Netflix Inc. incorporated in 1997 and made its first public offering in 2002. Netflix is an online movie rental service which provides its 3,000,000 subscribers access to over 40,000 DVD titles. Although Netflix stocks nearly every title available on DVD, it does not stock titles containing adult content. The Netflix program allows subscribers to rent as many DVD’s as they want, and keep them for as long as they want. Three DVD’s can be out at a time, as soon as one is returned the next DVD on the subscriber generated movie list is shipped out. The DVD’s are delivered for free by the United States Postal Service from regional distribution centers located throughout the United States. Netflix can have most titles delivered to 90% of its subscribers within one business day of the shipping date.
The company provides a personalized movie recommendation service that creates customized recommendations for the subscriber. This system is based on customer rental history and the ratings the customers provide to Netflix. The ratings system is a simple 5 star system where 1 star is equal to a bad movie and 5 stars is equal to an excellent movie.
Netflix also provides decision making information to the subscriber about each movie the company provides. This information includes the length, rating, cast and crew, special features, screen formats, and plot synopses. Netflix also provides movie reviews written by Netflix editors, subscribers, and movie critics. In addition Netflix provides the average rating that other subscribers gave the title, and displays other titles that the subscriber might enjoy.
Netflix has revenue sharing agreements with more than 67 studios and distributors, and also purchases titles directly from studios, distributors, and independent producers. The major competitors for Netflix are Movie Gallery, Trans World Entertainment, Blockbuster, and Intermix Media.
Since 1999 the growth of spending on DVD purchases and rentals has been incredible. According to Alexander & Associates, “Rapidly growing consumer activity and spending has built this industry into a major market phenomenon. The DVD format for enjoying pre-recorded entertainment at home is extraordinarily popular and consumers are changing their behavior to accommodate it.”
• The VHS market totaled nearly $20 billion in 1999 captured less than $6.9 billion in 2004 and will be less than half of that in 2005.
• Consumer spending on rentals of VHS tapes has fallen from nearly $12 billion in 2003 to #3.4 billion in 2004.
• The video rental stores such as Blockbuster and Hollywood Video have suffered from dramatic drops in VHS rental spending. But new companies such as Netflix have enjoyed strong growth.
• Ticket sales for movie theaters are down nearly 6% since 2002. This is due in part by some movie goers deciding to pass on the theatre and wait for the DVD. This is because the average...