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Netflix

Netflix (Nasdaq: NFLX) is the largest online movie rental service. Its primary revenue stream is a flat-rate DVD-by-mail service.

Company Description

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Netflix has over 10 million members providing them access to more than 100,000 DVD titles. 12,000 of these titles are also avaiable via an online streaming service dubbed Watch Instantly.

Key Business Metrics

According to their 10-k, Netflix management measures the overall health of their business using three key metrics:

  • Churn - the monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, then divided by three months.
  • Subscriber acquisition cost - the total marketing expense divided by total gross subscriber additions.
  • Gross margin - monitors variable costs and operating efficiency.

People

View all management and their backgrounds at the Netflix Media Center.

Board of Directors

  • Richard Barton - Zillow
  • A. George "Skip" Battle - Ask
  • Charles Giancarlo - Cisco Systems
  • Timothy Haley - Redpoint Ventures
  • Jay Hoag - Technology Crossover Ventures
  • Greg Stanger - Technology Crossover Ventures
  • Michael Schuh - Foundation Capital

Subscriber Growth

Since creating the online DVD rental market in 1999, Netflix has grown subscribers at a 64% compound annual growth rate (CAGR.)

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Netflix Swot Analysis

Strengths
  • Personalized merchandising: create custom interface for each subscriber to create maximum utilization of content library
  • Growing scale: operational advantages and large install base will transition cost-effectively into internet delivery
Weaknesses
  • Impulse renters: weak selection for this segment
  • Popular new movies: requires large capital outlay to meet demand of new movies. Could increase churn if demand unmet
  • Insubstantial VOD offerings: Currently only have licenses to stream about 10% of content library
Opportunities
  • Internet delivery of content: expand content licensing and evolve content delivery methods
  • Netflix capable consumer electronic devices: bundle streaming capabilities with TVs, gaming consoles, etc.
Threats
  • Cable companies: Comcast and other cable companies control the delivery mechanism of Netflix's streaming video, and also have competitive video on demand (VOD) offerings.
  • Rental kiosks: Meets impulse renter segment for popular movies
  • Wide, rapid adoption of VOD: Consumers could adopt video on demand more quickly than anticipated
  • Popularity of DVD format decreases: consumers shift to another medium or shift away from movie watching
  • Increase in the cost of delivering DVDs: postage rates increase

Industry Overview

Motion pictures, including movies and television programs 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.

Competition

Principal competitors include:

  • DVD rental outlets and kiosk services, such as Blockbuster, Movie Gallery and Redbox;
  • video package providers with pay-per-view and VOD content including cable providers, such as Time Warner and Comcast; direct broadcast satellite providers, such as DIRECTV and Echostar; and telecommunication providers such as AT&T and Verizon;
  • online DVD subscription rental web sites, such as Blockbuster Online;
  • entertainment video retail stores, such as Best Buy, Wal-Mart and Amazon.com;
  • Internet movie and television content providers, such as Apple’s iTunes, Amazon.com, Hulu.com and Google’s YouTube.

Related Companies

Recent Mentions on Fool.com


External Links

Recent SEC Filings

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