NetFlix 2004 Annual Report Download - page 8
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marketgrowth.Asthesayinggoes,“Arisingtideliftsallboats.”Weinventedthe
onlineDVDrentalmarket,andweintendtoremainitsleader,butwebelievethis
marketcansupportmultiplecompetitors.
Howlargecanthismarketbecome?Frankly,wedon’tknow,butourexperience
intheOakland/SanJose/SanFranciscometropolitanareagivesanindicationof
itspotential.Sincewebeganofferingourservicetherefiveyearsago,ourmarket
penetrationhasreached9percent.Basedonourownconsistentyear-over-year
growth,webelieve20percenthouseholdpenetrationratesarepossible,and
someday20millionhouseholdsintheU.S.mayberentingmoviesonline.
Thegrowthofthemarketreflectsbothconvenienceandthefactthatonline
subscriptionrentalisaphenomenalvalue,approximately50percentcheaper
thanthesamestore-basedsubscriptionrental.Imaginethemarketpotentialifan
onlinecardealersoldcarsfor50percentlessthanthelocalbricks-and-mortar
dealer.Ourcostadvantageisstructuralandunassailable.Forexample,ittakes
morethan500videostorestoservetheLosAngelesarea,whileweservethe
samemarketwithonlyonewarehouse.
TheNetflixAdvantage
Thereasonwecanbothdrivethegrowthofthemarketandbetheprimary
beneficiaryofthisrapidgrowthistheclearsuperiorityofourproduct.Simplyput,
NetflixcontinuestodoonlineDVDrentalbetterthananyoneontheplanet.
Oursuccessisdirectlyattributabletothefactthatonlinerentalhasbeen
oursolepassionformorethanfiveyears,andwehaveworkedconstantlyto
strengthenandimproveeveryaspectofouroperations.Wehavemoredistri-
butioncentersandbetterinventoryavailabilitythanthecompetition.Wehave
themostusefulrecommendationsystemanywhere,withmorethan525million
movieratingstohelpconsumerssortthroughthe35,000filmswecarrytofind
the35bestforthem.Theresultisthatthatweconsistentlydeliverthebest
experience,keepourcustomershappy,andgenerateoutrageouslypositive
word-of-mouthadvertising.
Andwecontinuetoinvesttoprovidegreatervaluetooursubscribers.Improve-
mentsin2004includedthefourth-quarterlaunchof“Friends,”whichallows
consumerstosharemovieratingsandrecommendationswiththeirfriendsand
35,000titlesandcounting.NetflixprovidesacomprehensiveDVDlibraryofmovie,televisionandotherfilmed
entertainmenttitles,givingourmembersthebestselectionanywhere.Ourcollectionisintelligentlycategorized,
subcategorized,andcross-referenced,whichcombinedwithourpersonalizedrecommendations,helpsmembers
sortthroughthe35,000titlestofindthe35bestforthem.