Difference between revisions of "Netflix"

Revision as of 18:37, 5 December 2012

Netflix Logo

Netflix, Inc. is an American online streaming, movie rental service that offers a flat-fee subscription plan for both DVD and Blu-ray disc rentals, as well as online streaming directly to TV. Netflix was founded on August 29, 1997 in Scotts Valley, California by Reed Hastings and Marc Randolph.^[1][2] Reed and Randolph had previously worked together at Pure Software, a company that provided Purify, a debugging tool for Unix/C engineers. The idea started when Hastings was charged a late fee when returning a DVD after the due date. Since then, the Netflix business model is built on flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per title rental fees and has grown to more than 30 million streaming members across the United States, Canada, Latin America, the United Kingdom, and Ireland.^[1]

History

In July 2011, Netflix announced a new pricing model which split online streaming and DVD rental into two separate categories. Previously, unlimited streaming and DVD rental was offered as a packaged deal for $9.99 per month. The new model prices unlimited online streaming at $7.99 per month and unlimited one-at-a-time DVD rental at $7.99 per month. Subscribers who wished to maintain both streaming and DVD rentals would have to pay $15.98 per month^[3], which would be a 60% price increase.

Chart of Netflix's (NFLX) stock prices from January 2011 to October 2011 ^[4]

The new price model was a result of Netflix attempting to put their DVD rental services under the name Qwikster. This required customers to access a different website with a different account and password in order to rent DVDs. Qwikster would offer a new feature, the ability to rent video games, which was previously not available from Netflix. However, due to negative feedback from customers, Netflix CEO Reed Hastings announced that the DVD-by-mail service would remain a part of Netflix, rather than becoming a separate entity.^[2]

While the Qwikster plan fell through, Netflix still maintained the new pricing model. Between July and October 2011, Netflix lost around 800,000 subscribers, and Netflix stock dropped nearly 50%. ^[5] Hastings responded to the drop stating, "We didn’t give it enough thought. We didn’t give it enough explanation, enough integration, and you know, that’s legitimately caused our customers to be angry.”^[5]

Services

Netflix subscribers are able to watch unlimited movies and TV episodes for a monthly flat-rate. Users can choose to opt-in to renting unlimited DVDs by mail for an additional monthly fee. In 2011, Netflix split its service pricing such that customers must decide whether to pay for online streaming, mail order DVD rentals, or both. In a 2011 report by Sandvine, Netflix is the biggest source of North American web traffic, accounting for 24.71% of the total traffic.^[6]

Online Streaming

Netflix has a "Watch Instantly" feature that allows thousands of movies and TV shows to be instantly streamed to your TV via a PS3, Wii, Xbox 360, or any device that allows streaming. Films can be paused and restarted at will. Netflix's content library is encoded into three bandwidth levels. The lowest tier requires a continuous downstream bandwidth of 1.5 Mbit/s, with stereo audio and video quality comparable to that of a DVD. The second tier requires 3 Mbit/s and offers "better than DVD quality." The highest tier requires 5Mbit/s and offers 720p HD with surround sound audio. Several devices such has the PlayStation3 and Roku 2 can stream Netflix content at 1080p, but it is unclear what 1080 content, if any, is delivered.^[7]

DVD Rental

Netflix DVD rental envelopes

For an additional monthly fee, Netflix users can add the "1 DVD out-at-a-time" plan to their subscription. Once subscribed, the user can create a list of desired movies or programs. Netflix mails the first 1-3 titles on the list, depending on the service desired, and as the client returns the movies in a prepaid envelope, subsequent titles are mailed in order. Customers with a good return record can upgrade plans to up to 8 discs at a time. Blu-ray discs are also available for an additional cost. In an attempt to help studios sell more physical media at retail outlets, Netflix reached an agreement with Warner Brothers Pictures, Universal Studios, and Twentieth Century Fox to delay renting new releases for 28 days from their retail release.^[8]

Free Trial and Cancellation

New clients of Netflix can qualify for a 1 month free offer. If the subscription is cancelled within the month, no charges will be charged. However, if membership is not removed within one month, the regular monthly fee will be charged. Subscriptions can be cancelled at anytime online with no termination fee. There is no refunds or credits for partial months.

"Netflix Prize"

BellKor's Prgmatic Chaos, the grand prize winner of the Netflix Prize

The Netflix Prize was launched in 2006 as an open competition to substantially improve the accuracy of user ratings for films. The competition was open to anybody who was not connected to Netflix (current and former employees, agents, close relatives of Netflix employees, etc.) or a resident of Cuba, Iran, Syria, North Korea, Myanmar, or Sudan. Prizes were based on improvement over Cinematch, Netflix's own algorithm. If no team won the grand prize, a progress prize of $50,000 was awarded each year to the team with the best result thus far, given that the algorithm improved the root mean squared error (RMSE) on the quiz set by at least 1% over the previous progress prize winner. A team could attempt as many submissions as they wished. Submissions could be made once a day where the team's best submission so far counted as their current submission. If a team managed to improve the RMSE more than 10%, the jury would allow all teams 30 days to send in their last submissions. Then, the team with the best submission was asked for their algorithm description, source code, and non-exclusive license. And finally, after a successful verification, a grand prize winner is chosen. The On September 21, 2009, the grand prize of $1,000,000 was rewarded to BellKor's Pragmatic Chaos team which beat Netflix's own algorithm for predicting ratings by 10.06%.^[9]

Ethical Issues

Recommendation Algorithm

Netflix uses hybrid Recommender Systems to suggest and display movies to its users. This system is most based in user ratings, user-to-user similarities in ratings, as well as a learning algorithm that learns patterns in user history in order to recommend in an accurate and optimal manner. ^[10] Use of a recommender system that is not singularly based on ratings is ethically concerning not only because of data collection as a privacy risk but also because users of Netflix may choose to watch movies with friends and then receive recommendations based on personal preferences users do not wish to share publicly.

Pairing with Facebook

In 2011, Netflix integrated its video streaming service with Facebook in 44 countries, not including the United States. This new pairing allows users to watch videos on either site and to see what people on their friends lists are viewing. A 1988 video rental privacy law came about after a D.C. area video store gave a Washington City Paper reporter the rental records of U.S. District Judge Robert Bork. Bork's 1987 nomination to the Supreme Court was rejected by the Senate. The 1988 Video Privacy Protection Act prohibits the disclosure of video sales or rental records.^[11] Michael Drobac, the government affairs director of Netflix, urged users to write in support of an amendment that would allow Netflix to get user information and share it through the Internet. Later that year, the House of Representatives passed HR 2471, a bill that amends VPPA.^[11] Consumers now have the choice to decide whether or not Netflix can access and share their rental history.^[12] On November 29, 2012 the Senate Judiciary Committee unanimously voted to pass an amendment that would force law enforcement to attain a warrant in order to read emails, Facebook messages, and other electronic communications. The next step in the legislative process will bring HR 2471 to a vote in the senate. If passed, Facebook users will be able to automatically share the movies they have watched on Netflix to their Facebook newsfeeds once they install the Netflix app.^[13]

Sharing

Many people gain access to Netlfix without paying for its services. Multiple users can use accounts of family members, within a household, or among a group of friends where one person subscribes to the service. With a simple login of an email address and password, Netflix is easily shared beyond the account user. As of now, there is no way to restrict the sharing of streaming content within the current business model.

Piracy

There are also ethical implications with Netflix regarding piracy, as people have the opportunity to illegally copy rented DVDs from Netflix and make pirated free copies of movies. This violates copyright and trademark laws, and opens the question of whether Netflix or its users are responsible for this piracy. Another concern with piracy and Netflix is that it would seem to be almost impossible to trace back who pirated which DVDs on Netflix, since the DVDs are re-used by several different users each time.

Netflix Customer Problems

Netflix failed to do a very good job of communicating the significance of the price increase to their members. As members started realizing that the increase was as much as 60%, they got angry.^[14] Netflix did not give an advanced warning to their customers specifically stating that their rates were going to increase. This created somewhat of a "public relations" disaster for Netflix as they were left with several disgruntled customers threatening to leave them and cancel their services with Netflix.

References

^{[15] [16] [17] [18]}

1. ↑ ^{1.0 1.1} https://signup.netflix.com/MediaCenter?id=5380/
2. ↑ ^{2.0 2.1} http://techcrunch.com/2010/05/07/marc-randolph-bookrenter/
3. ↑ http://www.huffingtonpost.com/2011/07/12/netflix-price-subscription-plan_n_895779.html
4. ↑ http://money.cnn.com/2011/10/25/technology/netflix_stock/index.htm
5. ↑ ^{5.0 5.1} http://thebottomline.as.ucsb.edu/2011/11/netflix-loses-subscribers-suffers-stock-market-drop-following-changes-to-solid-business-plan
6. ↑ http://venturebeat.com/2011/05/17/netflix-north-america-traffi/
7. ↑ http://en.wikipedia.org/wiki/Netflix
8. ↑ http://latimesblogs.latimes.com/entertainmentnewsbuzz/2012/01/warner-bros-netflix-deal-includes-delay-in-queues.html
9. ↑ http://www.netflixprize.com/
10. ↑ http://sifter.org/~simon/journal/20061211.html
11. ↑ ^{11.0 11.1} http://www.washingtonpost.com/blogs/post-tech/post/netflix-pairs-with-facebook-except-in-us/2011/09/22/gIQAHKQFpK_blog.html
12. ↑ http://www.reelseo.com/netflix-on-facebook-app/
13. ↑ Netflix Privacy Protection Act
14. ↑ http://thethrivingsmallbusiness.com/articles/netflix-customer-problems-a-public-relations-nightmare//
15. ↑ http://www.engadget.com/2011/09/19/netflix-spins-dvd-by-mail-service-off-into-qwikster-says-its/
16. ↑ http://news.cnet.com/8301-1023_3-57530609-93/new-book-reminds-us-why-we-loved-netflix/
17. ↑ http://blog.netflix.com/2011/10/dvds-will-be-staying-at-netflixcom.html
18. ↑ http://www.technologyreview.com/view/428867/why-there-wont-be-a-netflix-prize-sequel/

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