The first reason is that Netflix pays the most. The question, then, is why do suppliers come onto Netflix’s platform? Generally speaking, any business that creates its customer value in-house is not an aggregator because eventually its customer acquisition costs will limit its growth potential.
That is because initial customers are often a perfect product-market fit however, as that fit decreases, the surplus value from the product decreases as well and quickly turns negative. This is in contrast to non-aggregator and non-platform companies that face increasing customer acquisition costs as their user base grows. This further means that aggregators enjoy winner-take-all effects: since the value of an aggregator to end users is continually increasing it is exceedingly difficult for competitors to take away users or win new ones. This means that for aggregators, customer acquisition costs decrease over time marginal customers are attracted to the platform by virtue of the increasing number of suppliers. Those additional suppliers then make the aggregator more attractive to more users, which in turn draws more suppliers, in a virtuous cycle. Once an aggregator has gained some number of end users, suppliers will come onto the aggregator’s platform on the aggregator’s terms, effectively commoditizing and modularizing themselves.
The latter two points are critical pieces of what makes an Aggregator an Aggregator from Defining Aggregators: It lowers Netflix’s customer retention cost.
For marginal customers, Bird Box is a reason to stay on the platform. Or, to look at it another way, it lowers Netflix’s customer acquisition cost. For prospective customers, Bird Box makes Netflix more attractive for the same price. For current customers, Bird Box provides two hours of entertainment and a pass into popular culture. Bird Box and other successful content does triple duty for Netflix: Start with the most important side for an Aggregator - the demand side. Third, and most importantly, the success of Bird Box drives the virtuous cycle that Netflix has as an aggregator in multiple ways. To that end, producing a piece of content that 58% of its subscriber base viewed in a single month is by definition a triumph (and yes, worth ~$700 million). Secondly, and relatedly, Netflix is counting on subscription revenue. First, it is not as if Netflix is counting on box office receipts: to point out that the company isn’t earning $700 million or $1.4 billion or whatever is even more of a moot point than the number of people that watched Bird Box. This critique is both true and misses the point - three points, actually. The problem, of course, is that none of those 80 million households actually paid explicitly for Bird Box: they got the movie for “free” with their Netflix subscription, and it seems like a stretch to think that most of them would have paid box office prices that are roughly as expensive as a month of the streaming service, to see the movie on purpose. Sure, taking the wildly conservative assumption that one household=one viewer would mean that 80 million viewers was the equivalent of a box office haul of over $700 million 2 increasing that to two viewers per household would imply an equivalent box office haul that would rank in the top 10 of all time. There is an argument that Bird Box viewership numbers - which, as of Netflix’s earnings report last week, are up to 80 million Netflix member households - are not particularly meaningful. That was quite the flex, and Netflix was only getting started. Took off my blindfold this morning to discover that 45,037,125 Netflix accounts have already watched Bird Box - best first 7 days ever for a Netflix film! /uorU3cSzHR
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