NetFlix 2002 Annual Report Download - page 5

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The result of these trends is a market that we currently dominate with a highly visible brand
presence. It is also a market that we believe will continue to mature, along with our Company.
To ensure that we take advantage of this momentum, we are continually developing our
understanding of how people browse and select movies.
The key to our phenomenal consumer acceptance and business success is the sophisti-
cated software that powers our website. Here, our subscribers are able to browse through
14,500 film titles—virtually every movie available on DVD, including both the latest and
most popular TV series as well as hard-to-find documentaries—and place the ones they
want to receive on a rental list that they continually replenish with new choices.
In the past year we have significantly improved our ability to merchandise our titles to
match the tastes of our subscribers. Beyond the richness of our inventory and the robust-
ness of our distribution software lies what we believe is the true strength of the Netflix
model: a proprietary system for personalizing movie recommendations for each subscriber
via a remarkably powerful and innovative rating system. Instead of using someone else’s
tastes to guide a subscriber’s choices, Netflix builds a profile of each person’s movie likes
and dislikes to truly personalize a DVD recommendation.
The result is more often than not the movie-lover’s discovery of a personal “gem”: a movie that a
subscriber has perhaps never even heard of and which may turn out to be a genuine favorite.
This kind of match expands the audience for both acclaimed and lesser-known films—award-
winners that made their debut on DVD through Netflix and have gone on to find broad distribu-
tion, as well as smaller, low-profile movies from independent filmmakers and distributors.
Subscribers rented fully 97 percent of the movie titles we carried in the fourth quarter of
2002. To help achieve such remarkably broad inventory utilization, we’ve added new areas
on our website, such as the Critic’s Pick page and the Netflix Top 100 page, that make it
easier for subscribers to discover interesting content. For customers who know what they
want to watch, we’ve made the search function more intuitive, with better ranking of search
results and more obvious results listings. And we’ve made it easier for subscribers to
answer their questions and resolve problems online, which has reduced our service costs.
At Netflix, we are in the business of delivering great movies. Plain and simple. Our sub-
scribers never go to the video store on a Saturday night to rent a movie—or make a return
trip to avoid a late fee. Instead, Netflix offers our subscribers direct home delivery of their
DVD selections, usually the next day. And, in our most popular subscription package, they
can rent as many movies as they want, for just $19.95 a month.
MERCHANDISING MAGIC.
ENTERTAINMENT: CONVENIENCE, SELECTION, AND VALUE.