In early 2016, streaming giant Netflix, Inc. (NASDAQ:NFLX) announced that it had rolled out its service to 190 countries around the world. As the top provider of streaming content in the U.S., one of the biggest questions regarding the company's ability to succeed elsewhere was the issue of bandwidth. With slower internet speeds in many countries, would streaming performance suffer as a result?

With worldwide growth at stake, this was a question that the company needed to answer.

Turns out Netflix has a variety of tools it uses to navigate markets with underdeveloped bandwidth. Netflix CEO Reed Hastings was a keynote speaker at the 2017 Mobile World Congress in Barcelona, and in an interview with BBC broadcaster Francine Stock, he revealed some of the ways the company is addressing the issue.  

Binary code in green on a black background.

Image source: Getty Images.

AI provides quality streaming at lower bandwidths

The biggest revelation was regarding the use of artificial intelligence (AI). Netflix uses AI algorithms to review each frame of a video and compress it only to the degree necessary without degrading the image quality. This differs from previous technology that compressed the entire stream, but could cause fuzzy, pixelated or unclear images. This new method, which Netflix calls the Dynamic Optimizer, was developed to address bandwidth issues in emerging markets. 

This not only improves streaming quality over slower speeds, but also tailors content for customers that view Netflix on tablets and phones, as is the case in countries like India, South Korea, and Japan. Providing video streaming at the same quality, but requiring lower bandwidth, also addresses the issue of data caps imposed locally by mobile providers.

AI innovation

Netflix collaborated with the University of Southern California and the University of Nantes in France to train the system, using hundreds of viewers and hundreds of thousands of scenes. By rating each scene individually on a variety of quality metrics, the AI system learned to determine image quality. Hastings described the technological advancement like this:

What we've done is invest in the codex, the video encoders, so that at a half a megabit, you get incredible picture quality on a 4- and 5-inch screen. Now, we're down in some cases to 300 kilobits and we're hoping someday to be able to get to 200 kilobits for an amazing picture. So we're getting more and more efficient at using operators' bandwidth.

Screenshot of Marvel's Daredevil on Netflix

Innovative solutions to technical problems. Image source: Netflix, Inc.

Partnering with internet service providers

Hastings explained that the company was investing in many other ways to make buffering a thing of the past. He stated that the company was working on interconnect agreements with internet service providers (ISPs) across the globe, which provide increased speeds as the result of a more direct connection. Netflix has developed its own content delivery network in a program it calls Open Connect. It provides specialized Netflix servers directly to the ISPs, whose sole function is to deliver Netflix content to local subscribers.  

This isn't entirely new

Netflix has been working on tailored solutions for video encoding for a number of years. In a Netflix Tech Blog entry from 2015, the company described a complex method for analyzing each title and assigning it a specific encoding rate based on the genre and complexity of the scenery. An action movie might have significant motion, fast-moving objects, rapid scene changes, explosions, and water splashes versus an animated title that produces significantly less distortion at the same bandwidth. These variables were considered across the company's vast library of TV shows and movies and each title was assigned its own compression rate, thereby providing the best quality at the lowest bandwidth.

Foolish final thoughts

As competition increases and Netflix continues its expansion into less-developed markets, technological innovations such as these will provide a key competitive advantage. Rather than relying on local market forces and providers to dictate terms, the company is using novel solutions to address its challenges.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.