Netflix

Headquartered in Los Gatos, California, the company provides a monthly flat-fee service for rental of unlimited numbers of DVD movies. Customers each create an ordered list, called a rental queue, of DVDs that they would like to rent. The DVDs are delivered individually by way of the U.S. Postal Service. Subscribers keep the rented DVD as long as they like, but have a limit on the number of DVD movies they can have checked out at any one time depending on their subscription package. To rent a new DVD, customers return a currently-held one to Netflix via a prepaid mailing envelope. Netflix logs the disc as being returned and ships the next disc in the customer's rental queue. Customers could usually expect delivery of their requested DVD within 1-3 days of its shipping. If the received disc is damaged or unplayable for some reason, or if the wrong disc was received, the customer can return it for a replacement or have the next item in their rental queue sent instead. At present (2005), Netflix's most popular plan costs $17.99, which allows a subscriber to check out up to 3 DVDs at once. Other monthly programs with a variety of checkout limits range from US$9.99 to $47.99.

Corporate history

Furthermore, Netflix has developed and maintained an extensive recommendation system based on rating and reviews by customers, similar to the system at Amazon.com; the company believes that it gives it an edge in competing with newcomers like Blockbuster. James Rocchi, a film critic, also known as Mr. DVD, has contributed to reviewing movies. Moreover, the growth has been fueled by the fast spread of DVD players in households; as of 2004, nearly two-thirds of US homes have a DVD player. Netflix also operates an affiliate program which has helped it to build online sales for DVD rentals.

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 he believes it would not be an instant success because of complications in copyright handling and relatively slow adaptation of broadband Internet, Netflix CEO Reed Hastings has said that Netflix will offer video on demand by 2005 with which users can download movies via the Internet and that it may even expand into the video game market.

Netflix has been one of the most successful dot-com ventures. A New York Times article from 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.

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 (IPO) 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.

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, now operates a program for fixed monthly price for unlimited video rentals called MoviePass®. Netflix's success also has inspired a number of overseas imitators, such as Amango and Netleih in Germany, Zip.ca in Canada, Lovefilm [1] in the United Kingdom, Moviemile [1] Keeno [1]in The Netherlands and MediaXpress [1] in Spain. Netflix had tentatively planned to expand to Canada and the United Kingdom by 2005, though Amazon's recent entry into the British market has led NetFlix to postpone international expansion.

Competing services