NetFlix 2007 Annual Report Download - page 8

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Competitive Strengths
We believe that our revenue and subscriber growth are a result of the following competitive strengths:
•Comprehensive Library of Titles. We have developed strategic relationships with top studios and
distributors, enabling us to establish and maintain a broad and deep selection of DVD titles. Since our
service is available nationally, we believe that we can economically acquire and provide subscribers a
broader selection of DVD titles than video rental outlets, video retailers, subscription channels,
pay-per-view and VOD services. To maximize our selection of DVD titles, we continuously add newly
released DVD titles to our library. Our DVD library contains numerous copies of popular new releases,
as well as many DVD titles that appeal to narrow audiences.
•Personalized Merchandising. We utilize our proprietary recommendation service to create a custom
interface for each subscriber to effectively merchandise our library. Subscribers rate titles on our Web
site, and our recommendation service compares these ratings to the database of ratings collected from our
entire user base. For each subscriber, these comparisons are used to make predictions about specific titles
the subscriber may enjoy. These predictions are used to merchandise titles to subscribers throughout the
Web site. As of December 31, 2007, we had approximately 2.0 billion movie ratings in our database. We
believe that our recommendation service allows us to create broad-based demand for our library and
maximize utilization of each DVD.
•Scalable Business Model. We believe that we have a scalable, low-cost business model designed to
maximize our revenues and minimize our costs. As we continue to expand our subscriber base, we are
able to leverage operational changes in a cost effective manner which further reduces our operating costs
on a per subscriber basis. Such cost reductions include increased automation and vendor negotiating
leverage. Subscribers’ prepaid monthly payments and the recurring nature of our subscription business
provide working capital benefits and significant near-term revenue visibility. Our scalable infrastructure
and online interface allow us to service our large and expanding subscriber base from a network of
low-cost shipping centers.
•Convenience, Selection and Fast Delivery. Subscribers can conveniently select titles by building and
modifying a personalized queue of titles on our Web site. We create a unique experience for subscribers
by serving pages on our Web site that are tailored to subscribers’ individual rental and ratings history.
Based on each subscriber’s queue, we ship DVDs by first class mail. Subscribers return these DVDs to us
in prepaid mailers. After receipt of returned DVDs, we mail our subscribers the next available DVD in
their queue of selected titles. We have approximately 90,000 DVD titles to choose from, and our
nationwide network of distribution centers allows us to offer fast delivery. In addition, we offer
subscribers the ability to watch movies instantly on their PCs and anticipate offering this feature on other
Netflix-enabled consumer electronics devices.
Growth Strategy
Our strategy to provide a premier filmed entertainment subscription service to our large and growing
subscriber base includes the following key elements:
•Providing Compelling Value for Subscribers. We provide subscribers access to our comprehensive
library of approximately 90,000 DVD titles with no due dates, late fees or shipping charges for a fixed
monthly fee. We merchandise titles in easy-to-recognize lists including new releases, by genre and other
targeted categories. We also offer more than 6,000 choices through our instant-watching feature. Our
convenient, easy-to-use Web site allows subscribers to quickly select current titles, reserve upcoming
releases and build an individual queue for future viewing using our proprietary personalization
technology. We provide service features to our subscribers that, among other things, enable social
networking and further individualization of the service through establishment of sub-account queues and
recommendations. Our recommendation service provides subscribers with recommendations of titles
from our library. We quickly deliver DVDs to subscribers from our shipping centers located throughout
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