and streaming services have in common is that they both need to ultimately make money to survive. But nearly everything else about the two businesses is different and that's important to keep in mind when talking about things such as "why did Netflix/Hulu/Amazon/Peacock/HBO Max, etc., cancel that show?" 

In a lot of ways, the traditional broadcast television business model was so much easier to understand. Generally speaking, it was built around advertising dollars & while it's imperfect, ratings served as a predictor for possible ad revenue. So in theory, the better the ratings, the more likely that a show would survive for another season.

Now that wasn't the only factor that determined success. The cost of the show, the creative direction of the writing and all sorts of other random factors could affect whether or not a television series would be renewed. My favorite story about the randomness of the decision-making dates back to 1985, when the long-running CBS detective series Mannix was set to be picked up for a ninth season. Series star Mike Connors had been told the show would be renewed, but in the interim, ABC decided they were going to add a "wheel" of mystery/cop show reruns in the timeslot opposite The Tonight Show With Johnny Carson. ABC was able to acquire Mannix reruns for use in that timeslot and when CBS found out, they decided they didn't want to promote a show that was also airing on a rival network and canceled the show.

The beauty of the ratings system is that it was an easy to understand proxy for value. The ratings were publicly known and while there were some surprising cancellations or renewals, it was a system that even civilians could comprehend.

But the streaming video industry is much more complex and a lot less transparent. There are a half-dozen different business models, ranging from subscriber based, no advertising services such as Netflix, to services which are free and entirely ad-supported. Each business model defines success differently and it can be almost impossible to glean much about the decision making from the outside. 

Talking about Netflix is extremely challenging because they are in many ways the IBM or Microsoft of the streaming video world. They helped create the industry and they continue to have the most subscribers globally (although that is beginning to change). And because they are an industry leader, they tend to attract the harshest critics, who conflate their unhappiness with the way the streaming video industry has changed Hollywood with what the company itself might be doing.

The thing to understand about any of the major streaming services is that while viewer numbers are important, they are not the only determining factor in deciding whether or not to renew a show. In some cases, viewing isn't even the most important factor. And while you hear a lot of snark about Netflix's algorithm-based decision-making, all streaming services use data-driven metrics to track performance and aid in the decisions made by its executives. Netflix's metrics are a bit more intense than some of what it used by its rivals. But the conventional wisdom that Netflix decision making is driven by massive computers while other streamers rely more on viewer numbers and gut instinct is just wrong.

All of this recapping is a way of introducing some straight talk about a piece on the Netflix's cancellation of the series The Baby-Sitters Club which was posted yesterday on Vulture. Journalist Kathryn VanArendonk interviewed series showrunner Rachel Shukert and while the interview itself is incredibly well-done, it has also sparked a lot of misunderstandings about why Netflix might have canceled the show. 

I do want to lay out a couple of points before I discuss the reasons why the show was likely canceled. Shukert makes a very valid point about the show's unique vision and I agree that the world be a better place if the show could have continued. Based strictly on what ended up on the screen, The Baby-Sitters Club absolutely deserved to be renewed.

I am also not surprised that Shukert finds Netflix's decision a bit perplexing. I have spoken with a number of people over the years who have had shows cancelled and I have yet to talk to one person who told me "you know, I agree with their decision. It was time for our show to go." And that makes sense. If you spend months or years on a project, and have poured all of your creative energies into it, you want it to succeed. And there's absolutely nothing wrong with that. On the other hand, that passion usually doesn't have much impact on whether or not a show continues.

I want to highlight this excerpt from the interview, because it provides a good look at Shukert's understanding of why The Baby-Sitter's Club wasn't picked up for another season:

When you say “metrics,” are you talking about actual numbers or a sense of creative direction? 

I think it’s the numbers, like what territories they feel they need to see things performing in. As far as I can tell, everything Netflix does is based on how it’s driving subscriber growth.

The truth is that when your show does very well in North America, as ours does, as far as Netflix is concerned, pretty much everybody who’s going to have Netflix [in North America] has it. They’re looking to drive subscriber growth in other parts of the world where this IP doesn’t have much recognition.

While the mention of territories sounds like a very random metric, it's important to remember how Netflix measures success.

I've written about this a bit in the past and while I've agreed not to discuss some of the specifics (unless I learn of them independently), a Netflix employee walked me through some of this last year.

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.

The number of Netflix employees who can access the granular data appears to be relatively small. Which is the ultimate reason for data such as the AVS. It's a way to provide guidance internally without getting anyone too much in the weeds. The general data is used for everything from decisions on additional seasons to PR efforts. 

But this data is only a small part of the data harvesting that is used by Netflix. The company does extensive tracking of subscriber behavior, ranging from aggressive A/B testing of thumbnails to UX heatmaps that show how subscribers are sifting through the app looking for something to watch. And it's more granular than you might expect. It's not just determining which thumbnail is mostly likely to convince someone to click into a TV show or movie. It's determining which thumbnail gets people to click in who will then watch the program more than a minute or two. It's a fine line between teasing and trickery, with one being a lot more subscriber-friendly than the other.

My point about all of this is that a lot is made of Netflix depending on "algorithms," but it's more nuanced than that. The real data crunching comes after a project is ordered. As it was explained to me, data has limited use in determining which specific project should be ordered. There are simply too any random factors that can't be properly quantified. But it's very helpful in guiding general decisions, such as the type of content people are looking for, actors who have a built-in audience, etc. And it's extremely helpful in the post-launch period, when it is easier to track subscriber behavior and use that behavior to estimate the ultimate value of a show to Netflix.

And getting back to The Baby Sitters Club, Shukert's comments about North American viewership vs a global audience makes a lot of sense. If a large percentage of the audience for the show was in North America, that would make the show much less valuable to Netflix because a) Most of the audience for the show already has a subscription, b) limited viewership outside North America won't add many new subscribers and, c) while picking up the show an additional season might please North American viewers, failing to renew it isn't going to have much impact on North American viewing numbers, which means the money can then be used on a show that might provide better subscriber traction.

I also wanted to highlight this comment from Shukert about Squid Game, because I think she's on the right track, but not in the way she thinks:

For this show that has a fine viewership but is not a monster hit, but it’s beloved by fans … does that matter? I don’t know. I think we had the bad luck to come out at about the same time as Squid Game, which showed them how crazy numbers could get. Numbers that were totally respectable and successful last year were suddenly seen in a different way. I don’t have access to a lot of this data, and in general creators don’t have access to this data at Netflix, so it’s what you put together on your own.

The assumption by Shukert is that the large viewer numbers coming from Squid Game skewed Netflix's decision making. But I suspect it was less about the overall viewer numbers from Squid Game and more about the value of the overall viewer of the show. Last year, Bloomberg's Lucas Shaw had a great piece on Squid Game and its value to Netflix. In the piece, he discussed the show's adjusted view share:

Some of the metrics seen by Bloomberg are more idiosyncratic, and it’s impossible to glean from the document what data Netflix uses to calculate each formula. “Squid Game” scored 353 points in adjusted view share, or AVS, which reflects not just how many people watched it but how valuable those viewers are considered. (An AVS of more than 9 or 10 is already considered high.) Viewers who are new customers or use Netflix less often are viewed as more valuable because that suggests those shows are a reason they haven’t canceled.

AVS is where Netflix’s evaluation of a show begins, according to current and former employees, and the impact value figure is an estimate of a show’s lifetime AVS. 

Based on this excerpt, it sounds as if the subscribers who watched Squid Game were considered to be much more high-value than the average viewer. Not because of their sheer number (although that is always good), but because they engaged in behavior that Netflix considers valuable.

Ironically, the interview glosses over what I think is one of Netflix's biggest ongoing problems, its struggle to properly market it new original content:

Netflix also doesn’t do a ton of marketing, and I think in season one, we were bizarrely helped by the pandemic — not because people were home in front of the TV but because our original release date got delayed. There were some dubbing issues in other countries; we were supposed to come out in May, and we wound up coming out in the first week of July, so there was a lot of press set up that had longer lead times, and people actually knew about the show before it came out.

A lot of times, Netflix things come out and for whatever reason, if the algorithm doesn’t put it in front of you, no one knows it’s on. I heard from so many people who loved season one that they didn’t even know season two had come out. How is that possible? How does the algorithm not know that you watched and loved the entire first season and then immediately show season two to you? Why is this not getting in front of people that want to watch it?

Netflix seems to have a passive-aggressive approach to marketing and promoting their content. Particularly content that isn't viewed internally as high-value. Remember how weird it felt that no one was talking about Squid Game until well after it had been released? That's because Netflix wasn't making screeners widely available to North American critics (maybe they went to someone, somewhere. But none of that I am aware of & I certainly tried hard to get them). So the show was just sort of "discovered" by subscribers.

In a weird way, this is Netflix's ideal scenario. There seems to be a belief from some people in the company I have spoken with that this organic type of content discovery is the most valuable. That traditional publicity efforts are valuable for alerting subscribers to what is coming. But that they aren't as effective convincing people to watch.

Even if that were the case (and I have my doubts), organic content discovery is at best a little understood process. And when Netflix is releasing perhaps a dozen or more different titles over the course of seven days, a lot of worthwhile and potentially valuable content is going to be missed by subscribers.

To me, that is the takeaway from this interview. Everyone is focusing on the predictable conventional wisdom of "Netflix's algorithm led to the cancellation of The Baby-Sitter's Club." Instead of the more likely "Netflix's marketing mistakes contributed to the cancellation of The Baby-Sitter's Club."

All of which is a long-winded way of saying that the reasons you think led to Netflix cancelling The Baby-Sitters Club are probably wrong.