NetFlix 2005 Annual Report Download - page 10

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about two-thirds of our rentals come from our back catalog, which gives us important
cost advantages and sets us apart from our competitors.
LOOKING AHEAD
In 2002, investors reacted with skepticism when we told them we would reach fi ve
million subscribers in fi ve to seven years — in fact, we anticipate hitting the fi ve
million mark this year, a full year ahead of our expectations. And in 2005, when
we said we would reach 20 million subscribers in the next fi ve to seven years, there
were again doubters.
We are confi dent we can reach that aggressive target because we believe DVDs will
be an important product for a long time. Consumers like the technology and are
increasingly investing in high defi nition TV equipment, and the studios rely on DVDs
for the majority of their revenue. We believe the DVD life cycle will be signifi cantly
extended by the arrival of high defi nition DVDs, which offer enhanced value to both
consumers and studios.
ALTERNATIVE VIDEO DELIVERY
We also anticipate the emergence of a signifi cant downloading market once two
primary hurdles are cleared: the availability of deep and compelling content and the
technological challenge of getting the content from the Internet to the TV, where
people want to watch it.
We are absolutely focused on positioning Netfl ix to lead this market. It’s important
to remember that downloading is just another way to deliver content, an alternative
to the mail, or the local video store, or to cable, or to satellite delivery. The winners
in downloading will be the companies that provide the best content and the best
consumer experience, and that’s what we do best. With millions of online subscribers
addicted to the Netfl ix Web site, we will have both a mass audience and the most
compelling consumer experience in the market, which will give us critical advantages
as we begin to offer downloading as a second delivery option.
• LETTER TO SHAREHOLDERS •
8 NETFLIX 2005 ANNUAL REPORT