NetFlix 2003 Annual Report Download - page 19

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Competitive Strengths
We believe that our revenue and subscriber growth are a result of the following competitive strengths:
•Comprehensive Library of Titles. We have developed strategic relationships with top studios and
distributors, enabling us to establish and maintain a broad and deep selection of titles. Since our service
is available nationally, we believe that we can economically acquire and provide subscribers a broader
selection of titles than video rental outlets, video retailers, subscription channels, pay-per-view and
VOD services. We currently offer virtually every title available from the studios and distributors from
whom we acquire titles. To maximize our selection of titles, we continuously add newly released titles
to our library. Our library contains numerous copies of popular new releases, as well as many titles that
appeal to more select audiences.
•Personalized Merchandizing. We utilize our proprietary recommendation service to create a custom
interface for each subscriber to effectively merchandize our library. Subscribers rate titles on our Web
site, and our recommendation service compares these ratings against the database of ratings collected
from our entire user base. For each visitor, these comparisons are used to make predictions about
specific titles the visitor may enjoy. These predictions are used to merchandize titles to visitors
throughout the Web site. We believe that our recommendation service allows us to create demand for
our entire library and maximize utilization of each title. We believe that as the number of our
subscribers and ratings database grows, our recommendation service will be able to more accurately
predict individual preferences.
•Scalable Business Model. We believe that we have a scalable, low-cost business model designed to
maximize our revenues and minimize our costs. Subscribers’ prepaid monthly payments and the
recurring nature of our subscription business provide working capital benefits and significant near-term
revenue visibility. Our scalable infrastructure and online interface eliminate the need for expensive retail
outlets and allow us to service our large and expanding subscriber base from a network of low-cost
shipping centers. We employ temporary, hourly and part-time workers to contain labor costs and
provide maximum operating flexibility. Finally, we have low delivery costs through the use of standard
first-class mail to ship and return titles to and from subscribers.
•Convenience, Selection and Fast Delivery. Subscribers can conveniently select titles by building and
modifying a personalized queue of titles on our Web site. We create a unique experience for subscribers
because most pages on our Web site are tailored to individual selection and ratings history. Under our
standard service, subscribers can have three titles out at the same time with no due dates or late fees.
Once selected, available titles are sent to subscribers by first-class mail and returned to us in prepaid
mailers. As we open more shipping centers, our one-day delivery service capability will increase. Upon
receipt of returned titles, we automatically mail subscribers the next available title in their queue of
selected titles.
Growth Strategy
Our strategy to provide a premier filmed entertainment subscription service to our large and growing
subscriber base includes the following key elements:
•Providing Compelling Value for Subscribers. We provide subscribers access to our comprehensive
library of more than 18,000 titles with no due dates, late fees or shipping charges for a fixed monthly
fee. We merchandize titles in easy-to-recognize lists including new releases, by genre and other targeted
categories. Our convenient, easy-to-use Web site allows subscribers to quickly select current titles,
reserve upcoming releases and build an individual queue for future viewing using our proprietary
personalization technology. Our recommendation service provides subscribers with recommendations of
titles from our library. We quickly deliver titles to subscribers from our shipping centers located
throughout the United States by standard first-class mail.
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