Netflix

Netflix Inc.

Type	Public
Traded as	NASDAQ: NFLX
Founded	August 29, 1997 (1997-08-29)[1] Scotts Valley, California, U.S.
Headquarters	Los Gatos, California, United States
Area served	Worldwide (except for China (though it is available in the special administrative regions), Crimea, North Korea and Syria)
Founder(s)	Reed Hastings Marc Randolph
Key people	Reed Hastings (CEO)
Industry	Internet
Products	Video streaming, online DVD and Blu-ray Disc rental
Revenue	US$6.77 billion (2015)[2]
Operating income	US$305 million (2015)[2]
Net income	US$122 million (2015)[2]
Total assets	US$10.20 billion (2015)[2]
Total equity	US$2.22 billion (2015)[2]
Employees	3,500 (2015)[2]
Website	www.netflix.com
Alexa rank	45 (January 2016)[3]
Registration	Required
Users	74 million (total) 44 million (United States)[4]
Current status	Active

Netflix is a global provider of streaming movies and TV series, and now has over 75 million subscribers.^[5] Netflix started as an American DVD-by-mail service in 1998, and began streaming in 2007.^[6] Netflix expanded with streaming to Canada in 2010^[7] and now serves over 190 countries^[8] with streaming. Netflix first big original series was House of Cards, which debuted in 2013, and Netflix now produces hundreds of hours of original programming around the world^[9]

The company was established in 1997 and is headquartered in Los Gatos, California.

On February 25, 2007, Netflix delivered its billionth DVD.^[10] In April 2011, Netflix had over 23 million subscribers in the United States and over 26 million worldwide.^[11] By 2011, the total digital revenue for Netflix reached at least $1.5 billion.^[12] On October 23, 2012, however, Netflix reported an 88% decline in third-quarter profits.^[13] In January 2013, Netflix reported that it had added two million U.S. customers during the fourth quarter of 2012 with a total of 27.1 million U.S. streaming customers, and 29.4 million total streaming customers. In addition, revenue was up 8% to $945 million for the same period.^[14]

As of mid-March 2013, Netflix had 33 million subscribers.^[15] That number increased to 36.3 million subscribers (29.2 million in the U.S.) in April 2013.^[16] As of September 2013, for that year's third quarter report, Netflix reported its total of global streaming subscribers at 40.4 million (31.2 million in the U.S.).^[17] By the fourth quarter of 2013, Netflix reported 33.1 million U.S. subscribers.^[18] By September 2014, Netflix had subscribers in over 40 countries, with intentions of expanding their services in unreached countries.^[19] As of October 2015, Netflix reported 69.17 million subscribers worldwide, including more than 43 million in the U.S.^[20] In January 2016, Netflix reported that it had 74 million subscribers, including 44 million in the U.S.^[4]

History

Netflix was founded in 1997 in Scotts Valley, California by Marc Randolph^[21][22] and Reed Hastings, who previously had worked together at Pure Software. Randolph was a co-founder of MicroWarehouse, a computer mail order company; and was later employed by Borland International as vice president of marketing. Hastings, who once worked as a math teacher, had founded Pure Software, which he had recently sold for $700 million. Hastings invested $2.5 million in startup cash for Netflix.^[23] Randolph initially had the idea to start a company that sold something over the Internet, but just didn't know what.^[24] The idea of Netflix came to Hastings when he was forced to pay $40 in overdue fines after returning Apollo 13 well past its due date.^[25] He also remained a producer and a member of the board of directors for a large period of time until finally retiring in 2004 from Netflix.^[26] The Netflix website was launched on April 14, 1998^[27] with only 30 employees and 925 works available for rent through a traditional pay-per-rental model (50¢US per rental U.S. postage; late fees applied).^[28] Netflix introduced the monthly subscription concept in September 1999,^[29] and then dropped the single-rental model in early 2000. Since that time, the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per title rental fees.

In 2000, Netflix was offered for acquisition to Blockbuster for $50 million; however, Blockbuster declined the offer.^[30] Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5.5 million 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. In 2005, 35,000 different film titles were available, and Netflix shipped 1 million DVDs out every day.^[31]

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%.^[32]

In February 2007, the company delivered its billionth DVD^[33] and began to move away from its original core business model of mailing DVDs by introducing video on demand via the Internet. Netflix grew as DVD sales fell from 2006 to 2011.^[34][35]

Netflix has played a prominent role in independent film distribution. Through the division 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.^[36] Netflix closed Red Envelope Entertainment in 2008, in part to avoid competition with its studio partners.^[37][38]

Netflix has been one of the most successful dot-com ventures. A September 2002 article from The New York Times said that at the time, that Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers.^[39] 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 to build online sales for DVD rentals. The company offers unlimited vacation time for salaried workers and allows employees to take any amount of their paychecks in stock options.^[40]

By 2010, Netflix's streaming business had grown so quickly that within months the company had shifted from the fastest-growing customer of the United States Postal Service's first-class mail service to the biggest source of Internet traffic in North America in the evening. In November of that year, it began offering a standalone streaming service separate from DVD rentals.^[41] On September 18, 2011, Netflix announced its intentions to rebrand and restructure its DVD home media rental service as an independent subsidiary company called Qwikster, totally separating the DVD rental and streaming services.^[42][43][44] Andy Rendich, a 12-year veteran of Netflix, would have been appointed the CEO of Qwikster. The new service would carry video games whereas Netflix did not.^[45] However, 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.^[46]

On October 24, 2011, Netflix announced it lost 800,000 subscribers in the U.S. during the third quarter of 2011 and more subscriber losses were expected in the fourth quarter of 2011. Despite the losses, earnings for Netflix jumped 63 percent for the third quarter of 2011.^[47][48] On January 26, 2012, Netflix said it added 610,000 subscribers in the U.S. by the end of the fourth quarter of 2011, totaling 24.4 million U.S. subscribers for this time period.^[49]

In April 2012, Netflix filed with the Federal Election Commission (FEC) to form a political action committee (PAC) called FLIXPAC.^[50] Politico referred to the Los Gatos, California-based PAC as "another political tool with which to aggressively press a pro-intellectual property, anti-video-piracy agenda."^[50] The hacktivist group Anonymous called for a boycott of Netflix following the news.^[51] Netflix spokesperson Joris Evers indicated that the PAC was not set up to support the Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA), tweeting that the intent was to "engage on issues like net neutrality, bandwidth caps, UBB and VPPA."^[52][53]

On December 24, 2012, at around 1:00 p.m. Eastern Time, a number of Amazon Web Services servers crashed, affecting numerous services including Netflix "instant streaming". The outage lasted more than 20 hours.^[54][55]

In February 2013, Netflix announced it would be hosting its own awards ceremony, The Flixies.^[56] On March 13, 2013, Netflix announced it would add a Facebook sharing feature to the Netflix interface, letting subscribers in the U.S. see lists of content "Watched by your friends" and "Friends' Favorites" once they agree to share.^[57] This was not legal until the 1988 Video Privacy Protection Act was modified at the beginning of 2013.^[58]

In April 2014, Netflix approached 50 million global subscribers with a 32.3% video streaming market share in the United States. Netflix operates in a total of 41 countries around the world.^[59] In June 2014, Netflix unveiled a redesigned version of its logo (using a modified typeface, and removing the drop shadowing and red background of the previous logo) and website UI. The change was controversial; some liked the new minimalist design, whereas others felt more comfortable with the old interface.^[60] In July 2014, Netflix surpassed 50 million global subscribers, with 36 million of them being in the United States.^[61]

First news coming from the company's first quarter earnings report for 2015. Netflix's market value now stands at $32.9 billion; a number that exceeds the $30.6 billion value of the CBS network. According to a breakdown of the recent Q1 report from Deadline, the early part of 2015 has been more than good to Netflix. The company's stock saw a 14.7% rise that cumulatively added $4.2 billion, bringing their market value to that $32.9 billion figure.^[62]

On July 14, 2015, at the close of trading, Netflix did a 7-for-1 stock split by giving all shareholders an additional six shares of stock, effectively dropping the stock price to $100.^[63]

Services

Netflix is a subscription-based film and television program rental service that offers media to subscribers via Internet streaming and via US mail.

Internet video streaming

In addition to its disc-rental service, Netflix separately offers an Internet video-streaming service which gives Internet-connected devices access to Netflix's library of online content, and allows numerous individuals to take advantage of one individual's subscription by insuring they login to their subscribing profile while on the non-subscriber's computer. The two libraries differ markedly, with the disc library having more film titles available,^[64] while the streaming library has more Netflix original content. According to a 2013 report by Sandvine, Netflix is the biggest source of North American downstream web-traffic, at 32.3%, and registered 28.8% of aggregate traffic.^[65]

When the streaming service first launched, Netflix's traditional rental-disc subscribers were given access at no additional charge. Subscribers were allowed approximately one hour of streaming per dollar spent on the monthly subscription (a $16.99 plan, for example, entitled the subscriber to 17 hours of streaming media).

In January 2008, however, Netflix lifted this restriction, at which point virtually all rental-disc subscribers became entitled to unlimited streaming at no additional cost (however, subscribers on the restricted plan of two DVDs per month ($4.99) remained limited to two hours of streaming per month). This change came in a response to the introduction of Hulu and to Apple's new video-rental services.^[66] Subsequently, as it became clear that the disc-rental and Internet streaming markets were distinct, Netflix split DVD rental subscriptions and streaming subscriptions into separate, standalone services, at which point the monthly caps on Internet streaming were lifted.^[67] Currently, Netflix's Internet video streaming subscription rates range from $7.99 to $11.99 a month, including a free one-month trial.

Until October 10, 2014, Netflix did not officially 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.^[68] Netflix does support the Android operating system, which uses a forked version of the Linux kernel. There is an unofficial Netflix app based on Wine that allows users to watch Netflix's streaming content on Linux without installing Windows in a virtual machine. Pipelight, an add-on for Firefox based on the Netflix-Desktop project, allows Netflix playback through Linux Native web browsers by connecting to the Silverlight plug-in running on a Wine base.^[69] However, on October 10, 2014 the required DRM plugins to play Netflix's HTML 5 videos became available for Chrome users running Ubuntu 12.04 or 14.04.^[70] Maximum HD resolution via Google Chrome is 720p.^[71]

According to a survey by Nielsen in July 2011, 42% of all Netflix users make use of a stand-alone computer to connect to the service, 25% do so by using the Wii, 14% by connecting their computers to a television set, 13% make use of a PlayStation 3 and 12% use an Xbox 360.^[72] 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 accesses the Internet through a U.S.-based router-connection will see the selection available to U.S. users.

History

On October 1, 2008, Netflix announced a partnership with Starz Entertainment to bring more than 2,500 new films and television shows to "Watch Instantly" as part of a service called Starz Play.^[73]

In August 2010, Netflix reached a five-year deal worth nearly $1 billion to stream films from Paramount Pictures, Lions Gate Entertainment and Metro-Goldwyn-Mayer. The deal increased the amount Netflix was spending on streaming films annually, adding roughly $200 million per year. It spent $117 million in the first six months of 2010 on streaming, up from $31 million in 2009.^[74]

On July 12, 2011, Netflix announced that it would separate its existing subscription plans into two separate plans: one covering the instant streaming and the other DVD rental services.^[75] The cost for streaming would be $7.99 per month, while DVD rental would start at the same price. The announcement led to a flurry of negative reception amongst Netflix's Facebook followers, who posted negative comments on the company's wall.^[76] Twitter comments also spiked a "Dear Netflix" trend with generally negative comments.^[76] 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."^[75]

In a reversal, Netflix announced in October 2011 that its streaming and DVD-rental plans would remain together under the Netflix brand.^[77]

On September 1, 2011, Starz announced it would remove its films from Netflix streaming on February 28, 2012. Since the agreement was strictly for streaming film titles, DVD rentals through Netflix were not affected.^[78] However, around that same time, it was announced that Netflix would, in 2013, assume the pay-TV rights to films from DreamWorks Animation (those output rights were then held by HBO).

Disc rental

In the United States, the company provides a monthly flat-fee service for the rental of DVD and Blu-ray Discs. A subscriber creates an ordered list, called a rental queue, of films to rent. The films are delivered individually via the United States Postal Service from an array of regional warehouses. As of March 28, 2011, Netflix had 58 shipping locations throughout the U.S.^[79] The subscriber can keep the rented disc as long as desired, but there is a limit on the number of discs (determined by subscription level) that each subscriber can have on loan simultaneously. To rent a new film, the subscriber must mail the previous one back to Netflix in a metered reply mail envelope. Upon receipt of the disc, Netflix ships the next available disc in the subscriber's rental queue.

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. On November 21, 2008, Netflix began offering its subscribers access to Blu-ray Discs for an additional fee. In addition to its film rental service, Netflix formerly sold used discs. 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.^[80]

On January 6, 2010, Netflix reached an agreement with Warner Bros. Pictures to delay rentals of new releases for 28 days from their retail release, in an attempt to help studios sell more physical media at retail outlets. Similar deals with Universal Studios and 20th Century Fox were reached on April 9, 2010.^[81][82][83] In 2011, Netflix split its service pricing so that customers can decide whether they want to pay for online streams, access to DVDs by mail, or both. Currently, Netflix's disc rental subscription rates range from $7.99 to $19.99 a month, including a free one-month trial and unlimited exchanges of DVDs.

Qwikster

On September 18, 2011, Netflix CEO and Co-Founder Hastings said in a Netflix blog post that the DVD section of Netflix would be split off and renamed Qwikster, and the only major change would be separate websites for the services.^[84] The new service was to also carry video games for an additional charge, whereas the previous Netflix did not.^[45] 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, Hastings cancelled the planned Qwikster service and said the DVD-by-mail service would remain a part of Netflix.^[85]

Profiles

In June 2008, Netflix announced plans to eliminate its online subscriber profile feature.^[86] Profiles allow one subscriber account to contain multiple users (for example, a couple, two roommates, or parent and child) with separate DVD queues, ratings, recommendations, friend lists, reviews, and intra-site communications for each. Netflix contended that elimination of profiles would improve the customer experience.^[87] However, likely as a result of negative reviews and reaction by Netflix users,^[88][89][90] Netflix reversed its decision to remove profiles 11 days after the announcement.^[91] In announcing the reinstatement of profiles, Netflix defended its original decision, stating, "Because of an ongoing desire to make our website easier to use, we believed taking a feature away that is only used by a very small minority would help us improve the site for everyone," then explained its reversal: "Listening to our members, we realized that users of this feature often describe it as an essential part of their Netflix experience. Simplicity is only one virtue and it can certainly be outweighed by utility."^[92]

Five profiles

Netflix introduced a "Profiles" feature on August 1, 2013 that permits accounts to accommodate up to five unique user profiles, associated either with individuals or themes of their choosing (e.g., "Date Night"). "Profiles" effectively segregates the viewing habits of each profile category (e.g., family member) so that each profile will receive individualized suggestions and the ability to add its own favorite titles. This is important, according to Todd Yellin, Netflix's vice president of product innovation, because, "About 75 percent to 80 percent of what people watch on Netflix comes from what Netflix recommends, not from what people search for".^[93] Moreover, Mike McGuire, a vice president at Gartner, said: "profiles will give Netflix even more detailed information about its subscribers and their viewing habits, allowing the company to make better decisions about what movies and TV shows to offer".^[93] Additionally, the profiles feature lets users link their Facebook accounts, and thus share their individual viewing history and receive recommendations from friends.^[93][94] (Netflix added Facebook integration in March after lobbying Congress to change an old video law.^[94]) Neil Hunt, Netflix's chief product officer, told CNNMoney: "profiles are another way to stand out in the crowded streaming-video space", and, "The company said focus-group testing showed that profiles generate more viewing and more engagement".^[95]

Hunt says Netflix may link profiles to specific devices, in time, so a subscriber can skip the step of launching a specific profile each time s/he logs into Netflix on a given device.^[96]

Critics of the feature have noted:

• New profiles are created as "blank slates",^[96] but the viewing history prior to the creation of new, unique profiles stays with the main profile.^[97]
• People don't always watch Netflix alone, and shows watched from a profile that accommodate one's viewing partner(s) – whose tastes may not reflect those of the profile owner(s) – affect recommendations made to that profile^[95][96][97]

In response to both concerns, however, users can refine future recommendations for a given profile by rating the shows watched and by their ongoing viewing habits.^[96][97]

Products

Netflix revealed a prototype of the new device called "The Switch" at the 2015 World Maker Faire New York. "The Switch" allows Netflix users to turn off lights when connected to a smart home light system. It also connects to users' local networks to enable their servers to order takeout, and silence ones phone at the press of a button. Though the device hasn't been patented Netflix released instructions, on their website, on how to build it at home (DIY). The instructions cover both the electrical structure and the programming processes.^[98][99]

Programming

Original programming

In March 2011, Netflix began acquiring original content for its popular subscription streaming service, beginning with the hour-long political drama House of Cards, which debuted on the streaming service in February 2013. The series was produced by David Fincher, and stars Kevin Spacey.^[100] In late 2011, Netflix picked up two eight-episode seasons of Lilyhammer and a fourth season of the former Fox sitcom Arrested Development.^[101][102] Netflix announced that it would release the supernatural drama series Hemlock Grove in early 2013.^[103] In February 2013, DreamWorks Animation and Netflix agreed to produce a new animated series called Turbo FAST, based on the movie Turbo, which premiered in July of that year.^[104][105] In March 2013, Netflix announced it signed on The Wachowskis and J. Michael Straczynski to write and executive produce their new scifi series, Sense8.^[106] It debuted on June 5, 2015.

House of Cards, Lilyhammer, Hemlock Grove and Orange Is the New Black were each renewed for an additional season, with scheduled 2014 returns.^[107] In mid-2013, Netflix revealed that it holds the option to produce another season of Arrested Development, but a confirmed schedule was not released.^[108]

In November 2013, Netflix and Marvel Television (a subsidiary of The Walt Disney Company) announced a five-season deal to produce live action series focused on four Marvel superheroes: Daredevil, Jessica Jones, Iron Fist and Luke Cage. The deal involves the release of four 13-episode seasons that culminate in a mini-series called The Defenders. The programs are planned for a 2015 debut.^{[109][110][111]} In addition to the Marvel Television deal with Netflix, The Walt Disney Company announced that the television series Star Wars: The Clone Wars would release its sixth and final season exclusively on Netflix, as well as all five prior seasons and the Clone Wars feature film. The new content was released on Netflix's streaming service on March 7, 2014.^[112]

In February 2014, just after the second season of House of Cards was released, it was renewed for a third season, scheduled to Release in 2015.^[113]

In April 2014, Netflix signed Arrested Development creator Mitch Hurwitz and his production firm The Hurwitz Company to a multi-year deal to create original projects for the service.^[114]

In May 2014, Netflix announced a third season of Orange Is the New Black to be released on its service in 2015.^[115]

It was announced by Netflix that season 3 would have an international release date of June 12.^[116]

In September 2014, Netflix beat out Amazon Prime and Hulu for the rights to Love, a new romantic-comedy series from Judd Apatow, Leslie Arfin, and Paul Rust (who will star alongside Gillian Jacobs). It also announced that Hemlock Grove was renewed for a third and final season, released in October 2015.^[117]

On November 19, 2014, it was announced that Longmire will release a ten-episode fourth season in 2015.^[118]

Netflix will create local productions in Japan, in a partnership with Yoshimoto Kogyo.^[119]

Film and television library

Netflix currently has exclusive "pay TV window" deals with major and mini-major studios (the "pay TV" deals in essence, give Netflix exclusive streaming rights and are not distinct from the distribution rights held by traditional pay television services, which are also effectively prohibited from obtaining first-run linear television rights with these deals). As of 2014, films featured on "Watch Instantly" service in the United States include recent releases from Relativity Media (and its subsidiary Rogue Pictures),^[120] as well as titles from DreamWorks Animation (DreamWorks Animation began streaming its films in 2013 after the expiration of HBO's previous deal with the studio),^[121] Open Road Films^[122] (Netflix's contract with Open Road Films will expire after 2016, at which time Showtime will assume pay television rights^[123]), FilmDistrict,^[124] The Weinstein Company,^[125][126] Sony Pictures Animation,^[127] and Walt Disney Studios Motion Pictures (including Walt Disney Pictures, Walt Disney Animation Studios, Disneynature, Pixar, Lucasfilm and Marvel Studios), among others.

Epix (one of the first traditional pay television channels to launch a Netflix-style streaming service) signed a five-year streaming deal with Netflix in which for the first two years, first-run as well as back catalog content from Epix was exclusive to Netflix (Epix films will come to Netflix 90 days after they premiere on Epix. The exclusivity clause ended on September 4, 2012, when Amazon signed a deal with Epix to distribute its rights to its Amazon Video streaming service.^[128] These include films from Paramount Pictures, Metro-Goldwyn-Mayer and Lionsgate).^[129][130]

On September 1, 2011, Starz ceased talks with Netflix to renew its streaming deal. As a result, Starz's library of films and series were removed from the Netflix streaming service on February 28, 2012. Titles that are available on DVD were not affected and can be acquired from Netflix by this method.^[131] However, select films that have previously been seen on Starz continue to be available on Netflix under license from their respective television distributors. For instance, certain Revolution Studios films shown on Netflix are under license from Lionsgate/Debmar-Mercury. Netflix can also negotiate to distribute animated films from Universal Studios that HBO declines to acquire rights, such as The Lorax and ParaNorman.^[132]

Netflix's "Watch Instantly" also holds rights to back-catalog titles to films from among other distributors, Warner Bros., Universal Pictures, Sony Pictures Entertainment, 20th Century Fox, and Walt Disney Studios Motion Pictures. Netflix also holds current and back-catalog rights to television programs under license by Disney–ABC Television Group, DreamWorks Classics, Kino International, Warner Bros. Television, 20th Television, Hasbro Studios, Saban Brands and CBS Television Distribution. The streaming service also held current and back-catalog rights to television programs distributed by NBCUniversal Television Distribution, 20th Century Fox Television, Sony Pictures Television, as well as select shows from Warner Bros. Television. Netflix also previously held the rights to select titles from the Criterion Collection, but those were pulled from the streaming library when Criterion titles were added to Hulu's Hulu Plus streaming library.^[133]

On August 23, 2012, Netflix and The Weinstein Company signed a multi-year output deal for releases from Weinstein's RADiUS-TWC unit.^[134] On December 4, 2012, Netflix and The Walt Disney Company announced an exclusive multi-year agreement for the first-run U.S. subscription television rights to Walt Disney Studios' animated and live-action films. New titles from Walt Disney Pictures, Walt Disney Animation Studios, Pixar, Marvel Studios and Disneynature will be available on Netflix beginning in 2016 (assuming the rights from Starz, making Disney the first major film studio not to distribute its films via a traditional pay television service). However, classic titles such as Dumbo, Pocahontas, and Alice in Wonderland immediately became available on the service.^[135] Direct-to-video new releases were made available in 2013.^[136][137]

On January 14, 2013, Netflix signed an agreement with Time Warner subsidiaries Turner Broadcasting System and Warner Bros. Television to distribute content from Cartoon Network, Warner Bros. Animation, and Adult Swim, as well as TNT's revival of the drama Dallas beginning in March 2013. The streaming rights to Cartoon Network and Adult Swim programs came not long after the expiration of Viacom's rights deal to allow Netflix access to stream programs from Nickelodeon and Nick Jr. (which were subsequently assumed by Amazon Video).^[138]

In Canada, Netflix has pay TV rights (approximately eight months after theatrical release) to films from Paramount, DreamWorks Animation and 20th Century Fox. In 2015, it will assume pay TV rights to films from Disney (including Disney Live Action, Disneynature, DreamWorks Studios, Lucasfilm, Marvel, Pixar, and Walt Disney Animation Studios) which are currently held by The Movie Network/Movie Central.^[139]

In December 2013, Netflix acquired the exclusive rights to stream the anime series Knights of Sidonia in all its territories outside Japan.^[140] The entire first season was released on Netflix one week after ending its run in Japan on July 4, 2014 and the second season was released on July 3, 2015 in the same fashion.

On September 30, 2014, Netflix announced they would be producing and releasing their first original film: the sequel to Crouching Tiger, Hidden Dragon, entitled The Green Legend. It is scheduled for simultaneous Netflix and theatrical release on August 28, 2015.^[141] On October 15, 2014, Netflix announced that will begin streaming the complete series of Friends in high-definition, beginning on January 1, 2015.^[142]

Opinion web blogger Felix Salmon wrote that by 2014, Netflix couldn't "afford the content that its subscribers most want to watch"^[143] and lost several contracts for streaming movies, to the point where, according to journalist Megan McArdle, "its movie library is no longer actually a good substitute for a good movie rental place".^[144]

In September 2015, it was announced that Netfix will stream the anime series Ajin: Demi-Human, each episode being released three days after its original broadcast in Japan, while the series will be released in other territories in mid 2016.^[145]

Sales and marketing

Netflix.com attracted at least 194 million visitors annually by 2008, according to a Compete.com survey. This is about five times the number of visitors to Blockbuster.com.^[146]

During the first quarter of 2011, sales and rentals of packaged DVDs and Blu-ray Discs plunged about 20%, and the sell-through of packaged discs fell 19.99% to $2.07 billion, with more money spent on subscription rentals than in-store rentals.^[147]

In July 2012, Netflix hired Kelly Bennett – who had previously been at Warner Bros. for almost a decade as the Vice President of Interactive, Worldwide Marketing – to become its new chief marketing officer. This also filled a vacancy at Netflix that had been empty for over six months when their previous CMO Leslie Kilgore left in January 2012.^[148]

International expansion

2010: Canada

The company first began offering instant streaming service to the international market on September 22, 2010 to Canada. At the time, Canadians could subscribe to Netflix for $7.99 a month, a rate that CEO Hastings called, "the lowest, most aggressive price we've ever had anywhere in the world."^[149] However, despite the proclaimed low price, content selection in Canada was extremely limited. In 2012, data conducted by Josh Loewen for Canadian Business Online found that in the United States there were 10,625 unique titles in Netflix's library, whereas in Canada there were only 2,647.^[150] This could be blamed on differences in distribution deals in the United States and Canada. It is important to point out that from its beginning, Canadian Netflix has offered content not available in the United States. For example, a short-lived Fox sitcom, Running Wilde starring Keri Russell and Will Arnett, began streaming on Canadian Netflix the same day it began airing in the United States on network television. The show streamed on Canadian Netflix because there was no Canadian broadcast partner, but was not available on US Netflix – becoming deemed a "Canada-only exclusive".^[149] Still, regardless of a limited streaming selection, it took the company less than a year to reach one million subscribers,^[151] approximately three percent of Canada's population. Further, as of February 2014, there were approximately 5.8 million Canadians using Netflix, or 29% of Canada's English speaking population. This number represents an increase in Canadian users by approximately 40% since 2012.^[152]

2011: Latin America, Central America and Caribbean

On July 5, 2011, Netflix announced its plans to launch streaming service in Latin America,^[153] its largest expansion to date. At the time, Netflix had 23 million subscribers in the US and Canada.^[154] Entering the Latin American market meant Netflix had access to approximately 600 million people, or twice the number of people living in the United States.^[155] Although high speed internet in Latin America is not as accessible as it in the United States and Canada, upon the announcement of its expansion to Latin America, Netflix stock immediately surged 8%, bringing the company to a record share price of $291.^[154]

Beginning in September 2011, the company began its expansion to 43 countries and territories in Central and South America, as well as the Caribbean, offering content in English, Spanish, and Portuguese. Brazil became the first country in Latin America to launch the service on September 5. There the service was offered at $BR14.99 or approximately $9.10 per month, making it more expensive than in the United States and Canada.^[156] Rounding out the first five countries to launch streaming service in Latin America were Argentina, which followed on the 7th, Chile on the 8th, Colombia on the 9th, and Mexico on the 12th. Service spread to the other 38 countries in the following weeks. Among the content distributed to Latin America was programming from CBS, Miramax, and Showtime.

The launch in Latin America was not as successful as the company had hoped. While in Latin America, Netflix had no streaming competitors as it did in Canada, the digital divide (a lack of high broadband internet penetration) hindered rapid growth.^[157] In Brazil, for example, only 20% of the population had an internet speed greater than 500 kB/s a second; 800 kB/s a second are needed to stream Netflix's content.^[158] Furthermore, the lack of competitors in some ways slowed growth as well. Whereas in Canada new subscribers had been exposed to streaming content by other companies, the concept was newer to a wide Latin American audience, making some skeptical of the prospect.^[157] A banking system unused to recurrent monthly transactions exacerbated the problem. Still, while Latin American expansion happened more slowly than expected, Netflix was not out anything for the expansion and their Canadian expansion happened at a faster rate than expected, making their first two forays into the international market fairly successful. Additionally, despite the hindrances to growth in Latin America, Netflix continued in pursuit of content expansion, signing a deal with Fox in May 2012 (for a July 15 start) to make its popular content (e.g., How I Met Your Mother, Glee, Bones, The X-Files, Wall Street) available in the region.^[158]

The 2011 controversy

The initial launches in Canada and in Latin America happened (albeit barely) before Netflix's 2011 controversy in the United States. In September of that year, the company decided to switch to two separate plans (one for streaming and one for DVD), hiked its prices accordingly, and attempted a move to two websites (one for streaming and one for DVD rentals). The change to its business model was accompanied by a loss of approximately one million American users and a plunging stock price. Prior to announcing the change to service stock was valued at just around $300, after the price it plunged to less than $53 a share.^[159] Prior to this debacle, Netflix had been having its most successful quarter, mainly due to the decision to expand to Latin America. The company quickly lost all the money it made in the quarter it announced growth to Latin America, was forced to apologize, and rethink its changing model.^[159]

Bringing people back to Netflix after the 2011 snafu came in two forms.^[159] First, it began work on producing its own original content – announcing its adaptation of House of Cards in 2011 for a 2013 air date and its revival of Arrested Development in 2012 for a 2013 air date. Second, it continued international expansion – the originals were able to travel alongside its international expansion since Netflix, for the most part, retained complete control of their shows' distribution rights.

2012: UK and Scandinavia

Netflix started its expansion to Europe in 2012, launching in the United Kingdom and Ireland on January 4.^[160] By September 18 it had expanded to Denmark, Finland, Norway and Sweden.^[161]

According to Christof Baron, CEO of the international marketing group Mindshare, Netflix developed a strategy for its international expansion, "They start with a limited offer which doesn't cost them very much money and minimizes the risk. Then they collect very detailed data about what people like, and structure programming and investment around consumer behavior."^[162] This accounts for cultural taste differences and allows distribution deals to develop accordingly. By September 2013, Netflix had added content from Channel 4, ITV and the BBC.^[163]

Netflix UK and Ireland reached its millionth subscriber faster than Netflix Canada, nabbing its millionth member by July 2012.^[164] In the UK, BARB (Broadcasters Audience Research Board) reported Netflix as being extremely successful in the UK market. More than one in ten households in the country subscribed to the service by 2014.^[165] More than twice as many people subscribed to Netflix than to Amazon Prime. As of the fall of 2014, Netflix had three million UK subscribers which was more twice as many as it had in 2013.^[162]

2013: Netherlands

Following the United Kingdom and Scandinavia, the next country in Europe to receive Netflix service was The Netherlands, on September 11, 2013. The Netherlands was the only country that Netflix expanded to in 2013, though, as the company decided to slow expansion in order to control subscription costs.^[166] The company spent $3 billion on subscription content that year.^[166] Kelly Merryman, the company's Vice President of Content Acquisition, revealed that shows that performed well on BitTorrent networks and other pirate sites were more likely to be offered as part of the expansion. Netflix's CEO further explained that illegal downloading helps to create demand, as users may switch to legal services for an improved user experience.^[167][168]

In the final quarter of 2013, Netflix gained more new subscribers from its pool of countries than it did from the United States for the first time since it began its European expansion, making international expansion increasingly important. As media analyst Anthony Wible has been quoted as saying, "There are only so many people in the United States. The rest of the world is far bigger and the addition of domestic subscribers will start to slow down at some point."^[169] At the end of 2013, the company had reached approximately 32 million users in the United States and had additionally had approximately 10 million users internationally.^[162]

2014: Further European expansion

By September 19, 2014, the service was also available in Austria, Belgium, France, Germany, Luxembourg, and Switzerland.^[170] While reception throughout the rest of Europe was relatively warm, it was fairly hostile in France because of fears that the launch of Netflix would begin to ruin the country's "cultural exception" – its focus on culturally specific media. This led to Netflix's decision to create a series called Marseille, essentially a remake of its hit series House of Cards within a French context and one of the company's first non-English language shows.^[162]

Prior to its international expansion in 2010, Netflix's subscriber base grew on average by 2.4 million people a year. Following its arrival in Canada, Latin America, and eventually Europe, its subscriber base has grown on average by 7 million people a year,^[171] making international expansion key to Netflix's continued growth in the global marketplace. Notably, the company has over 20 original shows planned for release in 2015 and 2016. In that bunch are Netflix's first non-English language series.

In 2013, Forbes magazine estimated that international streaming accounted for 15% of the company's value. Netflix has subscribed approximately 30% of households in the United States.^[172] If able to replicate that in the United Kingdom and Scandinavia alone the company would add 12 million users.^[172]

2015: Australia, New Zealand, Japan and China

Expansion to Australia and New Zealand occurred on 24 March 2015.^[173][174] On February 4, 2015, expansion to Japan was announced to begin during the fall of 2015.^[175]

In May 2015, Netflix revealed it was in talks with Jack Ma's Wasu Media Holding and other partners to enter China's online video market.^[176]

Third European expansion: Italy, Portugal and Spain

On June 6, 2015, Reed Hastings announced, in an interview with the Portuguese newspaper Expresso, that Netflix would enter the Italian, Portuguese, and Spanish markets in October, and that it would install its Southern Europe support center (which will cover the previous three markets plus France) in Lisbon, Portugal.^[177]

2015-16: Further expansion into Asia and the Consumer Electronics Show announcement

On September 9, 2015, Netflix announced that it would be continuing its expansion into Asia by launching in Hong Kong, Singapore, South Korea, and Taiwan in early 2016, and the Philippines and Southeast Asia in the near future.^[178]

On January 6, 2016 at Consumer Electronics Show, Netflix announced a major international expansion into 130 new territories; with this expansion, the company promoted that its service would now be available nearly "worldwide", with the only notable exclusions including China, and regions subject to U.S. sanctions, such as Crimea (Ukraine), Syria, and North Korea. The company also announced a partnership with LG to market pre-paid services in Asia, Europe, and the Middle East.^{[179][180][181][182][183]}

Hastings stated that any potential expansion into China could take "many years", owing to the tightly regulated state of the internet and media industries in the country. While the company admitted that some of its original productions (such as Crouching Tiger, Hidden Dragon: Sword of Destiny) were meant to appeal to a potential Chinese audience, Hastings stated that the company was in the process of building relationships with local partners that it could possibly form a joint venture with.^[184]

Competitors

Netflix's success was followed by the establishment of numerous other DVD rental companies, both in the United States and abroad. Walmart began an online rental service in October 2002 but left the market in May 2005. However, Walmart later acquired the rental service Vudu, in 2010.^[185]

Blockbuster Video entered the U.S. online market in August 2004, with a US$19.95 monthly subscription service. This sparked a price war; Netflix had raised its popular three-disc plan from US$19.95 to US$21.99 just prior to Blockbuster's launch, but by October, Netflix reduced this fee to US$17.99. Blockbuster responded with rates as low as US$14.99 for a time, but, by August 2005, both companies settled at identical rates.^[186] On July 22, 2007, Netflix dropped the prices of its two most popular plans by US$1.00 in an effort to better compete with Blockbuster's online-only offerings.^[187] On October 4, 2012, Dish Network scrapped plans to make Blockbuster into a Netflix competitor.^[188] (Dish bought the ailing Blockbuster, LLC in 2011 and will continue to license the brand name to franchise locations, and keep its "Blockbuster on Demand" video streaming service open.)^[189]

In 2005, Netflix cited as a potential competitor Amazon.com,^[190] which until 2008, offered online video rentals in the United Kingdom and Germany. This arm of the business was eventually sold to LoveFilm; however, Amazon then bought LoveFilm in 2011.^[191] In addition, Amazon now streams movies and television shows through Amazon Video (formerly Amazon Video On Demand and LOVEFiLM Instant).^[192]

Redbox is another competitor that uses a kiosk approach: Rather than mailing DVDs, customers pick up and return DVDs at self-service kiosks located in metropolitan areas. In September 2012, Coinstar, the owners of Redbox, announced plans to partner with Verizon to launch Redbox Instant by Verizon by late 2012.^[193] In early 2013, Redbox Instant by Verizon began a limited beta release of its service,^[194] which was described by critics as "No netflix killer"^[195] due to "glitches [and] lackluster selection."^[196]

CuriosityStream, a premium ad-free, subscription-based service launched in March 2015 similar to Netflix but offering strictly nonfiction content in the areas of science, technology, civilization and the human spirit, has been dubbed the "new Netflix for non-fiction".^[197]

Hulu Plus, like Netflix and Amazon Prime Instant Video, "ink[s] their own deals for exclusive and original content", requiring Netflix "not only to continue to attract new subscribers, but also keep existing ones happy."^[198]

Netflix and Blockbuster largely avoid offering pornography, but several "adult video" subscription services were inspired by Netflix, such as SugarDVD and WantedList.^[199][200]

In Australia, Netflix competes with several local streaming companies including Foxtel/Seven West Media joint venture Presto, Nine Entertainment Co./Fairfax Media joint venture Stan and Quickflix. In Scandinavia, Netflix competes with Viaplay, HBO Nordic and CMore Play. In Southeast Asia, Netflix competes with Astro On the Go, Sky on Demand, Singtel TV, HomeCable OnDemand, and iflix.^[201] In New Zealand, Netflix competes with local streaming companies including Television New Zealand (TVNZ), Mediaworks New Zealand, Sky Network Television, Lightbox, Neon and Quickflix. In Italy, Netflix only competes with Infinity (Mediaset), Sky Online and TIMvision. In South Africa, Netflix competes with ShowMax.^[202]

Awards

On July 18, 2013, Netflix earned the first Primetime Emmy Award nominations for original online-only web television programs at the 65th Primetime Emmy Awards. Three of its web series, Arrested Development, Hemlock Grove and House of Cards, earned a combined 14 nominations (nine for House of Cards, three for Arrested Development and two for Hemlock Grove).^[203] The House of Cards episode "Chapter 1" received four nominations for both the 65th Primetime Emmy Awards and 65th Primetime Creative Arts Emmy Awards, becoming the first webisode of a television series to receive a major Primetime Emmy Award nomination: David Fincher was nominated in the category of Outstanding Directing for a Drama Series.^[203][204] "Chapter 1" joined Arrested Development's "Flight of the Phoenix" and Hemlock Grove's "Children of the Night" as the first webisodes to earn Creative Arts Emmy Award nomination, and with its win for Outstanding Cinematography for a Single-Camera Series, "Chapter 1" became the first webisode to be awarded an Emmy.^[205][206] Fincher's win for Directing for a Drama Series made the episode the first Primetime Emmy-awarded webisode.^[207]

On December 12, 2013, the network earned six Golden Globe Award nominations, including four for House of Cards.^[208] Among those nominations was Wright for Golden Globe Award for Best Actress – Television Series Drama for her portrayal of Claire Underwood, which she won at the 71st Golden Globe Awards on January 12. With the accolade, Wright became the first actress to win a Golden Globe for an online-only web television series. It also marked Netflix' first major acting award.^{[209][210][211]} House of Cards and Orange is the New Black also won Peabody Awards in 2013.^[212]

On July 10, 2014, Netflix received 31 Emmy nominations. Among other nominations, House of Cards received nominations for Outstanding Drama Series, Outstanding Directing in a Drama Series and Outstanding Writing in a Drama Series. Kevin Spacey and Robin Wright were nominated for Outstanding Lead Actor and Outstanding Lead Actress in a Drama Series. Orange is the New Black was nominated in the comedy categories, earning nominations for Outstanding Comedy Series, Outstanding Writing For A Comedy Series and Outstanding Directing For A Comedy Series. Taylor Schilling, Kate Mulgrew and Uzo Aduba were respectively nominated for Outstanding Lead Actress in a Comedy Series, Outstanding Supporting Actress in a Comedy Series and Outstanding Guest Actress in a Comedy Series (the latter was for Aduba's recurring role in season one, as she was promoted to series regular for the show's second season).^[213]

Time Warner

In a 2010 New York Times interview, Time Warner CEO Jeffrey Bewkes downplayed Netflix as a threat to more traditional media companies. Bewkes told the newspaper, "It's a little bit like, is the Albanian army going to take over the world? I don't think so." At the same time, he recognized that the company's DVD service may have contributed to a decline in DVD sales, and regarding the industry's willingness to make special deals with Netflix in the future, he added "this has been an era of experimentation, and I think it's coming to a close."^[214] Bewkes later refined his position, stating during a 2011 conference call that "things like Netflix are welcome additions to the infrastructure. They can monetize value for companies like Warner that maybe there wasn't – in terms of efficiency for older product, wasn't as available before[…]Our view of Netflix has been very consistent. I've tried at times to be humorous about it, sometimes to make a point."^[215]

Finance and revenue

2010

In 2010, Netflix's stock price increased 219% to $175.70 and it added eight million subscribers, bringing its total to 20 million. Revenue jumped 29% to $2.16 billion and net income was up 39% to $161 million.^[216]

2011

In April 2011, Netflix was expected to earn $1.07 a share in the first quarter of 2011 on revenue of $705.7 million, a huge increase compared to the year-earlier profit of 59¢ on revenue of $493.7 million, according to a survey of 25 analysts polled by FactSet Research.^[217]

At their peak, in July 2011, Netflix shares were trading for $299. Following the customer dissatisfaction and resulting loss of subscribers after the announcements by CEO Hastings that streaming and DVD rental would be charged separately, leading to a higher price for customers who wanted both (on September 1), and that the DVD rental would be split off as the subsidiary Qwikster (on September 18), the share price fell steeply, to around $130.^[218][219] However, on October 10, 2011, plans to split the company were scrapped. The reason being that "two websites would make things more difficult", he stated on the Netflix blog. On November 22, Netflix's share tumbled, as share prices fell by as much as 7%.^[220] By December 2011, as a consequence of its decision to raise prices, Neflix had lost over 75% of its total value from the summer.^[221][222] Describing their business model as "broken", Wedbush downgraded Netflix's stock rating to "underperform", the equivalent of sell.^[223]

2014

In May 2014, Netflix increased the fee for UK subscribers by £1.^[224] The price increase took effect immediately for new subscribers, but will be delayed for two years for existing members. Netflix applied similar increases in the United States (an increase of $1) and the Eurozone (an increase of €1). According to Forbes,^[225] "Netflix can add roughly $500 million in annual incremental revenues in the U.S. alone by 2017 with this move" and "roughly $200–$250 million in incremental revenues from price changes in international markets". However, Reuters' Felix Salmon is critical about Netflix's financial future, noting that "any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears".^[226]

Legal issues and controversies

Recommendation algorithm and the "Netflix Prize"

In 2006, Netflix held the first Netflix Prize competition to find a better program to predict user preferences and beat its existing Netflix movie recommendation system, known as Cinematch, by at least 10%. CEO Hastings did not necessarily expect a lot of quick progress towards the prize,^[227] "We thought we built the best darn thing ever."^[227] But by June 2007, Hastings said the competition is "three-quarters of the way there in three-quarters of a year."^[228] Three teams – an AT&T Research Team called BellKor, commendo's team BigChaos, and Pragmatic Theory – combined to win the 2009 grand prize competition for $1 million. The winning team, called BellKor's Pragmatic Chaos, used machine learning techniques to find that, for example, the rating system people use for older movies is very different from that used for a movie they just saw. The mood of the day made a difference also; for example, Friday ratings were different from Monday morning ratings.^[229]

In 2010, Netflix canceled a running contest to improve the company's recommendation algorithm due to privacy concerns: under the terms of the competition, contestants were given access to customer rental data, which the company had purportedly anonymized. However, it was discovered that even this anonymized dataset could, in fact, identify a user personally. Netflix was sued by KamberLaw L.L.C. and ended the contest after reaching a deal with the FTC.^[230]

Throttling of DVDs by mail

Netflix's DVD allocation policy – referred to by many as "throttling" – gives priority shipping and selection to customers who rent fewer discs per month. Higher volume renters may see some of their selections delayed, routed elsewhere, or sent out of order.^[231] Netflix claims that "the large majority of our subscribers are able to receive their movies in about one business day following our shipment of the requested movie from their local distribution center."^[232] However, not all shipments come from the subscriber's local distribution center, and shipments from distant centers are often delayed, as well.

In September 2004, a consumer class action lawsuit, Frank Chavez v. Netflix, Inc.,^[233] was brought against Netflix in San Francisco Superior Court. The suit alleged false advertising in relation to claims of "unlimited rentals" with "one-day delivery." In January 2005, Netflix changed its terms of use to acknowledge "throttling" (Mike Kaltschnee, owner of the Hacking Netflix blog, says Netflix calls this practice "smoothing" internally).^[234]

In October 2005, Netflix proposed a settlement for those who had enrolled as a paid Netflix member prior to January 15, 2005. These earlier members would be able to renew their subscriptions with a one-month free membership, and those early members with current subscriptions would receive a one-month free upgrade to the next-highest membership level. Netflix's settlement denied allegations of any wrongdoing, and the case did not reach a legal judgment. Netflix estimated the settlement cost at approximately US$4 million, which included up to US$2.53 million to cover plaintiff lawyer fees. A controversial aspect of the settlement offer was that the customer's account would continue at the renewed or upgraded membership level after the free month provided by the settlement, with customers being charged accordingly unless they opted out after the month-long free period ended. After Trial Lawyers for Public Justice filed a challenge to the proposed settlement^[235] and the Federal Trade Commission filed an amicus brief urging the rejection or modification of the settlement, Netflix offered to alter the settlement terms, requiring customers to actively approve any continuation after the free month. The final settlement hearing took place on March 22, 2006.^[236] Implementation of the settlement was delayed pending appeal in the California Appellate Courts.^[237] The settlement was affirmed on April 21, 2008, with the court stating, "the trial court did not abuse its discretion in approving the amended class action settlement agreement, approving the notice given to class members, or determining the amount of fees."^[238] The court approved email notice and an online claims submission process.^[239] The court said:

The summary notice and long-form notice together provided all of the detail required by statute or court rule, in a highly accessible form. The fact that not all of the information was contained in a single e-mail or mailing is immaterial… Using a summary notice that directed the class member wanting more information to a Web site containing a more detailed notice, and provided hyperlinks to that Web site, was a perfectly acceptable manner of giving notice in this case… The class members conducted business with defendant over the Internet, and can be assumed to know how to navigate between the summary notice and the Web site. Using the capability of the Internet in that fashion was a sensible and efficient way of providing notice, especially compared to the alternative Vogel apparently preferred—mailing out a lengthy legalistic document that few class members would have been able to plow through.

The settlement was criticized because it paid out $2.5 million to attorneys for fees and costs, while offering only coupons to the class members.^[240][241]

The Terms of Use have since been amended with terms that indicate such a suit would not be possible in the future:^[242]

These Terms of Use shall be governed by and construed in accordance with the laws of the state of Delaware, without regard to conflicts of laws provisions. You and Netflix agree that the United States District Court for the Northern District of California and/or the California Superior Court for the County of Santa Clara shall have exclusive jurisdiction over any dispute between you and Netflix relating in any way to the Netflix service or Web site or these Terms of Use. You and Netflix expressly and irrevocably consent to personal jurisdiction and venue in these courts. The parties agree that in any such dispute or subsequent legal action, they will only assert claims in an individual (non-class, non-representative) basis, and that they will not seek or agree to serve as a named representative in a class action or seek relief on behalf of those other than themselves.

Releasing this week

The Netflix website at one time featured a list of titles, "Releasing This Week" (RTW), that enabled customers to easily view new DVDs the company planned for rental release each week.^[243] On December 21, 2007, the company removed the link to the page without notice and replaced it with a slider system showing only four previously released movies at a time. The new page, called "Popular New Releases", does not list newly released DVDs for rental.^[244] The listing of new releases is still active,^[243] although there is no menu option that links to the page.

On January 1, 2008, a Netflix employee unofficially stated on the Netflix Community Blog that customers used the RTW page to add newly released movies to the top of their queues, then complained about delays in receiving them after demand outstripped the supply of DVDs on hand. By removing the page, Netflix sought to quell complaints that these movies were not readily available. Critics, however, have suggested this was just another Netflix attempt at throttling.^[245]

Dynamic queue, subscription, and delivery methods

On April 4, 2006, Netflix filed a patent infringement lawsuit in which it demanded a jury trial in the United States District Court for the Northern District of California, alleging that Blockbuster's online DVD rental subscription program violated two patents held by Netflix. The first cause of action alleged Blockbuster's infringement of U.S. Patent No. 7,024,381 (issued April 4, 2006; only hours before the lawsuit was filed) by copying the "dynamic queue" of DVDs available for each customer, Netflix's method of using the ranked preferences in the queue to send DVDs to subscribers, and Netflix's method permitting the queue to be updated and reordered.^[246] The second cause of action alleged infringement of Patent No. 6,584,450 (issued June 24, 2003), which covers in less detail the subscription rental service as well as Netflix's methods of communication and delivery.^[247] The dispute ended a year later, on June 25, 2007, with both companies declining to disclose the terms of their legal settlement, except for a statement by Blockbuster that it would not have a major impact on its future financial performance.^[248][249] Blockbuster also said that the company planned to close 282 stores that year to shift focus to its online service. The company had already closed 290 stores in 2006.^[250]

In fall 2006, Blockbuster signed a deal with The Weinstein Company that gave it the exclusive rental rights to the studio's films beginning on January 1, 2007.^[251] This agreement forced Netflix to obtain copies from mass merchants or retailers, instead of directly from the studio.^[252] Netflix has speculated that the effect of the Blockbuster-Weinstein agreement could result in higher rental costs and/or fewer copies of the studio's movies, which would limit the number of each movie's DVDs that would be available to subscribers at any one time.^[253] As of June 2007, Netflix continues to make available Weinstein movies, including Unknown, School For Scoundrels and Harsh Times, among others. The first-sale doctrine allows Netflix and other video rental businesses to offer movies released by The Weinstein Company.

Removal of social networking feature

Beginning in 2004, Netflix subscribers could use a feature that allowed them to interact with friends who were also members. This feature was meant to tap into the growing popularity of social networking. With this feature, users could see how their friends rated a movie on that movie's page; view what DVDs their friends were renting; and allow them to leave their friends notes with film recommendations.^[254][255]

In March 2010, as part of a redesign of its movie-details pages, the Friends feature began to be phased out. Users could no longer see their friends' ratings on movie pages, and what remained of the friends section was moved to a small link at the bottom of each page. The initial announcement about the redesign on Netflix's official blog made no reference to any changes to the Friends feature.^[256] Hundreds of angry users posted negative comments, and the feedback prompted Netflix's Vice President of Product Management, Todd Yellin, to post a follow-up statement. While apologizing for poor communication about the changes, Yellin stated that the Friends feature would continue to be phased out, citing figures that only 2% of members used the feature and the company's limited resources to maintain the service.^{[254][255][257]} Netflix users also began using the movie-reviews section of the website to post comments protesting against the changes.^[258]

GNU/Linux support

Netflix formerly supported online streaming only on Microsoft Windows, OS X, iOS and Android, relying on Microsoft Silverlight. Partly due to digital rights management issues, despite the open-source implementation of Silverlight known as Moonlight, this has created problems for users of fully open source versions of GNU/Linux and similar operating systems.^[259] Though Google's partially proprietary Android and Chrome OS platforms are essentially based upon GNU/Linux and other free software infrastructure, Netflix did not provide any crossover support for using its proprietary components to stream any of its content upon more free systems, such as Ubuntu and Fedora, although this changed in October 2014.

On August 9, 2011, Netflix released a Google Chrome web store item for Chrome OS, Mac OS, and Windows; however, it does not yet enable Netflix streaming on Linux machines. On Linux systems running the Chrome browser, the extension simply redirects users to view Netflix.com.^[260]

In June 2014, Netflix chose to switch from Silverlight to HTML 5 playback using the Encrypted Media Extensions, since then, the extensions were added to Microsoft's Internet Explorer on Windows 8.1^[261] and Apple's Safari on Mac OS X Yosemite.^[261]

Since August 5, 2014, Google implemented the Encrypted Media Extensions^[262] to its Developer and Beta versions of the Chrome Browser for Linux, allowing Linux users to use the service natively from the web browser.

As of October 10, 2014 multiple versions of Linux including Ubuntu^[263] and PCLinuxOS^[264] claim support for Netflix in Google Chrome version 37 or newer. The website for PCWorld also states that users of other Linux distributions such as version 17 of Linux Mint have been successfully using Netflix via Google Chrome without any special workarounds.^[265]

Third-party solutions

As of May 9, 2011, Google had initially released plans for a plugin for the Chrome browser and Chrome OS which would allow Netflix streaming, including traditional Linux users.^[266]

On November 15, 2012, patches to the Wine compatibility layer to make viewing of Netflix on Linux and similar systems were made available.^[267]

On November 18, 2012, a PPA and installation files were made publicly available making the installation and use of Netflix much easier for users of Ubuntu 12.04 and possibly other distributions.^[268]

On August 8, 2013, software repositories were made publicly available making possible the usage of the Windows Silverlight plugin in Linux-native web browsers using Wine.^[269][270] Previous Linux Netflix support required running the entire Firefox web browser through the Wine compatibility layer.^[268]

Accessibility

On March 11, 2011, Don Cullen filed a national class action lawsuit^[271] against Netflix alleging that the service failed to closed caption its streaming video library and had misled deaf and hard of hearing customers. In June 2011, the National Association of the Deaf represented by the Disability Rights Education and Defense Fund (DREDF) filed a lawsuit against Netflix for not providing closed captioning on all of its movies on the "Watch Instantly" service. The group claims Netflix is violating the Americans with Disabilities Act by not providing equal access on entertainment.^[272] On November 11, 2011, the court denied a Netflix motion to dismiss the case.^[273]

In March 2012, Netflix increased the number of programs that are closed captioned. Almost all Netflix-ready devices in distribution today (including AppleTV, BD players, the Roku set-top box, and all the game consoles, phone apps, tablet apps, and TVs) are capable of rendering captions.^[274]

In July 2012, Netflix formed an experimental project to crowdsource the closed-captioning effort using the Amara (formerly Universal Subtitles) platform.^[275] However, this proved problematic in the face of claims that crowdsourced subtitles, regardless of whether they are transcriptions or translations, are derivative works which infringe copyright if created or distributed without consent from the film's copyright owner.^[276] Amara operates under DMCA safe-harbor provisions which indemnify it from secondary copyright infringement lawsuits over user-uploaded content, and presumably Netflix would not publish any subtitles produced by this effort without authorization. Netflix was careful to say it is not committed to using any subtitles produced by the crowdsourcing project.^[275]

In October 2012, Netflix was found to be offering the television series Andromeda to customers in Finland with unauthorized subtitles from the fansub scene.^[277] Such subtitles, and motion pictures incorporating them, have long been traded online, resulting in cease and desist notices, takedowns, and copyright infringement lawsuits against traders, website operators, and search engines; even criminal prosecution happened in one Norwegian case involving the distribution of fan-created subtitles alone.^[278] When confronted, Netflix apologized and promised to remove the unauthorized translations but did not explain how the content came to be offered in the first place, or whether other potentially copyright-infringing subtitles exist in the company's repertoire.^[277]

On January 20, 2014, Jon Christian published an article in The Week, titled "How Netflix alienated and insulted its deaf subscribers: The streaming video giant still can't manage to competently produce closed captions", which catalogues Netflix's various technical and legal issues regarding closed captioning, including the poor quality of the subtitles that are provided. For example, he states: "But for all the service's strengths, one aspect is still decidedly twentieth century: The bizarrely low standards for Netflix's closed captions, which continue to alienate subscribers who are deaf, hard of hearing, or simply have difficulty understanding dialogue." The article was updated the following day to publish Netflix's response: "Update: The day after this article was published, a representative from Netflix contacted the author of this piece with an additional comment: 'While we don't have the rights to make edits to subs/captions we do, in fact, request redelivery of subtitles or captions when we discover errors. The titles in your piece are now under investigation.'"^[279]

Following the launch of Daredevil in 2015, disability rights advocates pointed out that Netflix had not yet included content with audio descriptions of visual content for those who are blind or visually impaired. One critic considered it "terribly laughable PR" for Netflix to not include audio descriptions on a series that focuses on a character who is blind. On April 14, 2015, director of content operations Tracy Wright announced that Netflix would begin to work with studios to add audio descriptions to its original content.^[280][281]

VPN access

More than 30 million Netflix subscribers use the service via a proxy server or virtual private network (VPN); doing so can make the user appear to be within the United States or another country, thus allowing them to use the service where it was not yet officially offered, or access versions of the service with content that Netflix cannot offer in their region due to geographical licensing restrictions. It is unclear whether this practice violates local copyright laws, but content providers and other broadcasters have asserted that it is illegal because it infringes local rights to content that may have been sold to a competitor.^{[282][283][284][285]} GlobalWebIndex showed about 20 million of these users came from China alone.^[286][287]

In a leaked e-mail revealed by the Sony Pictures Entertainment hack in 2014, Sony Pictures Television president of international distribution Keith LeGoy described VPN usage of Netflix as being "semi-sanctioned" piracy, and criticized the company for not taking further steps in detecting these users and restricting their access to content they had not licensed for their region.^[283][287]

On January 14, 2016, Netflix announced its intent to strengthen measures to restrict access to unlicensed material through VPNs or proxies.^[288]

Technical details

Streaming

Initial discs sent to customers via US mail often received criticisms of being scratched and unable to fully play the rented movie. The popularity of Netflix dramatically increased with the addition of instant streaming through an online queue. The majority of Netflix users now do not receive physical DVD discs by mail, but instead stream movies and television shows instantly and more reliably.

Initially streaming solely using Microsoft technologies and codecs such as VC-1 for video and WMA for audio, the rapid expansion and diversity of Netflix-capable devices have necessitated encoding into many different formats – including H.264 (AVC), VC-1, H.263 and H.265 (HEVC) for video, and Dolby Digital, Dolby Digital Plus, AAC and Ogg Vorbis for audio.^[289] According to Netflix, the vast number of codec and bitrate combinations can mean having to encode the same title 120 different times before it can be delivered to all streaming platforms.^[290]

Netflix uses adaptive bitrate streaming technology to adjust the video and audio quality to match a customer's broadband connection speed and realtime network conditions.

In 2015, BT's YouView launched Ultra HD channels and a 4K box to watch it on in the UK.^[291] As of December 2015, Netflix's 4K catalogue can be watched on BT's Ultra HD box. In order to stream the Ultra HD content, users need the top-tier subscription option.^[292]

Netflix provides users the ability to choose their download rates quality of video on its website.

Netflix API

On October 1, 2008, Netflix launched an application programming interface (API).^[293] The Netflix API^[294] allows access to data for all Netflix titles as well as access on a user's behalf to manage his or her movie queue. The API is free and allows commercial use.^[295] The Developer Network includes a forum for asking and answering questions.^[296]

A variety of services has been created around or has integrated the API. Examples include Rotten Tomatoes and The New York Times, which allow users to click to add titles to their Netflix queue or begin watching on "Watch Instantly" from their pages,^[296] and Jinni, which enables one to search within Watch Instantly and imports some user information such as reviews.^[297]

Additionally, the API has allowed many developers to release Netflix applications for mobile devices. For example, on November 16, 2009, Netflix released an official Nokia app that allows some trailer streaming,^[298] and on August 26, 2010, Netflix released an official iPhone app.^[299] However, in June 2012, Netflix began to cut back the availability of its public API.^[300] In June 2014, Netflix announced that they would be retiring the API. This would be effective November 14, 2014, with the intent of allowing Netflix to focus on supporting a growing member base and increasing numbers of devices. In retiring the public API, Netflix will partner with the developers of eight services deemed to have been the most valuable to Netflix users. These eight applications will be allowed to operate beyond November 14, and include Instant Watcher, Fanhattan, Yidio, and Nextguide.^[301]

IT infrastructure

In 2010, Netflix migrated its infrastructure to Amazon EC2. Master copies of digital films from movie studios are stored on Amazon S3, and each film is encoded into over 50 different versions based on video resolution and audio quality using machines on the cloud. In total, Netflix has over 1 petabyte of data stored on Amazon, and the data are sent to content delivery networks (including Akamai, Limelight and Level 3) that feed the content to local ISPs. Netflix uses a number of pieces of open-source software in its backend, including Java, MySQL, Gluster, Apache Tomcat, Hive, Chukwa, Cassandra and Hadoop.^[302]

Netflix Open Connect CDN

Netflix settlement freely peers with ISPs directly and at common Internet exchange points; for larger ISPs that have over 100,000 subscribers Netflix offers free Netflix Open Connect storage appliances that cache Netflix content within the ISPs' data centers or networks to further reduce Internet transit costs.^[303][304] The Open Connect Appliances are purpose-built servers that focus on low power and high storage density, and run the FreeBSD operating system, nginx and the Bird Internet routing daemon.^[305]

Cultural effects

The rise of Netflix has affected the way audiences watch televised content. Neil Hunt, Netflix's chief product officer, believes that Netflix is a model for what television will look like in 2025. He points out that because the Internet allows users the freedom to watch shows at their own pace, an episode does not need cliffhangers to tease the audience to keep tuning in week after week, because they can just binge straight into the next episode.^[306] Netflix has allowed content creators to deviate from traditional formats that force 30 minute or 60 minute timeslots once a week, which it claims gives them an advantage over networks. Their model provides a platform that allows varying run times per episode based on a storyline, eliminates the need for a week to week recap, and does not have a fixed notion of what constitutes a "season". This flexibility also allows Netflix to nurture a show until it finds its audience, unlike traditional networks which will quickly cancel a show if it is unable to maintain steady ratings.^[307]

Netflix has strayed from the traditional necessary production of a pilot episode in order to establish the characters and create arbitrary cliffhangers to prove to the network that the concept of the show will be successful. Kevin Spacey spoke at the Edinburgh International Television Festival about how the new Netflix model was effective for the production of House of Cards, "Netflix was the only company that said, 'We believe in you. We've run our data, and it tells us our audience would watch this series." Though traditional networks are unwilling to risk millions of dollars on shows without first seeing a pilot, Spacey points out that in 2012, 113 pilots were made, 35 of those were chosen to go to air, 13 of those were renewed, and most of those are gone now. The total cost of this is somewhere between $300–$400 million, which makes Netflix's deal for House of Cards extremely cost effective.^[308] Netflix's subscription fee also eliminates the need for commercials, so they are free from needing to appease advertisers to fund their original content, a model similar to traditional pay television services such as HBO and Showtime.

The Netflix model has also affected viewers' expectations. According to a 2013 Nielsen survey, more than 60% of Americans admitted to binge-watching shows and nearly eight out of 10 Americans have used technology to watch their favorite shows on their own schedule.^[309] Netflix has successfully continued to release its original content by making the whole season available at once, acknowledging changing viewer habits. This allows audiences to watch episodes at a time of their choosing rather than having to watch just one episode a week at a specific scheduled time; this effectively gives its subscribers freedom and control over when to watch the next episode at their own pace. Netflix has capitalized on these habits by automatically playing the next episode in the series, removing the 15-second wait times of content on other streaming services. The structure that allows convenient viewing of episodes as well as the intent to provide content of quality comparable to some broadcast and cable television programs in effect, often results in the viewer being hooked into the program by the time the next episode starts.^[310]

See also

• Comparison between OTT and IPTV
• Digital television
• Netflix and chill
• VaultML

References

External links

Wikimedia Commons has media related to Netflix.

• Official website

Netflix original programming Current Series Original series Lilyhammer (2012–14) House of Cards (since 2013) Hemlock Grove (2013–15) Orange Is the New Black (since 2013) Turbo FAST (since 2013) BoJack Horseman (since 2014) VeggieTales in the House (since 2014) Marco Polo (since 2014) All Hail King Julien (since 2014) The Adventures of Puss in Boots (since 2015) Richie Rich (since 2015) Unbreakable Kimmy Schmidt (since 2015) Chef's Table (since 2015) Between (since 2015) Bloodline (since 2015) Daredevil (since 2015) Grace and Frankie (since 2015) Sense8 (since 2015) Wet Hot American Summer: First Day of Camp (since 2015) Club de Cuervos (since 2015) Dinotrux (since 2015) Narcos (since 2015) The Mr. Peabody & Sherman Show (since 2015) Popples (since 2015) Master of None (since 2015) W/ Bob & David (since 2015) Jessica Jones (since 2015) Atelier (since 2015) F Is for Family (since 2015) Making a Murderer (since 2015) Dawn of the Croods (since 2015) Degrassi: Next Class (since 2016) Chelsea Does (since 2016) Continuations The Problem Solverz (season 2; 2013) Arrested Development (season 4; 2013) The Killing (season 4; 2014) Star Wars: The Clone Wars (season 6; 2014) Trailer Park Boys (seasons 8–9; 2014–2015) DreamWorks Dragons (season 3; 2015) Longmire (season 4; 2015) Films The Square (2014) Mitt (2014) Virunga (2014) E-Team (2014) Beasts of No Nation (2015) A Very Murray Christmas (2015) The Ridiculous 6 (2015) Stand-up Aziz Ansari: Buried Alive Aziz Ansari: Live at Madison Square Garden John Hodgman: Ragnarok Nick Offerman: American Ham Uganda Be Kidding Me: Live Upcoming Series Love (2016) Fuller House (2016) Flaked (2016) Netflix Presents: The Characters (2016) The Ranch (2016) Marseille (2016) Word Party (2016) Stranger Things (2016) The Get Down (2016) Luke Cage (2016) The Crown (2016) Lady Dynamite (2016) 3% (2016) The OA (2016) Gilmore Girls (season 8; 2016) Gypsy (2017) Green Eggs and Ham (2018) Black Mirror (season 3; TBA) Haters Back Off (TBA) Altered Carbon (TBA) Films Crouching Tiger, Hidden Dragon: Sword of Destiny (2016) Pee-wee's Big Holiday (2016) Special Correspondents (2016) War Machine (2016) Girlfriend's Day (2016) Mascots (2016) The Do-Over (2016) First They Killed My Father (2016)

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