Netflix has realized the opportunity that exists if it is capable of improving it's recommendation algorithm. Because of this, it launched the Netflix Prize. Our group recommends that Netflix continue with its investigation into advancinig the accuracy of it's Cinematch™ system. If Netflix is able to do this they will be more likely to experience continued growth because their customers will continue to rent DVDs that have been recommended and maintain their subscription.

Cinematch™ brings lesser known movies to the attention of subscribers, increasing the effectiveness of Netflix Library. Continuously improve Cinematch™ software to improve personalization of website experience.

As video on demand slowly overtakes the DVD mail rental system, Netflix will need to harness technology that aligns with this new approach to viewing movies. Customers will no longer want to wait for a DVD to arrive by mail, and will instead seek a company that will allow them instant access to the movies they wish to view. Netflix has already seen the potential for video on demand and allows current subscribers to view unlimited movies on demand as part of their monthly rate.

Pursue technology alliance to allow VOD (Video On Demand), i.e. set top box or player that allows access to Netflix website and selection of programs for immediate viewing:

• Set top box should be simple, DVR type system that connects to cable outlet/phone line and TV (using HD cables)
• Should allow connection to Netflix website
• Develop encryption scheme to address copyright issues of studios or secure connection for downloading program
• Purchase programs based on site license usage, similar to software schemes in use now.  This would allow purchase of a specific number of electronic editions of a program.  Rentals would be available until the limit is reached, with new rentals allowed once confirmation is received that a current user has “returned” (i.e. deleted) their copy.
• Keep logistics transparent to the customer by having it run in the background under the account

VOD significantly reduces logistics costs of distribution while improving availability and responsiveness of Library:

• Purchase programs based on site license usage, similar to software schemes in use now.  This would allow purchase of a specific number of electronic editions of a program.
• Rentals would be continue until the limit is reached, with new rentals allowed once confirmation is received that a current user has “returned” (i.e. deleted) their copy

• Videos in general, and HD in particular, have extremely high bandwidth demands, especially as the number of users increase
• Extremely high bandwidth demand may limit performance of streaming content, detracting from user experience
• Alternative approach would be to distribute programs on different media, say credit card sized memory stick with built in USB connector, that would further reduce shipping costs
• Develop re-usable media to eliminate return costs - When renting new program, plug in media to computer or set top box; system erases media and signals distribution center to ship next program

A potential drawback to Netflix's business model is the way in which it determines who receives shippng priority on highly demanded and popular DVDs. Our group conducted an experiment where 2 people attempted to place a very popular newly released DVD at the top of their queue. The movie, "I Am Legend" had a 'Long Wait' listed for it's availability by one user, and no wait at all listed by the other user, even though both users placed the movie in their queue on the same day. This phenomenon is explained in Netflix's Terms of Use:

"...In determining priority for shipping and inventory allocation, we may utilize many different factors, including without limitation, the number and type of DVDs you rent through our service, the subscription plan you select, as well as other uses of our service by you. For example, if all other factors are the same, we give priority to those members who receive the fewest DVDs through our service."