Netflix
Netflix (Nasdaq: NFLX) is the first major online DVD rental service, offering flat-rate rental-by-mail to customers in the United States. Netflix tentatively plans to expand to Canada and the United Kingdom by 2005.Headquartered in Los Gatos, California, the company provides a monthly flat-fee service for rental of unlimited numbers of DVD movies. Netflix customers each create an ordered list (called a rental queue) of DVDs that they would like to rent. The DVDs are delivered one-at-a-time by standard mail. Subscriber keep the rented DVD as long as they like but have a limit on the number of DVDs they can have checked out at any one time. To rent a new DVD, customers return (via postage-prepaid mail) a currently-held DVD to Netflix. Netflix logs the disc's return and ships the next disc in the customer's rental queue. At present (2004), Netflix offers monthly programs ranging from $14 to $40 with different checkout limits.
Netflix's patented disc mailing packaging
Netflix is one of more successful dot-com ventures. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning $6.5 million profit on revenues of $272 million. Founded by Reed Hastings, Netflix was incorporated on August 29, 1997 and began operations on April 14, 1998. Netflix initiated an initial public offering on May 29, 2002, selling 5,500,000 shares of common stock at the price of $15.00 per share. On June 14, 2002, it sold an additional 825,000 shares of common stock at the same price.
Netflix initially offered a service similar to traditional DVD rental shops on-line until late 1999, fearing that flat-monthly programs might be too radical. However, after launching its subscription service, Netflix became very successful. They have never offered adult DVD rentals. Because of Netflix's success, other companies have begun launching similar services. Wal-Mart, the world's largest retailer, started an online DVD-rental service in October 2002. Blockbuster, the world's largest movie rental chain, began test-marketing a fixed monthly price for unlimited video rentals.
Key points of the Netflix's success have been its ease-of-use and comprehensiveness. Unlike traditional DVD rental shops such as Blockbuster Video, there are no due dates, late fees, shipping or handling, or per-title rental fees. Unlike most online on-demand entertainment services, such as EMusic, the company offerings covers the vast range of DVD movies with over 18,000 titles (as of 2004), including titles by major and minor studios.
Netflix is an example of the odd situation about copyright issues on the Internet. While it is possible and probably more convenient to download directly movies via the network, license issues and the fear of piracy prevents such a service. While the bandwidth costs would be enormous, Netflix CEO Reed Hastings has said that Netflix may offer video on demand over the web by 2005, and may even expand into the video game market.
A New York Times article in September 2002 said that (at the time) Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers. The article estimated that the company therefore distributes 1,500 terabytes of data per day, almost as much data that travels across the entire Internet in one day.
Netflix operates an affiliate program which has helped it to build online sales for DVD rentals.
Subscribers
(Approximate values according to SEC filings)
Source: [1]
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