Monday, December 17, 2012

Complexity In The Digital Supply Chain

Netflix launched in Denmark, Norway, Sweden, and Finland on Oct. 15th. I just returned from a trip to Europe to review the content deliveries with European studios that prepared content for this launch.

This trip reinforced for me that today’s Digital Supply Chain for the streaming video industry is awash in accidental complexity. Fortunately the incentives to fix the supply chain are beginning to emerge. Netflix needs to innovate on the supply chain so that we can effectively increase licensing spending to create an outstanding member experience. The content owning studios need to innovate on the supply chain so that they can develop an effective, permanent, and growing sales channel for digital distribution customers like Netflix. Finally, post production houses have a fantastic opportunity to pivot their businesses to eliminate this complexity for their content owning customers.

Everyone loves Star Trek because it paints a picture of a future that many of us see as fantastic and hopefully inevitable. Warp factor 5 space travel, beamed transport over global distances, and automated food replicators all bring simplicity to the mundane aspects of living and free up the characters to pursue existence on a higher plane of intellectual pursuits and exploration.

The equivalent of Star Trek for the Digital Supply Chain is an online experience for content buyers where they browse available studio content catalogs and make selections for content to license on behalf of their consumers. Once an ‘order’ is completed on this system, the materials (video, audio, timed text, artwork, meta-data) flow into retailers systems automatically and out to customers in a short and predictable amount of time, 99% of the time. Eliminating today’s supply chain complexity will allow all of us to focus on continuing to innovate with production teams to bring amazing new experiences like 3D, 4K video, and many innovations not yet invented to our customer’s homes.

We are nowhere close to this supply chain today but there are no fundamental technology barriers to building it. What I am describing is largely what www.netflix.com has been for consumers since 2007, when Netflix began streaming. If Netflix can build this experience for our customers, then conceivably the industry can collaborate to build the same thing for the supply chain. Given the level of cooperation needed, I predict it will take five to ten years to gain a shared set of motivations, standards, and engineering work to make this happen. Netflix, especially our Digital Supply Chain team, will be heavily involved due to our early scale in digital distribution.

To realize the construction of the Starship Enterprise, we need to innovate on two distinct but complementary tracks. They are:
  1. Materials quality: Video, audio, text, artwork, and descriptive meta data for all of the needed spoken languages
  2. B2B order and catalog management: Global online systems to track content orders and to curate content catalogs

Materials Quality
Netflix invested heavily in 2012 in making it easier to deliver high quality video, audio, text, art work, and meta data to Netflix. We expanded our accepted video formats to include the de facto industry standard of Apple Pro Res. We built a new team, Content Partner Operations, to engage content owners and post production houses and mentor their efforts to prepare content for Netflix.

The Content Partner Operations team also began to engage video and audio technology partners to include support for the file formats called out by the Netflix Delivery Specification in the equipment they provide to the industry to prepare and QC digital content. Throughout 2013 you will see the Netflix Delivery Specification supported by a growing list of those equipment manufacturers. Additionally the Content Partner Operations team will establish a certification process for post production houses ability to prepare content for Netflix. Content owners that are new to Netflix delivery will be able to turn any one of many post production houses certified to deliver to Netflix from all of our regions around the world.

Content owners ability to prepare content for Netflix varies considerably. Those content owners who perform the best are those who understand the lineage of all of the files they send to Netflix. Let me illustrate this ‘lineage’ reference with an example.

There is a movie available for Netflix streaming that was so magnificently filmed, it won an Oscar for Cinematography. It was filmed widescreen in a 2.20:1 aspect ratio but it was available for streaming on Netflix in a modified 4:3 aspect ratio. How can this happen? I attribute this poor customer experience to an industry wide epidemic of ‘versionitis’. After this film was produced, it was released in many formats. It was released in theaters, mastered for Blu-ray, formatted for airplane in flight viewing and formatted for the 4x3 televisions that prevailed in the era of this film. The creation of many versions of the film makes perfect sense but versioning becomes versionitis when retailers like Netflix neglect to clearly specify which version they want and when content owners don’t have a good handle on which versions they have. The first delivery made to Netflix of this film must have been derived from the 4x3 broadcast television cut. Netflix QC initially missed this problem and we put this version up for our streaming customers. We eventually realized our error and issued a re-delivery request from the content owner to receive this film in the original aspect ratio that the filmmakers intended for viewing the film. Versionitis from the initial delivery resulted in a poor customer experience and then Netflix and the content owner incurred new and unplanned spending to execute new deliveries to fix the customer experience.

Our recent trip to Europe revealed that the common theme of those studios that struggled with delivery was versionitis. They were not sure which cut of video to deliver or if those cuts of video were aligned with language subtitle files for the content. The studios that performed the best have a well established digital archive that avoids versionitis. They know the lineage of all of their video sources and those video files’ alignment with their correlated subtitle files.

There is a link between content owner revenue and content owner delivery skill. Frequently Netflix finds itself looking for opportunities to grow its streaming catalogs quickly with budget dollars that have not yet been allocated. Increasingly the Netflix deal teams are considering the effectiveness of a content owner’s delivery abilities when making those spending decisions. Simply put, content owners who can deliver quickly and without error are getting more licensing revenue from Netflix than those content owners suffering from versionitis and the resulting delivery problems.

B2B order and catalog management
Today Netflix has a set of tools for managing content orders and curating our content catalogs. These tools are internal to our business and we currently engage the industry for delivery tracking through phone calls and emails containing spreadsheets of content data.

We can do a lot better than to engage the industry with spreadsheets attached to email. We will rectify this in the first half of 2013 with the release of the initial versions of our Content Partner Portal. The universal reaction to reviewing our Nordic launch with content owners was that we were showing them great data (timeliness, error rates, etc) about their deliveries but that they need to see such data much more frequently. The Content Partner Portal will allow all of these metrics to be shared in real time with content owner operations teams while the deliveries are happening. We also foresee that the Content Partner Portal will be used by the Netflix deal team to objectively assess the delivery performance of content owners when planning additional spending.

We also see a role for shared industry standards to help with delivery tracking and catalog curation. The EIDR initiative, for identifying content and versions of content, offers the potential for alignment across companies in the Digital Supply Chain. We are building the ability to label titles with EIDR into our new Content Partner Portal.

Final thoughts
Today’s supply chain is messy and not well suited to help companies in our industry to fully embrace the rapidly growing channel of internet streaming. We are a long way from the Starship Enterprise equivalent of the Digital Supply Chain but the growing global consumer demand for internet streaming clearly provides the incentive to invest together in modernizing the supply chain.

Netflix has many initiatives underway to innovate in developing the supply chain in 2013, some of which were discussed in this post, and we look forward to continuing to collaborate with our content owning partners supply chain innovation efforts.

Netflix is hiring for open positions in our Digital Supply Chain team. Please visit http://jobs.netflix.com to see our open positions. We also put together a short video about the supply chain for a recent job fair. Here is a link to that video.

Kevin McEntee
VP Digital Supply Chain