NetFlix 2003 Annual Report Download - page 9

Download and view the complete annual report

Please find page 9 of the 2003 NetFlix annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 87

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87

7Netflix฀2003฀Annual฀Report 7
Netflix฀2003฀Annual฀Report
The฀fourth฀factor฀is฀that฀each฀new฀shipping฀center฀we฀open฀contributes฀to฀our฀planned฀
growth฀in฀ways฀that฀are฀consistent฀with฀growth฀rates฀in฀other฀regions.฀To฀reach฀a฀billion฀
dollars฀in฀revenues,฀we฀need฀approximately฀five฀percent฀of฀U.S.฀households฀to฀subscribe฀
to฀Netflix.฀Growth฀in฀our฀initial฀market,฀the฀San฀Francisco฀Bay฀Area,฀has฀been฀very฀steady฀
over฀the฀past฀four-and-a-half฀years.฀The฀Bay฀Area฀reached฀the฀five฀percent฀penetration฀level฀
and฀then฀kept฀right฀on฀growing฀with฀no฀signs฀of฀slowing฀down.฀It฀may฀be฀possible฀that฀the฀
five฀percent฀penetration฀level฀is฀conservative฀and฀we฀may฀be฀able฀to฀reach฀10฀percent฀of฀
households,฀or฀even฀20฀percent.฀If฀so,฀it฀would฀indicate฀that฀the฀billion-dollar฀revenue฀mark฀฀
is฀not฀the฀finish฀line฀but฀merely฀the฀first฀watering฀station.฀฀
Finally,฀the฀fifth฀factor฀behind฀our฀increasing฀confidence฀is฀great฀execution.฀Every฀week฀฀
we฀ship฀over฀two฀and฀a฀half฀million฀DVDs฀from฀our฀nationwide฀network฀of฀shipping฀centers฀
with฀incredible฀reliability฀and฀precision.฀We฀buy฀millions฀of฀DVDs฀every฀quarter฀and฀maintain฀฀
strong฀relations฀with฀nearly฀100฀studios฀and฀distributors.฀We฀have฀grown฀steadily฀every฀
quarter฀without฀a฀material฀operational฀misstep.฀We฀are฀vigilant฀about฀threats฀both฀long-฀฀
and฀short-term.฀We฀care฀deeply฀about฀providing฀subscribers฀a฀great฀movie฀experience฀฀
and฀work฀every฀day฀to฀make฀our฀service฀better฀and฀better.
Looking฀forward฀to฀2004฀and฀beyond,฀shareholders฀and฀customers฀alike฀can฀expect฀
continued฀steady฀execution฀of฀the฀kind฀that฀has฀kept฀us฀growing฀at฀an฀astounding฀฀
70฀percent-plus฀annual฀rate.
New฀Initiatives
To฀fuel฀our฀ambitious฀growth,฀we฀will฀explore฀several฀new฀and฀exciting฀initiatives฀฀
in฀the฀year฀ahead.฀
In฀2004,฀we฀plan฀to฀add฀television฀advertising฀to฀the฀mix฀of฀acquisition฀channels฀we฀฀
use฀to฀grow฀our฀subscriber฀base.฀As฀with฀last฀year,฀online฀advertising฀and฀word฀of฀mouth฀฀
will฀continue฀to฀generate฀the฀bulk฀of฀our฀new฀subscribers.฀In฀the฀fourth฀quarter฀of฀2003,฀฀
we฀tested฀TV฀advertising฀in฀several฀markets.฀Those฀test฀results฀looked฀promising.฀If฀TV฀
advertising฀continues฀to฀perform฀in฀2004,฀we฀expect฀a฀broader฀launch฀in฀2005.
During฀2004,฀we฀will฀be฀preparing฀to฀expand฀internationally฀in฀2005.฀Our฀first฀markets฀are฀
likely฀to฀be฀in฀the฀U.K.฀and฀Canada.฀These฀are฀good฀expansion฀markets฀for฀us.฀But฀in฀the฀
next฀few฀years,฀while฀the฀U.S.฀market฀continues฀its฀rapid฀growth,฀we฀expect฀that฀over฀time฀
international฀operations฀will฀contribute฀less฀than฀20฀percent฀of฀revenues.฀Nevertheless,฀฀
it฀is฀prudent฀and฀exciting฀for฀us฀to฀begin฀moving฀from฀a฀domestic฀to฀a฀global฀company.
Letter฀to฀Shareholders