Netflix developed and maintains an extensive personalized video-recommendation system based on ratings and reviews by its customers. On October 1, 2006, Netflix offered a $1,000,000 prize to the first developer of a video-recommendation algorithm that could beat its existing algorithm, Cinematch, at predicting customer ratings by more than 10%.[15]
"Some 35,000 different film titles are contained in the 1 million DVDs it sends out every day."[16]
Netflix has played a prominent role in independent film distribution. Through a division called Red Envelope Entertainment, Netflix licensed and distributed independent films such as Born into Brothels and Sherrybaby. As of late 2006, Red Envelope Entertainment also expanded into producing original content with filmmakers such as John Waters.[17] Netflix announced plans to close Red Envelope Entertainment in 2008, in part to avoid competition with its studio partners.[18][19]
Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5,500,000 shares of common stock at the price of US $15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US $6.5 million profit on revenues of US $272 million. The company is well known for its worker-oriented culture, including unlimited vacation time for salaried workers and allowing those employees to take any amount of their paychecks in stock options.[20]
Netflix has been one of the most successful dot-com ventures. A The New York Times article from September 2002, said that, at the time, Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers. The company's published subscriber count increased from one million in the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006, to 14 million in March 2010. Netflix's growth has been fueled by the fast spread of DVD players in households; as of 2004, nearly two-thirds of U.S. homes had a DVD player. Netflix capitalized on the success of the DVD and its rapid expansion into U.S. homes, integrating the potential of the Internet and e-commerce to provide services and catalogs that brick and mortar retailers could not compete with. Netflix also operates an online affiliate program which has helped it to build online sales for DVD rentals.
On September 18, 2011, Netflix announced its intentions to rebrand and structure its DVD home media rental service as an independent subsidiary company called Qwikster, totally separating DVD rentals and streaming.[21][22][23] Andy Rendich, a 12-year veteran of Netflix, would have been the CEO of Qwikster. The new service would carry video games whereas Netflix did not.[24] Then, in October 2011, Netflix announced that it would retain its DVD service under the name Netflix and would not, in fact, create Qwikster for that purpose.[25]
On October 24, 2011, Netflix announced it lost 800,000 US subscribers in the third quarter of 2011 with more subscriber losses expected in the fourth quarter of 2011. Despite the losses, earnings for Netflix jumped 63 percent for the third quarter of 2011.[26][27]
International
In summer 2011, Netflix announced they will expand into the European market, starting in Spain by 2012.[28] In September 2011, Netflix completed the launch of streaming-content services in Latin America by launching in the Caribbean, Mexico, Central and South America. In October 2011, it was announced that Netflix would be launching in the UK and Ireland in early 2012.[29] Netflix was officially launched in the United Kingdom on January 9, 2012, priced at £5.99 a month for its streaming only service and in Ireland for €6.99 a month.[30]Services
Netflix is a subscription-based movie and television show rental service that offers media to subscribers via Internet streaming and via US mail.Internet video streaming
Netflix offers Internet video streaming ("Watch Instantly") of selected titles to computers running Windows or Mac OS X and to compatible devices. Internet video streaming once came at no additional charge with Netflix's regular subscription service; however, only a portion of Netflix's content is available via the "Watch Instantly" option.[31] In its simplest form, video is streamed to the user using standard PC hardware, and requires Microsoft's Silverlight software to be installed. Viewing is initiated by pressing a "Play Instantly" button, and played back on the PC monitor. Films can be paused or restarted at will. According to a 2011 report by Sandvine, Netflix is the biggest source of North American web traffic, accounting for 24.71% of aggregated traffic.[32]Initially, the feature offered subscribers one hour of media for approximately every dollar they spent on their subscription. (A $16.99 plan, for example, entitled the subscriber to 17 hours of streaming media.) In January 2008, however, Netflix lifted this restriction. Virtually all subscribers now are entitled to unlimited hours of streaming media at no additional cost. Subscribers with a plan of $4.99/two DVDs per month, one DVD at a time, are allowed two hours which can only be watched on a computer. The new terms of the service are a response to the introduction of Apple's new video rental services.[33]
According to Netflix Tech Support, Netflix's content library is encoded into three bandwidth tiers, in a compression format based on the VC-1 video and Windows Media audio codecs[citation needed]. Of these, the lowest tier requires a continuous downstream bandwidth (to the client) of 1.5 Mbit/s, and offers stereo audio and video quality comparable to DVD. The middle tier requires 3 Mbit/s, and offers "better than DVD quality". The highest tier requires 5 Mbit/s, and offers 720p HD with surround sound audio. As of October 2011[update], several devices also have the ability to stream Netflix content at 1080p resolution, including the PlayStation 3 console and Roku 2 series set-top boxes which require 8 Mbit/s.[34][35]
Netflix does not support playback on Linux PCs although the Linux-based Roku devices are supported. It is possible to connect the Roku device, game console, or Blu-ray Disc player to a Linux PC (or directly to the computer monitor) with an adapter. It is also possible to run Windows and Netflix in a virtual machine such as Virtualbox or QEMU. In a TechRepublic interview in August 2010, Netflix's VP of Corporate Communications stated that available Silverlight plugins for Linux, such as Moonlight, do not support the PlayReady DRM system that Netflix requires for playback.[36] Netflix does support the Android operating system, which uses the Linux kernel, although is otherwise separate from Linux.
The selection of available titles is based upon the user's IP address. For most users, this corresponds to the user's physical location. However, it means that, for example, a user in Canada who is accessing the Internet through a U.S.-based router connection will see the selection available to U.S. users.
According to a survey by Nielsen on July, 2011, 42% of all Netflix users make use of a stand-alone computer to connect to Netflix, 25% do so by using the Nintendo Wii, 14% by connecting their computers to a TV, 13% make use of a PlayStation 3 and 12% use a Xbox 360.[37]
History
On October 1, 2008, Netflix announced a partnership with Starz Entertainment to bring 2,500+ new movies and television shows to Watch Instantly in what is being called Starz Play.[38]In August 2010, Netflix announced it had reached a five-year deal worth nearly $1 billion to stream movies from Paramount, Lionsgate and MGM. The deal increases the amount Netflix spends on streaming movies annually. It spent $117 million in the first six months of 2010 on streaming, up from $31 million in 2009. This deal adds roughly $200 million per year.[39]
As of 2011, Netflix's "Watch Instantly" service holds first-run rights to films from Paramount Pictures, MGM, Lions Gate Entertainment (through an output deal with Epix), along with films from Sony Pictures, Walt Disney Motion Pictures Group, Overture Films, Anchor Bay Entertainment (through an output deal with Starz).[citation needed] In addition, Netflix holds rights to back-catalog titles to films from Time Warner, Universal Pictures, Sony Pictures, Paramount Pictures, MGM, Lions Gate Entertainment, 20th Century Fox and other distributors.[citation needed] Netflix also provides current and back-catalog TV programs distributed by NBC Universal, 20th Century Fox, Sony Pictures, Disney-ABC Domestic Television, with select shows from Warner Bros. as well.[citation needed] Netflix also previously showed movies from the Criterion Collection, but the titles were pulled from the streaming library when Criterion Collection titles were added to Hulu's Hulu Plus streaming library.[40] Netflix has "pay TV window" deals with Relativity Media, FilmDistrict, and Open Road Films.[41]
On July 12, 2011 Netflix announced that it would separate the current subscription plans into two separate plans: one covering the instant streaming and the other DVD rental.[42] The cost for streaming would be $7.99 while DVD rental would start at the same price. The announcement led to a flurry of negative reception amongst Netflix's Facebook followers, posting negative comments on the company's wall.[43] Twitter comments also spiked a "Dear Netflix" trend with generally negative comments as well.[43] The company defended its decision during its initial announcement of the change. "Given the long life we think DVDs by mail will have, treating DVDs as a $2 add-on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs," Netflix wrote on its blog. "Creating an unlimited-DVDs-by-mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs-by-mail offering."[42]
On September 1, 2011, Starz announced it will remove their movies from Netflix streaming on February 28, 2012. Since the agreement was strictly for streaming movie titles, DVD rentals through Netflix will not be affected.[44] However, around that same time, it was announced Netflix would, in 2013, assume the pay-TV rights to films from DreamWorks Animation (those output rights are currently held by HBO).
Disc rental
Netflix offers several pricing tiers for DVD rental of one to three DVDs at a time. Subscribers with accounts in good standing can upgrade to plans offering up to eight DVDs at a time. Gift subscriptions are also available. Since November 21, 2008, Netflix has offered their subscribers access to Blu-ray Discs for an additional fee.
In addition to its movie rental service, Netflix formerly sold used movies. The purchase was delivered via the same system and billed using the same payment methods as rentals. This service was discontinued at the end of November 2008.[46]
Starting January 6, 2010, Netflix reached an agreement with Warner Brothers Pictures to delay renting new releases for 28 days from their retail release in an attempt to help studios sell more physical media at retail outlets. A similar deal with Universal Studios and Twentieth Century Fox was reached on April 9, 2010.[47][48][49]
In 2011, Netflix split its service pricing so that customers must decide whether they want to pay for online streams, access to DVDs by mail, or both.
Qwikster
On September 18, 2011, Netflix CEO and Co-Founder Reed Hastings said in a Netflix blog post that the DVD section of Netflix would be split off and renamed Qwikster, and stated that the only major change would be separate websites for the services.[50] The new service was to carry video games for an additional charge, whereas Netflix did not.[24] Netflix subscribers who wanted DVDs by mail would have had to use a separate website to access Qwikster.On October 10, 2011, following negative reaction from customers, Netflix CEO Reed Hastings announced the cancellation of the planned Qwikster service and said that the DVD-by-mail service would remain a part of Netflix.[51]
