The tl;dr of it all is simply that Netflix plans on scaling
bitrates up and down based on the complexity of their video. So,
slightly higher bitrates for busy action blockbusters and possibly
lower bitrates for relatively static, flat cartoons.
Basically what we’ve all been doing for years with variable
bitrate (VBR) encoding. But they’re trying to control that
variance a lot more than an encoder like x264 typically allows. In
fact, as near as I can tell, Netflix still plans on encoding
everything with a constant bitrate (CBR), but they want to be
really particular about the target number.
To do that, Netflix will transcode every one of their videos a
bazillion times at different resolutions and at different
bitrates, finally selecting the smallest one for a particular
title that doesn’t suck visually. Seriously, their algorithm for
all of this is quite clever.