NetFlix 2004 Annual Report Download - page 22

Fulfillment Operations
We currently stock more than 35,000 titles on more than 24 million DVDs. We have allocated substantial
resources to developing, maintaining and testing the proprietary technology that helps us manage the fulfillment
of individual orders and the integration of our Web site, transaction processing systems, fulfillment operations,
inventory levels and coordination of our shipping centers.
We ship and receive DVDs from 30 shipping centers located throughout the United States. We believe our
shipping centers allow us to improve the subscription experience for subscribers by shortening the transit time for
our DVDs through the U.S. Postal Service. We currently do not ship on weekends or holidays.
Customer Service
We believe that our ability to establish and maintain long-term relationships with subscribers depends, in
part, on the strength of our customer support and service operations. We encourage and utilize frequent
communication with and feedback from our subscribers in order to continually improve our Web site and our
service. Our customer service center is open seven days a week. We utilize e-mail to proactively correspond with
subscribers. We also offer phone support for subscribers who prefer to talk directly with a customer service
representative. We focus on eliminating the causes of customer support calls and automating certain self-service
features on our Web site, such as the ability to report and correct most shipping problems. Our customer service
center is located in our Sunnyvale, California facility.
Competition
The market for in-home filmed entertainment is intensely competitive and subject to rapid change. Many
consumers maintain simultaneous relationships with multiple in-home filmed entertainment providers and can
easily shift spending from one provider to another. For example, consumers may subscribe to HBO, rent a DVD
from Blockbuster, buy a DVD from Wal-Mart and subscribe to Netflix, or some combination thereof, all in the
same month.
Video rental outlets and retailers with whom we compete include Blockbuster, Hollywood Entertainment,
Amazon.com, Wal-Mart Stores and Best Buy. In particular, in 2004, Blockbuster launched on a nationwide basis
its store-based subscription program. This program provides many of the benefits of our business model in a
store-based retail environment. In addition, in early 2005, Blockbuster eliminated its traditional late fee policy.
We believe that we compete with these video rental outlets and movie retailers primarily on the basis of title
selection, convenience and price. We believe that our scalable business model, our subscription service with
home delivery and access to our comprehensive library of more than 35,000 titles compete favorably against
traditional video rental outlets.
We also compete against other online DVD subscription services, such as Blockbuster Online and
Walmart.com, subscription entertainment services, such as HBO and Showtime, pay-per-view and VOD
providers, and cable and satellite providers. The direct online competition has intensified significantly since
Blockbuster officially launched its online service in August 2004. In particular, Blockbuster has been aggressive
in pricing its standard three-out service at a monthly charge of approximately twenty percent lower than ours. We
believe we are able to provide greater subscriber satisfaction due to our focused attention to the business of
online subscription rental, the broad and deep 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, the
unique features we offer subscribers, such as FriendsTM and ProfilesTM as well as the ease and speed with which
subscribers are able to select, receive and return titles.
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