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Netflix logo.png
Netflix page.png
"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

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. 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.[1] Ethical issues such as monopolization, the influence of recommendations, sharing and piracy are several concerns involving this movie rental company.


Netflix was founded on August 29, 1997 in Scotts Valley, California by Reed Hastings and Marc Randolph.[2][3] Hastings and Randolph had previously worked together at Pure Software, a company that provided Purify, a debugging tool for Unix/C engineers. Hastings has claimed that he received the idea for Netflix after being charged a $40 late fee for the movie Apollo 13 from the defunct rental brand Blockbuster.

Business Model

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. Netflix originally offered a seven-day rental service for $4 in addition to the shipping cost which was $2 at the time, the cost would go down once additional DVDs were ordered.[4] After enjoying considerable success, Netflix expanded to 2,300 titles with a total inventory of 250,000 discs and saw the 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.[4]

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[5], which would be a 60% price increase.
Chart of Netflix's (NFLX) stock prices from January 2011 to October 2011 [6]

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.[3]

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%. [7] Hastings responded to the drop stating that there was not enough thought, explanation, and integration involved with the decision and that customers had the right to be angry. [7]

Lifestyle 1600 mock.jpg

Streaming Plans

All three subscription options offer the first month free with the option to watch on any device where the Netflix app or website is available [8].


  • Basic allows users to stream Netflix shows or movies on one screen at a time in standard definition[8].
  • $7.99/month


  • Standard allows users to stream Netflix shows or movies on up to two screens at a time in either standard or high definition[8].
  • $9.99/month


  • Premium allows users to stream Netflix shows or movies on up to four screens at a time in either standard, high, or ultra high definition[8].
  • $11.99/month was created in 2012 as a separate entity from Netflix's more popular streaming option. The site, which is owned and run by Netflix, offers a DVD delivery service with up-to-date movie selections. Netflix offers 1 to 3 day free shipping. While Netflix (streaming) has nearly 100 million subscribers, has 4.3 million subscribers. All three subscription options offer the first month free with free two-day shipping, no late fees, and a selection of over 93,000 movies[9].


  • Starter allows users to order up to one DVD at a time and up to two DVDs per month[9].
  • $4.99/month


  • Standard allows users to order up to one DVD at a time with an unlimited number of rentals per month[9].
  • $7.99/month


  • Premium allows users to order up to two DVDs at a time with an unlimited number of rentals per month[9].
  • $11.99/month

Netflix Originals

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.[10] 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.[11][12][13]

In July 2013 Netflix debuted their hit show “Orange is the New Black”, a drama set in an all females prison.[14] 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”.[15] 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.

Netflix currently has over 100 original shows and movies ranging across many different genres, including dramas, sitcoms/comedies, documentaries, kids shows, talk shows, and much more. Most of these were commissioned or bought just by Netflix, but some were shows that originally broadcasted on television networks, but were bought up by Netflix and made more seasons just for streaming on the site. [16] Many of these shows are unique, niche genres ideas that would not do well on a broadcast network, since they would not attract many viewers. However, on an online site like Netflix that is just concerned with getting people to buy their subscription, these shows can thrive.


Online Streaming

Netflix has a "Watch Instantly" feature that allows thousands of movies and TV shows to be instantly streamed to a user's TV, smart phone, or tablet. Basic membership only allows two users to stream on the Netflix account at a time, but users can pay for a higher subscription to allow for more people to stream from the same account simultaneously. 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.[17]

Offline Streaming

Netflix has an option that allows users to stream content on a mobile device when there is not an internet or cellular connection available. Users first must download their desired content within the app before they have the option to view the program offline. [18]. Information about which content can be viewed offline can be found under the "Available for Download" section from the Netflix homepage on a mobile device.

IT Infrastructure

AmazonWebServices supports Netflix Online Streaming

In 2010, Netflix data centers could not keep up with the demand for online stream. They merged with Amazon EC2. Now Netflix stores over 1 petabyte (10^9 bytes or 1,000,000 gigabytes) of data on Amazon S3. This data is highly replicated across the country through content delivery networks to provide quality streaming, even when users face slower internet connections. [19]

Netflix DVD rental envelopes

Free Trial and Cancellation

New users to Netflix qualify for a free month of Netflix streaming by providing a valid email address and credit card number that have not previously been attached to a Netflix account. If the subscription is cancelled within the month, no charges will be incurred. If the subscription is not cancelled within one month, the monthly fee will be charged. Subscriptions can be cancelled at any time online with no termination fee. There are no refunds or credits for partial months.

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. [20] 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.

Interactive Technology

Netflix is working on technology that would add interactivity to their viewers experience by letting the user decide the end of how an episode unfolds. As part of their research, Netflix is running "Choose your Own Adventure" trials based on a children's TV show [21]. If this shows to be successful, Netflix plans to apply this same type of research to adult shows. There has been no confirmation of whether Netflix will apply this format to their new shows. Furthermore, this type of plot selection technology will only work for simpler shows. While this new technology caters to the needs to the users, who project their personalities and wants onto the plot of the show through their selection, this technology can in fact limit the view and scope of television watching, putting users in a bubble. Similar to how Facebook's algorithm picks content for its users based of their likes, previous content viewed, time spent on pages or what their friends like, Netflix will now be doing a variation of the same thing, putting users further into their bubble. While users of Facebook voice how they want to be exposed to content outside of their bubble, Netflix's possible future with interactive technology could be taking us further away from this free content exposure. While many shows will remain as they are today, it is up to the popularity of the new interactive technology to decide.

Partnering with Facebook


In 2011, Netflix integrated its video streaming service with Facebook in 44 countries. This partnership 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. This act prohibits the disclosure of video sales or rental records.[22] 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.[22] Consumers now have the choice to decide whether or not Netflix can access and share their rental history.[23] 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.[24]

"Netflix Prize"

BellKor's Pragmatic 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. After successful verification, a winner was chosen on September 21, 2009. The grand prize of $1,000,000 was awarded to BellKor's Pragmatic Chaos Team which beat Netflix's own algorithm for predicting ratings by 10.06%.[25]

Ethical Issues


Because of Netflix’s rising popularity, many media companies such as Hulu, ABC-Disney Television, and many other channels have adopted the streaming style to let viewers watch episodes after they’re premiered. In 2006 Netflix patented the "mail me" video rental system, causing a rapid decline in Blockbuster and RedBox rentals. Blockbuster filed for bankruptcy on September 23, 2010 and was eventually bought out by Dish Network. Because of its lack of competition, Netflix was able to claim monopoly over the media rental industry, allowing them to surge the prices of their monthly rate from $8 to $15. [26]


In 2012, Congress approved a bill allowing video streaming companies to share user viewing data for up to two years before having to ask for permission again.[27] Video streaming and social media companies pushed strongly for this bill, while opponents wanted additional privacy protections that would require these companies to ask for permission every time they wanted to share your data.[27] In addition, many opponents argued that protections should be added to ensure the federal government would be required to obtain a warrant if they wanted to access citizens online correspondence.[27]

In April of 2017, researchers at West Point’s US Military Academy discovered that Netflix user data might be vulnerable to passive traffic analysis attacks. [28] In other words, hackers can easily obtain the viewing data of Netflix users. It is difficult for Netflix to protect users from this potential invasion of privacy because the company has to use HTTPS to stream video[28] Although viewing data isn’t the most sensitive of user information, this is still a concern for Netflix users who don’t want others to know what they spend their time watching.

In December of 2017, Netflix released their new Christmas originals. One of their titles, A Christmas Prince, became a popular social media topic. As a result, Netflix tweeted about somebody who had watched this particular movie 53 times for 18 days. While most people responded to it positively, saying it was comical and in good taste. The company was also criticized as it had invaded the privacy of their user data. Information such as user data and how many times one particular person has seen a particular title should be not disclosed to the public.[29].

Users sharing accounts


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. [30] 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.


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 that they give rental choice and shipping priority to lower usage users. In the same statement released by Netflix, the company specifically states that users who rent more often will probably be more likely to experience delays in shipping and may not receive their top choices for movies. [31]


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 users. As users realized the increase was as high as 60%, they became quite upset.[32] Netflix did not provide an adequate warning to their users explicitly stating their rates would increase. This created a public relations issue for Netflix as they were left with disgruntled users threatening to cancel their memberships. Approximately one million users cancelled their subscription as a direct result of this price change. [33]

Netflix Culture

Binge Watching

Full article: Binge Watching

Netflix encourages a culture of binge watching, which is when viewers watch an entire series or hours of television in a continuous period of time. The easy access and the way Netflix's online streaming is set up encourages users to binge watch shows. At the end of each episode, the next episode in the series automatically begins a countdown to auto-play, unless the user specifies otherwise. Binge watching is popular among millennials, although it is spreading to older generations. It is is seen as a common phenomenon among Netflix users. Binge watching is also encouraged by the Netflix algorithm by offering the user recommended shows or movies once one video has ended.

Netflix and chill

Full article: Netflix and chill

The term 'Netflix and chill' is a slang term that implies that two people will watch Netflix together and take part in sexual activity. The term became popular in 2009 [34] and is commonly used today among millenials. On July 22, 2015 Netflix officially acknowledged the term by using it in a post on their Twitter account. [35] Since then, the phrase can be seen on merchandise such as shirts, stickers and condoms.[36]


2018 Cannes Film Festival

Netflix's in-house programs, Netflix Originals, were banned from partaking in the 2018 Cannes Film Festival. According to Thierry Fremaux, the Cannes head, the ban was in place due to Netflix's refusal of releasing the film in theaters. Fremaux said that all films are released on the platform and release them on specific days so they can be viewed online and offline. Fremaux told media network, The Verge, that the Netflix model was not compatible with the festival's format. [37] While the service was not eligible for any awards, they could still display their works at the festival.

See Also

External Links


[38] [39] [40] [41]

  1. [1]
  2. Netflix: Company Overview
  3. 3.0 3.1 BookRenter Adds Netflix Co-Founder Marc Randolph To Its Board Of Directors, Robin Wauters, 7 May 2010
  4. 4.0 4.1 Netflix History
  5. Netflix Announces Price Hike, New Subscription Plans, Catharine Smith, 12 July 2011
  6. Netflix stock sinks 35% as subscribers flee Julianne Pepitone, Jessica Dickler, 25 October
  7. 7.0 7.1 Netflix Loses Subscribers, Suffers Stock Market Drop Following Changes to Solid Business Plan, Tommy Alexander, 2 November 2011
  8. 8.0 8.1 8.2 8.3 Netflix Choose a plan that's right for you.Netflix, 2017.
  9. 9.0 9.1 9.2 9.3 Netflix Choose the plan to complete your Netflix experience..Netflix, 2017.
  10. Andreeva, N. (2011). “It's Official: Netflix Picks Up David Fincher- Kevin Spacey Series 'House Of Cards'”. Deadline.
  11. Andreeva, N. (2011). “Netflix Picks Up New Episodes Of 'Arrested Development' ”. Deadline.
  12. Adler, Tim (2011). "Update: Miramax's Mike Lang and Netflix's Ted Sarandos Talk Shop; Netflix Adds 'Lilyhammer' To TV Lineup". Deadline.
  13. Tartaglione, N. (2012). "Famke Janssen, Bill Skarsgard Cast In Eli Roth's 'Hemlock Grove'; Netflix To Air Gaumont-Produced Series In Early 2013". Deadline.
  14. Goldberg, L. (2013). "Netflix Sets Premiere Date for Jenji Kohan's 'Orange Is the New Black'". The Hollywood Reporter.
  15. Fleming, M. (2015). “Netflix Dates First Feature Film Slate With Idris Elba, Cary Fukunaga, Adam Sandler, Harvey Weinstein, Paul Reubens & Judd Apatow”. Deadline.
  16. Netflix Media Center
  17. Wikipedia: Netflix
  18. Alba, Davey, "Rejoice! You can download Netflix shows now for an offline binge". 20 November 2016. Accessed 4 April 2018.
  19. Oscon Data
  20. Simons Journal, 11 December 2006
  22. 22.0 22.1 Netflix pairs with Facebook, except in U.S., Cecilia Kang, 22 September 2011
  23. Netflix On Facebook App Closer To Reality In US, Chris Atkinson , 2011
  24. Netflix Privacy Protection Act
  25. Netflix Prizes
  26. CNET: Netflix the Next Monopoly
  27. 27.0 27.1 27.2 Serwer, A. (2012). “Congress Says Netflix Can Share What You’re Watching”. MotherJones. Retrieved April 22, 2017, from
  28. 28.0 28.1 Buntinx, JP. (2017). “Netflix User Privacy is Vulnerable to Passive Traffic Analysis Attacks”. The Merkle. Retrieved April 22, 2017, from
  29. Netflix defends its controversial 'A Christmas Prince' tweet after some users called them out for being creepy. (2017, December 13). Retrieved April 4, 2018, from Business Insider website. netflix-defends-a-christmas-prince-tweet-2017-12
  30. Updated: Netflix Cracks Down on Sharing: One Stream Per Customer Unless You Pay More, Phillip Dampier, 5 September
  32. "Netflix Customer Problems – A Public Relations Nightmare!"
  33. NY Times article on angry Netflix customers
  34. First recorded use of "Netflix and Chill" on Template:Cite tweet
  35. US, Netflix. Twitter, Twitter, 22 July 2015,^tfw&ref_url=
  36. Smothers, Hannah. “You Can Now Buy 'Netflix and Chill' Branded Condoms.” Splinter,, 9 Oct. 2015,
  37. Netflix banned from competing at Cannes Film Festival [[2]]
  38. "Netflix spins DVD-by-mail service off into Qwikster, says it's 'done' with price changes", Richard Lawler, 19 September 2011
  39. "New book reminds us why we loved Netflix", Greg Sandoval, 11 October 2012
  40. "DVDs will be staying at", Reed, 10 October
  41. "Why There Won't Be a Netflix Prize Sequel", Jessica Leber, 13 August 2012

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