Netflix aims to become 4K video leader, ditch 3D

Peter Nowak on the company’s next big move

There are a lot of reasons why Netflix is one of the most interesting technology concerns going today. As a company that essentially sells people digital access to movies and TV shows, it has huge potential appeal worldwide since just about everyone watches movies or TV shows. With 40 million streaming subscribers in more than 40 countries so far—the Netherlands was just added in September—the service is growing in clout and exerting more influence on every aspect of the visual entertainment medium, from production and distribution to content and viewing patterns.

I had a chance to sit down with Netflix’s chief product officer, Neil Hunt, for a lengthy chat on Thursday, wherein we covered some upcoming improvements to the service—which I’m not allowed to talk about just yet—as well as a range of broader topics, from the future of television to the fate of HBO, which I am able to write about.

First on the docket was 4K, or ultra high-definition television, which manufacturers such as Sony and Samsung are starting to push in a big way. Weary industry watchers might be inclined to dismiss 4K/UHD—which features four times the resolution of regular 1080p high definition—as just the latest effort from manufacturers to kickstart flagging TV sales. With 3D having fizzled, it’s on to the next thing.

Hunt and Netflix in general think 4K is the real deal, however, seeing it as a natural evolution of what content producers and consumers alike already use and understand. Aside from pushing more pixels onto the screen, 4K TVs are also offering higher frame rates, meaning they’re able to cram more information into every second of viewing. The realism of video content is thus set to get a lot sharper.

Some good examples will be needed to sell people on the technology, however, which is why Hunt says Netflix is currently shooting the second season of House of Cards in 4K. The company is looking to add the higher-resolution content to its offerings in the first half of 2014.

Hunt believes Netflix can be the source of 4K content, since people won’t necessarily want to buy new devices to play discs or upgrade their libraries to another new format. “It seems to me that this time it’s internet delivery,” he says. “We [internet video] are often perceived as the last game in town, the scratchy video in 380p, but here we can really leapfrog to the front. I’d like to win a technical Emmy for delivery.”

On the other hand, Netflix is taking the opposite tack to 3D, which it announced on a test basis in the United States earlier this year. That feature has proven to be unpopular with subscribers, mainly because people don’t want to wear glasses at home. The situation is different in movie theatres, since the glasses are part of that special experience, but it doesn’t necessarily translate well into home viewing.

“We’re probably looking to back out of it in the end. I’m not sure there’s enough value in it.” Hunt says. “We’ve got a small collection and we’ll keep that going but we’re certainly not looking to expand it.”

4K streaming will prove taxing on broadband networks, especially in Canada where usage caps are comparatively low to the rest of the world: Netflix’s chief content officer Ted Sarandos has said the restrictions are “almost a human rights violation.” Streaming ultra HD will likely require a dedicated connection of about 15 megabits per second, which translates into about 7 gigabytes of usage per hour. With most Canadians on caps of about 60 to 70 GB, they’ll chew through that in no time and will have to divide up their consumption of the 13-episode second season of House of Cards, which is a problem for Netflix subscribers who like to binge watch.

Despite that, Hunt is upbeat about data caps in general—his own U.S. provider recently upped his 250 GB limit to 300 GB. With caps moving in the right direction, that should give networks some time to adjust to what will at first be a trickle of 4K content.

“It’s not like we go overnight from no 4K to everything 4K,” he says.

Hunt, who is originally from the U.K., and Netflix chief executive Reed Hastings first met at the Schlumberger research lab in Palo Alto back in 1985. They went their separate ways, but in 1991, Hastings recruited the hardware and software engineer—Hunt has a PhD in computer vision—to work at Pure Software. It was a “geek squared” company in that it created software tools for software developers. Pure was eventually acquired and is now part of IBM, and Hastings went off to start Netflix, which began as an Internet company specializing in mailing out DVDs.

Hunt came on board two years later, in 1999, and the duo eventually began transforming the company into mainly a streaming provider. In both cases, they preferred working on a consumer-facing product rather than business-to-business, mainly because they got to avoid the phenomenon of “HIPPO” – or the highest paid person’s opinion, which inevitably wins out in enterprise situations. With Netflix, they found they were entirely governed by the tastes of their customers.

One great example was the “queue,” a word and concept that Hunt may very well be responsible for introducing to the North American vernacular through Netflix. When the company first started out, the idea made sense— customers could select the DVDs they wanted to watch and literally line them up for mailing. It didn’t necessarily translate in the move to streaming, largely thanks to what Hunt calls the “virtue movies,” or the films that everyone knew they should watch, but never did end up actually watching.

“We naively migrated the queue concept to the streaming business, but in testing we found it quite negative,” he says. “Customers fill it with stuff they want to watch, but never watch tonight. And then it’s right there at the top of the page.”

The “canonical” example he uses is Schindler’s List, an excellent-but-extremely-serious Best Picture winner about the Holocaust. Many users would add it to their queue, at which point it would always show up at the top of their page when they opened Netflix.

“Every time you sit down, it’s a Holocaust tragedy right in front of you. What a downer,” he says–not callously, but matter-of-fact. According to data, many users have a 30-second to one-minute “moment of truth” in which they look for things to watch, and if they don’t find something appealing, they move on to doing something else. The “baggage-filled” queue, it turns out, was turning people off using Netflix.

When the service launched in Canada, executives decided to omit the feature, much to the chagrin of Canadian subscribers. But, if the data showed anything, it’s that Canadian viewers were better off for it.

The solution, which launched this past August, is “the list,” which is similar to the queue except that it replaces those “virtue movies” on the home screen with options selected by Netflix’s predictive algorithms. The heavy stuff is still there, just out of sight and out of mind, with content people might really want to watch put front and centre.

One of the big, continuing challenges for Hunt’s technology team is to come up with better ways of predicting and recommending to viewers things they might like. I wondered if Amazon, the company’s biggest competitor—at least in the U.S.—might have a leg up, because it has more user data to draw on. The website can, after all, look at books or other goods that customers have bought and suggest movies or TV shows they might like to watch through its Prime service.

Not so, says Hunt, who counts photography among his hobbies. He says he has bought several Nikon cameras through Amazon, yet the website still suggests Canon lenses to him. “They don’t put as much effort into this as we do. If you look at Prime suggestions, they’re way, way further behind than we are,” he says. “We don’t get distracted by not selling Canon lenses to Nikon users.”

Years ago, Amazon also tried to link clothing recommendations to customers’ book purchases, but found the correlations were weak to non-existent. “They realized it was quickly bogus so they changed it to, ‘People who bought Lord of the Rings wear underwear.’ I don’t think Amazon has an advantage on us.”

Looking into the future, Hunt doesn’t see Netflix doing much differently five years from now. The company is focused on four things: “More people, more countries, better quality, better executed.”

But what about this impending TV revolution that everyone is talking about? Here in Canada, the federal government has promised to force TV providers to offer pick-and-pay channels – won’t a-la-carte options shake up the whole business? And what happens when HBO “goes Netflix” and offers up its own streaming service, separate from any cable bundle?

Even though the two services are very alike, Hunt doesn’t see the HBO house of cards—my pun, please excuse it—toppling any time soon, since it still makes billions from its traditional cable deals. “It’s incredibly risky for them to put that multi billion dollars at risk and to build something new from scratch, and it’s very hard for those two business to co-exist. As soon as HBO is $10 on the side, the rest of the revenue and ecosystem starts to collapse,” he says.

“They’re on the wrong side of the river and there’s a deep gorge in between. It’s not impossible to cross but you have to go down a long way before you come up the other side.”