Inside Netflix’s Open Connect strategy: Custom CDN hardware and per-shot encoding

Netflix's decision to build a proprietary CDN rather than use commercial providers gives it a distinct cost and performance advantage as streaming shifts toward live events and high-bitrate 4K. While competitors like Disney+ and Max often rely on third-party CDNs, Netflix's 17,000+ embedded servers create a barrier to entry that is nearly impossible for smaller players to replicate. This infrastructure is essential for maintaining consistent Quality of Experience (QoE) as the platform expands into data-heavy sectors like cloud gaming and live sports. Watch for whether rivals adopt similar 'deep edge' hardware strategies or continue utilizing commoditized cloud delivery services.

Netflix has significantly accelerated its adoption of the AV1 codec to enhance delivery efficiency. Per the Netflix Technology Blog in December 2025, AV1 now accounts for approximately 30% of all streams on the platform. The company reported that AV1 sessions achieve VMAF scores 4.3 points higher than the H.264/AVC standard while utilizing one-third less bandwidth, resulting in a 45% reduction in buffering interruptions. In July 2025, Netflix also productized AV1 Film Grain Synthesis (FGS), which allows cinematic film grain to be resynthesized at the decoder rather than encoded into every frame, further lowering bitrates for premium content.

The physical infrastructure of Open Connect has reached a new scale of density. According to industry reports from June 2025, the 2026-generation Open Connect Appliances (OCAs) now ship with Gen5 NVMe drives, providing up to 560 TB of flash storage in a 2U rack footprint. These high-throughput appliances are optimized for peering facilities, with some units capable of pushing 400 Gbps via custom FreeBSD-based software. This hardware evolution is a response to skyrocketing demand; during peak evening hours in 2026, Netflix traffic can account for over 30% of total downstream volume for major North American ISPs.

Strategically, this technical efficiency supports Netflix's pivot toward high-margin monetization. Recent data from MediaPost in July 2026 notes that while live content currently accounts for only 5% of content spend, it drives a significant share of new member sign-ups. Optimized delivery via Open Connect is the prerequisite for scaling these live events—such as sports or global specials—without the 'spinning wheel' delays that have plagued competitors during massive concurrent viewing peaks. As of mid-2026, Netflix sustains a 33% operating margin by leveraging this operational scale effectively across its 300 million global subscribers.