Netflix

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Netflix.com

"2012 Netflix, Inc" Site Type Online Subscription Streaming Launch Date August 29, 1997 Status Active Product Line Movie Rental Service Flat-fee subscription DVD and Blu-ray disc Rentals Direct TV streaming Platform Online Streaming Website www.netflix.com

Netflix, Inc. is an American online movie rental and video streaming service that offers a flat-fee subscription plan for DVD and Blu-ray disc rentals, as well as online streaming. Netflix was founded on August 29, 1997 in Scotts Valley, California by Reed Hastings and Marc Randolph.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. As of April 2016, Netflix reported over 81 millions streaming members worldwide, including more than 46 million users in the United States. Ethical issues such as monopolization, the influence of recommendations, sharing and piracy are several concerns involving this movie rental company.

History

Reed Hastings and Marc Randolph had previously worked together at Pure Software, a company that provided Purify, a debugging tool for Unix/C engineers. Hastings conceptualized Netflix after being charged a late fee when returning a DVD after its due date.

After the business model was established the company opened for business on April 14th, 1998. Netflix started with a catalog of 925 DVDs for rent which was almost the full collection of DVD's in existence at the time. They originally offered a seven-day rental service for four dollars in addition to the shipping cost which was two dollars at the time, the cost would go down once additional DVDs were ordered. After enjoying considerable success, Netflix expanded to 2,300 titles with a total inventory of 250,000 discs. Its staff triple from 30 in 1998 to 110 in 1999. CEO, Reed Hastings, also offered a new monthly subscription plan, allowing subscribers to pre-select four DVD's to receive each month with no late fees. In May 2000, Netflix decided to become a public company, offering the site at a price of $86.2 million, but they withdrew after lack of public interest because of their low profits. In 2002, Netflix reached a subscription population of 500,000 customers, and grew to one million by February 2003. In an effort to stay at the head of the online mail-order DVD business, Netflix opened over one dozen new distribution centers in 2003 to accomodate overnight shipping to customers.

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, which would be a 60% price increase.

Chart of Netflix's (NFLX) stock prices from January 2011 to October 2011

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.

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%. 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.”

In March 2011 Netflix began acquiring the first of their sites own original content. Netflix’s first acquisition was David Fincher and Kevin Spacey’s hit political drama “House of Cards”, to which the site agreed to produce 26 episodes of. As part of the acquisition deal, House of Cards was the first programming that would be streamed exclusively on Netflix. Later in 2011 the streaming site also acquired other programs including Lilyhammer, Arrested Development, and Hermlock Grove.

In July 2013 Netflix debuted their hit show “Orange is the New Black”, a drama set in an all females prison. The show has since become Netflix’s most watched original series and has received multiple Emmy nominations and wins. Orange is the New Black’s success has cause Netflix to renew the show for up to seven seasons as of February 2016. In October 2016 Netflix released the sites first original feature film “Beast of No Nation”. Since the steaming site began acquiring and producing its own content in 2011, Netflix has garnered multiple Emmy trophies, been nominated for an Academy Award, and received millions of views.

Service Plans

Netflix currently offers two different plans. Their cheapest subscription plan costs $7.99/month and allows the user to stream Netflix shows or movies on two screens at a time in HD. For an extra four dollars a month, users can stream shows or movies on four different screens at once. In this plan, both HD and Ultra HD quality are available to the subscriber.

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. Basic membership only allows two users to stream on the Netflix account at a time, but for a more premium membership, users can pay to allow for more people to stream from the same account simultaneously. 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. .

IT Infrastructure

AmazonWebServices supports Netflix Online Streaming

In 2010, Netflix data centers began to struggle with supporting the demand for online streaming, so they migrated to Amazon EC2. Over 1 petabyte (10^9 bytes or 1,000,000 gigabytes) of data is stored on Amazon S3. This data is highly replicated across the country geographically through content delivery networks to provide quality streaming even with slow internet connections.

Netflix DVD rental envelopes

DVD Rental

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.

Free Trial and Cancellation

New clients of Netflix may qualify for a free month of Netflix streaming by providing a valid email and credit card number that has not previously been attached to a Netflix account. If the subscription is canceled within the month, no charges will be incurred. However, if membership is not removed within one month, the monthly fee will be charged. Subscriptions can be canceled at any time online with no termination fee. There are 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 anyone not affiliated with 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. 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%.

Ethical Issues

Monopolization

In 2006 Netflix patented the "mail me" video rental system, completely shutting out previous home rental giants like Blockbuster from any business. Netflix revolutionized the way movies and TV shows are watched through their streaming and mailing services, but the patent system was created in order to encourage innovation, not necessarily to put other companies out of business. Blockbuster filed for bankruptcy on September 23, 2010, and was eventually bought out by Dish Network. Without any competitors Netflix could very well set their current $15 a month service price higher and higher as they corner the market.

Recommendation Algorithm

Netflix uses hybrid Recommender Systems to suggest and display movies to its users. This system is based on 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. 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. The current recommender system also faces the ethical issue of allowing other users of the Netflix account to influence the recommendations displayed for the owner of the account. Part of the issue with Netflix recommendations is that they give too much weighting to genres and not to the different aspects found in found. While undoubtedly, Netflix's rating system could be vastly improved by allowing their members to rate numerous categories on each film instead of just a one to five star rating. Another issue with the recommender system is that they're system may be tied to an algorithm that looks at ratings instead of inventory. Many times, Netflix suggests movies that users are no interested in, even though users mark such movies with zero ratings. Seeing that his happen, the ethical issue is that Netflix may be promoting their own films in lieu of better recommendations that might be more appropriate for the users' movie taste.

Pairing with Facebook

In 2011, Netflix integrated its video streaming service with Facebook in 44 countries. This new pairing allows users to watch videos on either site and to see what people on their friends lists are viewing. The 1988 Video Privacy Protection Act 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., causing his nomination to the Supreme Court being rejected by the Senate. It prohibits the disclosure of video sales or rental records. 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. Consumers now have the choice to decide whether or not Netflix can access and share their rental history. 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.

Sharing

Previously, many people gained access to Netflix without paying for its services. Multiple users accessed accounts of family members or friends, where one person subscribed to the service and others "piggybacked" on the account. With a simple login email address and password, Netflix was easily shared beyond the account subscriber. Experiencing the trend of shared accounts, Netflix implemented a strict limit on the number of concurrent streams on different devices in 2011. Unless users subscribed to more expensive premium accounts, they were now unable to stream Netflix concurrently on more than two different devices. Although trying to combat "piggybacking", this does not restrict the number of devices that can be used overall, only concurrently. Many accounts are still shared with multiple family members and friends even though they themselves did not pay for the service.

"Throttling"

Another issue within the Netflix community is called "throttling". Throttling is basically restricting, or altering service to paying customers based on their rental patterns. Customers who rent a high volume of movies often are put in the back of the waiting line for popular DVDs and also receive movies out of the order that they requested. This is strictly associated with the overall activity of each individual customer. Netflix itself admitted "In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service..." In the same statement released by Netflix, the company specifically states that "heavy renters" will probably be more likely to experience delays in shipping and may not receive their top choices for movies.

Piracy

There are also ethical implications with Netflix regarding piracy (see Digital 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 is nearly impossible to trace who pirated which DVDs on Netflix, since the DVDs are re-used by different users.

Netflix Customer Problems

Netflix failed to clearly communicate the significance of their price increase to its members. As members realized the increase was as high as 60%, they became quite upset. Netflix did not provide an adequate warning to their customers explicitly stating their rates would increase. This created a "public relations" disaster for Netflix as they were left with disgruntled customers threatening to cancel their memberships. Approximately one million users cancelled their subscription as a direct result of this price change.

Binge Watching

Netflix encourages a culture of binge watching. Binge watching is when viewers watch an entire series or hours of television in a short period of time. The easy access and the way Netflix's online streaming is set up encourages users to binge watch shows. This has impacted our society in many ways. Binge watching is incredibly popular among college age students. Some negative affects are lack of sleep, lower grades, and declining social life. Studies have also found that sitting for long periods of time increases the risks of certain health issues like diabetes, heart disease, and even cancer. It is also easy to become addicted to the show one is watching on Netflix.

Video Quality

Users have the option to choose either Basic, Standard or Premium packages. Only the premium packages offers Ultra HD video quality. The other packages have HD on some videos. There has been a clear change in the video streaming quality on Netflix. Often times much lower than the quality of a standard television. Some attribute this issue to the large number of users that the site has at once. Others believe that it is to pigeon hole users into paying for the premium package to receive higher quality services.

See Also

• Amazon.com
• Hulu

External Links

• Netflix's Website

References

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