Netflix – Behind the Scenes

Netflix is transforming your living room — what goes on behind the scenes to deliver the experience

Founded in 1997 and with its humble beginnings in the DVD rental business, Netflix soon recognized that online streaming was the future and moved into online streaming in 2007.

netflix2Netflix today offers customers access to convenient, unlimited, commercial-free streaming of TV shows and movies right from their devices.  Using a subscription-based model, customers have access to unlimited content for a $7.99 monthly fee.  Netflix is also a content creator, offering exclusive Netflix original TV series (such as House of Cards, Orange is the New Black, Master of None), solely on their online platform.  These series are of high production value helps Netflix differentiate itself from competitors.  Netflix has been able to outpace their competitors such as Hulu, Amazon, in number of users, which has reached over 69 million, as they have been able to convert, sustain and grow their original base of traditional consumers by amassing a collection of online content that far outweighs competitors.  Their key partners are content providers: television networks and movie studios.  For users, the convenience aspect is vital as they want to stream any show on their personal device commercial-free, with full navigational control of their viewing experience.  Further, Netflix provides a personalized experience for each user by creating a viewership profile and recommending curated content on the home page based on previously watch
ed shows.

In order for Netflix to remain at the forefront of their industry and provide desirable user interactions, the company constantly invests on improving their media infrastructure and user interface.  While there is significant work on the front end user-interface as well as the content creation and partnerships that are visible to the user, there is an enormous amount of work on the back-end that goes into providing a seamless and improving experience for users.  For example, to provide curated personalized suggestions to users, Netflix meticulously categorizes and tags each show or movie on its platform.  It has established over 75,000 unique micro-genres to classify its content library.

dvo203-the-life-of-a-netflix-engineer-using-37-of-the-internet-3-638For Netflix to be successful, the company needs to reliably support tens of millions of connected devices across the world at any one time.  One of the significant issues the company faces is the large amount of data it needs to deliver across the internet to provide seamless streaming of high quality videos.  Netflix uses its proprietary Open Connect content delivery network, which exchanges traffic directly with internet service providers (ISPs) and can be cached on ISP networks, to deliver content.  This is critical to optimize as Netflix distributes multiple terabytes per second and can account for up to one-third of North American internet traffic at peak ‘prime’ times.  During off-peak hours, Netflix fills its disks with videos its algorithm predicts people will most likely watch the next day, which heavily reduces network utilization during peak hours.

The Netflix infrastructure systems are massive, complex and highly distributed, such that no number of people can continually monitor the status of all their systems.  To navigate this environment, Netflix has just completed its shift from in-house data centres to third-party facilities: the company’s IT infrastructure is entirely located on Amazon’s cloud data centres.  In this production environment, Netflix has distributed ownership among its engineering teams.  Each team is now wholly responsible for coding, testing and resolving any issues on their own work, which incentivizes and has led to more robust applications being built.  Further, Netflix has developed tools to monitor and provide relevant insight and visualisations to detect, diagnose and resolve problems.  Netflix has been able to automate and centralize these tools in order to more effectively monitor, identify and resolve issues that arise in a timely manner.  This enables Netflix to enhance and create a seamless user experience.

A challenge for Netflix as they move into more content creation with their Netflix originals is to keep costs low.  With a fixed price revenue model, Netflix has limited levers to pull to grow revenue: they have to continue to grow their user base.  While acquiring an additional user is relatively inexpensive for Netflix as there is little to no variable cost associated, on the cost side, they engage in content financing, technology development and marketing, which may erode their margins if not properly managed.

Netflix is able to stay at the forefront of its rapidly changing and growing industry as it is able to deliver a compelling value proposition to its consumers.  Operationally, the company is constantly innovating and developing new methods and tools to sustain, enhance and improve the overall user experience.





Growing “Organically” in the Vitamins Industry


Bolthouse Farms: Turning a Billion Pounds of Carrots into a Billion Dollars

Student comments on Netflix – Behind the Scenes

  1. My understanding is that Amazon (increasingly a competitor) provides much of the backend infrastructure for Netflix through the AWS platform. How would you think about operations being a source of competitive advantage if they are outsourcing this capability? Are you worried about Netflix being disinter mediated?

    It seems to me the key part of Netflix’s operating model is very similar to Wyeth Pharmaceuticals – how can they use their database of watching habits to better identify original or licensed content with positive ROI.

  2. As a somewhat happy netflix subscriber I know firsthand the improtance of their original content as beyond that the content they have is often outdated. As more network channels move to offer their own content online and remove its accessibilty on netflix, do you think Netflix will be viable alone on its proprietary content?

Leave a comment