Netflix: redefining an industry with instant streaming technology

by Leslie M
Leslie Murillo

IS 130

T/TH 9:30am

11/30/2010

Netflix is the world’s leading Internet subscription service for watching movies and TV shows.  It has successfully established itself as a popular entity in the video rental and entertainment industry.  Since its beginning in 1997, Netflix has evolved from offering DVD rentals by mail to developing software that allows subscribers to view movies and TV shows via the internet.  Today, Netflix’s success can be attributed to strategic innovation and a competitive advantage that involves streaming technology, a customized customer database, and electronic product partnerships.

With America’s demand for instant gratification, Netflix began to bundle online streaming with their DVD’s by mail subscription plans after years of software development in 2007.  Netflix went from being strictly mail based to integrating the internet and being “the biggest source of streaming web traffic in America. Netflix accounts for more than 20 percent of all Internet download traffic in North America during peak evening hours (Argango & Carr, 2010).  As subscribers grow accustomed to watching movies and TV online, Netflix “[hopes to gradually] wean people from DVDs” by continuing to entice customers with their streaming technology and inexpensive subscription plans (Liedtke, 2010).  In doing so, Netflix is beginning to mirror the newspaper and print industry by embracing future technology and gradually going digital.  Netflix’s customer volume is growing at the rate of 50 percent each year (Darlin, 2010). Netflix has over “17 million subscribers [that] watch more hours of Internet-streamed video each month than they do on the DVD’s they get through the mail” (Liedtke, 2010).  With convenience being a driving factor and important quality behind Netflix’s cutting edge streaming capabilities, its online catalog includes over 20,000 movies with new movies and television shows being added every month (Kopytoff, 2010).

With its success and a growing demand for improved quality streaming, Netflix has made numerous licensing agreements and partnerships with many lucrative electronic companies.  Today, you can find Netflix applications and ready to stream devices in gaming consoles, HDTV’s, mobile devices, Blu-ray players and home theater systems (“Netflix press kit”).  If you own a Nintendo Wii, Microsoft Xbox 360, Sony PlayStation 3, Blu-ray disc player, an Internet television from LG, Sony or Vizio, the Roku digital video player, TiVo digital video recorder or Apple’s iPad, then you can stream movies (Darlin, 2010). Netflix has made so many partnerships with electronic companies that it has become well integrated into growing list of over 100 electronic devices.  These devices connect to the Netflix website and movie database using broadband or high-speed internet connections and guide you step by step for quick and easy activation.

Netflix wants to retain customers and one of the ways they do that is by offering movie and TV show recommendations based on a customer’s preferences, tastes, and viewing patterns.  Netflix uses a database called CineMatch to extract three important sources of customer information.   Film genre, customer’s individual DVD rental history and online ratings, and the combined ratings of all Netflix users are used in determining what movies are recommended for each individual member (Wilson).  Rating movies is key.  The more movies you rate, the more customized and accurate your future TV and movie recommendations will be. The CineMatch database updates itself thousands of times each day due to the steady flow of people streaming and rating movies.  CineMatch can make “close to a billion total predictions [and movie suggestions] every day” (Wilson).  Recommendations are made mathematically using statistics gathered from every subscriber to run correlations and analyze movie rating patterns.  CineMatch uses its collaborative filtering system that takes“viewing and rating history [and compares it] with people who have similar histories” (Wilson).  Instead of matching an individual to a certain movie, it matches a movie with other movies. CineMatch, although not 100 percent accurate, offers a respectable amount of accuracy when recommending movies based on the ratings of other Netflix members with similar streaming and renting patterns.

Netflix is everywhere you look, whether you are streaming on your phone, pc, TV, or game console. Netflix has revolutionized the way Americans watch movies and television and have recently expanded and have began to offer internet streaming to Canada (“Netflix press kit”).  It has embraced changing times and has harnessed new technology in order to “keep their services simple, cheap, and convenient” (Darlin, 2010).  Although streaming is in its early phases in the industry, Netflix’s disruptive technology in digital innovation, electronic product partnerships, customer customizability, is credited for much of its success and growing popularity.


References

Argango, T., & Carr, D. (2010, November 24). Netflix’s move onto the web stirs rivalries. The New York Times. Retrieved from http://www.nytimes.com/2010/11/25/business/25netflix.html?src=me&ref=business

Darlin, D. (2010, August 7). Always pushing beyond the envelope. The New York Times. Retrieved from http://www.nytimes.com/2010/08/08/business/08every.html?_r=1&ref=netflix-inc

Kopytoff, V.G. (2010, September 26). Shifting online, Netflix faces new competition. The New York Times. Retrieved from http://www.nytimes.com/2010/09/27/technology/27netflix.html

Liedtke, M. (2010, November 22). Netflix expects video streaming to drown out DVDs. The New York Times. Retrieved from http://m.nctimes.com/mobile/article_2ec259ab-66dd-5c08-aa34-c785b6cd1aec.html

Netflix press kit. (n.d.). Retrieved from http://www.netflix.com/MediaCenter?id=5379

Wilson, T.V. (n.d.). How Netflix works: Netflix recommendations. How Stuff Works. Retrieved from http://electronics.howstuffworks.com/netflix2.htm