NetFlix 2004 Annual Report Download - page 11

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9
family฀who฀are฀also฀Netflix฀subscribers.฀We฀think฀Friends฀has฀tremendous฀
potential฀to฀redefine฀and฀expand฀the฀online฀movie฀proposition฀beyond฀simply฀
selecting฀movies,฀to฀enable฀our฀subscribers฀to฀become฀heavily฀engaged฀with฀the฀
social฀nature฀of฀movies…฀talking฀about฀movies,฀watching฀what฀your฀friends,฀
parents฀and฀siblings฀are฀watching.
The฀result฀is฀clear:฀The฀best฀keeps฀getting฀better.฀
Maintaining฀Our฀Market฀Leadership
2004฀was฀also฀a฀year฀in฀which฀we฀demonstrated฀our฀willingness฀to฀make฀hard฀
choices฀—฀including฀lowering฀prices฀and฀deferring฀profitability฀—฀to฀protect฀฀
our฀market฀leadership.฀We฀believe฀market฀share฀leadership฀is฀key฀to฀long-term฀
category฀leadership.฀It฀is฀hard฀to฀predict฀what฀competitors฀will฀do,฀but฀no฀one฀
should฀doubt฀our฀resolve฀to฀maintain฀our฀leadership฀or฀our฀financial฀ability฀to฀
support฀that฀resolve.฀Our฀superior฀product,฀exceptional฀brand฀strength,฀and฀deep฀
operational฀experience฀give฀us฀what฀we฀believe฀are฀the฀highest฀gross฀margin฀฀
and฀the฀lowest฀operating฀costs฀in฀our฀business…฀attributes฀that฀strengthen฀our฀
confidence฀in฀our฀ability฀to฀prevail฀over฀the฀competition.
Of฀course,฀2004฀was฀not฀simply฀a฀year฀in฀which฀Netflix฀extended฀its฀record฀of฀
exceptional฀growth;฀our฀shareholders฀also฀experienced฀a฀significant฀decline฀in฀
stock฀price.฀While฀stock฀price฀movements฀are฀always฀complex,฀I฀believe฀a฀major฀
factor฀in฀the฀decline฀was฀investor฀uncertainty฀about฀the฀actual฀and฀potential฀฀
entry฀of฀large฀and฀aggressive฀competitors.
Competition฀by฀its฀nature฀always฀introduces฀uncertainty.฀But฀I฀believe฀that฀the฀฀
net฀effect฀of฀the฀experience฀of฀2004฀was฀to฀clarify฀the฀competitive฀equation,฀
validate฀the฀vitality฀of฀the฀online฀rental฀market฀and฀demonstrates฀the฀strength฀฀
of฀the฀Netflix฀business฀model.฀We฀believe฀uncertainty฀will฀diminish฀further฀as฀฀
we฀move฀through฀2005.
Goals฀for฀2005
We฀have฀set฀aggressive฀but฀realistic฀goals฀for฀2005.฀We฀intend฀to฀continue฀our฀
rapid฀subscriber฀growth฀and฀reach฀more฀than฀four฀million฀subscribers฀by฀the฀end฀฀
of฀the฀year.฀฀
Introducing฀Friends.฀Friends฀is฀our฀latest฀enhancement฀to฀the฀Netflix฀experience.฀It฀expands฀on฀the฀social฀
nature฀of฀movies,฀allowing฀customers฀with฀the฀click฀of฀a฀button฀to฀share฀lists฀of฀their฀favorite฀movies,฀television฀
and฀other฀filmed฀entertainment฀with฀select฀family฀and฀friends.฀