Netflix eats bandwidth the way a pack of hungry fifteen-year-olds eats pizza. Indeed, Netflix's streaming-video entertainment is so popular it now takes up almost a third of peak downstream traffic in North America. So, how do they keep delivering the TV and movie goodies to customers without breaking the bandwidth bank? They've decided to do it by starting their own Content Delivery Network (CDN) and their own co-located video data servers at ISPs.

Netflix's CDN caught the financial markets by surprise. The other big CDNs, like Akamai, Limelight Networks, and Level 3 Communications, were all hammered in the markets. That was rather silly because, as important as video is to us at home wanting to see an old episode of Dr. Who, it was already old news in the CDN world. Besides, as analysts Craig Labovitz and Dan Rayburn have both separately pointed out, mass video content is not a money maker for CDNs any more.

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As Labovitz wrote, “over the last several years low cost entrants have driven down pricing and commoditized video delivery — the margins for CDNs today on bulk video are terrible. As the chief driver of peak hour bandwidth (along with negotiated bottom of the barrel pricing), Netflix exacerbated the margin issue. Most CDNs would rather focus on higher value (and more profitable) services like analytics, acceleration, and DRM.”

So much for the business side. Here's how the “new” Netflix will be getting video to the last mile and your home. Like YouTube, Netflix will have its own sole-purpose 10Gbps (Gigabit per second) Ethernet network, Open Connect. This is available from multiple Interconnect and peering sites.

As fast as 10Gbps is, it may not be enough, or your ISP may not have a good enough downstream connection of its own to keep up. For these, Netflix is offering Open Connect Appliances. These are Commercially available Off-The-Shelf (COTS) data servers. Each server, or pod in Netflix jargon, can hold up 100 TeraBytes into a 4u chassis that is less than 2' deep. Each, of course, comes with a 10Gbps Ethernet.

In turn, each Netflix storage pod runs FreeBSD 9.0. For Web serving, the appliances use nginx (pronounced Engine X). Ngnix , the increasingly popular and always very fast Web server, provides high-performance streaming with minimal hardware overhead. This brings down the cost of the pods while giving customers a good clean video stream.

As Andrey Alexeev, who is in charge of business development at nginx, told Ron Miller, "nginx's architecture is non-blocking, asynchronous, event-driven and modular – with a compact core and a set of functional modules. This leads to ridiculously low memory consumption per active connection, predictable CPU and memory usage, optimized configuration which is especially important in a virtualized environment."

Alexeev continued, “Each CDN server is made specifically to be most easily deployed, mostly unmanaged by the ISP, fully remotely controlled, fault tolerant and extremely cost efficient (like 10 times more efficient when performance/bandwidth characteristics per server compared to “commercial products”).” What all this means for you is that your Netflix watching experience should have far fewer stutters.

Now, if your local ISP has oversold its capacity, well that's another matter. The last mile of the Internet is all too often not broad enough to deal with the demands of dozens or even hundreds of customers all hitting the local cable or fiber-optic for video content at the same time. Netflix, alas, can't do a thing about that.