Perhaps the most unique thing about Netflix, at least as a business, has been the company’s ability to shift from one paradigm to the next. As evidenced by its most recent earnings release, Netflix is in the midst of yet another transition -- and it could be the most revolutionary one yet.
When Netflix was founded in the late 1990s, the company was built on single-rental DVDs by mail -- in effect, the standard Blockbuster model applied to the Internet. Later, Netflix decided to switch to a monthly subscription plan, and the company began to take off. In a piece titled “How Netflix (and Blockbuster) Killed Blockbuster” Rick Newman details how the success of Netflix’s subscription model, combined with Blockbuster’s own shortcomings, drove the once-dominant movie renter into bankruptcy. However, the most amazing thing about Newman’s piece is how outdated it is. Despite the fact that it was published less than three years ago, Newman gives only a passing mention to Netflix’s streaming ambitions. Today, Netflix is known primarily for its streaming, with its DVDs-by-mail dying a slow death. Now with video streaming as its dominant business, Netflix is working to transform what, exactly, that streaming entails. Three years ago, Netflix’s streaming content was nothing but a hodgepodge of various old movies and television shows from a variety of networks and studios -- really, anything Netflix could get its hands on at a reasonable price. At $8 per month, Netflix’s content was a great deal for anyone looking to binge. But of course, there are limits to that strategy.
Why, for example, would someone with a robust cable package bother to sign up for Netflix? Netflix is working to change that. The company has been rolling out original programming, and it’s clear that three years from now, Netflix will look more like an alternative cable network -- except on the Internet. In its letter to investors, Netflix spoke at length about the company’s ambitions for its streaming service; specifically, it’s all going to be about original or exclusive content from here. In February 2013, Netflix released the first season of House of Cards. Unlike other networks, which will typically show only one episode per week, Netflix opted to release all 13 episodes at the same time. Some consumers took advantage of this, binge viewing all the episodes within a few days, then promptly cancelling their membership. Yet, according to Netflix, the number of people who did this was relatively small -- only 8,000. Netflix contends that the media buzz and consumer satisfaction this strategy generated made up for any free-riders. In addition to House of Cards, Netflix recently released horror thriller Hemlock Grove. There’s also an animated kids series coming at the end of the year, and a Sci-Fi thriller late in 2014. But it isn’t just about Netflix original content; the company is also working to secure exclusive rights to content from other providers. In its letter, Netflix writes, “As we continue to focus on exclusive and curated content, our willingness to pay for non-exclusive, bulk content deals declines. At the end of May Netflix allowed the broad Viacom Networks deal for Nickelodeon, BET, and MTV content to expire. We are in discussions with them about licensing particular shows but have yet to conclude a deal.”
Ask anyone what the largest issue facing 4K video is, and you'll likely be told that it's distribution; bringing the massive files — with four times the resolution of a 1080p video — to viewers' homes is an incredible challenge. Nevertheless, Netflix believes it will be able stream Ultra HD 4K videos to customers by next year, and it's already testing the feature, according to Gigaom. In fact, you can watch Netflix's test footage now, as a number of 4K "movies" have hit the service for internal checks on 4K performance. It's worth noting that the movies are all made up of test footage, and 4K quality isn't an option yet for subscribers.
Netflix hasn't kept its interest in streaming 4K video directly to subscribers' homes a secret. CPO Neil Hunt told The Verge this spring that "we expect to be delivering 4K within a year or two with at least some movies and then over time become an important source of 4K," and CEO Reed Hastings said on a recent earnings call that "we want to be one of the big suppliers of 4K next year." The company also teamed up with Samsung to demonstrate live 4K streaming at CES this past January. While it's unclear if Netflix will be able to meet its goal of a 2014 launch, it looks like there will be some good content once it does arrive: the company's very own House of Cards will be among some of the first video on the site offered in 4K.