What a difference a year makes.
Netflix headed into 2012 weighed down by its imprudent decision to split its DVD and streaming units into two separate businesses. The move was quickly reversed, but it still left a bad taste in consumers' mouths. Since then Netflix has transformed its image from a distributor like Time Warner Cable into a personalized service that gives subscribers access to content they want -- and some they didn't even know they wanted.
Netflix has grown its streaming U.S. subscriber base to nearly 29 million at the end of the second quarter from about 24 million a year earlier, thanks to investments in high-quality originals like the Emmy-nominated "House of Cards" and revamp of "Arrested Development." Netflix reportedly spent $100 million acquiring "House of Cards," and there's a debate over whether original programming can generate big enough returns to justify that kind of cost. But the buzz from that content has already prompted rivals like Amazon Prime and Hulu to ramp up their own original programming.
To goose interest in its programming, Netflix has become a PR machine that relies heavily on social media in addition to typical TV, print, digital campaigns. It spent nearly $222 million on measured media in 2012, according to Kantar Media.
Even more impressive than the way Netflix is attracting new subscribers is how it uses data to retain users during a time when cable and satellite operators are bleeding customers. Netflix no longer discloses churn, but Janney Capital Markets analyst Tony Wible estimates it's about 3.5% to 4% per month. With former Warner Bros. exec Kelly Bennett assuming the CMO post in July 2012, the company is using data to serve up the right content and marketing to the right person. Netflix tracks what its users watch, search for and rate, as well as the time of day, date and device used. It even follows how subscribers browse and scroll. This allows it to know you're more likely to watch a romantic comedy Saturday night and stream from your tablet Monday morning. Netflix has said 75% of viewer activity is driven by recommendations.
Using its data insights, the company has moved away from boasting a vast library of movies that can be found on other services and is instead focusing on exclusives and specific genres like TV.
Kids have been an important target -- Netflix launched a campaign aimed at the demo and their parents for the back-to-school season. It has ramped up its children's programming, striking a deal with Scholastic in August for shows like "Goosebumps" and "The Magic School Bus." A partnership with DreamWorks Animation will also bring more than 300 hours of new kids' programming to the platform beginning in 2014.
Next up: user profiles. Starting in August, Netflix began allowing subscribers to create individual profiles within a single account for up to five different people. The profiles are designed to allow Netflix to deliver more-precise recommendations to each person using a shared account and let each user create their own instant queue.