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NetFlix: America's Most Underestimated Company (slate.com)
164 points by mattrjacobs on Sept 2, 2010 | hide | past | web | favorite | 123 comments

I love Netflix. They're a role model for other companies, and for me as a person.

Netflix has succeeded on the strength of two things: integrity and ambition.

They genuinely care about their customers. They work extra hard to make sure people who give them money are happy to do it. In their call centers, CSRs are friendly and empowered. They're instructed to err on the side of doing things that are most likely to make a customer happy, instead of pissing people off with stupid "it's policy!" behavior. In their distribution centers, they have a hardcore quality control culture that goes to great lengths to ensure that mailed out DVD's correctly match a customer's order.

Contrast this with their dying competition, who never once gave a damn about customer satisfaction. Who, indeed, codified policies whose direct result was to enrage customers.

As for ambition, Netflix has continually worked hard to make the service the very best it could be, opening more and more distribution centers to minimize the wait between returning and receiving your DVDs. Despite having every reason to rest on their laurels, they decided they'd also be the Netflix to their Blockbuster, going deep on the Watch Instantly strategy that's redefining their business. Instead of waiting for someone else to come along and make them obsolete, Netflix grabbed the bull by the horns.

This is one of the rare moments of modern capitalism producing something truly excellent, on its merits, based on the needs of the market. If only we could see similar disruption in larger and even more corrupt industries.

Honestly: I love these guys.

I wasn't so lucky with them. I was a good customer, but they started silently throttling my account, and they wouldn't admit to it either. It's since come out that that's exactly what they were doing.

If it's too expensive to send me that many disks, fine, but don't lie to me about it.

I didn't know about this. So much for my remark on integrity. Do you know if they still do this throttling?

I personally never ran into this -- I've never been more than a light-to-medium user, except in spikes. Like when I when I discovered 24 six years ago.

edit: Here's something straight from the horse's mouth:


"I stopped my subscription to your service because of your well-documented "throttling" of frequent renters. How can you say you are focused on customer service when you alienate your customers in this way? Bill Greenstein, Seattle

When we are short on new releases, which we try not to be, we believe it's fairest to allocate those new movies to subscribers who have not rented much recently. This upsets heavy users because they are not in the front of the line for new releases. We are straightforward about how it works, but not everyone likes that policy."

Eh, okay, assuming it begins and ends there, I can see the argument for doing things this way.

I don't really go for new release type movie generally, so I call shenanigans.

I was a heavy user who got movies sometimes the day after I returned the last one, which was great. Then I started getting them 3, 4, 5 days later.

They blamed USPS, even though no other mail to or from me was slow at all, so I started tracking the returned movies. They uniformly were delivered back to the warehouse just as quickly as before, but remained (via the netflix interface) unreturned for several days after that.

Normally I'd chalk that up to simple incompetence: they just weren't processing the movies very fast and/or their backend system was a piece of shit. I could buy that.

But I'd seen just how efficient they could be when they _wanted_ to be, ie before I passed the "heavy user" threshold, so I knew they were doing it deliberately.

I get the logic, I'm a heavy user, they can only send so many movies before I'm not profitable. But like I said before: don't lie to me about it.

I would've paid extra for a premium "heavy user" account if they had offered me the option, but instead they pretended USPS was magically slow JUST for netflix movies, and they permanently lost a customer.

Their loss.

Addressing the 'Their loss' comment - Netflix could be happy you left from a business standpoint. I've talked to wireless carrier network execs who can speak specifically to the type of subscribers who they would like to encourage to leave the network.

They are only happy because they weren't charging me enough, and I was willing to pay that extra cost too, so it really is their loss.

The accusation was that if you were an exceptionally heavy user of the service, they'd start taking 2 or 3 days to send your next movie after you returned one.

That said, I'm not sure what the threshold was, because I was a very heavy user during that time and I never hit the problem. As such, whatever the threshold was, it was high.

I live in a big city where they have a local warehouse and they consistently ship movies to me really fast. I'm on the cheapest plan ($8/mo) and when I send a movie back, they get it the next day, and in the same day send out a new one. At that level of service it was already easily worth $8, but now they have an awesomely expanding offering of HD streaming content which makes it tremendously more valuable to me.

I've only talked to them once (I was annoyed that there was no option for communication except phone), but the guy I talked to was very helpful, friendly, receptive, and did indeed seem empowered.

Argh, a truly good article marred by one thing: the assertion that BitTorrent is a competitor for NetFlix. This notion just won't die - I use BitTorrent, sure - to get stuff I can't pay for, because nobody is interested in selling it to me. But I'd much, much, much rather toss NetFlix their $9 every month to deliver what I want without the hassle of BitTorrent, and that's the canard that the entertainment industry just can't get past. Just because it's free doesn't mean it's cheap. $9 a month is cheaper.

I think the article is referring to the Bittorrent company's attempt several years ago to get into bed with the Hollywood studios. The result would have presumably provided a service similar to Netflix's online offering -- i.e. not the same service you are currently getting from the Bittorrent software for free.


Ah - I hadn't known that. Then they shouldn't have called it a "new technology" imho, if that's what they meant.

It's a valid assertion.

Not to start a whole thing about piracy -- but what always surprises me in conversations about Bittorrent is that most people speak as if it has no effect on anything, anywhere, ever. Somehow, it also seems to exist outside any real purchasing decisions.

I'm not attacking you personally, but honestly that kind of thinking (as I've stated it, not you) is delusional.

The existence of unlimited free copies of your product is going to effect your business and your ability to profit. No question.

You might have morals and/or value your time, but actually I think the article is dead on that they're competitors. A large segment of the population chooses to pirate instead of pay. If BitTorrent ceased to exist (as a technology - not the company), NetFlix would almost certainly gain some customers.

Whoever prefers the hassle and crappy experience of using Bittorrent instead of spending a few bucks a month for Netflix, their money isn't worth chasing. It would be like Econolodge trying to market to the homeless population.

I'm not in the U.S. so I can't spend a few bucks on Netflix. But your bad experience with BitTorrent is probably purely a function of using the wrong trackers.

I have access to some trackers where the download very rarely goes below 2MB/s, with 5-8MB/s being the average. Some of these have material like discontinued music and foreign films that I could never get where I live, at least not without significant hassle.

With this setup I can initiate a download for a foreign 720p film, go and make some tea, and it'll be there by the time I come back.

That's quality of service I can't even pay for where I live, no matter how much cash I fork out.

To get access to those trackers, you generally have to be "cool enough", or know the right people, which for me is impossibly daunting.

Yes. Everything I found was junk; it was like Gnutella all over again. The last time I tried to download a movie torrent, it turned out to be porn of a type that I do not want on my hard drive. (That's why it was the last time.)

To me, that result seems really non-typical. For the majority of movies you're going to have hundreds of seeders -- they're not going to keep mislabeled movies-as-porn.

Most of them are pseudo-private. I.e. they'll open up signups from time to time. It's often only an issue of doing some basic research about what sort of tracker you'd like access to, then subscribing to their news feed.

Well, but that's exactly what I'm talking about - P2P does provide a really useful service, and I use it, too, for the same reasons. It's just that all things considered, I'd rather pay somebody to do it for me, especially given that NetFlix is ridiculously cheap for the convenience it gives me.

P2P is free in terms of money, but it's not at all free in terms of the effort you have to put into it to get reasonable, useful results. I don't want to do that; I have other things to do with my time and the time in my life when I liked ferreting out the dark corners of the world passed long ago (in my case, it was discovering that our stereo's radio band selector could cause it to pick up shortwave when positioned correctly - that summer, I learned that the Soviet Union was a paradise for academics and artists).

I don't have the time to find the right trackers, and there's the ever-present danger of the RIAA sending me a nastygram - or, as happened before I turned on security on my WiFi, sending my ISP a nastygram about movies downloaded. That sucked. This neighborhood is dirt poor, and I didn't mind sparing some bandwidth, but if my ISP is forced to turn me off if I don't police it?

That's the hassle of P2P, unfortunately. My beef is that if the RIAA were roughly as intelligent and mature as my 11-year-old, I'd be able to keep my WiFi open and buy movies online for reasonable amounts of money.

So when an otherwise excellent article like this slips in an incorrect assertion about evil pirates without justifying it, that really burns me. There are perfectly good business opportunities that the "rightsholders" (god how I hate that word) are too fat and lazy to take advantage of - but plenty of lawyers.

I don't think your experience is really that common. First of all, I get most of my TV from bittorrent via RSS. I just subscribe and it's automatically on my harddrive ready to plan less than 24 hours after it aired with the commercials clipped out. No special sites required. No logins. No hassle at all.

For movies, same deal. As long the movie is out on DVD, I can find it in minutes from any popular search site and have it downloaded within 30 minutes. I've never had a bad result. As for RIAA, I do have an IP filter installed but even that was extremely easy.

I suspect you're vastly overestimating the hassle in using Bittorrent. But it is true that most people don't want to bother learning even the simplest things.

I agree with your comment, but it stings to think of myself as a "homeless" - these things tend not to work in Uruguay* (my home country), and even if they do, they're illegal anyways.

Being a small South American country means large corporations often ignore you (it's cheaper than trying to cater to yet another mass of hungry legislators and tiny fiefdoms)

*that means I haven't actually tried Netflix itself despite it would be good for me, but I have tried similar services like Pandora and they aren't legally allowed here.

I agree. I make piratable media, and I don't lose any sleep over it. I'm just challenging the assertion that they're not competitors at all.

I donno -- I know some people who bittorrent as default behavior. They tend to also pay for both netflix and a fast network link.

Remember, many people technically sophisticated enough to do bittorrent are also smart enough to be lazy with their effort.

Didn't the strength of iTunes paid songs show that people's time is worth money?

A large segment of the population chooses to pirate instead of pay

Is there any numbers backing this up?

Anecdote: I have multiple relatives, including a police officer, who are dumb as a rock about how computers work, but through their friends have managed to pick up on how to use BitTorrent + Pirate Bay to pirate not only movies but music. And they see nothing wrong with this behavior, in an extremely conservative portion of Ohio; the same people who insist our President is a Muslim Kenyan.

If this sort of use case has penetrated this portion of the population, I'd have to imagine that it's prevalent enough to be at least a tiny competitor to Netflix et al, if not more.

That is what I was wondering since I hadn't really seen anyone outside of the tech world use it.

So with that I can see it being a competitor, but then I wonder how do you compete with something that is illegal and not really an entity?

I wonder how do you compete with [BitTorrent]

Netflix competes by being more convenient than BitTorrent. BT might be free, but it doesn't deliver TV shows and movies directly to your HDTV.

It can if you buy DVRs that can run Bittorrent internally and decode a variety of codecs. Not to mention just using your computer to host the files and pass through such a device or PS3/Xbox directly to the television. Or just hooking up the computer to the TV, but of course then there is the hassle of setting it up to be convenient to control from your couch. Wireless mouse is often enough.

Again, it's not hard. But there is a small learning curve. Netflix and competitors have to keep making it easier and easier, since alternative sources will also keep getting easier to use.

Actually it does if you know how to set it up. With the right setup you can subscribe to TV shows and have them waiting for you on your HTPC a few hours after they've aired for the first time anywhere in the world. Same with movies, pull simple up a web interface click a few movies you want to see and it's more often than not ready to watch 30-45 minutes later.

There are advantages to being able to afford centralized infrastructure. I can stream from Netflix. Downloading from Bittorrent means telling my girlfriend, "OK, we can start that movie in an hour if the download goes quickly." Blockbuster is more convenient than Bittorret in many cases.

The Pirate Bay alone reports 30 million peers, although it doesn't report uniques so it's hard to tell. But then there are people who just come on, download, and quit.

Really I think the onus of proof would be on anyone claiming that the pirating percentage is insignificant, not the other way around.

>hassle of BitTorrent

What do you mean? I hadn't noticed.

In my experience these are the shortcomings of using bittorrent:

1. It can take several minutes to find a decent release for titles that are older (>5 years) or less popular. 2. Older/Less popular items are poorly seeded, meaning I potentially have to wait overnight for the download to finish. (A new episode of a current series, however, usually comes in as fast as my broadband connection can handle). 3. Unless you know all of the release groups by heart, you have to spend a minute or two sifting through search results to find a release in a usable format in good-enough quality. Often I have to settle for something that plays fine in mplayer/vlc instead of something I can stream to my PS3 connected to my TV. 4. Maybe about 1/20 times I finish a download only to realize that it's A) not in the right language or burned-in with foreign subtitles B) terrible quality C) incomplete.

Sure, I get to keep the files, and often I can find stuff that streams on all my devices without hassle, but I watch stuff infrequently enough that the effort and possibility of failure is bothersome. I'd gladly pay to be able to choose a show and watch it immediately, assuming that the library of available content was large enough.

You forgot 5.) It's often illegal

Using BitTorrent to pirate media incurs some legal risk; there is always a chance that a media company will decide to sue you. Now, the odds of that happening are low, but once they decide to sue you, you will almost certainly lose thousands of dollars, even if you end up winning.

In a sense, you can think of the money spent legally purchasing all (or most) of your media as an insurance policy -- you're paying for the right to enjoy media without having to worry about losing tens of thousands of dollars. Low probability high cost scenarios might not trouble younger unattached folk, but I found they weighed more on my mind as I grew older and started a family. YMMV.

Well, I'm primarily just talking about the hassle of finding what I want on BitTorrent. The legal aspect rankles but isn't really my main concern. With NetFlix, I just pick things out of a list, no popup porn ads, no searching for a tracker that actually has seeds, no bait-and-switch. Just movies, delivered about as fast as I can watch them anyway.

I watch way more stuff with Netflix than with BitTorrent because getting the stuff I want to watch on BitTorrent would be a huge hassle.

BitTorrent is a competitor to NetFlix in the same way that it, and P2P, was a competitor to the iTunes Music Store. Even if it's not free or not without hassle, it's still a way that some people get movies/TV shows etc. Which makes it competition.

Yes, yes, and the convenience store in the gas station two blocks down is also "competition" for the Meijer superstore with actual produce and food, that I have to drive to.

It's not really competition. I never go to that convenience store because they don't have what I want to eat. So in your sense, while they exist in the same market and are therefore "competitors", that viewpoint really distorts the reality of the situation.

Point taken. In Netflix's view, they focus on a specific market niche so that they effectively compete in a smaller, less crowded space. But in analyzing their business, it's not unreasonable to take into account "nearby" competitors even as they differentiate. Netflix themselves do: http://www.slideshare.net/reed2001/netflix-opportunity (slide 31).

Overstating BitTorrent's influence would be a mistake, but ignoring them altogether would be a distortion as well.

It's too bad there's no way to assign a universal "reputation" score to the various pundits out there so that readers can better assess the value of their published predictions. Michael Pachter, for instance, has been wrong on a number of occasions (he predicted Sony would dominate the current console generation and Nintendo would languish and MSFT would be #2 -- at least he got the last part right).

Like the iPad which many pundits couldn't figure out, the consumers never wrote off Netflix and that's pretty much all that matters.

It appears to be down at the moment, but there's a site called Wrong Tomorrow (http://wrongtomorrow.com/) that seems to me like a good start in this direction. Here's the blog post announcing it:


A database that list all pundits' specific prediction and give them a rating based on if they succeeded or not?

The problem is that you have to take account how unlikely a given prediction would be in comming true - a person who predicts one in a million things but only gets it right one out of a thousand is still way better than somebody who predicts the results of coin-flips with 51% accuracy but in your system the latter would be ranked far higher.


You would have to give each prediction an "audacity factor", how unlikely it seems.

The system would work in fashion where a 50% accuracy rate and a 30% one would actually be considered the same accuracy. Either you get higher than a 50-60% rate OR you get some of your predictions rated as having a high audacity factor.

There is a very good system for handling this type of thing: Prediction Markets (http://en.wikipedia.org/wiki/Prediction_market)

The basic idea of a prediction market is like a stock market for outcomes with an end point. If you make good predictions you will make 'money' and if your predictions are correct but go against the common idea your rewarded even more handsomely. Of course a true prediction market has a shifting price point where you can choose to sell your 'shares' at any point, yada yada, but I think the concept applies.

The trick is you have to have the pundits participate in order to make it work. I suppose there could be some third-party that pulls their articles and 'ghost trades' for them?

However I think the truth is that pundits DON'T WANT to be held accountable. Even if they are shown to be 'the most correct' they are still going to be wrong some of the time and those will always be used as examples to attack them and their views.

Just look at another comment in this thread that tears into this pundit for his poor job predicting the Sony vs MSFT vs Nintendo war over this console generation. This is a SINGLE data point being used to try and dismiss his views.

edit: For anyone interested in prediction markets check out Inkling (http://inklingmarkets.com/). I don't work for them, but I just think they have done an awesome job of creating some useful software. I am trying to push for this to be adopted internally for creating 'confidence metrics' of how stable a build is going to be, or if a deadline is going to be hit.

That could be a component. I can't put my finger on the other ones, and it was just a slapdash thought, but I'd just love a scorecard that maybe considered: predictive success, factual error rate/truthyness (e.g. do they make frequent bogus claims?, known biases and employer(s).

It's not really realistic to comprehensively log all of this, of course. But it sure would help me assessing the relative quality of some sources, especially now that sources for news are so varied and fragmented. I suppose in the past the reputation of a publication served some of this purpose (i.e. WSJ or NYTimes having stellar reputations).

I knew of a couple of databases for equity analyst performance like Starmine and Bulldog Research. So those do exist. Not sure if either are still around since I'm no longer in the finance space.

I've seen such a website somewhere but can't find it. It was in relation to an apple prediction but there were plenty of others there too (inc political).

your probably thinking of http://wrongtomorrow.com/ which no longer seems to be up - and it never seemed to get much traction anyways.

Yes, that's the one. Thanks

from Google cache: Site: http://bit.ly/9JiRrz & FAQ: http://bit.ly/9cQeTb

I think that pundits' predictions are largely colored by their own bias, much like political pundits.

I have to admit that I'm a consumer and I still don't get the iPad. It's like an underpowered laptop that I have hold instead of letting it rest in my lap. What could the benefit possibly be? But... here I am, eating my proverbial hat.

Netflix, on the other hand, I get. I had it early and people would say, "Why would you want to wait for your movie when you could get it at the video store?" I would explain that 1. I wanted movies I couldn't get at the store and 2. I generally had 2 or 3 going, so I wasn't without something.

It's just a matter of what you value and then projecting those values onto the observed behaviors of a large population. If you see a bunch of people going to the river you might think that they are thirsty, but in reality they want to go swimming. That uncertainty makes predicting hard.

The Long Now Foundation put up longbets.org to encourage some kind of accountability for predictions.

There's a project working on this very issue. Developers, check out http://nextny.jobthread.com/job/lead-developer-new-york-ny-u...

> the consumers never wrote off Netflix and that's pretty much all that matters.

Not that I necessarily wrote off netflix, but I did jump ship to Blockbuster's online service for short while when it was first introduced. The ability to return the movies I got in the mail with any movie at their physical store was a pretty nice feature, in addition I got to rent one game per month as well.

A couple of months later, blockbuster started changing their policies and I switched back to trusty netflix.

When blockbuster first introduced their service I thought that netflix might be in trouble...but my unpublished prediction was unfounded! ;)

Why couldn't it be a combo Wiki + Browser toolbar app?

When you read a story on any of X sites, a popup appears in your browser informing you that the writer of this story has an entry on JournoWiki (or whatever), and that independent readers like you have deemed him/her "Full of Crap."

The popup would then have a link to share something on Twitter of Facebook indicating whether you thought their latest story was better or worse than what people thought of them. That share would have a unique tag in it so it could be picked up by your app and sucked onto his/her profile page.

This is a tangential pricing-related question:

Why does Netflix, which is solving some hard and interesting problems both on the technical (delivery/algorithms) as well as business side (licenses etc) only charge $9-$15 a month whereas online services like dating sites and project collaboration SaaS tools that are arguably much easier to build get away with charging anywhere from $30 to $60 a month?

If pricing is about supply and demand, shouldn't Netflix be able to charge a lot more (at least double of what they do now) since there aren't any comparable services with the level of user satisfaction as Netflix. I would gladly pay $30 a month for Netflix just because of how great the service is - I mean unlimited instant watching, access to some amazing foreign films, DVDs. Dating sites and some other SaaS services - dime a dozen. When a Match.com asks me to pay $30 a month, I cringe.

I'm perplexed by this.

Perhaps it's a volume thing?

I suspect that "I want to be entertained" is a bit more universal than "I want to find a mate" or "I want to manage my project."

So maybe they're finding some kind of sweet spot there?

The thing is, I use Watch Instantly sporadically. Sometimes hardcore, every night, for a week when I just need a break from everything, and other times not more than once or twice a month. $9 is such a fair amount of money to ask, I just let them bill away regardless, because I want to have it immediately if and when I want it.

So it could also be that <$10 is just the right amount of auto-pilot billing to maximize their revenue for spotty users.

Remember that Netflix came around in a consumer culture that was renting videos and DVDs from corner shops for maybe $2-4 a pop.

Throughout their history, all of Netflix's pricing structures have been designed to stay within that range.

It costs Netflix pennies to stream movies. ("Akamai charges a customer like Netflix about 5 cents for an HD movie, compared with about 3 cents for standard definition." See: http://www.businessweek.com/magazine/content/10_34/b41920385...)

I expect their prices to rise, though. If they want to stream first run movies (a la cable), they're going to have to pony up serious dough for the licenses. That means higher costs to the end consumer.

Why would they want to do that? They're kicking ass on the long tail.

> When a Match.com asks me to pay $30 a month, I cringe. I'm perplexed by this.

As other commentors said, it's partially volume.

Second, it's partially strategy - Netflix could charge more, but have a smaller customer base. Even if the net profit for the short term was higher at a higher price point, they might think it's worth it to get market share, word of mouth, and future expansion.

Third - for some services, customers see higher price as a desirable attribute. That could be the case in dating - people in certain demographics might prefer to know whoever else is using the site is serious enough to pay a decent chunk of coin, not just throwing a profile up for kicks.

Lots of factors. Shortest answer is - strategy. Netflix might be able to make higher short term revenues and net profit, but they might prefer the lower-price driven expansion to get economies of scale, volume, market share, word of mouth, and loyalty. Match.com might be able to make higher short term revenues and profits by lowering price and attracting more users, but instead they prefer trying to brand and position themselves as a premium, curated, high-quality site for serious people. Strategy is complex, lots of layers you can look at it, especially when playing at that really high dollar level.

I think it's a sweet spot. For $9 a month my wife and I don't need to discuss it. For $30 a month recurring, one we'll discuss it, and two, we'd better see a lot of value.

The price is at a point where even if we're busy and don't watch more than 1 or 2 movies that month, we won't mind, because of the convenience of having them instantly available via streaming, and knowing that the price is low.

It's low effort, high convenience.

I will take a shot at this. Netflix does have competition, from RedBox and pay-per-view on cable. People probably spend about $9-$15 on those competing services.

When it comes to those SaaS and dating services: Never underestimate the value assigned to hooking up or getting paid. People will pay if it thinks it will help them make more money or meet someone.

The question I have is how is Match.com still charging $30/month when Plenty of Fish is still pretty much free?

how is Match.com still charging $30/month when Plenty of Fish is still pretty much free?

100% branding and brand ranks probably at the top when it comes to things that people perceive as "serious" - like finding a mate.

Here's my take. A recent blog post at OkCupid (http://blog.okcupid.com/index.php/2010/07/07/the-biggest-lie...) indicated that most people use dating sites for 6 months. I would estimate Netflix users are multi-year users. Just using those numbers you need to charge more per user.

Obviously this isn't a really deep analysis, but it's perhaps one reason.

It's a pretty big reason. I've been a Netflix customer continuously since 1999. There isn't a single subscription service I have signed up online or offline (magazines etc) that comes close to that kind of longevity.

And I pay them a hell of a lot more than 9.99, too, being that I have a fondness for HD/BluRay and a modest broadband connection.

I don't think I would pay $30 a month for Netflix. From my perspective the demand for their services is fairly elastic, especially considering the substitutes. However, I do expect that prices will be recalibrated once video streaming makes up more substantial portion of their business. I'd imagine the economics of streaming vs. sending a DVD are quite different.

Prices are always based on demand, not costs. So the difficulty of creating something is irrelevant to its price in the market.

If there is a perfect substitute for a good, competition might drive the price down. In a perfect market, the price of a perfect commodity will equal its cost (in theory), but in practice there are no perfect commodities-- not even toilet paper.

Netflix can get a customer in perpetuity at $9-$15.

Much higher than that, it becomes a budget item that's scrutinized once a month, twice a year, or when times get tough.

I canceled cable with enthusiasm because it saved me $50 a month. I look at the value I get for $10 from Netflix, and it's clear that canceling it would be a mistake.

If it was $20, I'd cancel it. Instead, they have me forever and ever.

Let's look at a couple factors:

1) Customer Acquisition Costs. I'd be surprised if NetFlix pays more than $20-30 per customer. Dating websites have a lot more competition and are probably closer to $50/customer.

2) Lifetime Value. Customers of dating websites are transient, there only for a matter of months. As such, their lifetime value is not particularly high (I'd guess something in the $150 neighborhood). Netflix customers have long lifetimes (I've been a customer since 2000, with no intention of quitting) which adds up to a LOT of value.

3) Customer Price Elasticity. Dating websites are catering to people who will spend many hundreds of dollars on dates in their pursuit of happiness. $30/mo is a drop in the bucket if it helps increase your odds of finding that somebody. Netflix charges between $10 and $30/mo, depending on your plan, which is comparable to the cost of a few premium channels on cable, which is a cost their customers are accustomed to paying.

4) Price as value. If Netflix is more expensive, it does nothing to help you, it just costs more. If Match.com is more expensive, then the people on the site are likely to treat it a bit more seriously, which can make it a better product for some.

Netflix also has a company culture that tends to keep people motivated. They've identified that a great place to work isn't a place with perks, it's a place where you get to work on hard problems with great people.

And besides making users happy (which is important), at its heart, it's a technology company, and it shines through when they're able to leap from platform to platform to deliver the movies.

I have been a Netflix subscriber since February 2006. It is the only service that I have subscribed to for that long, and the only one I never, ever ponder unsubscribing to.

I've subscribed for as long, and Netflix occupies the same place in my lifestyle. It's a testament to just how great the core service is that they could make some very bad decisions, such as removing the entire social subsystem of friends, lists, and notes, yet not once did the thought of canceling cross my mind.

Netflix is probably the only pay service that almost everyone I know in the US has.

Apple Stock vs. Netflix Stock over past 5 Years: http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...

Netflix has a great engineering culture, not just a great stock.

Shameless plug: we're hiring good hackers. Check out http://netflix.com/Jobs

More pay for Sr Engineers vs Amazon,many others (tech recruiter whose pulled people from both:) )

Your use of Silverlight makes me question that assertion :-)


Biggest reason: support for Silverlight is crap on the Mac, nonexistent (for video) on Linux. Market penetration for Silverlight is very low, so a large percentage of Netflix users are forced to install it or upgrade for the first time (which is lame).

Why would Silverlight be chosen on its technical merits in an engineering-driven company? I don't see many other companies making that choice and I certainly wouldn't.

I happen to know that Microsoft is very interested in persuading big web sites to use Silverlight. I always assumed someone at Netflix was bribed^Wpersuaded with an XBox integration deal, or some other licencing/partnership deal.

Netflix has to deal with DRM. I've asked this question before, and it's not just the "oh, this is good, let's use it!" they've experienced the linux question plenty of times before. They have to submit to whatever their content providers demand they use. Right now, it's Silverlight. :/

I don't buy that. Why is Flash good enough for Hulu's content providers, but not Netflix's?

And why are they okay with Netflix not using Silverlight on the iPad/iPhone?

because there is no silverlight for iOS.

Silverlight was chosen LONG ago (fall 2008). It was and is FAR better than the shitty windows media player version of streaming.

Perhaps netflix has found other methods of DRM that the studios approve of since fall 2008?

silverlight supports a DRM implementation that the Studio's are happy with.

The alternative would be flash (which is a steaming pile of shit for osx and linux) and DRM for flash is shockingly expensive.

With silverlight, I can watch a 720p video on my mbp and use less than one core. I can not say the same for flash.

> With silverlight, I can watch a 720p video on my mbp and use less than one core. I can not say the same for flash.

A 720p video from Netflix? That definitely wasn't the case for me last time I tried, maybe 2 months ago.

edit: to clarify, it's not even possible to stream 720p from Netflix on a Mac, regardless of how many cores it might take.

OK, that's a lot nicer than it used to look. Apparently they enabled that in May.

I'm still not happy about needing to install Silverlight, but at least the quality is now comparable to what I get on my Xbox 360 and PS3.

For starters, it's a poor choice for streaming technology on the Mac.

Can we expect to see HTML5 video support for the Mac anytime soon? It pains me that Netflix HD streams on my iPad look better than on my 1080p projector hooked up to a Mac mini.

Of course video using only 1024x768 tiny pixels on a bright glossy screen will look better than using 1920 x 1080 pixels from a projector. You simply won't see as many problems with video compression on the small screen with less pixels.

Also, just to clarify -- there's not really any such thing as HTML5 video. There's an HTML5 video tag, and browser vendors can decide what kinds of video the tag should handle in their browser on a given OS.

How the video looks on your iPad or projector depends on the compression/decompression algorithm ("codec") and how efficiently the playback software and hardware can decompress and render frames of video to your screen.

Silverlight and Flash both support the H.264 codec, meaning a given frame of video in either technology should look the same.

In desktop Safari, the HTML5 video tag ties into any media the installed version of QuickTime can play, including video compressed with H.264. The HTML5 video tag on iPad and iPhone 3G and later supports H.264 Baseline profile 3.1, while earlier versions of iPhone support H.264 Baseline profile 3.0.

Given that Silverlight, Flash, and QuickTime all play back an H.264 encoded video, the exact same file, differences stem from other things besides the video, like excessive CPU usage causing frame drops.

For example, Flash 10.0 didn't access hardware acceleration for decompression of H.264, so 720p or higher content would generally drop frames and stutter badly. Flash 10.1 can, with certain video cards, use the video card to decompress the video, letting the video play more smoothly.

Safari 5 and QuickTime also can access hardware acceleration.

Meanwhile, Silverlight 3 was much more efficient at decompressing and rendering 720p size video on a Mac than Flash 10.0, while also supporting DRM encryption/decryption, making the Silverlight player a natural choice for Netflix. (As of Flash 10.1, on compatible Macs, the situation has somewhat reversed.)

On the back end, Silverlight streaming servers and Apple adaptive HTTP servers are close enough that an IIS Media Services server can stream to iPhones/iPads. H.264 video encoded for Silverlight Smooth Streaming or for Apple adaptive HTTP streaming uses generally similar techniques, helping an investment in Silverlight pay off in reaching the Apple iDevice ecosystem.

Thanks for taking the time to explain Netflix's justification for choosing Silverlight. As a customer, I would still prefer a solution that doesn't require installing a plugin.

Let me rephrase my original question: is there any chance we'll see a native or browser-based application for the Mac that doesn't require Flash or Silverlight, ala the iPad app? Presumably whatever sort of DRM the iPad app is using could be implemented on the Mac, as well.

By the way, you could have skipped the patronizing bits in your response about HTML5 tags and the definition of the word "codec." The term "HTML5 video" is used colloquially to refer to native browser support for H.264 or WebM video. I thought that was clear enough, but perhaps I should have been more precise.

The sort of DRM the iPad is using is what the Silverlight player offers on the Mac desktop:


Ahh, that's an informative link. Thanks for posting that.

You didn't really answer my question about a native Mac app, but that may be because you can't talk about anything that may or may not be in development, which is understandable. In any case, just to re-iterate, my customer feedback is that I'd be much happier with Netflix streaming on my Mac if there were a native Mac app that incorporated the iPad implementation of PlayReady, without the need for installing Silverlight. On the bright side, I'm definitely happier with Mac streaming since learning from elq that Netflix supports "HD" streams on the Mac since May. I guess I should have subscribed to the official Netflix blog, as I'd have heard about it before yesterday.

p.s. Also in that article is this gem:

In addition, Netflix founder and CEO Reed Hastings sits on the Microsoft board.

I guess we've hashed this to death already, and you've made good points about the technical merits of Silverlight (version 3, at least, which was not available to the public when Mac streaming was originally released), but given the relationship between Netflix's CEO and Microsoft, you can probably understand why people would be skeptical that the choice to use Silverlight was an engineering-driven decision, which was staunch's point in his original post, I think.

At any rate, I think you and elq have made a good argument that as of v3, it's probably a better technical solution than Flash, at least.

The killer app in this space is studio catalog - that's the competitive advantage.

Distribution for NFLX is strong - but given the move for most new hardware devices to include "Apps" integration, distribution is going to be a waning advantage.

It's going to be an interesting battle, for instance what does the paperwork look like in Netflix' studio agreements - can they sell to Apple?

Astute. I think you're dead right about the studio catalogue.

Unfortunately, the studios are still trying to protect what they view as their major customers: Retail chains (WalMart and Blockbuster) and cable companies. They understand those business, they've made money with them, and file sharing and secondary markets are negligible in those environments.

I've never thought about Netflix's agreements with third party distributors. That's a good question. Originally, I assumed some money was changing hands but maybe not. Maybe Netflix looks at it as a form of loss leader and a strategic advantage in the long run.

It seems like every company that comes out with a set top or mobile device now eventually includes Netflix. For consumers, Netflix is becoming a feature that's just not anticipated, it's expected.

I think Netflix is aware that their advantage with regards to distribution isn't going to last forever and that they need to focus on getting more (and newer) movies.

They seem to be making headway in expanding their catalog - e.g., the $1 billion deal with Epix (Paramount, Lionsgate, and MGM) to increase the size of their "Watch Instantly" portfolio. From what I've read, this is a big deal, as they're paying a bit more (relative to the premium cable channels) for the same rights.

More info on the Epix deal: http://www.hollywoodreporter.com/hr/content_display/news/e3i...

I agree, with a caveat:

Distribution involves an endpoint: me+device. Netflix has me, and millions like me. On any device. I watch on my PC, my Mac, my Wii, my iPad. My 5 yr browses for shows on the Wii and the iPad. So Netflix has the advantage of customers and devices.

I spend $20/month on netflix. I have spent a total of $10 for TV shows on iTunes.

Netflix succeeded because of having right values and great culture. The slides explains their values and culture in detail. It is so much easy to visualize why they are successful: http://www.slideshare.net/reed2001/culture-1798664

NetFlix simplified my life. The value of that is what I think is underestimated.

On a recent visit to the states I got to try out Netflix, and on being told you could watch any film you wanted was very impressed.

Turned out there are only certain categories of film (i.e. the ones that would be on daytime tv..) you can watch on "freeplay" and anything good you have to wait for a DVD in the post.

No wonder its cheap. Was still better than the adverts every 8 mins while watching Rambo on a cable channel though.

I won't become a netflix customer until they stop using pop-under advertising.

are you sure it's them directly and not someone advertising for their affiliate account?

No, but that doesn't really matter to me. If netflix doesn't realize it's happening, maybe someone will notice my comment and do something about it.

They're still culpable. It's their responsibility to police their affiliates. They can't rightly turn a blind eye to the means by which they profit.

Speaking of annoying ads, this is the page that helped me get rid of the Meebo bar on Slate: http://www.chizang.net/alex/blog/2010/08/19/block-meebo-bar/

What browser are you using that you still see pop-under ads?

It happens occasionally. I haven't used the same browser on the same computer every day for the past four years, and providing a matrix showing the pop-under-exploit-blocking capability of each one over that timeframe would be difficult.

Are you thinking of Hulu? When does Netflix do pop-unders?

For the past several years I've observed netflix pop-unders at various points on www.reelviews.net, and possibly other sites. (see my comment about using a variety of different computers and browsers over that timeframe)


Doesn't happen on the Wii, PS3, Xbox, iPad, iPhone and I'm guessing not on the new apple tv either.

Right, it happens when I visit other sites on a the web with a browser that doesn't block pop-unders. I'll see a big red ad with the word "Netflix" on it.

Quite simply, they are in the business of renting video content to people using newly available infrastructure. Put that way, theirs is a good business to be in.

I love Netflix. But Apple is gaining on them. At some point I might switch, or just use both.

I'll certainly never sign up for cable tv.

I think Apple's store has some great ideas, but I'm not going to pay for a "one time rental" type of service when Netflix is an "all you can eat" type of service.

I realize their "Instant" offering is still not as large as their DVD offering, but it's growing all the time. I currently have over 100 items in my "play it now" queue. I routinely switch items from my DVD queue to the "play it now" queue, so it appears that they are continually adding more content.

I've stuck with Netflix thus far because nobody can compare with their vast catalog of movies (DVD or streaming). However when it comes to value, there are months when I might watch many movies and really get the value out of Netflix's "all you can eat" structure, but other months I might not watch any movies and still pay the full subscription price. I think it probably averages out to cost about the same as Apple's pay-per-view system, so to me it really comes down to who has the best catalog of movies.

I just wish the would come to Canada.

Actually, Netflix is supposed to be available in Canada soon.


Mind you there are existing similar services.

Zip.ca is existing, similar... and awful. Which parallels a lot of tech-oriented services in Canada (cell phones are a great example).

Hopefully the Netflix service in Canada nails it.

For UK people, they're planning to relaunch here by the end of the year:


Meh. Netflix was great for the first 6 mo. Then everything got stale and nothing is good on streaming nor DVD. C'mon where's the remake of Tron for god sake.... I've canceled.

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