They're using ST-AV1[1], the encoder they've collaborated with Intel on.[2][3]
[1] https://github.com/OpenVisualCloud/SVT-AV1
[2] https://newsroom.intel.com/news/intel-netflix-deliver-av1-sc...
[3] https://netflixtechblog.com/introducing-svt-av1-a-scalable-o...
Edit: They did mention the 20% is from AV1-libaom compression efficiency as measured against VP9-libvpx. So not SVT-AV1.
Almost like Netflix has data analysts and experts in the field who have already calculated the cost benefits based on internal metrics unavailable to us and chosen to implement it...
But they are using AV1 now i.e. you should presume NetFlix have judged that the benefits outweigh the costs (unless you have other relevant information to share).
* Disclaimer: I know nothing of AV1.
Let's say that AV1 reduces file sizes by 40% (compared to H.264), saving them 0.8GB per stream. Let's say that only 10% of users have AV1 capability. And let's say that they only pay a tenth of a cent per GB for bandwidth. They're still saving 800,000 GB of bandwidth or $800. Of course, there are also going to be other savings like electricity since transferring smaller files means needing fewer servers (servers have network cards that get saturated whether in their data center or CDN).
At Google, encoding costs can be big since a lot of YouTube videos aren't watched a lot. With Netflix, the library is a lot smaller and more popular. Netflix is up to around 170M customers. Each of those customers might have a few household members watching something popular (and maybe re-watching those things). Even encoding something very slowly ends up not costing that much money.
But it's also about the customer experience. Mobile companies throttle video services. I believe Google started using VP8 so that T-Mobile customers could see 720p video without paying extra for HD video. When downloading files for offline usage on a plane, the size is going to matter both in terms of the time it takes to download and the storage used on your device which is limited.
Even if bandwidth only costs Netflix a hundredth of a cent per GB, the compute needed for AV1 just doesn't seem to matter given the way Netflix's business works.
A smaller file for the same quality means that customers need less bandwidth to stream a show, improving their experience and decreasing buffer times, etc. This might not be as relevant in the USA as other places, but I'm sure there are a significant number of customers and potential customers that this will make a difference with.
With an encode-once stream-many setup, it's likely quite worth it for Netflix to pay whatever upfront transcoding cost if the resulting file is advantageous in any way.
Yeah, I can already see it. AV5 with 3 months of encoding time on a 128 core EPYC for a 90 minute movie.