Inside Netflix’s strategy to expand across the planet
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Inside-Netflixs-battle-to-ACan Netflix wipe out the competition in Southeast Asia? (image, Tech in Asia)

Tech in Asia’s Michael Tegos takes an inside look at Netflix and its strategy to expand around the globe

Tech in Asia

Disclosure: This story resulted from a press trip sponsored by Netflix.

Late at night, Netflix’s shiny new headquarters in Los Gatos, California, is largely silent. The huge open-space offices are quiet, the sprawling communal areas with their abundance of snack, meal, and drink choices deserted. But one room is crawling with people gathered around a conference-type set-up, where employees hunch over lit laptop and phone screens while journalists from all over the world loom over them.

A timer projected on the far wall counts down to midnight. That’s when the second season of Daredevil, Netflix’s original TV show developed with Marvel Studios, will go live all over the world. A hashtag on a screen reads, “#daredevileverywhere,” reminiscent of the “#netflixeverywhere” hashtag when the service launched in 130 new countries in a single day at the start of the year.

As the timer reaches zero and the season’s episodes are released into the ether, the screen on the wall shows the ensuing spike in traffic. A team leader barks out questions (“How are we on iOS?”, “Android?”) and people shout back confirmations. It feels like a NASA control room during a rocket launch, just with moodier lighting and a celebrity actor present (Charlie Cox, who plays Daredevil’s titular character). Given that Netflix is in the entertainment business, all the drama is probably not accidental.

Netflix dares to conquer the world of entertainment streaming (Image, Tech in Asia)

Netflix dares to conquer the world of entertainment streaming (Image, Tech in Asia)

Everything about this elaborate staging is meant to convey one thing; Netflix is now close to a global entertainment provider, and the simultaneous release of its properties worldwide is a huge part of its mojo. “We want to be producing and sharing global content all over the world,” co-founder and CEO Reed Hastings tells a roomful of journalists a few hours prior to the launch.

The Netflix approach to conquering the world boils down to three key things, as Netflix sees it: data, continuously improving technology, and grabbing the cultural mindshare.

The devil is in the data

Any startup worth its series A these days knows that data is invaluable. Netflix hoards it like an overzealous dragon gathering gold in his lair. Unlike him, though, it doesn’t just sit on it all day.

The data that matters isn’t necessarily what you think. “Where you’re from, your age, your gender, these things don’t really matter so much,” says Todd Yellin, VP of product innovation at Netflix. His role involves making sure users have a good experience on the service, one that’s consistent across different formats, from smart TVs to Android phones.

Todd Yellin, Netflix VP of product innovation

Todd Yellin, Netflix VP of product innovation (image, Tech in Asia)

What does the data tell him and his team? One example is that the average Netflix user looks at 40 to 50 titles during a given browsing session, looking at each one for an average of a second and a half. The challenge, he says, is in floating the right options toward the viewer, based on their preferences, interests, and watching history, so that no second and a half of that browsing is wasted.

How often that succeeds is arguable; wonky Netflix recommendations have long been the subject of jokes on social media. The point is, the company keeps working at it to improve the service, and it’s been learning a lot more since the global launch.

Another example is A/B testing, tech startups’ time-honored tradition of presenting different materials to different users to see what sticks more. Everything, down to the main image people see when they pull up a particular title has been been painstakingly tested – no less than six possible images are presented to us for shows like Jessica Jones and Fuller House that went out to users to determine which one got more people to watch.

Narcos, a show that’s mostly in Spanish with English subtitles – a death sentence as far as US-based viewers are concerned – actually proved to be hugely popular across multiple territories because, Todd says, it was a great story. So the company takes care not to make any assumptions on what will work where, but rather relies on what the numbers say.

A relaxation space at Netflix headquarters.

A relaxation space at Netflix headquarters. (image, Tech in Asia)

Express from the US

Once Netflix knows what content to send where, it comes down to actually getting it to viewers. That’s the province of Ken Florance’s team. Ken is VP of content delivery at Netflix – if your picture is nice and crisp, you have him to thank. If it’s full of artifacts and buffering pauses and whatnot, he’s the target of your ire (and maybe your ISP. And your router maker. And your internet settings. You know what, maybe don’t yell at Ken after all).

Netflix completed the transition to the Amazon Web Services (AWS) cloud system last month. This helps the company to face mounting demand in streaming as more countries and users join the service. But it still holds an ace up its sleeve.

Netflix’s Open Connect Appliances look a little something like this

Netflix’s Open Connect Appliances look a little something like this (image, Tech in Asia)

Open Connect is Netflix’s method of ensuring that video is delivered everywhere with the speed and quality that users have come to expect. The way it works is that once a show, say season 2 of Daredevil, is uploaded and ready to go, it’s copied to all territories where Netflix is in, to be streamed from there to viewers.

For that first “fetch,” Netflix uses Amazon’s computing capacity, but after that, the video is streamed from storage boxes that Netflix itself sends to ISPs and internet exchange points around the world. The company gives those boxes, called Open Connect Appliances, to providers for free, and they are dedicated to streaming its content to users.

The boxes, essentially server-like rows of storage, capable of sending out the goods at up to 100Gbps, are custom-made by Netflix’s research and development team. They’re designed to be power-efficient and carbon-neutral.

Ken says this helps Netflix provide better quality to users, decrease costs for the ISPs, and also be “good stewards of the internet,” i.e. not choke everyone else just to get its videos through. In a way, it’s a response to ISPs who have been vocal in the past about Netflix overflowing their networks – or have threatened to throttle its traffic unless it paid up.

It can read your mind

So Netflix has done the legwork to know what to show you, when to show it to you, and the best way to do so. But for all that to work, you have to be there to see it.

Netflix doesn’t seem to have a problem with user acquisition, although it steadfastly refuses to reveal any numbers beyond the “75 million members globally” figure. But it has done very well in capturing the cultural mindshare, the zeitgeist. People knew “Netflix and chill” as an expression before the service had even reached their country (and not even because they were on the service through proxies). Some smart TV makers have even built dedicated Netflix buttons on their devices’ remote controls.

Netflix started its Recommended TV initiative last year, highlighting certain models of smart TVs where the Netflix experience was the best possible in terms of ease of access; performance and speed of the app on startup and resume; and software updates. This year it’s taking it global.

The message there is, of course your TV will have a Netflix app installed, so why not encourage manufacturers to create the best possible hardware for it? The little “Netflix Recommended TV” sticker on the box is meant as a seal of quality, but it actually serves to underline Netflix’s ubiquity.

Netflix director of business development David Holland (left) and director of platform product management Brady Gunderson in the company’s testing labs.

Netflix director of business development David Holland (left) and director of platform product management Brady Gunderson in the company’s testing labs. (image, Tech in Asia)

Not that all this is a bunch of hot air; the testing lab at Netflix HQ is sufficiently crammed with TVs, tablets, phones, and other devices for me to believe the company knows what it’s talking about when it recommends certain models over others. And the process doesn’t involve a partnership or a financial deal between Netflix and TV makers, the team tells me.

World problems

All these arrows in Netflix’s quiver are going to come in handy now that the service is available in over 190 countries. As it has grown larger, so have the challenges it’s facing.

There hasn’t been a user willing to raise their voice in one of the new territories that hasn’t complained about the size of the catalog, for example. And they have a point; compared to the wealth of viewing choices available in the US, the offering in the new markets is paltry. Although it’s growing all the time, the constant refrain of users is that it’s not worth extending their month-long free trial, despite reassurances by the company that it’s working to extend its library worldwide.

The launch of Daredevil’s second season serves to amplify the message that Netflix’s original material is available worldwide at the same time, no strings attached. That’s largely true, and the company is growing its Netflix Originals catalog, with dedicated teams in Hollywood and around the world.

For many users, the problem was solved in the short term by using VPNs and proxies to access the US catalog. That was until Netflix recently made good on its policy of not allowing this practice and started disabling access. A lot of international users found themselves locked out of the US catalog, much to their chagrin – and to the relief of content licensing teams everywhere.

Reed Hastings says this is a natural outcome of growing up. “The maturation of internet TV means we have to respect these rules,” he says about the international licensing deals that preclude all these shows and movies from being immediately available everywhere.

Netflix co-founder and CEO speaks to journalists at the company’s headquarters

Netflix co-founder and CEO speaks to journalists at the company’s headquarters

But Netflix’s head honcho had previously said the company will go on trying to make its offering as universal as possible. Many figured that just meant beefing up its Originals catalog enough that it could move away from those pesky licensed movies and shows, but Reed claims that will remain a big part of the service’s catalog.

So basically, the message to those cancelling their subscriptions after the VPN crackdown: be patient, it’ll get there.

The problem is, Netflix isn’t the only game in town anymore. It’s arguably the most powerful player, but competing services are popping up, and some of them have broad shoulders to lean on. From internet and cable giants like AT&T to networks like CBS, to internet heavy-hitters like Amazon, to local players like Southeast Asia’s iFlix and Hooq, streaming services that will compete for exclusive licenses to films and TV series around the world are getting more numerous all the time.

And then there are challenges you can’t predict, like Indonesia deciding to ban the service just days after it launched there. Reed is diplomatic about that, saying that they’re constantly working to put out fires like this one. He does point out that the company isn’t afraid to consider pulling out of a market if things aren’t working out, although he doesn’t confirm that’s going to happen with Indonesia.

China is also a big elephant in a room surrounded by a big firewall. Reed says the company is learning more about the market there and is working with partners to figure things out, although it might already be too late for a successful entry.

The good news is that the company seems to know it has to fight to stay ahead, but it’s doing so in ways that aren’t immediately obvious to the end-user. No matter how much tech innovation it throws into the system, most people around the world will judge in terms of the catalog size.

Netflix’s licensing team will have to move as fast as or even faster than all its other teams combined to bring those international libraries up to speed. While anyone who’s ever been involved in content licensing understands what a herculean task this is, the average person on the street just figures they can get back to torrenting. And that’s surely something neither Netflix nor rights holders want.

This article originally appeared at Tech in Asia.

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Michael Tegos

About Michael Tegos

A Greek in Singapore, Michael has been writing about tech, videogames, and culture for the last six years in Greece. These days, when he’s not covering startups in Singapore and beyond, he braves the mysteries of Char Kway Teow and Nasi Padang, plays videogames, and catches up on 90s TV shows.

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