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Concepts & Cases
Cotnpetitive e ss and Gl
8th Edition
Michael A. Hitt
Texas A&M University
R. Duane Ireland
Texas A&M University
Robert E. Hoskisson
Arizona State University
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Amy Falter, Scott Thompson
Arizona State University
Netflix is one of the most recognizable online movie
rental services in the world. Since the company's launch
in 1998, its business model has revolutionized the
movie rental business and the way U.S. viewers rent and
watch movies. Netflix's service has captured approxi-
mately 6.7 million subscribers and offers a video library
of more than 90,000 movies, television, and other en-
tertainment videos on DVD.
1
The majority of Netflix
subscribers pay about $18 per month and are allowed
to keep up to three movies at a time.
2
Although Netflix
was the first company to tap this new market of online
movie rental, they would not be the last trying to capi-
talize on its potential.
In August 2004, Blockbuster countered Netflix's
entry into the movie rental business with a strategic
response by introducing Blockbuster Online, its own
online rental service.
3
Blockbuster Online offered the
same services as Netflix, putting the two companies in
direct competition with each other for the first time. In
late 2006, Blockbuster revamped the online rental service
and renamed it "Blockbuster Online Total Access:'
4
This
new Blockbuster service gives the customer the option
of either returning the video through the mail or drop-
ping it off at a local Blockbuster store.
5
It does however,
encourage customers to return videos rented online to
the store by offering a voucher for a new in-store rental.
6
As Blockbuster boasts, "With this kind of access, you'll
never have to wait to have a new movie to watch!"
7
The
only caveat with the new in-store rental is that normal
due dates and late fees typical ofbrick-and-mortar video
rental stores are enforced.
8
Without any physical stores,
Netflix executives now face the difficult challenge of
~ finding a legitimate and value-adding way to compete
~ with Blockbuster.
i:i:
, Netflix also faces the development of video stream-
~ ing and downloads on PCs as well as mobile devices.
-g
g "Computers, portable MP3 video players, and telephones
~
are now options for watching downloaded TV shows
and movies, especially among younger audiences:'
9
Companies such as Amazon, Apple, and YouTube have
all been looking at ventures in this market.
10
To stay atop
the online rental market, Netflix must decide how to
adjust its current business model in order to grow and
adapt to the market's dynamic environment.
To better understand these salient strategic chal-
lenges, the following topics will be touched upon:
Netflix's history, current strategic leaders, the competi-
tive environment, supplier relationships, Netflix's current
strategies and functional operations, and recent financial
outcomes.
Brief History
Reed Hastings founded and incorporated Netflix in
August 1997 as a more conventional rental service,
with online offerings.
11
It was not until April 1998 that
Netflix opened its Internet store for DVD rentals and
then offered a subscription service in September 1999Y
Netflix's rapid growth can be attributed to its early strate-
gic relationships with leading DVD hardware and home
theater equipment manufacturers (Sony, Toshiba, RCA
/Thomson Consumer Electronics, Pioneer, and Panasonic)
and marketing tactics (promotional techniques) to build
brand recognition and acceptance among the growing
DVD-rental consumer base.
13
In December 1999, Netflix
announced the elimination of due dates and late fees,
helping it to quickly become a popular rental service,
as it also did not charge shipping and handling fees and
per-title rental fees.
14
On May 22,2002, Netflix made an
initial public offering (IPO) of 5.5 million shares of com-
mon stock at $15 per share.
15
Due to the overwhelming acceptance of and demand
for Netflix services, it became necessary for Netflix to
~ The authors would like to thank Professor Robert E. Hoskisson for his support under whose direction the case was developed. The authors do not intend to
8 illustrate either effective or ineffective handling of a managerial situation. The case solely provides material for class discussion. This case was developed with
contributions from: Garret Lumley, Evan Mallonee, & Terri Phillips.
275
~ ~ ~ Exhibit1
- ~
Monthly Plans
~
z
;::;
Q)
(f)
ro
u
Movie Rentals Cost
1 at-a-time (2 per month} $ 4.99 per month
1 at-a-time (unlimited) $ 9.99 per month
2 at-a-time (unlimited) $14.99 per month
3 at-a-time (unlimited) $17.99 per month
4 at-a-time (unlimited) $23.99 per month
5 at-a-time (unlimited) $29.99 per month
6 at-a-time (unlimited) $35 99 per month
7 at-a-time (unlimited) $41.99 per month
8 at-a-time (unlimited) $47.99 per month
Source http //www netflrx.com/MedraCenter
build new distribution and shipping centers every year.
In the 2003 fiscal year, Netflix recorded its first profit-
able year with record revenues of $272.2 million, up
78 percent from the 2002 fiscal year with earnings of
$152.8 million.
16
As Netflix grew, it developed tailored
service packages based on consumers' desired number
of rentals per month (see Exhibit 1). In 2005, the num-
ber of subscribers grew to a record high of 4.2 million,
60 percent over the previous year.
17
Both 2005 and 2006
were also solid growth years, leaving CEO Reed Hastings
optimistic about future growth and earnings potential:
"Our accomplishments during the year [2006]-strong
subscriber growth, continued improvement in the cus-
tomer experience, and increased profitability-together
with the recent launch of the first generation of our on-
line video option, leave us better positioned than ever to
achieve our long-term objective of being the movie rental
leader:'
18
In February 2007, Netflix celebrated the deliv-
ery of its one-billionth DVD by giving the recipient a free
lifetime Netflix membership.
19
Netflix recently offered new features to its subscrib-
ers. In January 2007, Netflix launched "Watch Now:'
20
This feature allows subscribers not only to rent online
and continue to receive DVDs through mail, but also
watch more than 1,000 movies and television shows via
their PCs.
21
Netflix hopes to eventually bring this type
of technology to any device with access to the Internet,2
2
Another new endeavor Netflix has launched is Red
Envelope Entertainment; this new division "looks to
leverage its proprietary technology to offer subscribers
unique and original content to which they wouldn't oth-
erwise have access:'
23
The unique and original content
includes independent films such as those found at the
Sundance and Toronto Film festivals.
24
At year end 2006 Netflix employed 1,300 full-time
and 646 temporary employees at the corporate headquar-
ters in Los Gatos, California, and in its shipping centers
across the nation.
25
Many ofNetflix's senior officers have
been with the company for a majority of the company's
lifespan. The current strategic decision makers ofNetflix
are six key individuals from the C-suite.
Netflix Strategic Leaders
Founder, CEO, and Chairperson. Reed Hastings
has served as chairman since the company's incep-
tion.26 Hastings studied mathematics at Bowdoin
College in Brunswick, Maine, and was awarded the
Smyth Prize in 1981 by the math department and re-
ceived his BA in 1983.27 To round out his education,
Hastings went to Stanford University and received a
master's degree in computer science.
28
A former Netflix
director, Bob Pisano, said of Hastings "[he is] an engi-
neer, is analytical and very charismatic ... that's a rare
combination:'
29
Hastings created the vision for Netflix and is in per-
petual motion to evolve and sustain his business based
on critical factors developed by other members of his
management team.
Neil Hunt, Chief Product Officer. Neil Hunt cre-
ated and manages the Netflix site. He has served in this
capacity since 1999.
30
His job and decisions are of critical
importance, because his output is the portal customers
ultimately interact with via the company. Hunt's focus is
"Customization and personalization [ensuring] every
Netflix member [receives] a unique experience every
time they visit the site. This includes the movies they
see on each page, the recommendations they receive on
movies, and the critical account management tools they
use, such as their dynamic queue to order movies:'
31
Mr.
Hunt is a noteworthy scientist who has the leadership
skills to inspire teams to be innovative, and create pow-
erful software that is user-friendly.
Ted Sarandos, Chief Content Officer. Since 2000,
Mr. Sarandos's role is to manage and cultivate relation-
ships with studios, networks, film makers, and produc-
ers to gain access to films and distribution channels.
32
His most critical role is making sure customers' needs
are satisfied through the current video selection and by
staying abreast of new trends within the entertainment
industry.
Leslie Kilgore, Chief Marketing Officer. Because
Netflix is an online entity, Ms. Kilgore's responsibility is
to find the most effective and cost-efficient methods to
acquire new subscribers through various marketing ap-
proaches.
33
Her success is demonstrated in that "more
than 90 percent of trial members convert to paying sub-
scribers and more than 90 percent of those tell family
and friends about the service:'
34
Barry McCarthy, Chief Financial Officer. Since
1999 Mr. McCarthy has overseen the financial and legal
affairs for Netflix. Barry has vast experience in his field,
including work with Credit Suisse First Boston. He has
helped Netflix become a billion dollar revenue company
within 7 years.
35
Patty McCord, Chief Talent Officer. Ms. McCord
has been with Netflix since 1998 and helps the company
attract and retain high-talent employees. Having 16 years
of human resources experience with high-tech compa-
nies, she plays a large role in establishing a culture in
which employees are devoted to superior customer ser-
vice. "She is adamant about keeping a lean organization
in which openness, approachability, and honesty are val-
ued above all else:'
36
The strategic leaders have directed Netflix to target
three distinct customer segments: those who like the con-
venience of free home delivery, the movie buffs who want
access to the widest selection of, say, French New Wave
or Bollywood fllms, and the bargain hunters who want to
watch 10 or more movies for 18 dollars a month. The chal-
lenge is to keep all segments happy at the same time.
37
Netflix hopes that catering to the needs and desires
of its different customer segments will help it remain a
key player in this rapidly developing and competitive
industry.
Competitive Environment
Until recently, Blockbuster Inc. dominated the movie
rental industry, with few threatening competitors and
drawing annual revenues of more than $3 billion.
38
Netflix challenged the traditional brick-and-mortar video
rental chains. With the continual advent of new technol-
ogy and widespread Internet adoption and usage, the
Netflix business model appealed to many consumers,
especially those who were frustrated with Blockbuster's
late fees. With Netflix's entire business model focused on
providing unique online rental, free delivery to house-
holds, no due dates or late fees, and movie recommenda-
tions to all its subscribers, Netflix appeared to have found
a niche market.
39
As a result of the short product life cycles in the tech-
nological sector, continual improvements in products,
and lower costs in technology, it has become more
common for consumers around the globe to own their
own movie viewing devices and access the Internet
from home. Thus, the online movie rental market base
is expected to grow continuously. In 2005, the online
movie rental industry had more than 6 million sub-
scribers in the United States and Europe, and by the
end of 2006 that number rose to more than 8 million
subscribers.
40
Emer ging Competitor s
Progress in technology is changing the competitive dy-
namics. The main impetus challenging movie rental com-
panies is video on demand (VOD). Video on demand is
gaining more attention and popularity, especially among
cable/satellite companies, television networks, and dot-
com companies. In contrast to buying or renting a video,
VOD allows the user to download the entire movie to a
computer or stream the video, where the movie is viewed
in realtimeY
Downloadable movies are in an embryonic stage,
with early adopters experimenting with the service,
but are not yet widely utilized among Internet users.
42
A potential current pitfall of this product is that nei-
ther downloaded nor streaming videos come in high
definition yet, and this could be a deal buster for many
consumers who have recently bought into the high
definition crazeY However, most of the key online
rental industry players have sought relationships with
video on demand providers to maintain a competitive
advantage.
New entrants are crafting technology devices specif-
ically designed to support these new services. One major
player will be Apple; movies and television shows can
be viewed on Apple TV, iPods, and Macs. Smartphones
will also begin to offer the downloadable movie and
television show service, acting as portable TV s.
44
The
downloadable Amazon Unbox allows consumers to ac-
cess DVD-quality movies and television shows for rent
or purchase.
45
Wal-Mart joined the fight for market
share by creating its own downloading movie business
in February 2007.
46
Wal-Mart has gained the interest of
studios such as 20th Century Fox, Lions Gate, Disney,
MGM, MTV Networks, Paramount Pictures, Universal
Studios, Sony Pictures Entertainment, and Warner
Bros.
47
Wal-Mart currently offers approximately 3,000
titles for download purchase ranging in price from
$14.88 to $19.88.
48
Netflix is in its infancy stage of introducing stream-
ing videos and television shows offered to current sub-
scribers.49 This new addition of streaming service was
built upon the Microsoft infrastructure. 5 Over time, the
company hopes to make Netflix's service available on
other software combinations, portable devices, and tele-
visions screens.
51
Netflix has also partnered with video
recorder maker TiVo to allow TiVo customers access to
DVDs on Netflix's Web site.
52
CEO Reed Hastings has
stated, "We want to be ready when video on demand
happens. That's why the company is [called] Netflix and
not DVD-by-mail:'
53
Even though Blockbuster has been Netflix's stron-
gest competitor, other companies are strengthening their
competitive position to challenge these two giants and
gain market share. These competitors seem to believe
()
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~
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u
they can differentiate their service and product offer-
ings in order to challenge Netflix in an entirely new
dimension.
Key Competitors
Bloc kbuste r Inc.
Blockbuster is the world's largest video and video disk retail
chain today, with approximately 9,040 company-owned or
franchised brick-and-mortar stores located in more than
25 countries (about 60 percent located within the United
States).
54
Each year, Blockbuster rents more than a billion
videos, DVDs, and video games through its retail outlets. 5
5
Blockbuster became a video giant through its foresight, ac-
quisition strategy, and prime store locations.
History. In 1982, David P. Cook determined that "most
[video] stores were relatively modest family operations
that carried a small selection of former big hit movies:' 5
6
Cook wanted to create a nationwide movie rental com-
pany chain with a vast selection ofvideos.
57
The biggest
selling point to enter this industry was that he could use
his computer skills to create an innovative computing
system for inventory control and checkout; therefore, it
would decrease manual labor costs and help eliminate
high costs associated with theft.
58
Cook used the proceeds
from the sale of his computer data services company to
open a flashy video rental store that maintained the video
catalog via computer bar code systems. He named his
new company Blockbuster Entertainment, with the first
store opening in Dallas, Texas, in 1985.
59
Growth Strategy. Initially, Blockbuster's growth strat-
egy included franchising and selling the Blockbuster
name and proprietary computer system.
60
After being
in existence for only one year, Blockbuster altered its
strategy to horizontal acquisitions to spur rapid growth.
Blockbuster desired to be the first-mover in the super-
store video rental chain.
61
"Blockbuster's management
continued to maintain that since the video 'superstore'
concept was open for anyone to copy, it needed to grab
market share as fast as possible in order to exploit its
ground-breaking concept:'
62
Although Blockbuster rapidly expanded nationally
and experienced astronomical growth (company earn-
ings in 1988, 1989, and 1990 were 114%, 93%, and 48%
respectively), the rental industry was beginning to reach
maturity.
63
Blockbuster began to offer video game equip-
ment and games for rental and purchase.
64
In addition,
Blockbuster continued to expand globally with market
entries in the United Kingdom, Japan, Australia, Europe,
and Latin America.
65
To further diversify its business portfolio, Blockbuster
purchased Music Plus and Sound Warehouse, a music
retail chain, from Shamrock Holdings in 1992, for $185
million and created Blockbuster Music.
66
Within the past
15 years, Blockbuster has entered into many agreements
with movie production companies, communication
companies, and other entertainment companies, many
of which proved beneficial; but some relationships had
to be severed, such as Blockbuster Music (1998), so as to
not drain Blockbuster of all its financial resources.
Revenue Sharing Program. The current CEO, John
Antioco, took the reins in the summer of 1997 with
Blockbuster in a world of mess.
67
Not only was its stock
50 percent below its value from the previous year, but
suppliers were not delivering newly released movies on
time, and there was not enough qualified staff to allow
for effective store operations.
68
Antioco turned the company on its head. He scaled
back on expansion and eliminated the nonrental op-
erations (i.e., selling retail merchandise in Blockbuster
stores).
69
He also implemented a revenue sharing pro-
gram with major Hollywood movie studios. "Now in-
stead of paying $65 for new tapes, Blockbuster paid $4
and turned over 30 to 40 percent of the rental income
to the studio:'
70
This arrangement allowed Blockbuster
to stock more videos on its shelves with a lower cost
structure. In 2007 Antioco announced his resignation as
chairperson and CEO due to various disagreements with
Blockbuster's board about salary.
71
The succeeding CEO
James Keyes confronts the challenge of holding market
share in a volatile industry.
Challenge to Netflix. As noted previously, in response
to the success and popularity of Netflix, Blockbuster
launched its Blockbuster Online service in 2004 "where
members can rent unlimited DVDs online and have them
delivered via mail for a monthly fee:'n This service has
evolved into its current state called Blockbuster Total
Access, where DVDs are still ordered online and delivered
to households, but now customers can return the DVDs
for a free in-store rentaU
3
Blockbuster also developed a
subscription service called Blockbuster Movie Pass where
customers can have 2 or 3 movies out at a time without
any late fees.
74
Most recently, Blockbuster and Weinstein Co. en-
tered into an agreement where Weinstein Co.-an in-
dependent American film studio-will sell its titles such
as Sicko, Miss Potter, and Hannibal Rising exclusively to
Blockbuster outlets for a three-year period in exchange
for the aforementioned revenue sharing program.
75
This
strategic action will prohibit Netflix access to any of the
titles produced by this studio. Netflix has pursued its
own agreements with independent film producers, so it
remains to be seen whether these relationships will prove
beneficial for each company.
Also, Blockbuster recently acquired Movielink LLC,
an online movie downloading company owned by major
Hollywood studios, such as MGM, Paramount Pictures,
Sony Pictures Entertainment, Universal Studios, and
Warner Brothers.
76
In this agreement, Blockbuster will
have long-term deals for content with the major film
studios, which will significantly enlarge its current video
library used by both the brick-and-mortar stores and
online subscribers.
77
Blockbuster has also sought out a
video download partner so its customers will have three
ways to attain movies-in-store, mail order, or down-
load. "While Blockbuster trailed behind in the online
DVD rental business after entering it in 2004-five years
after Netflix-it's not taking a wait-and-see attitude to-
ward movie downloads:'
78
Movie Ga ll e ry, Inc .
Movie Gallery is the second-largest North American
video rental retail chain, with more than 4,700 stores
located in all 50 states, Canada, and Mexico.
79
Its growth
strategy is internal growth and pursuing selective comple-
mentary acquisitions. "By focusing on rural and secondary
markets, [Movie Gallery] is able to compete very effec-
tively against the independently owned stores and small
regional chains in these areas:'
80
Movie Gallery's acquisi-
tion of Hollywood Entertainment in 2005 made the com-
pany stronger and more competitive with Blockbuster by
challenging Blockbuster on its strength-owning stores
in prime locations.
By acquiring Hollywood Entertainment, Movie
Gallery inherited 74 automated movie vending machine
kiosks similar to ATMs, which "provide around the clock
availability of movies" for rent.
81
Because of the mini-
mal overhead and fixed costs associated with the kiosks
Movie Gallery intends to expand its fleet with a rollout of
an additional200 units through 2007.
82
Joe Malugen, chairperson, president, and CEO of
Movie Gallery, stated "While we firmly believe that our
retail brick-and-mortar stores will remain the founda-
tion of our business, over the past three years we have
been diligently pursuing alternative delivery platforms
to further complement our base business:'
83
As such,
in March 2007 Movie Gallery purchased MovieBeam,
a movies-on-demand service, which was created and
funded by Walt Disney Co., Cisco Systems, and Intel
Capital.
84
Movies are "beamed" into consumer homes us-
ing MovieBeam's patented over-the-air data-casting tech-
nology to the set-top box.
85
Currently, this technology is
limited to television set use only, but Movie Gallery plans
to expand these services to video on demand capability
over the Internet.
86
Hastings Entertainment. Hastings Entertainment
operates in approximately 20 midwestern and western

states, focusing on small to medium-sized towns with
0
underserved markets (towns with populations of 33,000 ffi
to 105,000).
87
This multimedia retailer "combines the sale ':::::
of new and used CDs, books, videos, and video games, as z
<1>
well as boutique merchandise, with the rental of videos ~
and video games in a superstore format:'
88
Sales and rent-
als of videos and games account for the primary revenue
stream (35 percent) with music sales pulling in the sec-
ond highest amount (25 percent).
89
According to Hoover's
Inc., "As is the case throughout most of the rental indus-
try, Hastings video rental sales continue to drop in the
face of mail-order rental houses like Netflix and video
on demand services from cable companies:'
90
Although
Blockbuster, Movie Gallery, and Hastings Entertainment
are the "Big Three" competitors for Netflix, other movie
delivery methods exist and capture some of the market
share.
Othe r Co mpe titots
While movie rentals are the most common method for
viewing newly released films or older pictures, other
channels are available. These channels include movie re-
tail stores (e.g., Best Buy, Wal-Mart, and Amazon.com);
subscription entertainment services (e.g., Showtime and
HBO); Internet movie providers (e.g., iTunes, Amazon.
com, Movielink, CinemaNow.com, and Vongo); Internet
companies (e.g., Yahoo! and Google); and cable and di -
rect broadcast satellite providers.
91
To remain a key player in the industry it is just as
important for Netflix to consider the movie content pro-
viders as it is the competitors.
Content Providers
Netflix has exercised great effort in establishing strong
relationships with a number of entertainment film pro-
viders. They have sought to ensure that the relationships
are mutually beneficial. Netflix obtains content from the
studios through either revenue sharing agreements or
direct purchase. The revenue sharing program provides
Netflix with a tremendous cost savings, and in return
provides the studios a percentage of Netflix's subscrip-
tion revenues for a defined period of time. This agree-
ment also allows the studios an additional distribution
outlet for new releases, television shows, and so on. Once
the defmed period for the revenue sharing has ended for
a particular movie title, Netflix will destroy the title, pur-
chase the title, or return it to the studio.
Netflix contracts movies offered through its instant-
viewing feature with studios and other content providers
on a fixed fee or per-view basis. The general arrangement
is the same, but the specific terms are often unique to
each provider.
92
II
Netflix orders movies in two different formats: HD-
DVD and Blu-Ray9
3
through content providers such as
Hollywood Film studios, 20th Century Fox, Walt Disney
Studios, Columbia Pictures, Lions Gate Films, New Line
Cinema, Paramount Pictures, Universal Pictures, Warner
Bros. Pictures, and other independent film studios.
94
N
Q)
Ul
"' u
The online rental industry has enjoyed large growth
and success up to this point largely due to the distribu-
tion rules established by studios. Currently, DVDs are
available for movie rental and retail sales three to six
months before the movies are available on pay-per-view
and VOD, nine months before satellite and cable, and
two to three years before basic cable and syndicated net-
works. The studios have discussed either eliminating the
distribution windows or shortening them, which would
adversely affect Netflix.
95
Netflix has been able to establish a relationship with
content providers and differentiate itself among competi-
tors through its strategic approach.
Netflix's Strategies and Functional
Operations
Netflix is focused on continuous improvement and met-
rics to add value to the business and the customers' ex-
perience.96 All these goals culminate into one overlying
company strategic goal-to maintain a low-cost struc-
ture. Dillon states,
The Company's fulfillment costs are about half what
Blockbuster's are, which enables profitability at a lower
price. Every penny counts in a high-volume business. As
we keep lowering our cost, we're able to lower our price. It's
a very elastic market; so, the lower the price, the more our
market grows.
97
As mentioned previously, the company developed
strategic alliances with sources in the film and television
sectors.
98
These arrangements provided a significant cost
savings, which freed up funds to use for other projects
and investments, such as the continued investment and
development of its proprietary software for inventory
management, logistics, and shipping.
99
Netflix has also carefully managed its payroll ex-
penses to keep in line with the low-cost structure. "When
the company first started in 1999, Netflix had 75,000
customers and was using 100 employees to package soft-
ware for customer support:'
100
Netflix cut that number
roughly in half with just 45 current employees serving
more than 6 million subscribers.
101
This dramatic cut
in staffing is driven by an essentially self-service Web
site and home-grown support software that enables rep-
resentatives to handle higher volumes.
102
Tom Dillon,
COO explains,
We firmly believe in building IT from scratch; this is a cus-
tom business. . . . If you want to get it done exactly the
way you want, build it yourself. ... IT is not a strategic
weapon in most companies. But in our company, IT is the
business. We live and breathe [the idea] that the way you
get more competitive, lower your costs, and provide better
service is through continuous improvement of the informa-
tion technology.
103
Netflix transcended the norms for IT use and will
continue to rely on its information technology capa-
bilities and resources. It has built a strong, reliable Web
platform that is compatible with all kinds of portals and
browsers in order to sustain a large number of users and
maintain a positive "brand experience:'
104
Netflix is a company that competes on its strong
foundation of mathematical, statistical, and data man-
agement expertise and uses these strengths to further
distinguish itself from other competitors.
105
It uses ana-
lytics in two different ways. Internally created, algorith-
mically driven software makes movie recommendations
for customers through a system called Cinematch.
106
This
capability essentially led to the creation of personalized
Web sites for each customer who visits Netflix and gives
a customized interaction with every individual.
107
Netflix
also uses a process called throttling. With this process,
the company balances the frequent-use and infrequent-
use distribution shipping requests of its customers.
108
Infrequent-use customers are given higher priority in
shipping than frequent- use customers.
109
Some custom-
ers became disgruntled when they learned that Netflix
uses the throttling process. Netflix's senior leaders did
not seemed concerned about the complaints as shown in
a statement by CEO Reed Hastings, "Few customers have
complained about this 'fairness algorithm: We have un-
believably high customer satisfaction ratings:' In January,
1995 Netflix changed its "terms of use" to read "In de-
termining priority for shipping and inventory allocation,
we give priority to those members who receive the fewest
DVDs through our service:'
110
Netflix's services provide value for its large customer
base. The value provided has led Netflix to be almost four
times larger than Blockbuster's in regard to subscribers for
the online service, and to maintain this position, Netflix
is continually reinvesting its money into marketing.
111
Marketing Approaches
Marketing has been a key advantage for Netflix. Early
on it established an agreement with Best Buy in that
Best Buy set up a co branded version of the online DVD
rental service on its five online Web sites and instituted
a joint-marketing program in the 1,800-plus retail
stores. In return, Netflix directs its customers inter-
ested in buying DVDs to Best Buy's Web sites.
112
It has a
Exhibit 2 Advertising Expenditures
As of Blockbuster Netflix
December 2006
December 2005
December 2004
December 2003
$154,300,000
252.700,000
257.400,000
179.400,000
$225,524,000
144,562,000
100,534,000
49,949,000
Sources http /lwww.rnarketwatch com, Netfl1x SEC1 0-K 2003, Netfllx
SEC10-K 2004, Netfl1x SEC10-K 2005, and Netfl1x SEC10-K 2006
similar agreement with Wal-Mart; both companies have
promoted one another since 2005 when Wal-Mart exited
the online movie market.
113
Other marketing efforts include online advertisements
such as banner ads, paid search listings, pop-up advertise-
ments, and text on popular Web portals-Yahoo!, MSN,
and AOL.
114
Netflix was ranked as being the number two
company to spend the most money on online advertise-
ments.115 Most online retailers face budget restrictions on
advertising expenditures, as did Netflix in the beginning,
and therefore are selective in the channels of advertising,
116
but as Netflix's subscriber base has grown, so has its adver-
tising budget and expenditures (see Exhibit 2).
Netflix also targets a broad demographic in its adver-
tising plan by running ads on the mainstream networks-
ABC, NBC, FOX, and CBS, as well as radio advertise-
ments.117 Direct mail, print advertising, and promotions in
certain consumer package goods are used as well in their
marketing strategy.
118
For online video rental, Netflix pioneered the use of
database marketing to develop a personalized relation-
ship with consumers. The database, possible because of
Netflix's strengths in IT, allowed Netflix to understand
individual customers, aggregate and predict behaviors,
and then send customized e-mails informing custom-
ers of what new movies are available. Netflix has a strong
culture of analytics and a test-and-learn approach to its
business.
119
Metrics tracked include Web site users, adver-
tising testing, data mining, subscriber satisfaction, seg-
ment research, and marketing material effectiveness.
120
Often, the effectiveness of its marketing endeavors can
be assessed by reviewing the company's financials.
Financial Results
Stocl< Re lated I ssu es
Netflix's stock price has been highly volatile since its
IPO on May 22, 2002. After adjusting for the eventual
2-for-1 stock split on February 12, 2004, its first year
stock was valued anywhere between $2.42 and $9.10.l2l
In the following three years, the stock price fluctuated
even more until it started showing signs of stabilization
in 2006 (see Exhibit 3). The earnings per share (EPS) for
Exhibit 3 Historic Stock Price and P/E Ratios

2006 2005 2004 2003 2002
High Price 33.12 30.25 39.77 30.50 9.10
Low Pnce 1812 8.91 9.25 5.93 2.42
Year-End 25.86 27.06 12.33 27.35 5.51
Pnce
H1gh P/E 46.61 47.16 119.18 294.52 -12.25
Low P/E 25.50 13.89 27.72 57.21 -3.26
Year-End P/E 36.39 42. 19 36.95 26405 -7.41
Source http //stocks us reuters com/stocks/performance asp?symbol=
NFLX O&WTmodLOC=L2-LeftNav-18-Performace
Netflix has been constantly on the rise (see Exhibit 4).
Estimates for 2007 and 2008 suggest that this trend will
continue at a reasonable rate, which can also be seen in
Exhibit 4.
Also important to note is Netflix's PIE ratios. Netflix's
2006 PIE ratio of 32.88 (2007) is showing a trend toward
becoming more in line with the rest of the industry, which
has a current PIE ratio of 29.17.
122
This high PIE ratio indi-
cates that the market views Netflix as having a higher po-
tential for future earning compared to others in the video
rental industry. Netflix's PIE ratio has moved from an ex-
tremely high number in 2003 to its more stable current
PIE ratio. Historic PIE ratios can be found in Exhibit 3.
123
Co mpany Liquidit y
The current ratios for 2002-2006 can be found in Exhibit 6.
Netflix has consistently had a high current ratio, always
above 1.75.
124
As of December 2006, its current ratio was
2.20, while the rest of the industry had a less favorable ra-
tio of .59.
125
At 2006 year end, the cash ratio was 2.09 and
the debt ratio was .319. With all these ratios considered,
Netflix seems to be in a favorable position. (See Exhibit 5
for balance sheet information.)
Compa ny Pro fitabilit y
Netflix has continued to increase revenues since its
IPO at a significant rate.
126
The net profit margin has
remained in the 4 to 6 range for the past three years
and appears to be the most stable profitability ratio.
This value is significantly lower than the industry's
net profit margin at 14.80.
127
Return on assets, return
on stockholders' equity, operating profit margin, and
net profit margin have all been computed and listed in
Exhibit 7.
Competitor a nd Ind u stry
Fina ncia l Ra t ios
See Exhibit 8 for a list comparing Netflix to its main
competitors-Blockbuster, Hastings Entertainment, and
Movie Gallery-and to other industry averages.
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Exhibit 4 Income Statement
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Income Statement
(in US$ thousands, except per share data)
2002 2003 2004 2005 2006 2007 (est.) 2008E
Revenues $150,818 $270,410 $500,611 $682,213 $996,660 $1,295,550 $1,595,890
Cost of revenues
Subscnpt1on 77,044 147,736 273,401 393,788 532,621
Fulfillment expenses 20,421 32,623 58,311 71,987 94,364
Total cost of revenues $ 97,465 $180,359 $331,712 $465,775 $626,985
Gross prof1t 53,353 90,051 168,899 216,438 369,675
Operatmg expenses
Technology and development $ 17,632 $ 21,863 $ 29,467 $ 35,388 $ 48,379
Marketmg 37,423 51,535 100,534 144,562 225,524 w
General and admm1strat1ve 9,867 13,390 22,104 35,486 36,155
Gam on disposal of DVDs (896) (1,209) (2,560) (1,987) (4,797)
Total operatmg expenses $ 64,026 $ 85,579 $149,545 213,449 $305,261
Operatmg 1ncome (loss) $(10,673) $ 4,472 $ 19,354 $ 2,989 $ 64,414
Other 1ncome (expense)
Interest and other 1ncome 1,697 $ 2,457 $ 2,592 $ 5,753 $ 15,904
Interest and other expense (11,972) (417) (170) (407)
Income (loss) before mcome taxes $(20,948) $ 6,512 $ 21,776 $ 8,335 $ 80,318
ProviSions for (benefit from) mcome taxes - - 181 (33,692) 31,236
Net 1ncome (loss) $(20,948) $ 6,512 $ 21,595 $ 42,027 $ 49,082
Net 1ncome (loss) per share:
Bas1c $ (0.74) $ 014 $ 0.42 $ 0.79 $ 0 78 $ 0.79 $ 104
Diluted $ (0.74) $ 0.10 $ 033 $ 0.64 $ 0.71
Weighted average shares outstanding
Bas1c $ 28,204 $ 47,786 $ 51,988 $ 53,528 $ 62,577
Diluted $ 28,204 $ 62,884 $ 64,713 $ 65,518 $ 69,075
Year-end pnce per share $ 5.51 $ 2735 $ 12.33 $ 2706 $ 25.86
Pnce/earnmgs rat1os (745) 273.50 3736 42.28 36.42 29.83 $ 21.79
Sources Netfllx SECl 0-K 2002, Netfl1x SEC I 0-K 20m, Nettllx SEC 1 O-K 2004, Nettl1x SEC1 0-1<. 2005, and Netfl1x SEC1 0-k 2006, http //stocks us reuters com/stocks/estimates asp
Exhibit 5 Balance Sheet
Balance Sheet
(in US$ thousands, except share and per share data)
2002 2003 2004 2005 2006
Assets
Current assets
Cash and cash equivalents $59,814 $89,894 $174,461 $212,256 $400,430
Short-term investments 43,796 45,297 7,848 4,742
Prepaid expenses 2,753 2,231 2,741 5,252 9,456
Prepaid revenue shanng expenses 303 905 4,695 13,666 3,155
Other current asses 409 619 5,449 4,669 10,635
Total current assets 107,075 138,946 187,346 243,691 428,418
DVD library, net 9,972 22,238 42,158 57,032 104,908
Intangible assets 6,094 2,948 961 457 969
Prope1ty and equipment, net 5,620 9,772 18.728 40,213 55,503
Depos1ts 1,690 1,272 1,600 1,249 1,316
Deferred tax assets 21,239 15,600
Other assets 79 836 1,000 800 2,065
Total assets $130,530 $176,012 $251,793 $364,681 $608,779
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $20,350 $32,654 $49,775 $ 63,491 $93,864
Accrued expenses 9,102 11,625 13,131 25,563 29,905
Deferred revenue 9,743 18,324 31,936 48,533 69,678
Current portion of capital lease obligations 1,231 416 68
Total current liabilities 40,426 63,019 94,910 137,587 193,447
Deferred rent 288 241 600 842 1 '121
Capital lease obligations, less current portion 460 44 68
Total liabilities $41 ,174 $63,019 $95,510 $138,429 194,568
Commitments and contingencies
Stockholders' equity 45 51 53 55 69
Additional pa1d-1n capital 260,044 270,836 292,843 315,868 454,731
Deferred stock-based compensation (11,702) (5,482) (4,693)
Accumulated other comprehensive 1ncome (loss) 774 596 (222)
Accumulated deficit (159,805) (153,293) (131 ,698) (89,671) (40,589)
Total stockholders' equity $89,356 $112,708 $156,283 $226,252 $414,211
Total liabilities and stockholders' equ1ty $130,530 $176,012 $251,793 $364,681 $608,779
Sources Netfhx SEC10-K 2002, Netfl1x SEC10-K 2003, Netfhx SEC10-K 2004, Netfhx SEC10-K 2005, and NPtfhx SEC10-K 2006
Netflix experienced some financial setbacks in the
first quarter of 2007, most of which can be attributed to
its key strategic challenges.
Key Strategic Challenges
Netflix faces a rapidly developing competitive environ-
ment with new technological innovations affecting
product and service offerings among the various movie
rental businesses, whether it be a brick-and-mortar store,
click-and-mortar store, or online business. However, per-
haps the main challenge Netflix will encounter is trying
to figure out how to adjust its business model to the new
technological pressures while staying true to the company's
strengths and providing value to its subscribers.
Churn
Churn is the cancellation of a subscription service. Churn
can be triggered by a number of factors: insufficient use
of the service does not justify the expense; delivery is
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Exhibit 6 Liquidity Ratio
Current ratio
2002 2003 2004 2005 2006
2.65 2.20 1.97 1.77 2.20
Sources: Netfhx SEC10-K 2002, Netflrx SEC10-K 2003, Netfhx SEC10-K 2004, Netfhx SEC10-K 2005, and Netfhx SEC10-K 2006
u
Exhibit 7 Profitability Ratios
2002 2003 2004 2005 2006
Return on assets(%) -19.56 3.70 11.53 11.52 8.06
Return on stockholders' equity -23.44 5.78 13.93 18.58 11.85
Operating profit -13.89 2.41 4.35 1.22 8.06
Net profit margin -13.89 2.41 4.31 6.16 4.92
Sources : Netfhx SEC10-K 2002, SEC10-K 2003, Netfhx SEC10-K 2004, Netflrx SEC10-K 2005, and Netflrx SEC"IO-K 2006
Exhibit 8 Comparative Performance of Netflix and Key Competitors
Blockbuster Hastings Movie Gallery Netflix Industry
BBI Entertainment HAST MOVI.O NFLX Median
Profitability
Gross profit margin 54.68% 6762% 60.19% 37.09% 48.94%
Pre-tax profit margin -0.15% 1.51% -095% 8.06% 16.47%
Net profit margin 1.23% 0.59% -1.01% 4.93% 14.82%
Return on equ1ty 10.54% 5.22% 15.33% 11.84%
Return on assets 2.15% 1.26% -203% 10.08% 6.37%
Valuation
Price/Sales rat1o 0.22 0.12 0.06 1.60 2 82
Price/Earnrngs ratio 21.43 13.99 32 92 18.97
Price/Book ratio 2.06 0.69 3 84 3.80
Operations
Inventory turnover 757 3 28 7.30 27.08
Asset turnover 1.75 2.13 2.00 2 05 0.52
Financial
Current ratio 1.12 163 0 89 2.22 0.63
Quick rat1o 0.88 0.16 0.37 2.22 0.48
Total debt/Equity ratio 1.33 0.42 0.00 0.68
Sources. http //stoc'r's us reuters com/stockslratros asp 7symboi=NFLX O&WTmodLOC=LZ-LeftNav-16-Ratros, http //stocks us reuters com/stocks/
ratros asp?symboi=BBI N, http //stocks us reuters com/stocks/ratros asp7symboi=MOVI 00, http /lv:ww rnvestor reuters wallst com/stocks/Ratros
asp7rpc=66&trcker=HAST 0
too long; poor service; or competitive services provide
better added value and/or experience to the consumer.
These factors are critical to any online movie rental busi-
ness, but especially for Netflix because its entire business
model is based on attracting and maintaining subscribers
(see Exhibits 9 and 10).
Some of the company's key competitors have more
brand name recognition, experience, and financial
resources to provide value to the customer. This makes it
difficult for Netflix to compete at its existing price level or
at lower price level structures in the future. Netflix needs
to offer services that compete effectively.
M anaging Grovvth
Finally, Netflix must have the ability and foresight to
manage extensive growth to maintain its current service
Exhibit 9 Potential Growth for Netflix
I Total Online Subscribers
! (in thousands)
The overall market for online subscription rentals
is still early in its growth cycle, according to
estimates from Adams Media Research and
internal Netflix estimates.
Exhibit 10 Subscriber Churn
Netflix Subscriber Churn*
Better service means higher retention- In the fourth
quarter of 2006, churn declined to a record low
of 3.9 percent.
level. Since the company's launch in 1998, Netflix has seen
phenomenal growth and profitability (see Exhibit 11).
As the company grows, it must add additional distribu-
tion centers to its already existing infrastructure (see
Exhibit 12). However, if the company does not properly
prepare for a continual increase in clientele Netflix's man-
agerial operations and financial resources could be spread
too thin, which translates into orders not being met and
customer satisfaction levels decreasing.
The Central Question
Reed Hastings started Netflix on the premonition that
users would buy into his business concept of online movie
rental without the hassle oflate fees and due dates while
Exhibit 11 Subscriber Growth
Netflix Subscriber Growth
(in thousands)
Netflix has enjoyed rapid subscriber growth
since it invented online DVD rentals.
Exhibit 12 Netflix Distribution Network
Netflix Distribution Network
Rapid expansion of our distribution network- we
added 29 distribution centers in the past four years
-has enabled us to provide quick delivery to our
dramatically growing subscriber base.
choosing a movie from the confines of their home. With
Hastings's vision and charisma, along with his strong
supporting cast of IT, marketing, and entertainment in-
dustry experts, Netflix set in motion a new wave of how
consumers viewed the movie rental business. Netflix was
the primary proponent of change in the movie rental
business. Now, the key concern is how to cope with in-
dustry and technological trends that are evolving. Should
Netflix transition from an online movie rental business
to solely VOD or streaming services? Or can Netflix
maintain its stronghold position with its current busi-
ness model while making slight improvements to keep
current with VOD and other new technologies? Should
Netflix's strategic leaders and decision makers consider a
merger or a joint venture with another company in order

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1. 2006, Netflix Inc. Annual Report.
2. M. Helft, 2007, Netflix to deliver movies to the PC, New York
Times, http://www. nyti mes.com/2007 /01 /16/technology/16netflix
. html ?ex= 1326603600&en= 71618d2092f5b372&ei=5088&partner=
rssnyt&emc=rss, January.
3. 2007, Hoover's Company Reports-Full Overview, Netflix, February 8.
4. 2007, Hoover's Company Reports-Full Overview, Blockbuster Inc.,
February 10.
5. 2007, Blockbuster Total Access-How It Works, http://www
.blockbuster.com.
6. Ibid.
7. Ibid.
8. Ibid.
9. 2007, Netflix, Blockbuster competes for supremacy with new DVD
services, Pittsburgh Post Gazette, January 30.
10. Hoover's company reports.
11. 2007, About Us, http://www.netflix.com, March.
12. 2007, First online DVD rental stores open, http://www.netflix.com/
mediacenter, March.
13. 2007, Netflix's aggressive growth plan, http://www.netflix.com/
mediacenter, March.
14. 2007, Netflix.com transforms DVD business eliminating late fees and
due dates from movie rentals, http://www.netflix.com/mediacenter,
March.
15. 2007, Netflix announces I PO, http://www.netflix.com/mediacenter,
March.
16. 2004. Netflix announces 04 revenue growth of 80% year over year
and a 2-for-1 stock split, Netflix financial release, http://www.netflix
. com, January 21.
17. 2006, Netflix announces 04 2005 financial results, Netflix press
release, http://www.netflix.com, January 24.
18. 2007, Netflix announces 04 2006 financial results, Netflix press
release, http:// www.netflix.com, January 24.
19. 2007, One billion and counting, http://www.netflix.com/mediacenter,
March.
20. 2007, Netflix offers subscribers option of instantly watching movies
on their PCs, http://www.netflix.com/mediacenter, March.
21. Ibid.
22. 2007, Netflix press release, http://www.netflix.com/MediaCenter,
March 27.
23. 2007, http://www.netflix.com/mediacenter.
24. 2007, Netflix Hoover's Full Overview, http://premium.hoovers.com.
25. 2006 Netflix Inc. Annual Report.
26. 2007, Netflix board of director's committee composition, http://
ir.netflix.com/committees.cfm.
27. J. Hopkins, 2006, Charismatic founder keeps Netflix adapting,
USA Today, http://www.usatoday.com/money/companies/
management/2006-04-23-exec-ceo-profile-netflix_x.htm, April 23.
28. Ibid.
29. Ibid.
30. 2007, Management, http://www.netflix.com/mediacenter.
31. Ibid.
32. Ibid.
33. Ibid.
34. Ibid.
35. Ibid.
36. Ibid.
37. P. Sauer, 2005, How I did it: Reed Hastings, Netflix, http://www.inc
. com/magazine, December.
short history. Now Netflix must realize how it can sustain
its business livelihood in a cutthroat, highly competitive
industry.
38. T. H. Davenport & J. G. Harris, 2007, Competing on analytics: The
new science of winning, The Nature of Analytical Competition, http://
harvardbusinessonline, 3.
39. Ibid., 4.
40. M. Kirdahy, 2007, Blockbuster takes on Netflix, Forbes, http://www
.forbes.com, January 3.
41. 2007, Video on Demand (VODJ: About Broadband Movies, Downloads
and More, Broadbandinfo.com, http://www.broadbandinfo.com/got-
high-speed/video-cn-<:lemand/default.html.
42. 2006, What's next for Netflix? Financial Times,http://www.ftpress
.com/articles/article.asp?p=671 844&rl= 1, November 2.
43. 2007, The big picture, Hoovers.com, Pittsburgh Tribune Review,
January 28.
44. Ibid.
45. 2007, Amazon. com, Amazon Unbox, http://www.amazon.com/gp/
video/he! p/faq. htmf/ref=atv _dp_faq_dscvr/1 03-7381394-1357468
#discover.
46. P. Gogoi, 2007, Wai-Mart enters the movie download wars,
BusinessWeek, http://www.businessweek.com, February 6.
47. Ibid.
48. Ibid.
49. Ibid.
50. Ibid.
51. Ibid.
52. T. Krazit, 2004, Netflix, TiVo team up on broadband movie delivery, PC
World, http://www.pcworld.com, September 30.
53. P. Sauer, How I did it: Reed Hastings, Netflix.
54. 2007, Blockbuster Inc., Netflix Full Overview, http://premium.hoovers
.com, February 10 .
55. Ibid.
56. Ibid.
57. Ibid.
58. Ibid.
59. Ibid.
60. 2000, Blockbuster Inc., Funding Universe-Company History,
International Directory of Company Histories, http://www
. fundinguniverse. com/company-histories/Biockbuster-lnc-Company-
History.html.
61. Ibid.
62. Ibid.
63. Ibid.
64. Ibid.
65. Ibid.
66. Ibid.
67. Ibid.
68. Ibid.
69. Ibid.
70. Ibid.
71. 2007, Blockbuster CEO Antioco to leave company, Yahoo! Finance,
http://www.finance.yahoo.com, March 23.
72. 2007, Blockbuster, Inc. Full Overview, Hoovers, http://premium
.hoovers.com, February 10.
73. Ibid.
74. Ibid.
75. S. Ault, 2006, Blockbuster, Weinsteins sign exclusive deal, http://
www.videobusiness.com.
76. M. Halkias, 2007, Blockbuster may buy downloading firm, The Dallas
Morning News, March 1.
77. Ibid .
78. Ibid.
79. 2007. About Movie Gallery, Moviegallery.com, http://www
. moviegallery.com, March 18.
80. Ibid.
81. 2007, Movie Gallery to introduce online video rental service
and extend automated video vending machine program,
Movie Gallery press release, http://phx.corporate-ir.net/phoenix
. zhtml?c=85959&p=irol-newsArticle&ID=975465&highlight=,
March 25.
82. 2007. Movie Gallery to launch online service, http://www
. businessweek.com, March 19; R.C. Lim, 2007. Movie Gallery
mayhem, Motley Fool Stock Advisor, www.fool.com/investing,
July 24.
83. Ibid.
84. P. Sweeting & C. Spielvogel, 2007. Movie Gallery acquires
MovieBeam, www.videobusiness.com, March 7; 2007, Movie Gallery
News Release, http://www.moviegallery.com, March 7.
85. Ibid.
86. Ibid.
87. 2007. Hastings Entertainment, Hoovers.com, http://premium.hoovers
. com/subscribe/co/overview.xhtmi?ID=ffffctthjfcxryycrk, February 10.
88. 2007. About Hastings, Gohastings.com,http://www.gohastings
. com/lnvestor/AboutHastings.stm, February 10.
89. 2007. Netflix Full Overview, http://premium.hoovers.com, February 10.
90. Ibid.
91. 2006, Netflix Inc. Annual Report.
92. Ibid.
93. Ibid.
94. 2007. Motion Picture access, major film studios in the U.S., http://
ncam.wgbh.org/mopix/studios.html.
95. 2006, Netflix Inc. Annual Report.
96. Ibid.
97. Ibid.
98. Ibid.
99. Ibid.
100. Ibid.
101. Ibid.
102. Ibid.
103. Ibid.
104. M. Levy, 2002, Netflix analyzed via the value framework, http://www
.valueframeworkinstitute.org/May2002/feature.article.htm, May .
105. T H. Davenport & J. G. Harris, 2007, Competing on analytics.
106. Ibid.
107. Ibid.
108. Ibid.
109. Ibid .
110. 2006, Frequent Netflix renters sent to the back of the line,
Associated Press, http://www.msnbc.msn.com/id/11262292/,
February 10 .
111. P. Sauer, 2005, How I did it: Reed Hastings, Netflix.
112. 2001, Best Buy and Netflix offer co-branded online DVD movie rental
service, Retailer Merchandiser. http://www.allbusiness.com/retail,
September 11.
113. P. Sauer, How I did it: Reed Hastings, Netflix.
114. 2006, Netflix Inc. Annual Report.
115. L. Punch, 2007. Advertising to the masses, http://www
.internetretailer.com, January.
116. Ibid.
117. Ibid .
118. 2006 Netflix Inc. Annual Report.
119. Ibid .
120. Ibid.
121. 2007. Historical prices for Netflix Inc., Yahoo! Finance, http://finance
. yahoo.com/q/hp? s= N F LX&a =OO&b= 5&c=2002&d=03&e= 17 &f=2 0
07&g=m.
122. 2007. Summary for Netflix Inc., Yahoo! Finance,http://finance.yahoo
. com/q ?s=nflx&x=O&y=O.
123. 2007. Netflix Inc. performance, http://stocks.us.reuters.com/stocks/
performance.asp?symboi=NFLX.O&WT modLOC=L2-LeftNav-18-
Performace.
124. 2006, Netflix Inc. Annual Report.
125. 2007. Netflix Inc. ratios, http://stocks.us.reuters.com/stocks/ratios
.asp ?symboi=NFLX. O&WT modLOC=L2-LeftNav-16-Ratios.
126. 2006, Netflix Inc. Annual Report.
127. Ibid.

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