How does Netflix recover its cost/become profitable per series/movie/documentary? originally appeared on Quora, the place to gain and share knowledge, empowering people to learn from others and better understand the world. You can follow Quora on Twitter, Facebook, and Google Plus.

Netflix is one of the first companies to truly leverage data analytics to drive major business decisions.

The traditional way that companies decide to pursue or drop a particular project or product is to gauge the demand and project the same for the future. This was later supplemented by soliciting direct feedback from consumers who have already used the product to get an idea of the market perception. Then came social media and sentiment analysis.

Netflix takes it to the next level by analyzing the data gathered from customers and also analyzing their viewing and paying patterns.

Suppose that Netflix sees 10,000 customers signing up for the service just before the release of the next season of Stranger Things. Some of them might be part of the regular wave of new customers. You subtract that number and get a good estimate of people who signed up solely to watch Stranger Things.

The same can be validated by checking how many of these 10,000 purchased their Netflix subscription and jumped straight to Stranger Things. Let’s say that the number is 5000. They pay for a month (assume $12 as the average monthly price they pay). Of these 5000, 2000 cancel their subscription at the end of the month, but 3000 are now hooked and will start watching other shows. The 2000 people will contribute $24,000 in revenues ($12*2000). The other 3000 will likely contribute a far greater chunk ($12*3000*12 months) of around $432,000. The total is $456,000 in annual revenues from Stranger Things Season 3. If that number is substantially higher than the production cost of S3/S4, the series will be renewed.

The above is a very simplistic model. Netflix would also be doing a trend analysis to see if the popularity of a show has been increasing or decreasing. And even if it is increasing, is it going to keep up the pace with the increasing cost of producing the subsequent seasons.

I would recommend this detailed, insightful article from Kissmetrics, key excerpts of which are below.

Has House of Cards been a success? It has brought in 2 million new U.S. subscribers in the first quarter of 2013, which was a 7% increase over the previous quarter. It also brought in 1 million new subscribers from elsewhere in the world. According to The Atlantic Wire, these 3 million subscribers almost paid Netflix back for the cost of House of Cards.

And what about current subscribers? Does having House of Cards make them less likely to cancel their subscription?

Yes, for 86% of them.

A survey showed that 86% of subscribers are less likely to cancel because of House of Cards but only if Netflix stays at the $7.99 price point.

After the Industrial Age, and the Internet Era, welcome to the Data World.

This question originally appeared on Quora. More questions on Quora:

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