NetFlix 2006 Annual Report Download - page 18

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business. If we are unable to successfully or profitably compete with current and new competitors, programs and
technologies, our business will be adversely affected, and we may not be able to increase or maintain market
share, revenues or profitability.
In addition, 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 or download a DVD from Wal-Mart or Amazon and
subscribe to Netflix, or some combination thereof, all in the same month. New competitors may be able to launch
new businesses at relatively low cost. DVDs and downloading represent only two of many existing and potential
new technologies for viewing filmed entertainment. In addition, the growth in adoption of DVD and
downloading technology is not mutually exclusive from the growth of other technologies. If we are unable to
successfully compete with current and new competitors, programs and technologies, we may not be able to
achieve adequate market share, increase our revenues or maintain profitability. Our principal competitors
include, or could include:
• video rental outlets, such as Blockbuster and Movie Gallery;
• online DVD subscription rental sites, such as Blockbuster Online;
• pay-per-view and VOD services;
• movie retail stores, such as Best Buy, Wal-Mart and Amazon.com;
• subscription entertainment services, such as HBO and Showtime;
• Internet movie providers, such as iTunes, Amazon.com, Movielink, CinemaNow.com and Vongo;
• Internet companies such as Yahoo! and Google;
• cable providers, such as Time Warner and Comcast; and
• direct broadcast satellite providers, such as DIRECTV and Echostar.
Some of our competitors have adopted, and may continue to adopt, aggressive pricing policies and devote
substantially more resources to marketing and Web site and systems development than we do. There can be no
assurance that we will be able to compete effectively against current or new competitors at our existing pricing
levels or at even lower price points in the future. Furthermore, we may need to adjust the level of service
provided to our subscribers and/or incur significantly higher marketing expenditures than we currently anticipate.
As a result of increased competition, we may see a reduction in operating margins and market share.
If VOD or other technologies are more widely adopted and supported as a method of content delivery by
the studios and consumers, our business could be adversely affected.
Some digital cable providers and Internet content providers have implemented technology referred to as
VOD. This technology transmits movies and other entertainment content on demand with interactive capabilities
such as start, stop and rewind. High-speed Internet access has greatly increased the speed and quality of viewing
VOD content, including feature-length movies, on personal computers over the Internet. In addition, other
technologies have been developed that allow alternative means for consumers to receive and watch movies or
other entertainment, such as on cell phones or other handheld devices such as Apple’s iPod. Although we
anticipate providing solutions for online delivery of content, as evidenced by the recent launch of our instant-
viewing feature, VOD or other technologies may become more affordable and viable alternative methods of
content delivery that are widely supported by studios and adopted by consumers. If this happens more quickly
than we anticipate or more quickly than our own online delivery offerings, or if other providers are better able to
meet studio and consumer needs and expectations our business could be adversely affected.
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