NetFlix 2007 Annual Report Download - page 11

Fulfillment Operations
We currently stock approximately 90,000 titles on more than 69 million DVDs. We have allocated
substantial resources to developing, maintaining and testing the proprietary technology that helps us manage the
fulfillment of individual orders and the integration of our Web site, transaction processing systems, fulfillment
operations, inventory levels and coordination of our shipping centers.
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. Our customer service center is open seven
days a week. In 2007, we substantially increased our investment in customer service in order to improve the
overall quality and level of service to our subscribers. In addition, we continue to focus on eliminating the causes
of customer support calls and providing certain self-service features on our Web site, such as the ability to report
and correct most shipping problems. We continue to explore new avenues to deliver efficient problem resolution
and feedback channels. Our customer service center is located in Hillsboro, Oregon.
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 or Amazon, download a movie from Apple, and subscribe to
Netflix, or some combination thereof, all in the same month.
Video rental outlets, retailers and kiosk services with whom we compete include Blockbuster, Movie
Gallery, Amazon.com, Wal-Mart Stores, Best Buy and Redbox. 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 approximately 90,000 DVD titles compete favorably against traditional video rental outlets and
retailers.
We also compete against other online and store-based DVD subscription services, such as Blockbuster’s
Total Access, subscription entertainment services, such as HBO, Showtime and Starz, pay-per-view and VOD
providers and cable and satellite providers.
VOD and delivery of movies over the Internet may also emerge as a competitive distribution channel.
Apple’s video iPod and Apple TV, Amazon’s Unbox and other companies ranging from Google and Yahoo! to
Microsoft and Intel are active in Internet delivery of content. 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. Internet delivery of movies to a
computer is currently available from providers, such as iTunes, Hulu, Vongo, Movielink and CinemaNow.
While we anticipate that new devices and services for delivery of content will proliferate over the coming
years, we believe that DVD, and its high definition successors, including Blu-ray, will continue to dominate the
home entertainment experience in the near term. At some point in the future, digital delivery directly to the home
will surpass DVD. Our ability to personalize our library to each subscriber by leveraging our extensive database
of user preferences and our strategy of developing a large and growing subscriber base for DVD rentals positions
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