NetFlix 2002 Annual Report Download - page 17

Video rental outlets and retailers against whom we compete include Blockbuster Video, Hollywood Entertainment, Amazon.com, Wal−Mart and Best Buy. In particular, Blockbuster
continues to test in a number of its locations a store−based subscription model for DVD and game rentals which, if released nationally, would provide many of the benefits of our business
model in a store−based retail environment. We believe that we compete with these video rental outlets and movie retailers primarily on the basis of title selection, convenience and price. We
believe that our scalable business model and our subscription service with home delivery and access to our comprehensive library of more than 14,500 titles competes favorably against
traditional video rental outlets.
We also compete against other online DVD subscription services, such as WalMart.com and FilmCaddy.com, a subsidiary of Blockbuster, Inc., subscription entertainment services, such as
HBO and Showtime, pay−per−view and VOD providers and cable and satellite providers. We believe we are able to provide greater subscriber satisfaction due to the broader and deeper
selection of titles we are able to offer subscribers, our ability to personalize our library to each subscriber based on the subscriber’s selection history, personal ratings and the tastes and
preferences of similar users through our recommendation service and extensive database of user preferences as well as the ease and speed by which subscribers are able to select, receive and
return titles.
VOD has received considerable media attention. VOD is now widely deployed in most major hotels, and has early deployments in many major cable systems. Within a few years, we believe
VOD will become widely available to digital cable and satellite subscribers. VOD carries as many titles as can be effectively merchandized on a set−top box platform, which we believe to be
generally up to 100 recent releases, plus adult content. For consumers who primarily want the latest big releases, VOD may be a convenient distribution channel. We believe that our strategy
of developing a large and growing subscriber base and our ability to personalize our library to each subscriber by leveraging our extensive database of user preferences positions us favorably
to provide digital distribution of filmed entertainment as that market develops.
Employees
As of December 31, 2002, we had 381 full−time employees. Of these full−time employees, 267 were in fulfillment operations, 64 were in technology and development, 19 were in marketing
and 31 were general or administrative employees. We utilize part−time and temporary employees, primarily in Fulfillment Operations, to respond to fluctuating demand for DVD shipments.
We had 114 temporary employees as of December 31, 2002. Our employees are not covered by a collective bargaining agreement, and we consider our relations with our employees to be
good.
Intellectual Property
We use a combination of trademark, copyright and trade secret laws and confidentiality agreements to protect our proprietary intellectual property. We have a registered trademark for the
Netflix name. We have filed applications for several additional trademarks and two patents. Our outstanding trademark and patent applications may not be allowed. Even if these applications
are allowed, they may not provide us a competitive advantage. To date, we have relied primarily on proprietary processes and know−how to protect our intellectual property related to our
Web site and fulfillment processes. Competitors may successfully challenge the validity and scope of our trademarks.
From time to time, we encounter disputes over rights and obligations concerning intellectual property. We believe that our service offering does not infringe the intellectual property rights of
any third party. However, we cannot assure you that we will prevail in any intellectual property dispute.
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