The Netflix story is big and fascinating, full of world-changing ideas and fortunes
gained and lost. It would all make for a great limited series one day, maybe on Netflix itself.
Until then, here are some little-known facts about what really goes on behind that familiar
red logo.
The inspiration for Netflix is a tale often told, and it's a very entertaining and relatable
one, pointing out perfectly the flaws of the video industry which Netflix aimed to fix.
The story goes that Netflix co-founder Reed Hastings was inspired to start the business
after returning a copy of Apollo 13 to a Blockbuster Video way past its due date and getting hit
with $40 in late fees. Stung by the charges, he vowed to find a way to get DVDs to customers
without charging late fees. Thus the Netflix model was born: Movie fans paid a monthly
fee to have a certain number of DVDs at home, which they could keep for as long as they
liked, or return them in exchange for a new movie.
As great as the story is at putting a neat little bow on the founding of the company,
it's completely made up, something that Netflix co-founder Marc Randolph has called, quote,
"a convenient fiction."
The actual story behind Netflix's creation is simple: Randolph and Hastings sat down
to brainstorm ideas for a new company, and kept going until they landed on one that worked.
"We're not just doing this for money…we're doing it for a s---load of money!"
It's on most every list of bad business decisions: Blockbuster Video turned down the chance to
buy Netflix. In 2000, the fledgling home video upstart offered itself up to then-industry
leader Blockbuster for $50 million, and Blockbuster execs said "no thank you."
The company instead went all-in on a broadband-based entertainment delivery service with Enron,
subject of one of the most scandalous and disastrous corporate collapses in history
barely more than a year later. Netflix, meanwhile, grew to generate billions and dominate on-demand
home entertainment, while Blockbuster no longer exists.
But there's a lot more to the story. When Netflix put itself up for sale, it was hemorrhaging
money and wasn't nearly worth its asking price. Nor did it want an outright Blockbuster takeover,
suggesting instead that it run Blockbuster's online storefront. Basically, Netflix swaggered
up to a massive company and asked for $50 million and exclusive use of its brand. It
makes sense that Blockbuster executives rejected the idea.
As you'd expect for a company with thousands of films in its archives, Netflix meticulously
catalogs every movie in its library. But the company goes much deeper than sorting by genre,
rating, year of release, or cast and crew though. Netflix takes everything into account
when it adds a new film or TV show to its library, and we mean everything.
Netflix's proprietary algorithm sorts films based on everything from historical settings
to whether or not it contains vampires, allowing them to cater to almost ludicrously specific
tastes. As an example of how laser-like the focus of Netflix's genre algorithm is, for
an April Fool's joke they once suggested users check out "Movies Featuring an Epic Nic Cage
Meltdown." Which may as well have just been a list of every Nic Cage film, but you get
the idea.
“AAARRRGGHHH”
In 2014, a curious statistician worked through the code of Netflix and found the site has
more than 75,000 different "micro-genres" that it uses to categorize movies and shows.
For example, 8008 leads to "Steamy sci-fi and fantasy" while 45028 means "Deep Sea Horror
Movies." Netflix isn't completely forthright about the existence of the codes, but they're
easily and directly accessible when using Netflix with a web browser.
Type in "netflix.com/browse/genre/" into the navigation bar, and then type in a random
three-, four- or five-digit number and just see what happens.
"A, B, C, D, E, F, G, H, I, J, K, L M N O P, Q, R, S…"
What's the most important thing Netflix owns? Exclusive rights to stream numerous blockbuster
movies? A cut of the merchandising for Stranger Things? Nope, it's the data of its massive
subscriber base, which those same viewers generate every time they watch something on
Netflix.
Along with collecting basic data from subscribers, like the shows they watch, at what time, and
for how long, Netflix pinpoints when you pause, rewind, or stop watching something in an attempt
to figure out why. This data on its own isn't all that useful, but when cross-referenced
with basic geographical information and the same data produced by the other 70 million
odd Netflix subscribers, it can be used to produce comprehensive charts detailing exactly
what people watch. Netflix sadly keeps this information to itself so we'll never know
just how far the average person gets into the typical Adam Sandler movie before they
give up and shut the thing off.
"Ha ha."
"Hey hey."
"Nyeh nyegh."
Along with helping Netflix decide what to purge from its library, the data is an invaluable
tool for Netflix when it produces original content, allowing the service to confidently
predict exactly how many people will watch a particular original program and set an appropriate
budget. So remember, the next time you press pause, you're holding the fate of your favorite
streaming stars in your hands.
Because Netflix isn't beholden to advertisers and has a largely guaranteed revenue stream
from subscribers, the company will often order two seasons of any show it produces rather
than a pilot. Actors and writers have credited this with giving them a greater degree of
flexibility when creating shows as they don't have to rely on gimmicks like cliffhangers
to retain viewers. Instead, they can focus on simply creating good content. This is one
of the reasons some episodes of original Netflix shows are different lengths. The writers aren't
restricted to the usual time constraints of regular TV so they can make an episode as
long or short as it needs to be.
Also, because of the vast wealth of statistics about viewing habits Netflix has at its fingertips,
the company abstains from micromanaging shows because it knows they will succeed.
The best example of this is probably House of Cards. Netflix had no qualms about giving
director David Fincher approximately $4 million per episode because they had data showing
that users loved the original British series. On top of that, the stats showed audiences
were big fans of Fincher and Kevin Spacey, and rated their work highly. As a result,
Netflix pretty much knew the show would be a hit before it even aired, because the data
indicated that it would.
"One heartbeat away from the presidency and not a single vote cast in my name. Democracy
is so overrated."
Netflix is surprisingly hands-off when it comes to the management of its employees,
which is pretty unusual for a massively successful, omnipresent media company worth billions of
dollars. In fact, full-time workers in Netflix's main office are basically allowed to set their
own hours, with company policy stating that an individual employee can take off as many
days as they feel they need. The policy is so lax that if you want to take off more than
30 days in a row, all you need is the okay from a manager.
The reasoning behind this, from Netflix's point of view anyway, is that if you hire
good employees and treat them like adults, they can be trusted to make good decisions.
This ethos is best summed up by Netflix's official expense policy which goes, "Act in
Netflix's best interests."
Employees can pretty much request expenses for anything they like, but they're asked
to spend the money like it's their own. Despite seeming like such a system would be massively
open to abuse (Hello, 30 new laptops) it works and functions with little actual oversight,
with executives noting that the only real people they have to keep an eye on are the
IT guys because they always request fancy gadgets and toys for their office.
In addition to tracking what shows its customers watch and how often they pause them, Netflix
also employs analysts who track exactly what the world's most stingy entertainment enthusiasts
are torrenting online.
Like the data it collects from subscribers, piracy figures represent an invaluable insight
into viewing habits that Netflix uses to adjust its own programming. After all, if people
are willing to give their computer an STD to watch Game of Thrones or Arrow, it probably
means someone is willing to pay a few dollars to watch a similar show from the comfort of
their toilet.
Netflix has even been reported to use the geographical data of pirates to adjust its
pricing, lowering the cost of their service in areas with high rates of piracy in an attempt
to lure pirates over to the SS Netflix and Chill. It's a sentiment that kind of reminds
of us this famous quote by video game developer Gabe Newell:
"The best way to combat piracy is by offering consumers better service than they might get
from the pirates."
Plenty of big online companies found success in spite of a name that's made up, nonsensical,
or derived from an obscure word in a language other than English. "Etsy" and "Hulu" weren't
exactly familiar words 15 years ago. But Netflix? That just makes sense, it employs the power
of the internet, or net, to watch flicks. Simple.
It took company founders a while to put that portmanteau together. Before deciding on Netflix,
names like Replay, Directpix, CinemaCenter, NowShowing, eFlix, and Kibble were all under
various levels of consideration.
A company's public perception comes from more than just its name, though. Plenty of businesses
make an impression with an advertising jingle, and Netflix kind of has one of those. We're
talking, of course, about the most famous two-note sequence since the Law & Order scene
change sound.
That distinctive noise is widely assumed to be derived from the very last scene of the
last episode of the second season of House of Cards, one of the very first Netflix original
shows. It happens when the conniving Frank Underwood triumphantly slams his first down
on his desk, twice, in rapid succession.
By late 2011, Netflix's entry into streaming was so successful that it looked to permanently
overshadow what had previously been the company's core business: DVD rentals by mail. So, in
a blog post in September 2011, CEO Reed Hastings revealed that Netflix would split apart.
"Netflix" would be the home for online streaming, while the DVD-by-post service would be spun
off into a new and completely separate service called Qwikster.
Some financial analysts speculated that making the DVD business a separate entity was Netflix's
attempt to sell off that division, allowing it to focus its efforts and resources on the
growth industry of streaming. But nobody stepped in to buy Qwikster, and after three days of
nasty public backlash, the company reversed course and kept its DVD business under the
Netflix umbrella.
Netflix customers can stream a little or a lot of everything, and since not every movie
and TV show is excellent, the service certainly has its share of stinkers. It also produces
more original content than any person with a life could keep up with. In other words,
it doesn't seem like Netflix ever rejects any content offered up by producers or distributors,
but even the world's largest virtual video store says no sometimes.
For one example, Sony was reportedly so dismayed by low audience test scores for the 2018 Will
Ferrell comedy Holmes and Watson, which went on to win the Razzie Award for Worst Picture
of the year, that it offered it to Netflix as a straight-to-digital release, and Netflix
turned it down.
But Netflix also passed on three of the most acclaimed and original TV series of the 2010s,
all of which went on to win awards for other carriers. According to Netflix chief content
officer Ted Sarandos, his company let Amazon Video have Transparent, Hulu have The Handmaid's
Tale, and USA land Mr. Robot. But as Sarandos told Variety, quote, "A lot of times, it's
not the reflection of the show. It's just timing."
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