NetFlix 2008 Annual Report Download - page 8

Competitive Strengths
We believe that our revenue and subscriber growth are a result of the following competitive strengths:
•Comprehensive Library of Titles. We have well established relationships with major studios and
distributors, enabling us to maintain a broad and deep selection of DVD titles. We also offer our
subscribers access to a smaller library of titles available for streaming. Because of our scale, national
footprint and Internet based subscription model, we believe that we can efficiently acquire and provide
subscribers a broader selection of DVD titles than DVD rental outlets, DVD retailers, and cable, satellite
and telecommunication providers. In addition, by providing both DVD and streaming content as part of
the Netflix subscription, we are able to offer subscribers a uniquely comprehensive selection of movies
for one low monthly price. 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 various tools, including 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, along with other
factors, are used to help merchandise titles to subscribers throughout the Web site. We believe that our
recommendation service and our other merchandising practices allow us to create broad-based demand
for our library and maximize utilization of our library.
•Growing Scale. We have achieved a level of scale in our business that provides many operational
advantages. For example, we are able to cost effectively automate many of our shipping and receiving
processes, helping to drive down costs while also providing a better, more consistent experience to our
subscribers. Also, our growing scale, namely, our more than 10 million subscribers, provides what we
believe to be a key strategic advantage as our business expands into the Internet delivery of content. We
believe that this large installed base of subscribers positions us well to compete in the Internet delivery of
content with companies that may have more recognizable names or more resources.
•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 over 100,000 DVD titles to choose from, and our nationwide
network of distribution centers allows us to offer fast delivery. In addition, we offer subscribers more
than 12,000 streaming content choices that can be watched instantly without commercial interruption.
Growth Strategy
Our core strategy to grow a large subscription business consisting of DVD by mail and streaming content
includes the following key elements:
•Providing Compelling Value for Subscribers. We provide subscribers access to our comprehensive
library of over 100,000 DVD titles with no due dates, no late fees, no shipping fees and no pay-per-view
fees for a fixed monthly price. We merchandise titles in easy-to-recognize lists including new releases,
by genre and other targeted categories. We also offer more than 12,000 streaming content choices that
can be watched instantly. 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. Our
recommendation service provides subscribers with recommendations of titles from our library. We
quickly deliver DVDs to subscribers from our shipping centers located throughout the United States by
U.S. mail, and we offer certain movies and TV episodes that can be watched instantly.
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