I have to believe this is true. Netflix has made no small bones about the fact that its recommendation / collaborative filtering algorithm is its strongest competitive advantage. To your point, they even sponsored that contest awhile back.
No way in hell they'd weaken, much less throw away, their golden goose.
The problem is that their recommendation system really isn't that big of an advantage. Content is king & people got Netflix because it provided better service at a better price compared to what they were getting elsewhere. I don't think I've heard of anyone signing up for Netflix specifically so they could use their recommendation engine to find new movies.
Netflix has to go back to providing a better service at an affordable price, something that isn't as easy as it once was when you're going against other streamlined big name contenders like Apple, Amazon or Hulu vs the old "incompetent" competition that was basically Blockbuster & Hollywood Video.
I think their recommendation system is too limiting. At least give me a random button so I can see what else is available besides the same 37 selections they constantly shove in my face. Selection is king in on-demand streaming. Some people like to discover their own style instead of wearing the clothes their moms lay out for them.
No way in hell they'd weaken, much less throw away, their golden goose.