NetFlix 2004 Annual Report Download - page 7
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SuperiorProductinaGreatMarket
Istressthisrecordofgrowthbecause2004wasayearinwhichchangesinthe
marketplace,includingtheentryofnewandaggressivecompetition,madeiteasy
tooverlooksomeimportantfacts:
•Themarketforonlinerentalsisstrongandgrowing.Infact,it’sgrowingfaster
thanevenwehadimagined,andtheentranceofnewplayersisaccelerating
thatgrowth.
•Netflixcontinuestosucceedbecauseweofferasuperiorproduct—the
bestservice,thebestinventoryavailability,andthemostusefulandengaging
Website—whichhasearnedusthehighestlevelsofcustomersatisfaction.
Ourresultsin2004clearlydemonstratethatNetflixhasbuiltabusinessthat
oursubscribersvalueforreasonsbeyondprice,reflectedinthefactthat95
percentofsurveyedmemberssaytheywouldrecommendNetflixtoafriend.
Letmetalkaboutthemarketandouradvantagesingreaterdetail.First,themarket.
MarketDynamics
Overall,onlinemovierentalsin2004doubledtoapproximately$600million,with
anestimatedtotalof3.3millionsubscribers,makingitoneofthefastest-growing
largemarketsanywhere.Thatgrowthratecan’tlast,butitshowsnosignof
slowingsoon.AdamsMediaResearchprojectsthenumberofonlinerental
subscriberswillapproach8millionbyyear-end2006,whichrepresents60
percentgrowtheachofthenexttwoyears.
Notsurprisingly,a$600millionmarketthatisdoublingyear-over-yearattracts
seriouscompetition.During2004,Blockbusteraggressivelylauncheditscom-
petitiveservice,andweanticipateadditionalentrants.Despitethecompetition’s
aggressivepricingandsubstantialinvestmentinmarketingandoperations,
weachievedhighersubscribergrowthin2004thanin2003,andfourth-quarter
2004subscriberchurnwasthelowestinourhistory.
Howwereoursubscriberretentionandgrowthratesatrecordlevelsdespite
theaggressivecompetition?Inparttheanswer,webelieve,isthattheentry
ofnewcompetitors—andtheirincrementalspendingonmarketing—helped
tofuelconsumerawarenessofonlinerental,which,inturn,droveaccelerated
Personalizedrecommendations.Wemakeiteasierformemberstofindanddiscovermoviestheywillenjoy.
Asmembersratemovies,ourtechnologycreatesacustomized,personalsitebasedoneachmember’smovietastes,
whichmakesourtitlesmorerelevantandaccessibletoeachsubscriber.Wehaveover525millionratings(and
growing)inourdatabasewhichenablesustocontinuetoimprovetheefficiencywithwhichwerecommendfilms.