The New York Times reports today that Netflix is holding a contest to improve their recommendation engine. Anyone who can improve the service’s recommendation function by a mysterious 10% will win a $1 million prize. One easy way to start would be to look at MovieTally, a tag-based movie recommendation site built by a 15 year old from New York named Hayden (he asked that his last name not be used).

MovieTally lets users add their own tags and reviews to movies found in the user generated movie database. It’s easy to click around and find movies that other users have tagged with the same terms as your favorites. The site recommends users who have similar favorites lists to your own. I’ve been looking at this site for awhile it was really sparse before getting some good coverage at OpenGardens for its implementation. Now that it’s has begun to gain traction, the database has been bulked up and the service is much more useful.

Netflix currently lets users view the movies selected by friends, but as a poster child for moving services to the web I’d love to see them take up the most current social technologies. Tagging allows for exploration by theme in a much more flexible way than formal site created categories. It would be good if instead of asking for improvements to its black box recommendation engine Netflix began by making movie discovery more transparently social.

See also our review of BiggerBoat, a media search service for site publishers that presents loads of metadata. It’s a different approach that you’re liable to start seeing implemented at sites around the web, as is the case at allmovie.com already. There are many ways that Netflix could improve its already fantastic service but newer startups provide easy examples.