NetFlix 2003 Annual Report Download - page 23

pay-per-view and VOD providers, and cable and satellite providers. Blockbuster has announced that it plans to
roll out an online subscription service in late 2004 and then integrate the online and store-based subscription
programs sometime in 2005. We believe we are able to provide greater subscriber satisfaction due to the broader
and deeper selection of titles we 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 with which
subscribers are able to select, receive and return titles.
VOD has received considerable media attention recently. For example, VOD is now widely available 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. In late 2003, Disney tested a proprietary broadcast VOD service, MovieBeam, which utilizes a
set-top device connected to the television set to allow subscribers to download and view approximately 100 films
at any time. 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, 2003, we had 567 full-time employees. We also utilize part-time and temporary
employees, primarily in our fulfillment operations, to respond to the fluctuating demand for DVD shipments. As
of December 31, 2003, we had 224 temporary employees. 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 patent, trademark, copyright and trade secret laws and confidentiality agreements
to protect our proprietary intellectual property. In 2003, we were issued a broad business method patent covering,
among other things, our subscription rental service. The patent will expire in 2020. In addition to the patent
covering the rental method invention, we have filed additional patent applications. We have a registered
trademark for the Netflix name and copyrights on the content of our Web site. We have filed applications for
additional trademarks as well.
Enforcement of intellectual property rights is costly and time consuming. To date, we have relied primarily
on proprietary processes and know-how to protect our intellectual property. It is uncertain if and when our other
patent and trademark applications may be allowed and whether they will provide us with a competitive
advantage.
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.
Other Information
We were incorporated in Delaware in August 1997 and completed our initial public offering in May 2002.
Our principal executive offices are located at 970 University Avenue, Los Gatos, California 95032, and our
telephone number is [phone]. We maintain a Web site at www.netflix.com. The contents of our Web site
are not incorporated in, or otherwise to be regarded as part of, this annual report on Form 10-K. In this annual
report on Form 10-K, “Netflix,” the “Company,” “we” and the “registrant” refer to Netflix, Inc.
7