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Netflix, Inc. is an American provider of on-demand Internet streaming media in North and South America, the Caribbean, United Kingdom, Ireland, Sweden, Denmark, Norway, Finland and flat rate DVD-by-mail in the United States, where mailed DVDs are sent via Permit Reply Mail. The company was established in 1997 and is headquartered in Los Gatos, California. It started its subscription-based digital distribution service in 1999 and by 2009 it was offering a collection of 100,000 titles on DVD and had surpassed 10 million subscribers. On February 25, 2007, Netflix announced the billionth DVD delivery. In April 2011, Netflix announced 23.6 million subscribers in the United States and over 26 million worldwide. By 2011, the total digital revenue for Netflix reached at least $1.5 billion. However, on 23 October 2012, Netflix reported an 88% fall in third-quarter profits.
Netflix was founded in 1997 in Scotts Valley, California by Marc Randolph and Reed Hastings, who previously had worked together at Pure Software, along with Mitch Lowe. Hastings was inspired to start the company after being charged late fees for returning a rented copy of Apollo 13 after the due date. The Netflix website launched in April 1998 with an online version of a more traditional pay-per-rental model (US $4 per rental plus US $2 in postage; late fees applied). Netflix introduced the monthly subscription concept in September 1999, 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 or handling fees, or per title rental fees.
Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5,500,000 shares of common stock at the price of US $15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US $6.5 million profit on revenues of US $272 million.
In 2005, 35,000 different film titles were available and Netflix shipped 1 million DVDs out every day.
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%.
In February 2007, the company delivered its billionth DVD. In 2007, the company began to move away from its original core business model of mailing DVDs and introduced video-on-demand via the Internet. Netflix grew while DVD sales fell from 2006 to 2011.
Netflix has played a prominent role in independent film distribution. Through a division called Red Envelope Entertainment, Netflix licensed and distributed independent films such as Born into Brothels and Sherrybaby. As of late 2006, Red Envelope Entertainment also expanded into producing original content with filmmakers such as John Waters. Netflix announced plans to close Red Envelope Entertainment in 2008, in part to avoid competition with its studio partners.
Netflix has been one of the most successful dot-com ventures. A The New York Times article from September 2002, said that, at the time, Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers. The company's published subscriber count increased from one million in the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006, to 14 million in March 2010. Netflix's growth has been fueled by the fast spread of DVD players in households; as of 2004, nearly two-thirds of U.S. homes had a DVD player. Netflix capitalized on the success of the DVD and its rapid expansion into U.S. homes, integrating the potential of the Internet and e-commerce to provide services and catalogs that brick and mortar retailers could not compete with. Netflix also operates an online affiliate program which has helped it to build online sales for DVD rentals. The company offers unlimited vacation time for salaried workers and allows employees to take any amount of their paychecks in stock options.
On September 18, 2011, Netflix announced its intentions to rebrand and structure its DVD home media rental service as an independent subsidiary company called Qwikster, totally separating DVD rentals and streaming. Andy Rendich, a 12-year veteran of Netflix, would have been the CEO of Qwikster. The new service would carry video games whereas Netflix did not. Then, in October 2011, Netflix announced that it would retain its DVD service under the name Netflix and would not, in fact, create Qwikster for that purpose.
On October 24, 2011, Netflix announced it lost 800,000 US subscribers in 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.
On January 26, 2012, Netflix said it added 610,000 subscribers in the US by the end of the fourth quarter of 2011. The company announced it had 24.4 million US subscribers for this time period.
In April 2012, Netflix filed with the FEC to form a political action committee (PAC) called FLIXPAC. 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."The hacktivist group Anonymous called for a boycott of Netflix following the news. Netflix spokesperson Joris Evers indicated that the PAC was not set up to support SOPA and PIPA, tweeting that the intent was to "engage on issues like net neutrality, bandwidth caps, UBB and VPPA.
International
Netflix first moved internationally by launching their streaming-only service in Canada on September 22, 2010. Then, in spring 2011, Netflix announced they would further expand internationally by launching services in Latin America, by the end of 2011, and in the European market, starting in Spain by 2012,which ultimately proved to be false. Subsequently, Netflix completed the launch of streaming-content services in Latin America in September 2011 by launching in the Caribbean, Mexico, Central and South America.
In October 2011, it was announced that Netflix would be launching in the UK and Ireland in early 2012. Netflix was officially launched as a streaming-only service in the United Kingdom and Ireland on January 9, 2012. On August 20, 2012 Netflix announced it had reached the one million member milestone in the UK and Ireland.
On August 15, 2012, Netflix announced that it would be rolling out its services to Norway, Denmark, Sweden, and Finland before the end of 2012,eventually launching these services in October 2012.
Services
Netflix is a subscription-based movie and television show rental service that offers media to subscribers via Internet streaming and via US mail.
Internet video streaming
Netflix offers Internet video streaming ("Watch Instantly") of selected titles to computers running Windows or Mac OS X and to compatible devices. Internet video streaming once came at no additional charge with Netflix's regular subscription service; however, only a portion of Netflix's content is available via the "Watch Instantly" option. In its simplest form, video is streamed to the user using standard PC hardware, and requires Microsoft's Silverlight software to be installed. Viewing is initiated by pressing a "Play Instantly" button, and played back on the PC monitor. Films can be paused or restarted at will. According to a 2011 report by Sandvine, Netflix is the biggest source of North American web traffic, accounting for 33% of traffic during peak periods and 28.8% of aggregate traffic.
Initially, the feature offered subscribers one hour of media for approximately every dollar they spent on their subscription. (A $16.99 plan, for example, entitled the subscriber to 17 hours of streaming media.) In January 2008, however, Netflix lifted this restriction, at which point virtually all subscribers were entitled to unlimited hours of streaming media at no additional cost. Subscribers with a plan of $4.99/two DVDs per month, one DVD at a time, were allowed two hours which could only be watched on a computer. The terms of the service were a response to the introduction of Apple's new video rental services. Netflix has since split its DVD and streaming service in two, charging separately for each.
According to Netflix Tech Support, Netflix's content library is encoded into three bandwidth tiers, in a compression format based on the VC-1 video and Windows Media Audio codecs[citation needed]. Of these, the lowest tier requires a continuous downstream bandwidth (to the client) of 1.5 Mbit/s, and offers stereo audio and video quality comparable to DVD. The middle tier requires 3 Mbit/s, and offers "better than DVD quality". The highest tier requires 5 Mbit/s, (uses up to 2.3 GB/hour =0.654 MB/s =5.23 Mbit/s) and offers 720p HD with surround sound audio. As of October 2011, several devices also have the ability to stream Netflix content at 1080p resolution, including the PlayStation 3 console and Roku 2 series set-top boxes which require 8 Mbit/s.
Netflix does 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. 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 watching Netflix on Linux without installing Windows in a virtual machine.
The selection of available titles is based upon the user's IP address. For most users, this corresponds to the user's physical location. However, it means that, for example, a user in Canada who is accessing the Internet through a U.S.-based router connection will see the selection available to U.S. users.
According to a survey by Nielsen in July 2011, 42% of all Netflix users make use of a stand-alone computer to connect to Netflix, 25% do so by using the Wii, 14% by connecting their computers to a TV, 13% make use of a PlayStation 3 and 12% use an Xbox 360. According to Sony, the PlayStation 3 was the top one in 2012.
History
On October 1, 2008, Netflix announced a partnership with Starz Entertainment to bring 2,500+ new movies and television shows to Watch Instantly in what is being called Starz Play.
In August 2010, Netflix announced it had reached a five-year deal worth nearly $1 billion to stream movies from Paramount, Lionsgate and MGM. The deal increases the amount Netflix spends on streaming movies annually. It spent $117 million in the first six months of 2010 on streaming, up from $31 million in 2009. This deal adds roughly $200 million per year.
As of 2011, Netflix's "Watch Instantly" service holds first-run rights to films from Paramount Pictures, MGM, Lions Gate Entertainment (through an output deal with Epix), along with back-catalog titles to films from Time Warner, Universal Pictures, Sony Pictures, Paramount Pictures, MGM, Lions Gate Entertainment, 20th Century Fox, Disney, and other distributors. Netflix also provides current and back-catalog TV programs distributed by NBC Universal, 20th Century Fox, Sony Pictures, Disney-ABC Domestic Television, with select shows from Warner Bros. as well. 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. Netflix has "pay TV window" deals with Relativity Media, FilmDistrict, and Open Road Films.
On July 12, 2011 Netflix announced that it would separate the current subscription plans into two separate plans: one covering the instant streaming and the other DVD rental.The cost for streaming would be $7.99 while DVD rental would start at the same price. The announcement led to a flurry of negative reception amongst Netflix's Facebook followers, posting negative comments on the company's wall.Twitter comments also spiked a "Dear Netflix" trend with generally negative comments as well. 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.
In a reversal, Netflix announced in October 2011 that its streaming and DVD-rental plans would remain together under the Netflix brand.
On September 1, 2011, Starz announced it would remove their movies from Netflix streaming on February 28, 2012. Since the agreement was strictly for streaming movie titles, DVD rentals through Netflix were not affected. However, around that same time, it was announced Netflix would, in 2013, assume the pay-TV rights to films from DreamWorks Animation (those output rights are currently held by HBO).
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 movies to rent. The movies 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. The subscriber can keep the rented movie as long as desired, but there is a limit on the number of movies (determined by subscription level) that each subscriber can have on loan simultaneously. To rent a new movie, 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. Since November 21, 2008, Netflix has offered their subscribers access to Blu-ray Discs for an additional fee.
In addition to its movie rental service, Netflix formerly sold used movies. The purchase was delivered via the same system and billed using the same payment methods as rentals. This service was discontinued at the end of November 2008.
Starting January 6, 2010, Netflix reached an agreement with Warner Brothers Pictures to delay renting new releases for 28 days from their retail release in an attempt to help studios sell more physical media at retail outlets. A similar deal with Universal Studios and Twentieth Century Fox was reached on April 9, 2010.
In 2011, Netflix split its service pricing so that customers must decide whether they want to pay for online streams, access to DVDs by mail, or both.
Qwikster
On September 18, 2011, Netflix CEO and Co-Founder Reed Hastings said in a Netflix blog post that the DVD section of Netflix would be split off and renamed Qwikster, and stated that the only major change would be separate websites for the services. The new service was to also carry video games for an additional charge, whereas the previous Netflix did not. Netflix subscribers who wanted DVDs by mail would have had to use a separate website to access Qwikster.
On October 10, 2011, following negative reaction from customers, Netflix CEO Reed Hastings announced the cancellation of the planned Qwikster service and said that the DVD-by-mail service would remain a part of Netflix.
Profiles
In June 2008, Netflix announced plans to eliminate its online subscriber profile feature that fall. Profiles allow one subscriber account to contain multiple users (e.g. husband and wife, or two roommates) with separate DVD queues, ratings, recommendations, friend lists, reviews, and intra-site communications for each. Netflix contended that elimination of profiles would improve customer experience.However, likely as a result of negative reviews and reaction by Netflix users,Netflix reversed its decision to remove profiles 11 days after its announcement.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.
Programming
Original programming
Further information: List of original programs distributed by Netflix
In March 2011, Netflix announced plans to begin acquiring original content for its popular Watch Instantly subscription service, beginning with the hour-long political drama House of Cards, which will debut on the streaming service in late 2012. The series will be helmed by David Fincher, with Academy Award winning actor Kevin Spacey headlining the cast. In late 2011, Netflix picked up two 8-episode seasons of Lilyhammer and a fourth season of Arrested Development. Deadline.com reported Netflix is nearing a 13-episode series order, for both Orange Is The New Black and Hemlock Grove. Netflix announced that Hemlock Grove, will be coming in early 2013.
Movie and TV library
Netflix currently has exclusive pay-TV deals with major and mini-major movie studios. Films featured on Watch Instantly include recent releases from Relativity Media (and its subsidiary Rogue Pictures), as well as titles from DreamWorks Animation (DreamWorks Animation will stream their films beginning in 2013 when their current pay-TV deal ends with HBO), Open Road Films, FilmDistrict, The Weinstein Company (The Films from TWC are foreign language, documentary, and certain other movies from The Weinstein Company and films from), and Walt Disney Studios Motion Pictures (including Walt Disney Pictures, Walt Disney Animation Studios, Disneynature, Pixar, Lucasfilm, and Marvel Studios).
Epix and Netflix have signed a five-year streaming deal; the first two years of the deal Epix content are exclusive to Netflix (Epix films will come to Netflix 90 days after they premiere on Epix. These include films from Paramount Pictures, MGM and Lionsgate). On September 1, 2011, Starz announced it had broken off talks with Netflix to renew its streaming deal. This meant any Starz movies and shows would be removed from Netflix streaming on February 28, 2012. Movie titles that are available on DVD are not affected and can be acquired from Netflix by this method. However, select movies that have previously been seen on Starz continue to be available on Netflix under license from their respective TV distributors. For instance, certain Revolution Studios films shown on Netflix are under license from Lionsgate/Debmar-Mercury.
Other studios providing content on Netflix are licensed from Disney–ABC Television Group, DreamWorks Classics, Warner Bros. Television, 20th Television, and CBS Television Distribution. On August 23, 2012, Netflix and The Weinstein Company sign a Multi-Year Output Deal for RADiUS-TWC.
On December 4, 2012, Netflix and The Walt Disney Company announced an exclusive multi-year U.S. subscription television service agreement with Netflix for first run of Walt Disney Studios animated and live-action movies. New titles from Disney, Walt Disney Animation Studios, Pixar, Marvel Studios and Disneynature will be available from Netflix in 2016. However, classic titles such as "Dumbo", "Pocahontas" and "Alice in Wonderland" were made available to Netflix immediately. Direct-to-video new releases will be available in 2013. The agreement came after Disney's announcement in November 2012, that it would be shutting down its web movie service Disney Movies Online on December 31, 2012.
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 the 2012 Dallas TV series airing on TNT beginning in March 2013.
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