Netflix application on a television
Netflix: Giving Television the ‘Flick’
Anyone who has been on the internet knows the impact that Netflix has had on the entertainment industry, but how did they achieve it?
Netflix is a video streaming service that specialises in television shows and films. Originally, Netflix adopted a DVD mail service until February in 2007 when they introduced video streaming on demand. Netflix is a large promoter of digital accessibility through their business model that facilitates video streaming on demand. In a world that is becoming more connected with technology than ever before, the promotion of the ease of film entertainment enables Netflix to fit into today’s culture seamlessly.
How did Netflix get to where it is today?
Netflix was founded on August 29, 1997 by Reed Hastings and Marc Randolph. Hastings and Randolph had worked together previously when Randolph worked as a marketing director for Pure Atria, a software company owned by Hastings. After Hastings sold Pure Atria in 1997, he used the capital he acquired from the acquisition to start Netflix.
Netflix released their website and began posting DVDs to their customers on April 14 1998. They had just under one thousand titles in their catalogue and charged 50 cents for every package posted. Netflix would charge customers a fee for each film they ordered up until September of 1999 when Netflix to the subscription-based payment model they currently use. Although this business model proved to be very successful at the time for Netflix, it was not viable in the long term with larger companies making moves into the industry.
As Netflix grew in size, they began to put more of their efforts towards Research and Development (R&D). In 2005, two years after they reached 1,000,000 subscribers, Netflix was approaching the public release of their latest initiative, quite simply called the ‘Netflix Box’. The piece of equipment would be able to download films in less time than DVD postage would take. Before the release of the product, the success of the video streaming platform, Youtube caught the attention of those involved in R&D at Netflix. They observed that for consumers, the speed and accessibility to content took precedence over the image quality. This prompted them to halt any further action regarding the ‘Netflix Box’ and shift their focus on creating a streaming service. In February of 2007, after delivering their billionth DVD Netflix released their online video streaming service (Helft, 2007).
Netflix’s streaming application
Netflix’s Major ’08 Data Corruption
In August of 2008, Netflix experienced a major database corruption, resulting in drastic effects on their online streaming service and halting their DVD distribution for three days (Thelwell, 2016). The technological failure of Netflix’s servers came as an abrupt reality for those who naturally expected the continued operation of the service provided to them. The sudden failure of technology shatters the subconscious expectation of constantly functioning infrastructure as the invisibility of the physical element of the internet is brought back to the attention of users (Abbate, 2017, pg. 9). Following this database corruption, officials at Netflix opted to move their data to Amazon Web Services (AWS). Netflix’s move to AWS meant that their data was protected with more security and more sophisticated anti-corruption measures. The move also proved to be cost-effective, drastically cutting infrastructure and maintenance costs that come with the physicality of data servers. Costs were observed to have drastically decreased from when Netflix used their own data servers, halving from 2008 to 2014 (Singh, 2014, pg.180). The migration took under eight years to complete with the final transfers occurring in January of 2016. While cost effectivity was one of the main reasons that Netflix migrated to the cloud, scalability was another major factor in the switch. Streaming demand has increased by up to 50% in the holiday periods and this demand could not have possibly been met by using their company-owned data servers alone (Singh, pg.180).
Netflix’s Key Resources
Netflix must acquire and maintain a number of key resources, including licences for content, exclusive original content and the acquisition and use of high-quality media streaming infrastructure. Netflix utilises three Content Distribution Networks (CDNs); Akamai, LimeLight, and Level-3. These CDNs distribute the video and audio to Silverlight, Netflix’s outsourced media player (Adhikari, 2012). All of these outsourced media streaming programs communicate with Netflix’s servers in the AWS, but Netflix continues to use their own website IP and data servers to carry out the following:
- User registration
- Collection of payment information
- Redirect users to the Netflix app or a Signup page (varies based on if the user is registered or not)
In December, 2010 The FCC Open Internet Order was released as a measure to protect the open internet and provide defence against those who seek its corruption. These rules had a major impact on Netflix, cracking down on cable television and ISPs’ practices of slowing down or stopping traffic completely when they were visiting the websites of their competition, including Netflix. In Early 2014, it was discovered that Comcast Cable was throttling Netflix’s incoming traffic. This resulted in Netflix having to pay Comcast to increase the rate of traffic flow into their website.
Waves of outrage were expressed across most social media platforms upon the introduction of a bill to repeal Net Neutrality in America. Net Neutrality is the concept that use of the internet should be fair and equal, with every user receiving the same speeds and quality, promoting an open network design. The term ‘Net Neutrality’ was first used by Tim Wu in his article “Network Neutrality, Broadband Discrimination” (2003). Wu claimed that the concept of net neutrality should not involve bias of any sort (2003, pg. 142). If the bill to repeal net neutrality was passed it would mean that internet traffic could be directed to websites based on content bias, software bias, and payment bias. Netflix officially took the side of net neutrality in September, 2014 when they participated in the protest of changes to net neutrality laws, dubbed the ‘Internet Slowdown’. While most participating websites did not actually slow down their speeds, they did feature icons of the widely recognised ‘loading wheel’ icon (Menchie, 2014).
Netflix’s Logo from 2000 to 2014
As Netflix has grown in size, they began to create their own original content. To reduce costs in these endeavours, Netflix made an executive decision to keep their chain of production in-house, in a sense. A range of sibling companies of Netflix have been jumpstarted to carry out the needs of their expanding production chain.
These sibling companies include;
- Netflix Pte. Ltd.
- Netflix Services UK Limited
- Netflix Streaming Services International B.V.
- Netflix Streaming Services, Inc.
- Netflix Global, LLC
- Netflix Services Germany GmbH
- NetflixCS, Inc.
- Netflix Luxembourg S.a r.l.
- Netflix Studios
Netflix’s Business Model
Netflix focuses on four main customer segments that categorise the bulk of their users. These consist of a mass market of technologically connected users, avid television show waters, avid film watchers, and customers with preferences of convenience. Most customers will fit into multiple, if not all of the categories, but these defined segments allow Netflix to direct specific marketing efforts effectively while analysing their highest performing segments of their business.
How Does Netflix Keep Their Users Happy?
Due to Netflix’s service-based business model and emergence of more competitors, their key activities revolve largely around the continued satisfaction of their users. This includes engaging with users, analysing their viewing data, research and development, quality customer service and the postage of DVDs to customers who continue to use that service. By changing their business model from a physical pay-per-postal service to focus more on a digital subscription model, Netflix showcased their ability to adapt to new technologies and changing consumer needs. Although, while Netflix’s primarily focused product is their streaming service, over of three million users still utilise their DVD mail service.
Netflix engages with their audience in a number of ways that mostly come under what Alex Halavais identified as an ‘attention economy’ (2013). An ‘attention economy’ is the concept that people’s attention has been turned in to a commodity, to be accumulated and bought and sold is alluring to businesses with online operations (Halavais, 2013). Netflix utilises this concept by implementing an autoplay feature in their interface and offering recommendations to their users both on their website and through email notifications. These recommendations act as a convenience tool, enticing users to continue to use their service without having to filter through titles that they do not enjoy, posing the risk of them unsubscribing from the service.
Netflix’s $1million Algorithm
A key part of the success of these recommendations is the algorithm that makes decisions as to the content that users will enjoy the most. Netflix places a large amount of importance on the accuracy and effectiveness of their algorithm, going as far as to run a contest in 2006 for programmers to create an algorithm that was 10% more accurate than their existing one at the time, Cinematch. 100 million ratings were released to participants and with a prize of USD $1 million it is evident how much importance an accurate algorithm has for Netflix’s success (Bennett, 2007). It comes as no surprise that Netflix is so invested in an accurate rating system after one study found that 87% of French internet users responded that they ‘pay attention to reviews’ (Beuscart, 2016). This contest also showcases one way in which Netflix has conducted their research and development. While it is an unusual method, a contest of this nature enables Netflix to reach out to the best possible programmers that they can entice with such a large reward instead of limiting themselves to their in-house programmers.
Image of Netflix’s iPad Application.
Why is Netflix so Popular?
Netflix has utilised a range of mediums in which to offer platforms for their users to view the content offered to them. Their online streaming service is available on internet connected personal computers, smartphone devices, gaming consoles, and more recently users have been able to access Netflix on smart televisions. The ‘first mover’ edge that Netflix holds against its competition is evident in the widespread integration of Netflix in internet connected devices, with certain smart televisions even featuring an integrated ‘Netflix’ button on the remote for even more ease of accessibility (pictured below).
With almost 19 million app downloads on mobile devices in November, 2018, healthy relationships with Internet Providers and Consumer Electronic Companies are imperative to maintaining accessibility for all users to Netflix. This includes making the app accessible on respective app stores, and maintaining mobile data connection to the app itself. This has been failed in the past when in 2016, after efforts to expand their operations worldwide, one of Indonesia’s largest telecommunications company, Telekom, made the decision to block Netflix (Poulos, 2016). This is an example of how a bad relationship with an Internet Service provider can result in a major interference with user accessibility. The other important relationships Netflix upkeeps are those with Motion Picture Studios and Television Networks to acquire content licenses, preserving an enticing catalogue for their users.
The ‘Netflix’ Button on a Television Remote (Previously mentioned)
A Global, Internet-Connected Business
Netflix’s activity is complicated by differing customs, consumer wants/needs, and laws/regulations in the 190 countries that they operate in. The general regulatory freedom of Netflix’s operations has prompted individual governments to impose regulations as a condition for streaming services to operate in their country. While these regulations may set guidelines for Netflix’s actions, there was little to stop their users accessing content that they are not supposed to have access to. Each internet-connected device in use is identified by an Internet Protocol (IP) address. An IP address identifies important information about the device, including its location. Netflix was able to categorise content that they would make available to each user according to local regulations by using their IP address to identify the user’s location. Using a Virtual Private Network (VPN), users were able to change their IP address to trick Netflix’s website into recording a false location, meaning that they could access content that was not available in their country. Netflix eventually started to block the use of VPNs which resulted in users only having access to content available in their location.
Some of Netflix’s Run-ins with Regulations:
- The Indonesian Government ruled that Netflix would be required to situate an office in Indonesia and adhere to local tax laws. This comes after the aforementioned traffic block to Netflix by Indonesian Internet Provider, Telekom.
- In May of 2017, European Governments raised the percentage of local content that is required to be included in video streaming websites. It was ruled that video content created and sourced in Europe must make up 30% of the total content offered to European citizens (Kostaki, 2017)
- Netflix tackled the issue of Australians having certain content available to them later than other countries by appealing to the Australian Government in an effort to simplify the process of classification for Australian audiences. In December, 2016 the Australian Government announced a trial of a classification tool that would enable Australians to receive television shows in a timely manner. Seven months later, Australia introduced the ‘Netflix Tax’, adding a Goods and Services Tax to digital products (Dudley-Nicholson, 2017).
So… Will Netflix Replace Cable Television?
Video streaming services have shown immense potential for the future of the entertainment industry. In 2017 it was found that in the United States, Netflix had the same amount of subscribers as all cable television subscribers. This means that 73% of all US households are subscribed to Netflix, a number so high that it leads many to believe that they days of cable television are numbered. As the world becomes more technologically interconnected, industries must be able to facilitate the growth, or be left in the past.
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