NetFlix 2008 Annual Report Download - page 7

We stock over 100,000 DVD titles. We have established revenue sharing relationships with several studios
and distributors. We also purchase titles directly from studios, distributors and other suppliers. In addition, we
have more than 12,000 content choices licensed for streaming.
We ship and receive DVDs throughout the United States. We maintain a nationwide network of shipping
centers that allows us to provide fast delivery and return service to our subscribers.
We are focused on growing our subscriber base and revenues and utilizing our proprietary technology to
minimize operating costs. Our technology is extensively employed to manage and integrate our business,
including our Web site interface, order processing, fulfillment operations and customer service. We believe that
our technology also allows us to maximize our library utilization and to run our fulfillment operations in a
flexible manner with minimal capital requirements.
We are organized in a single operating segment. All our revenues are generated in the United States, and we
have no long-lived assets outside the United States. Substantially all our revenues are derived from monthly
subscription fees.
Industry Overview
Motion pictures, including movies and television programs (“entertainment video”) are distributed broadly
through a variety of channels, including movie theaters, airlines, hotels and in-home. In-home distribution
channels include DVD rental and retail outlets and web sites, cable, satellite and telecommunication providers
offering basic and premium television, pay-per-view, and video-on-demand (“VOD”) and Internet delivery.
Currently, studios distribute their entertainment video content approximately three to six months after theatrical
release to the home video market, three to seven months after theatrical release to pay-per-view and VOD, one
year after theatrical release to premium television and two to three years after theatrical release to basic cable and
network television. Internet delivered content is made available typically at the same time as pay-per-view or
VOD; however, some content, such as television shows, are often made available for Internet viewing shortly
after the original airing date. The major studios and television networks have continued to experiment with
shortened release windows and we anticipate that they will continue to test a variety of modifications or
adjustments to the traditional windows, including releasing movies simultaneously on DVD and VOD. We
believe, however, that DVD will continue to receive a preferential distribution window in light of the large
profits DVD generates for the studios in the near term.
Challenges Faced by Consumers in Selecting In-Home Entertainment Video
The continued proliferation of new releases of entertainment video, coupled with the availability of a large
and growing back catalog of titles on DVD create two primary challenges for consumers in selecting titles.
First, despite the large number of available titles on DVD, existing subscription channels and traditional
DVD rental outlets stock a limited selection of titles, frustrating consumer demand for more choice. Subscription
channels, pay-per-view and VOD services continue to offer a relatively narrow selection of titles. Likewise,
traditional DVD rental outlets primarily offer new releases and devote limited space to display and stock back
catalog titles. We believe our selection of over 100,000 titles on DVD offers an attractive alternative to these
traditional channels.
Second, even when consumers have access to the vast number of titles available, they generally have limited
means to effectively sort through the titles. We believe our recommendation service, our merchandising practices
and our other Web site features provide our subscribers the tools to select titles that appeal to their individual
preferences.
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