The vast picture show, in a warehouse near you

Northborough Netflix facility mails movies by the millions

Sylvia Franco of Worcester, a Netflix employee, looks for scratches and cracks on DVDs returned by customers. (PHOTOS BY MATTHEW J. LEE/GLOBE STAFF)

By Erica Noonan, Globe Staff | August 23, 2007

NORTHBOROUGH -- At this moment, your weekend's entertainment -- and a revealing glimpse into your psyche -- may be passing through the very quick hands of Zorada Cotto

Cotto rips open about 700 returned Netflix envelopes an hour, chucks the scraps into a bin, and checks for scratches and nicks on returned DVDs so they can be repackaged in prepaid envelopes for the next customer. With a quick barcode scan, her computer tells Netflix headquarters how many discs arrived damaged, how many DVD sleeves were used as coffee-cup coasters, and how enthusiastically 6.7 million customers nationwide are working through their personal online lists of requests -- or "queues," as the company calls them.

The Northborough warehouse -- one of 46 around the country -- is part of a sophisticated intelligence-gathering operation that moves around 1.6 million DVDs nationwide every day, a significant portion of the 3.2 million discs in the Netflix network.

The company now asks customers to quickly rate how much they liked or hated a movie. The ratings are compiled by Netflix into a massively complex database that correlates themes, plots, characters, and ratings from other customers, to offer members a customized "Movies You'll Love" list. Each customer's list goes way beyond simplistic comparisons -- like suggesting movies starring the same actor or dealing with the same general topic -- to build a series of recommendations based on subtle similarities between movies that were watched and movies yet to be enjoyed.

Over time, in greater and greater detail, Netflix is discovering what you like to watch -- and using the information to funnel more movies your way. The company aims to know you -- or at least your taste in movies -- better than you know yourself.

Steve Swasey, director of corporate communications for Netflix, offers an example from his own experience. Swasey's family liked "Whale Rider," a movie about a young girl from New Zealand aspiring to become chief of her tribe. His online list of new recommendations, generated by the company, included titles like "Sense and Sensibility," "To Kill a Mockingbird," and "Shine."

At first glance, those movies seem to have nothing in common. But, actually, Swasey said, like "Whale Rider," the first two also have strong, young female protagonists, and "Shine" is set in nearby Australia.

A customer who liked "The Godfather" might not automatically crave another mob movie, like "Goodfellas." He or she might prefer another family saga set in the early part of the century, like the Oscar-nominated "Avalon," about a family of Polish-Jewish immigrants. The more detailed data a customer is willing to provide, the more sophisticated the individualized ratings can get, Swasey said.

That proprietary database, and the level of customization it can provide, can be a competitive advantage in the business of DVD rentals, made more cutthroat since Netflix started shipping movies through the mail in 1998. The company, which is based in Los Gatos, Calif., grew to be the country's largest online DVD rental service by positioning itself against the overnight rental, late-fee approach of traditional brick-and-mortar rental stores. The fee structure has changed over the years; currently, customers may hang on to three discs at a time, for as long as they wish, for $16.99 per month.

The location of the unmarked Northborough warehouse, which serves Massachusetts and parts of Connecticut, New Hampshire, Rhode Island, and Vermont, is considered a trade secret. So is the exact number of subscribers serviced by the hub. The 50 employees who work there have signed confidentiality agreements that forbid them from revealing the location.

The secrecy is maintained not only to protect the valuable equipment, software, and tens of thousands of DVDs in the 24,000-square-foot space, the company said, but also to prevent customers from dropping by for the next new release.

"Netflix has become a real object of curiosity wherever we go," Swasey said.

The Northborough hub processes between 60,000 and 110,000 DVDs daily, and weekend returns make Tuesday the busiest day. Even as Cotto and her colleagues are tearing through hundreds of returned DVDs, they take moments to read the angry notes ("This doesn't play - defective!") or occasional rave reviews ("Very funny movie, check it out!") that customers scribble on the paper sleeves.

"We like that," said Cotto, 40, of Worcester. "Sometimes, we do watch them." The notes are forwarded to customer service headquarters in Hillsboro, Ore.

Work starts at 5 a.m and is undeniably repetitive -- ripping open flats of returned red envelopes. Each disc gets a quick visual once-over for scratches or damage. Damaged discs and dirty sleeves get sorted out for extra attention.

Employees, called "associates," are hired from local temp agencies and are chosen for previous factory experience, attention to detail, and the ability to work up to a sorting rate of 500 to 700 DVDs hourly. (Netflix doesn't run inter-hub competitions per se, but Swasey said the company's fastest sorter, a worker based in Washington, D.C., was clocked at 1,153 per hour.) The employees earn around $10 hourly to start and the average stay on the job is two years. Most sorters are women and many are new immigrants. Most are not their family's primary wage-earner, Swasey said.

Supervisor James Gage, 52, of Worcester, arrived at Netflix about a year ago, after two decades working for Worcester Envelope Co. His new job has more pop-culture cachet, he said: "People are really curious about how it all works here."

By 9 a.m., the workload shifts as the emphasis turns to getting repackaged discs ready to ship out. Some of this is done by hand, but most of the outgoing discs will be wrapped in new red envelopes by a sorter that can spit out 3,300 sealed envelopes per hour, presorted by ZIP code, to be trucked to a Postal Service drop in Worcester.

In 2002, Massachusetts was the third Netflix hub to open nationwide, and since then the company has opened nearly 45 more. By year's end, it will have new processing facilities in Nashville; Butte, Mont.; and Colorado Springs. The new facilities have helped quell complaints in years past that Netflix service was too slow, Swasey said. "We put the shipping center where the people are."

All customers, even Netflix employees, have to drop off their movies in a mailbox and wait for a mail carrier to bring new DVDs to their homes.

Most Netflix customers who live within 100 miles of a major city get next-day delivery. The company is now the Postal Service's fastest-growing first-class customer.

"We want to nurture loyalty and interest in the company through the website," Swasey said. "That's where the relationship is." Customers get an e-mail the minute their movie is received and scanned in Northborough and another note when a new title has been shipped out, sometimes just a few hours later.

This often happens in the same warehouse to which the customer returned the last movie, unless the next title is especially obscure, requiring retrieval from a storage warehouse in another state. Netflix owns several hundred copies of the least-rented title, and tens of thousands of copies of a recent release like "The Departed." Most customers want to watch the same 35,000 to 40,000 titles, and 95 percent of the company's total catalog is rented at least once every three months, Swasey said.

But you still can't please all of the people all of the time. About 4 percent of members quit annually. The company can't say why those people leave -- although anecdotal comments on blogs reflect customers' complaints of receiving scratched or unplayable discs.

Swasey acknowledged the criticism, but said fewer than 1 percent of Netflix DVDs are returned as damaged. "But when it's your disc, it's the only one that matters," he said.

When a customer complains, the company tries to ship out a replacement as soon as possible. The company has been through 40 versions of its mail sleeve, has consulted with postal officials, and has made many improvements to its automation to put the least amount of stress on DVDs as possible during shipping, Swasey said.

Blogger Mike Kaltschnee, a software developer who runs hackingnetflix.com, an independent DVD rental industry blog, said consumer comments about Netflix on his site have ranged from complaints about availability of new releases to anger about damaged discs. "It is probably one of their biggest remaining things to solve," said Kaltschnee, who started the blog in 2003. "Their collection is aging."

In recent months, however, Internet traffic about home DVD delivery has been "pretty quiet," Kaltschnee said, with more attention focused on the explosion of on-demand viewing services from Blockbuster, Amazon, Wal-Mart, and other companies.

Netflix is also expanding its instant download feature -- with 4,000 titles and growing daily. But expect warehouses like the Northborough hub to remain in business as long as there are so many DVDs to stuff into those well-known red envelopes.

Erica Noonan can be reached at enoonan@globe.com.