How Netflix Works

Content Streaming on Netflix

By 2007, high-speed Internet access from home had become more affordable and more common. At the same time, home Internet use included an increasing amount of downloading and streaming of media content. Netflix got a jump on that market by adding unlimited online streaming as one of its subscription options starting in January 2008.

To stream content from Netflix, you need a subscription that includes unlimited streaming. As of fall 2011, you could have unlimited streaming only for $7.99 per month. Unlimited DVD rental service runs an additional $7.99 per month.

When you subscribe to Netflix streaming, the following Netflix features are available to you:

an "Instant" queue alongside your "DVD" queue
"Play" buttons in both your DVD and "Instant" queues if the content is available for streaming
options throughout the site to "Play" or "Add to Instant Queue" in addition to the red "Add" and green "Save" options for the DVD queue
streaming access via more than 200 different devices, including game consoles (the Wii, Xbox 360 and PS3), mobile devices (iPhone, iPad and iPod touch), and Apple TV and Google TV

The first generation of Netflix streaming used Microsoft Silverlight, a platform that software developers can use to drive user interaction on the Web and mobile devices. Since Netflix required Silverlight, streaming was limited to computers and devices that could install and run the Silverlight software.

When Netflix transitioned its Web site to Amazon's cloud services in 2010, the company took that opportunity to incorporate the latest Web technology. This included HTML5, the new and continually developing standard for interactive Web content. By switching from Silverlight to HTML5, Netflix hopes to deliver content to more devices simply based on whether the software on that device was standards-compliant with HTML5. This means opening up Netflix streaming to more Web browsers, consoles and mobile devices [source: Caincutti, StrategyEye].

Though online streaming on Netflix is convenient, it does have a few disadvantages. First, not all Netflix content is available online. Netflix has continually expanded its online content selection, but there are still thousands of films you can only view on DVD. Second, not all DVD content is available online. For example, a foreign TV show on DVD may have both subtitles and English dubbing available, but Netflix might only stream the original language with subtitles. Easter eggs and other special DVD features are also limited through Netflix streaming.

So far, we've looked at the two side of Netflix's business, DVD rental and online streaming. Next, we'll look how Netflix's competition has changed over time on both of these fronts.

The Qwikster Debacle of 2011

In the summer of 2011, Netflix made a business decision to split its subscription model so that its online streaming and DVD services were priced as separate services. This also translated into a price increase for each existing subscriber's plan. This came as a surprise and frustration to subscribers, and on September 18, Netflix CEO Reed Hastings made both a video and blog apology for how the company handled the shift. Hastings took that same opportunity to introduce Qwikster, the brand Netflix adopted to split its DVD rental services into a separate spin-off company. The new Qwikster CEO would be Andy Rendich, who headed DVD Operations at Netflix. The media backlash that followed was overwhelming, and Netflix was criticized for its hasty decisions and lack of foresight. The company even failed to procure the Twitter account for the name before the announcement, an essential component in marketers' toolkits in 2011. By October 10, Qwikster was no more, and Netflix announced it would continue providing both its DVD and streaming services together under the same brand at the same Web site. As of this writing, Netflix was still a strong company with the potential to recover its reputation, but it was too early to tell how its price and service changes would affect its bottom line over the long haul [sources: Hastings, Schonfeld, Hastings, Dignan].