NetFlix 2006 Annual Report Download - page 4

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ACHIEVING ONLINE MOVIE RENTAL LEADERSHIP
Throughout our history, the growth potential of online rental has attracted strong
competitors. Most recently, we face a renewed challenge from a competitor with a
compelling and aggressively marketed offering. The fact that the product offering
may not be fi nancially sustainable in its current form does not lessen its potential
near-term impact on our subscriber growth rate.
At the same time, there is a growing array of services offering Internet delivery of
movies, although none has effectively addressed the two major barriers to broad
consumer adoption of online delivery—limited content availability and the
technology to deliver that content to the TV.
In the face of these challenges, our strategy for achieving online movie rental
leadership is to continue to aggressively grow our DVD subscription business and
to transition these subscribers to Internet video delivery as part of their Netfl ix
subscription offering. To begin that transition, in January 2007 we introduced our
“instant viewing” feature that enables subscribers to watch movies on their PCs.
Our large and committed subscriber base is important both because it gives us an
enormous head start in the transition to Internet delivery and because it creates a
signifi cant competitive advantage for us during this transition period. During the
early years of Internet delivery when content is limited, the combination of our DVD
by mail and Internet delivery service will offer a breadth of title selection unmatched
by stand-alone Internet-only competitors.
Underlying our strategy is the understanding that the ultimate winners in Internet-
based movie rental will be the companies that provide consumers the most engaging
experience and an intuitive and personalized way to narrow the enormous number of
entertainment choices—we offer more than 75,000 titles—to the titles each individual
subscriber will love. And that’s what we do best.
NETFLIX 2006 ANNUAL REPORT
LETTER TO SHAREHOLDERS