NetFlix 2005 Annual Report Download - page 22

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We ship and receive DVDs from a nationwide network of 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 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, Movie Gallery,
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, Blockbuster’s elimination of its traditional late fee policy has been
adopted by all of its company-owned stores and many of its franchised stores. 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 55,000 titles compete favorably against traditional video rental outlets.
We also compete against other online DVD subscription services, such as Blockbuster Online, subscription
entertainment services, such as HBO and Showtime, pay-per-view and VOD providers, and cable and satellite
providers. It remains possible that other potential online entrants will offer competing services, either directly or
in conjunction with others, or that Blockbuster Online will gain more traction in its current business.
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 FriendsSM and ProfilesSM as well as the ease and speed with which
subscribers are able to select, receive and return titles. We continue to focus on retaining our leadership position
and growing our business.
VOD and downloading of movies over the Internet continues to receive considerable media attention. In
particular, the recent launch of Apple’s video iPod and announcements from companies ranging from Google and
Yahoo to Microsoft and Intel regarding their efforts in digital delivery of content fuels public interest in the
future of video entertainment delivery. Progress in digital delivery, although slow and scattered, continues to be
made. VOD, for example, is now widely available to digital cable subscribers in major metropolitan areas, such
as New York, Boston, Los Angeles and San Francisco. Downloading of movies over the Internet to a personal
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