LOS GATOS, Calif. - Netflix’s Internet video subscription service works around the clock, but it’s unusual for more than two dozen of the company’s engineers and top managers to be huddled in a conference room late on a Wednesday night.
This was a special occasion, near the end of a grueling day that culminated in the premiere of Orange Is the New Black, the fourth Netflix-exclusive series to be released in five months.
Netflix Inc. invited The Associated Press to its Los Gatos, Calif., headquarters for a glimpse at the technical preparations that go into the release of its original programming. The shows have become the foundation of Netflix’s push to build an Internet counterpart to HBO’s premium cable channel.
“This is Silicon Valley’s equivalent of a midnight movie premiere in Hollywood,” said Chris Jaffe, Netflix’s vice president of product innovation.
Netflix made a name for itself as a DVD-by-mail provider and an Internet video streaming business mainly by offering content from other companies. Now, the company has begun releasing its own content as a way to hook new customers on its $ 8-per-month streaming service.
The company promised its 37.6 million worldwide subscribers that they could start watching all 13 episodes of its latest original series at the stroke of midnight, Pacific Time, on July 11. So Jaffe and Netflix engineering director Bob Heldt summoned a battalion of key employees to a conference room that had been transformed into Netflix’s version of a war room.
The engineers were flanked by seven flat-screen televisions on one side of the room and two giant screens on the other. One big screen was scrolling through Twitter to highlight tweets mentioning Orange Is the New Black, an offbeat drama set in a women’s prison. The other screen was listing some of Netflix’s most closely guarded information - the rankings of videos that were attracting the most viewers on an hourly basis.
“This will be a successful night if we are here at midnight and it turns out that we really didn’t need to be because there were no problems,” said Yury Izrailevsky, Netflix’s vice president of cloud computing and platform engineering.
The mission was to ensure each installment of Orange Is the New Black had been properly coded so the series could be watched on any of the 800 types of Internet-connected devices compatible with Netflix’s service.
It’s a complex task, because Netflix has to account for viewers who have different Internet connection speeds, various screen sizes and different technologies running the devices. About 120 variations of code were programmed into Orange Is the New Black to prepare it to be streamed on Netflix throughout the United States and 39 other countries. Another set of engineers had to ensure foreign-language subtitles and dubbing were in place and streaming properly.
Others were still checking to make certain that the English dialogue properly synced with the video being shown at different Internet connection speeds. Just before another Netflix series, House of Cards, debuted in February, engineers detected two minutes of dialogue that was out of sync with video played on iPhones at certain speeds, prompting a mad scramble to fix the problem before the series was released to subscribers.
Netflix typically doesn’t have to go through all these steps when it licenses content that has previously been shown in theaters or on TV networks. Much of the technical work already has been done on the recycled video, leaving a minimal amount for Netflix’s internal team to do. Not so with the original programming being made expressly for Netflix.
“We have to start from scratch with these original series,” Heldt said.
The stakes and anticipation surrounding Netflix’s original series are much higher than with nonoriginal programming from Netflix’s library.
Netflix hasn’t revealed how much it paid for each series, but Hastings has estimated the company will spend about $200 million annually during the next few years on original programming - about 10 percent of Netflix’s roughly $2 billion budget for video licensing.
The original series also are being given a bigger piece of Netflix’s $450 million annual marketing budget as the company tries to exploit the shows to boost subscribership. Netflix gives newcomers a month to test the service for free, which gives the company a chance to impress viewers with the quality of programming in its library.
Netflix is counting on the original programming to reduce the number of subscribers who drop the service. This is important because Netflix charges by the month, making it easy for its subscribers to drop the service as soon as they conclude there’s nothing interesting to watch. Netflix’s cancellation rates usually hovered between 4 percent and 5 percent until the company stopped disclosing the figures last year.
Subscribers keep Netflix afloat because, like HBO, the company doesn’t subsidize its programming with commercials.
As part of its efforts to keep customers on board, Netflix tries to target promotions about its original series at subscribers most likely to enjoy the themes and approach, based on an analysis of their past viewing habits.
Netflix’s emphasis on original programming has worked out well so far. House of Cards also helped Netflix add more than 2 million subscribers during the first three months of the year.
Last Monday, Netflix said Hemlock Grove and a revival of Arrested Development helped its service add 1.2 million global subscribers during the three months ending in June. Investors had been hoping for even bigger customer gains, increasing the pressure on the Orange Is the New Black to help Netflix deliver on its projection of about 2 million additional subscribers worldwide during the July-September quarter.
Since the end of last year, Netflix’s stock has nearly tripled in value to about $250. The rally has recovered most of the losses from a sell-off that began two years ago after the company imposed service changes that raised its prices by as much as 60 percent and triggered mass customer cancellations. The stock had peaked around $305 at the time of the backlash.
In the war room, when midnight struck, engineers scurried to different devices to see if Orange Is the New Black was streaming without glitches.
One employee reported that it was working fine on Apple TV, one of the world’s most popular ways to stream Internet video to flat-screen televisions. Similar reports came in about how the series was appearing on the Xbox, PlayStation and Wii video game consoles, other major conduits. When one employee raised concerns that the series trailer was the only thing available on the iPhone app, the warning turned out to be a false alarm. The app just needed to be refreshed.
All the subtitles in different languages were working fine, too.
“Anyone seeing any issues, anything at all?” Jaffe yelled across the war room as he looked around at all the employees gazing into their devices and staring at big-screen TVs. “It sounds like we are in good shape.”
Business, Pages 19 on 07/29/2013