NetFlix 2005 Annual Report Download - page 20

•Utilizing Technology to Enhance Subscriber Experience and Operate Efficiently. We utilize
proprietary technology developed internally to manage the processing and distribution of DVDs from
our shipping centers. Our software automates the process of tracking and routing titles to and from each
of our shipping centers and allocates order responsibilities among them. We continuously monitor, test
and seek to improve the efficiency of our distribution, processing and inventory management systems as
our subscriber base and shipping volume grows. We operate a nationwide network of shipping centers.
We anticipate opening additional shipping centers in 2006.
•Building Mutually Beneficial Relationships with Filmed Entertainment Providers. We have invested
substantial resources in establishing strong ties with various filmed entertainment providers. We
maintain an office in Los Angeles that provides us access to the major studios. We have entered into a
number of revenue sharing agreements with studios and we also purchase titles directly. We work with
the content providers to determine which method of acquiring titles is the most beneficial for each party.
Our growing subscriber base provides studios with an additional distribution outlet for popular movies
and television series, as well as niche titles and programs.
Our Web site—www.netflix.com
We have applied substantial resources to plan, develop and maintain proprietary technology to implement
the features of our Web site, such as subscription account signup and management, personalized movie
merchandising, inventory optimization and customer support. We also launched new features such as our social
networking feature, called FriendsSM and our queue management feature, called ProfilesSM. Our software is
written in a variety of languages and runs on industry standard platforms.
Our recommendation service uses proprietary algorithms to compare each subscriber’s title preferences with
preferences of other users contained in our database. This technology enables us to provide personalized movie
recommendations unique to each subscriber.
We believe our dynamic store software optimizes subscriber satisfaction and management of our library by
integrating the predictions from our recommendation service, each subscriber’s current queue and viewing
history, inventory levels and other factors to determine which movies to promote to each subscriber.
Our account signup and management tools provide a subscriber interface familiar to online shoppers. We
use a real-time postal address validator to help our subscribers enter correct postal addresses and to determine the
additional postal address fields required to promote speedy and accurate delivery. Subscribers pay for our service
primarily by a credit or debit card. We utilize third party services to authorize and process our payment methods.
Throughout our Web site, we have extensive measurement and testing capabilities, allowing us to
continuously optimize our Web site according to our needs as well as those of our subscribers. We use random
control testing extensively, including testing service levels, plans, promotions and pricing.
Our Web site is run on hardware and software co-located at a service provider offering reliable network
connections, power, air conditioning and other essential infrastructure. We manage our Web site 24 hours a day,
seven days a week. We utilize a variety of proprietary software and freely available and commercially supported
tools, integrated in a system designed to rapidly and precisely diagnose and recover from failures. We conduct
upgrades and installations of software in a manner designed to minimize disruptions to our subscribers.
The terms and conditions by which subscribers utilize our service and a more detailed description of how
our service works can be found at www.netflix.com/TermsOfUse.
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