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On-line DVD Rental NETFLIX Laurie Bouchard Kikuyu Daniels Stephen MacNeil John McDonnell Christine Palkoski

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DVD Rental Overview <ul><li>Primary “after theater” consumer distribution methods: </li></ul><ul><ul><ul><li>DVD rental and purchase </li></ul></ul></ul><ul><ul><ul><li>On-line content service (pay-per view, streaming) </li></ul></ul></ul><ul><li>Growth of DVD rental/purchase in 1990s </li></ul><ul><ul><ul><li>Large movie studios recording in digital format </li></ul></ul></ul><ul><ul><ul><li>DVD players more affordable </li></ul></ul></ul><ul><li>Enter Netflix, DVD rental strong in U.S. </li></ul>

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Netflix Profile <ul><li>Founded in 1997 by Marc Randolph and current CEO Reed Hastings </li></ul><ul><li>Originally offered DVDs on a fee per use basis </li></ul><ul><li>Introduced monthly subscription service in 1999 </li></ul><ul><li>9.4 million subscribers as of Q4 2008 </li></ul><ul><li>2009 forecast of 10.6 to 11.3 million subscribers </li></ul>

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Netflix Competitive Advantage <ul><li>First-mover advantage in on-line rental </li></ul><ul><li>Patented method of web-based DVD selection </li></ul><ul><li>Customer-centric, monthly subscription-based service </li></ul>“ It probably looks easy to imitate Netflix, but it’s quite difficult to get all the details right that matter to a consumer. We’ve put four year’s effort into building our service.” – Reed Hastings, co-founder in 2001

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Netflix Services <ul><li>Service Plan Options: </li></ul><ul><ul><ul><li>Unlimited Plans </li></ul></ul></ul><ul><ul><ul><ul><ul><li>$8.99 1 DVD at a time </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>$13.99 2 DVDs at a time </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>$16.99 3 DVDs at a time </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Less popular plans of 4-8 DVDs at a time available </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>*Unlimited online viewing on all unlimited plans </li></ul></ul></ul></ul></ul><ul><ul><ul><li>1 Limited Plan </li></ul></ul></ul><ul><ul><ul><ul><ul><li>$4.99 1 DVD at a time (2 per month) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>* 2 hours of online viewing </li></ul></ul></ul></ul></ul>

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Subscriber Growth (000’s)

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Service Features <ul><li>No Due Dates </li></ul><ul><li>No Late Fees </li></ul><ul><li>No Cancellation Fees </li></ul><ul><li>Free DVD Shipping – Both Ways </li></ul><ul><li>Blu-ray Substitution, for a Fee </li></ul>

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Customer Loyalty <ul><li>Consistently maintain 84% - 86% of existing customers quarter over quarter. </li></ul><ul><li>Voted #1 online retailer 8 consecutive periods by Foresee/FGI Research </li></ul><ul><li>Achieved Through: </li></ul><ul><ul><li>Ease of Use </li></ul></ul><ul><ul><li>Fast Delivery (97% in one day) </li></ul></ul><ul><ul><li>Size of Selection (Over 100,000 DVD titles) </li></ul></ul>

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Competition <ul><li>Movie Rental Stores </li></ul><ul><ul><li>Blockbuster, Hollywood Video, Movie Gallery </li></ul></ul><ul><li>Movie Rental Kiosks </li></ul><ul><ul><li>Red Box </li></ul></ul><ul><li>Downloadable Movies </li></ul><ul><ul><li>Apple, YouTube, Hulu </li></ul></ul><ul><ul><li>“ On Demand” </li></ul></ul><ul><li>Movie Theaters </li></ul><ul><ul><li>AMC, Showcase </li></ul></ul>

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Main Competition Source: 2008 Data from Hoovers, SEC Netflix Blockbuster Redbox Industry Median Annual Sales ($M) 1,364.7 5,542.4 22.4 Employees 1,644 59,643 750 Gross Profit Marin 33.30% 51.90% - 36.00% Net Profit Margin 6.10% 0.50% - -11.50% Return on Invest. Cap. 19.8% 1.8% - 2.9% 12 mo. Revenue Growth 13.2% 0.6% - 8.7% 12 mo. Net Income Growth 24.0% 0.0% - 15.2%

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Financial Position

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Financial Highlights <ul><li>Predictable Revenue Streams </li></ul><ul><ul><ul><li>Not dependent on rental fees or late fees </li></ul></ul></ul><ul><li>Low Overhead Costs Contribute to Profits </li></ul><ul><ul><ul><li>No store rent, utilities, salaries </li></ul></ul></ul><ul><li>Strong Growth </li></ul><ul><ul><ul><li>Market entry timing, planned barrier to entry for competition, customer centric </li></ul></ul></ul>

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Video Streaming

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Video Streaming

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Video Streaming <ul><li>Opportunities for Netflix </li></ul><ul><li>Lowers shipping costs </li></ul><ul><ul><ul><li>More can be spent on content while achieving same profit margins </li></ul></ul></ul><ul><li>No more planning ahead to watch a movie </li></ul><ul><ul><ul><li>May attract a new segment of movie watchers </li></ul></ul></ul><ul><li>Partnerships for streaming </li></ul><ul><ul><ul><li>LG & Samsung Blu-ray players </li></ul></ul></ul><ul><ul><ul><li>Xbox360 </li></ul></ul></ul><ul><ul><ul><li>Roku digital video players </li></ul></ul></ul><ul><ul><ul><li>Tivo HD boxes </li></ul></ul></ul>

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Video Streaming

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Video Streaming <ul><li>Threats for Netflix </li></ul><ul><li>Exclusivity agreements with content providers may effect availability of movies for streaming </li></ul><ul><li>More competition from big name companies (Apple, Microsoft, Amazon) and global competition from companies operating locally overseas </li></ul><ul><li>Limits on Bandwidth usage from internet providers </li></ul><ul><li>Price adjustments to cover new expenses </li></ul>

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Exclusivity Issues Source: Netflix 2008 Investor Day Presentation

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SWOT <ul><li>STRENGTHS </li></ul><ul><li>First Mover Advantage </li></ul><ul><li>Strong Brand Recognition </li></ul><ul><li>High Customer Satisfaction </li></ul><ul><li>Large Movie Selection </li></ul><ul><li>Low Overhead Costs </li></ul><ul><li>Predictable Monthly Revenue Streams </li></ul><ul><li>Affordable Pricing </li></ul><ul><li>WEAKNESSES </li></ul><ul><li>Monthly Fee Discourages Membership From </li></ul><ul><li>Less Frequent Movie Watchers </li></ul><ul><li>Lack of Control Over DVD Return Time </li></ul><ul><li>Comparatively Small Movie Library Available to </li></ul><ul><li>Stream </li></ul><ul><li>DVDs Can Arrive Scratched or Broken Due to </li></ul><ul><li>Mailing Process </li></ul><ul><li>OPPORTUNITIES </li></ul><ul><li>Product Line Expansion – Video Games </li></ul><ul><li>Expand Downloadable Movie Offerings </li></ul><ul><li>Print 3 rd Party Advertisements of Red Envelopes </li></ul><ul><li>Expand on Partnerships With Content Providers </li></ul><ul><li>and Technology Providers. </li></ul><ul><li>THREATS </li></ul><ul><li>Staying power of DVDs </li></ul><ul><li>Contractual restrictions on streaming content </li></ul><ul><li>Bigger competition in the streaming video market </li></ul><ul><li>DVD competition from Red Box, and Blockbuster </li></ul>

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References <ul><li>“ Twitter for Netflix” accessed on 23 March 2009. < http://addnetflix.moltbedesigns.com/ > </li></ul><ul><li>Luther, Shaila. “Netflix creeps into Facebook with Netflix Updates.” CrunchGear. 24 March 2009. <http://www.crunchgear.com/2009/03/24/netflix-creeps-into-facebook-with-netflix-updates/> </li></ul><ul><li>NetFlix Company Website accessed on 3 March 2009. < www.netflix.com > </li></ul><ul><li>Wikipedia accessed on 14 March 2009. < http://en.wikipedia.org/wiki/Netflix > </li></ul><ul><li>Hoovers Online accessed 23 March 2009. < http://premium.hoovers.com > (Premium subscription required) </li></ul><ul><li>Cook, Jim and Taylor, Suzanne. “Five Lessons From the Netflix Startup Story.” MarketingProfs. 11 April 2006. < http://www.marketingprofs.com/print.asp?source=/6/cooktaylor1.asp > </li></ul><ul><li>Mullaney, Timothy. “Coming soon to a Netflix near you.” Business Week Online . 9 June 2006.< http://www.businessweek.com/smallbiz/content/jun2006/sb20060609_292496.htm > </li></ul><ul><li>Helft, Miguel. “Netflix to Deliver Movies to the PC.” New York Times . 16 January 2007. < http://www.nytimes.com/2007/01/16/technology/16netflix.html > </li></ul><ul><li>“ Netflix offers subscribers the option of instantly watching movies on their PCs.” Netflix press release. 16 January 2007. < http://www.netflix.com/MediaCenter?id=5384 > </li></ul><ul><li>Blockbuster Movies accessed 23 March 2009. < http://www.blockbuster.com/totalaccess > </li></ul><ul><li>“ Apple TV.” Apple.com. < http://www.apple.com/appletv/ > </li></ul><ul><li>Zeidler, Sue. “Netflix, consumer electronics partnerships near.” Reuters . Gary Hill. 2 April 2008. < http://www.reuters.com/article/technologyNews/idUSN2133480820080422?feedType=RSS&feedName=technologyNews&sp=true > </li></ul><ul><li>Jacobs, Ian. “Internet-based businesses are (finally) changing the customer interaction paradigm.” Frost & Sullivan Market Insight. 28 September 2007. < http://www.frost.com > </li></ul><ul><li>Jacobs, Ian. “Universal agents – not a universally applicable idea.” Frost & Sullivan Market Insight. 30 June 2007. < http://www.frost.com > </li></ul><ul><li>“ World Video Content Delivery Networks Market.” Frost & Sullivan Subscription Service. 15 December 2008. < http://www.frost.com > </li></ul><ul><li>“ World Video Encoders and Transcoders Markets.” Frost & Sullivan Subscription Service. 13 December 2007. < http://www.frost.com > </li></ul><ul><li>“ North American Residential Broadband Access Services Markets.” Frost & Sullivan Subscription Service. 28 March 2008. http://www.frost.com </li></ul><ul><li>SEC website accessed 7 April 2009 . < http://idea.sec.gov/Archives/edgar/data/1065280/000119312509037430/d10k.htm > </li></ul>