Netflix Inc.

(NFLX)
Company Overview
Netflix, Inc. (Netflix), incorporated on August 29, 1997, is an Internet subscription service
streaming television shows and movies. The Company's subscribers can watch unlimited
television shows and movies streamed over the Internet to their televisions, computers and
mobile devices, and in the United States, subscribers can also receive digital versatile discs
(DVDs) delivered to their homes. The Company operates in three segments: Domestic
streaming, International streaming and Domestic DVD. The Company obtains content from
various studios and other content providers through fixed-fee licenses, revenue sharing
agreements and direct purchases. The Company
Common Primary Shares (mil) 59
markets its service through various channels, including
17,813.4 online advertising, broad-based media, such as
Market Cap Consolidated (mil)
3
television and radio, as well as various partnerships. In
Enterprise Value (mil)
5,915.35 October 2012, the Company launched its streaming
service in Finland, Denmark, Sweden and Norway.
EPS LTM*
0.79
The company recorded revenues of $3,204.6 million
Forward P/E**
212.25
during the financial year ended December 2011
(FY2011), an increase of 48.2% over FY2010. The
Beta
0.95
operating profit of the company was $376.1 million in
FY2011, an increase of 32.6% over FY2010. The net profit was $226.1 million in FY2011, an
increase of 40.6% over FY2010.

Fundamentals Information

Key Financials
(millions)
Sales
Operating Income

Y12
3,609.28
49.99

Y11
3,204.58
385.07

Y10
2,162.63
277.55

Y09
1,670.27
187.38

Y08
1,364.66
115.18

Net Income
Total Assets
Total Liabilities

17.35
3,911.03
3,166.36

226.13
3,040.90
2,398.09

160.85
964.6
674.44

115.86
663.78
464.63

83.03
595.54
248.38

EBIT

50.47

379.55

287.33

198.67

133.96

Ratio Analysis
PROFITABILITY

12/31/
12

12/31/
11

12/31/1
0

12/31/0
9

12/31/0
8

Return On Total Equity

Reinvestment Rate
Return On Assets
Return On Invested
Capital
Cash Earnings Return
On Equity
Cash Flow To Sales
Cost of Goods Sold To
Sales
Gross Profit Margin
Operating Profit
Margin
Pretax Margin
Net Margin

2.47
2.47
0.86
2.09

48.47
48.47
11.94
29.83

65.75
65.75
21.32
36.04

42.42
42.42
19.07
29.16

21.35
21.35
13.80
20.71

-0.47

42.57

20.04

135.72

79.21

-0.09
25.59

6.20
37.46

2.27
47.10

22.19
49.20

22.58
48.95

27.25
1.39

36.34
12.02

37.24
12.83

35.38
11.22

33.30
8.44

0.84
0.48

11.22
7.06

12.38
7.44

11.51
6.94

9.64
6.08

LIQUIDITY

12/31/20
12

12/31/20
11

12/31/20
10

12/31/20
09

12/31/20
08

Quick Ratio
Current Ratio
Cash Ratio
Receivables
Pct Current

0.45
1.34
33.38
0.00

0.65
1.49
43.63
0.00

0.90
1.65
54.67
0.00

1.41
1.82
77.92
0.00

1.38
1.67
82.24
0.00

Assets
Inventories Pct
Current Assets
Accounts
Receiv. Days
Inventories
Days Held

0.00

0.00

0.00

0.00

0.00

#N/A

#N/A

#N/A

#N/A

#N/A

#N/A

#N/A

#N/A

#N/A

#N/A

Investor Types
Investor Type
Investment Managers

Investors

% O/S

703
42
10
0
0
10
0
755
12

Brokerage Firms
Strategic Entities
Holding Companies
Corporations
Individuals
Government Agency
Total - All Holders
Insider Filings (As Reported)
Insider

Val ($MM)

89.74
4.80
2.11
0.00
0.00
2.11
0.00
96.64

Pos
52,874,19
8
2,825,693
1,241,222
0
0
1,241,222
0
56,941,113

0.21

123,362

39.25

11,094.16
596.48
269.80
0.00
0.00
269.80
0.00
11,960.43

Price Chart
Netflix share prices over the past 5 years.

Netflix share prices compared to the other 8 companies

Competitors
Sources: http://www.forbes.com/sites/avaseave/2013/06/06/netflix-to-competitors-be-afraid-be-very-afraid/

Signals to competitors: Expect more

Hastings is clear that Netflix is not intending to have advertising, nor pay per view.
Those are fine business models that other brands do well. With only one revenue stream,
his allowable spending for customer acquisition will exceed those competitors who have
multiple streams so he is warning them to stay out of his way since he is staying out of
theirs.

Netflix names HBO as its biggest, long-term competitor for content. Hastings
discusses specific deals that HBO has won (movie output deals with Universal and Fox) or
might bid for (original products.) He wants HBO to know for sure Netflix will be involved in
similar future auctions. Combine this with the statement, They are not currently a bidder

against us for prior-season television from other networks appears to be a warning to stay
away from this area or there could be a price war on all sorts of content

Hastings points out that the spending on tech and their process knowledge can be
spread over many more markets and households as the company expands. So they will
continue spending money in this area, expecting it to pay off. Our advantage internationally is
our global tech spending for an improving app and service, our process knowledge, our data
from related markets.

Regional market domination comes from market-specific scale that is executed via
fixed cost advantages in content acquisition and member acquisition. And Hastings names
how big that needs to be: 20% to 30% household penetration. The company intends to spend
to get to that level, since it is very likely to be able to sustain that profit stream for many
decades.
Signals to Vendors: Expect less

Netflix will not be comprehensive. Hastings writes, We are actively curating our service
rather than carrying as many titles as we can. So the licensing revenue some of their
partners (i.e. Viacom) have come to expect will be dropping by the piece and by the pound.

What should producers expect from Netflix in funding new content? Spending on
original content will be less than 10% of the $2bn content spend budgeted. In addition, they
will syndicate the investment with other producers standard industry practice. We will raise
capital as needed to fund the growth of Originals.

Hastings wants to do business with everyone he can. [W]e license content from
multiple suppliers, mirroring the fragmentation of the content industry. He warns that he will
pay for content at higher prices, but that he wants this content exclusively. And if it doesnt
perform up to expectations, he will know exactly how much he should pay (if anything) based
on viewings and member feedback.
Signals to Frenemies: Cant we all just get along?

Netflix wants to co-exist with ISPs/MVPDs to avoid pricing wars: The stability of the
MVPD subscriber base, despite Netflix large membership, suggests that most members
consider Netflix complementary to, rather than a substitute for, MVPD video. So dont blame
Netflix and therefore dont punish Netflix customers by charging more for heavy video usage.
(This is an argument for net neutrality without using that politically charged term.)

Since Netflix is counter-positioned against MVPDs as content-only across all

distribution platforms vs. MVPDs multiple services through a single platform, the inference is
that customers will choose according to their needs.

Analysts Report
Thomson Estimates

Company Analysis by Wright

Investors Service
Competitor Analysis
Netflix Inc operates in the Video tape rental sector. This analysis compares Netflix Inc with three
other companies: Outerwall Inc (2012 sales of $2.20 billion of which 87% was DVD Services),
Regal Entertainment Group ($2.82 billion of which 100% was Theatre Group), and Cinemark
Holdings, Incorporation. ($2.47 billion of which 69% was U.S. Revenues).

Sales Analysis
During the fourth quarter of 2012, sales at Netflix Inc totalled $945.24 million. This is an
increase of 8.0% from the $875.58 million in sales at the company during the fourth quarter of
2011. During the previous 32 quarters, sales at Netflix Inc have increased compared with the
same quarter in the previous year. There appears to be at least some degree of seasonality in
the sales at Netflix Inc: during 8 of the previous 9 years, sales were highest during the fourth
quarter. The exception to this was during 2007, when the first quarter was the best quarter,
accounting for 25% of sales (during that same year, the fourth quarter accounted for 25% of
sales). Netflix Inc reported sales of $3.61 billion for the year ending December of 2012. This
represents an increase of 12.6% versus 2011, when the company's sales were $3.20 billion.
Sales at Netflix Inc have increased during each of the previous five years (and since 2007, sales
have increased a total of 199%). Sales of International Streaming saw an increase that was

more than double the company's growth rate: sales were up 2,537.1% in 2012, from $82.85
million to $2.18 billion. Not all segments of Netflix Inc experienced an increase in sales in 2012:
sales of Domestic Streaming fell 90.8% to $287.54 million.

Netflix Inc currently has 2,045 employees. With sales of $3.61 billion , this equates to sales of
US$1,764,930 per employee. This is much higher than the three comparable companies, which
had sales between US$128,047 and US$752,321 per employee.
Recent Stock Performance
The stock price has more than doubled recently: For the 52 weeks ending 9/27/2013, the stock
of this company was up 473.8% to $312.40. During the past 13 weeks, the stock has increased
48.0%. During the past 52 weeks, the stock of Netflix Inc has outperformed (by a large margin)
the three comparable companies, which saw gains between 13.6% and 40.7%. During the 12
months ending 6/30/2013, earnings per share totalled $0.79 per share. Thus, the Price /
Earnings ratio is 395.44. This P/E ratio is very high, and is therefore not a very useful indicator
of company valuation. These 12 month earnings are substantially greater than the earnings per
share achieved during the calendar year ending last December, when the company reported
earnings of 0.29 per share. Earnings per share fell 93.0% in 2012 from 2011. The 395.4 P/E
ratio of this company is much higher than the P/E ratio of all three comparable companies,
which are currently trading between 11.8 and 28.4 times earnings. This company is currently
trading at 5.10 times sales. This is at a higher ratio than all three comparable companies, which
are trading between 0.65 and 1.47 times sales. Netflix Inc is trading at 23.25 times book value.
However, at the end of fiscal year 2012, this company's intangible assets ($1.51 billion) were
higher than its common equity ($744.67 million), which means that the price to book ratio is not
a very useful indicator.
Summary of company valuations (as of 9/27/2013).

The market capitalization of this company is $18.41 billion . The capitalization of the floating
stock (i.e., that which is not closely held) is $18.02 billion .
Dividend Analysis
This company has paid no dividends during the last 12 months. The company has not paid any
dividends during the previous 6 calendar years.
Profitability Analysis
On the $3.61 billion in sales reported by the company in 2012, the cost of goods sold totalled
$923.78 million, or 25.6% of sales (i.e., the gross profit was 74.4% of sales). This gross profit
margin is significantly better than the company achieved in 2011, when cost of goods sold
totalled 37.5% of sales. In 2012, the gross margin was the highest of the previous five years
(and in 2009 was as low as 50.8%). Netflix Inc's 2012 gross profit margin of 74.4% was better
than all three comparable companies (which had gross profits in 2012 between 31.8% and
61.0% of sales). The company's earnings before interest, taxes, depreciation and amorization
(EBITDA) were $1.75 billion, or 48.5% of sales. This EBITDA margin is better than the company
achieved in 2011, when the EBITDA margin was equal to 38.2% of sales. The three comparable
companies had EBITDA margins that were all less (between 18.9% and 22.1%) than that
achieved by Netflix Inc. In 2012, earnings before extraordinary items at Netflix Inc were $17.15
million, or 0.5% of sales. This profit margin is lower than the level the company achieved in
2011, when the profit margin was 7.1% of sales. The company's return on equity in 2012 was
2.7%. This was significantly worse than the already high 77.9% return the company achieved in
2011. (Extraordinary items have been excluded).

During the fourth quarter of 2012, Netflix Inc reported earnings per share of $0.13. This is a drop
of 80% versus the fourth quarter of 2011, when the company reported earnings of $0.65 per
share.

Research and Development

Research and Development Expenses at Netflix Inc in 2012 were $329.01 million, which is
equivalent to 9.1% of sales. In 2012 R&D expenditures increased both as a percentage of sales
and in actual amounts: In 2011, Netflix Inc spent $259.03 million on R&D, which was 8.1% of
sales. During each of the previous 5 years, the company has increased the amount of money it
has spent on Research and Development (in 2007, Netflix Inc spent $71.40 million versus
$329.01 million in 2012). Netflix Inc increased its R&D spending in 2012 by $69.98 million. If it
had kept its R&D expenditures level with 2011, then the ordinary earnings before taxes would
have been approximately 230% higher.
Financial Position
As of December 2012, the company's long term debt was $430.60 million and total liabilities
(i.e., all monies owed) were $3.17 billion. The long term debt to equity ratio of the company is
0.58.

SWOT ANALYSIS by MarketLine

Netflix, Inc.: Strengths

Strong business model provides a superior value proposition
Netflix is the world's largest subscription service sending DVDs by mail and streaming movies
and TV episodes over the internet with 30 million subscribers. The company operates an

internet-based subscription model which has done away with many disadvantages experienced
in traditional outlets. The number of customers opting for Netflix over the traditional model is on
the rise as it offers greater convenience. Netflix also enjoys additional competitive advantages.
The company provides more than 100,000 DVD titles which is not possible for outlets as they
cannot stock such a large number of DVDs. Outlets devote larger space for newer releases and
alternatively Netflix can offer old and new titles simultaneously without incurring additional costs.
Technology enables customers to sort through the titles easily which is almost impossible to do
so in the traditional model. With Netflix, customers pay a fixed monthly subscription fee,
eliminating due dates, late payment fees, shipping fees and pay-per-view fees. Netflix's
merchandising practices coupled with its recommendation services provide tools for subscribers
to select titles that appeal to individual preferences.
Netflix's instant streaming service over the internet is witnessing escalating growth. There are
over 800 devices worldwide that can stream content from Netflix instantly. These include the
Microsoft Xbox 360, Nintendo Wii and Sony PS3 consoles; Blu-ray disc players, Internetconnected TVs, home theater systems, digital video recorders and Internet video players; Apple
iPhone, iPad and iPod touch, Android devices, as well as Apple TV and Google TV. Devices
such as the iPhone, iPad and iPod touch enable viewers to watch movies and TV shows while
on the move. Netflix's business model provides customers with the most convenient way to view
DVDs as they are delivered to their addresses and the subscribers can return them through prepaid postage envelopes. The business model that Netflix operates gives it a competitive
advantage.
Revenue sharing relationships with distributors reduced investments for content
acquisition
Netflix has several revenue sharing agreements with distributors and content providers. Under
these agreements, the company pays a low initial amount to obtain content and then shares the
revenues from subscription fees with the content providers or pays a fee based on the usage of
the content. This gives the company the advantage of procuring content at a low cost and an
additional amount has to be paid only if the subscribers rent the DVD. Netflix is able to provide
subscribers with a larger selection of DVDs as the risk of losing investment is less. Such
revenue sharing agreements reduce investments for content acquisition and a wide selection
offers more choice to customers.
Effective marketing and improving customer experience helps in increasing the number
of subscriptions
Netflix promotes services through various marketing programs which include online promotions,
TV and radio advertising, package inserts and other promotions with third parties. The company
also provides a free trial period as a promotional offer to attract new customers. Netflix's
consumer electronics partners also help generate new subscribers. In addition, Netflix continues
to improve its customer experience by expanding its streaming content, improving user

interfaces, as well as expanding its streaming service to more Internet-connected devices.

These efforts enable the company to drive additional subscriber growth. The average number of
paying subscribers grew from 14,744,000 in 2010 to 21,977,000 in 2011, an increase of 49.1%
in the US. Subscriber growth leads to word-of-mouth promotion for Netflix's services, which, in
turn, leads to more new subscribers. The increase in total number of subscribers, as well as net
subscriber additions leads to increased revenues for the company.
Netflix, Inc.: Weaknesses
Litigations impact brand image and financial position
Netflix is subject to various legal proceedings. The company is involved in litigation matters and
claims, such as claims relating to business practices and patent infringement. In January 2012,
a shareholder class action suit was filed in the US District Court for the Northern District of
California against the company and certain of its officers and directors alleging that the
company issued materially false and misleading statements regarding its business practices
and its contracts with content providers. In the same month, another suit was filed against the
company alleging virtually identical claims. The complaints allege violation of the federal
securities laws and seek unspecified compensatory damages and other relief. Similarly, in
March 2010, Parallel Networks filed a complaint for patent infringement against Netflix in the US
District Court for the Eastern District of Texas. The complaint alleged that the company infringed
a patent entitled 'method and apparatus for client-server communication using a limited
capability client over a low-speed communication link'. Previously, in September 2009, AlcatelLucent USA filed a complaint for patent infringement against the company.
Between January and April 2009, a number of alleged anti-trust class action suits were filed
against Netflix in various US Federal Courts. The complaints alleged that Netflix and Wal-Mart
entered into an agreement to divide the market for sales and online rentals of DVDs which led to
higher subscription prices at Netflix. Litigations can be expensive and can disrupt business
operations. Legal issues such as these would not only impact the brand image but would also
affect Netflix's financial position and results of operations.
Netflix, Inc.: Opportunities
Growing demand for online video streaming has already increased viewership
Netflix has been aggressively investing in streaming of movies, TV programs and other videos
in high definition to subscribers. Netflix enables subscribers to watch movies and TV shows
through the internet via online streaming. Consumers can stream content through Netflix-readyinternet-enabled devices such as the Microsoft Xbox 360, Nintendo Wii and Sony PS3 consoles;
Blu-ray disc players, Internet-connected TVs, home theater systems, digital video recorders and
Internet video players; Apple iPhone, iPad and iPod touch; and Android devices. According to
industry sources, the total video streams increased by more than 20% in August 2012,

compared to December 2011. According to industry sources, in August 2012, Netflix was the top
brand in terms of time spent as the average US video viewer spent more than 10 hours
watching videos on the site.
In FY2011, approximately 73.6% of all new gross domestic unique subscribers chose the
unlimited streaming plan. At December 31, 2011, 88.9% of the company's total domestic unique
subscribers had a streaming subscription while less than half (11.1 million) had a DVD
subscription. Online video streaming is a high potential market and by investing in this market,
Netflix can differentiate itself from competitors. It also leads to faster subscription growth, lower
subscription acquisition costs and higher profits. As the market for online streaming grows,
Netflix will reap increased benefits, with a positive impact on margins and profits.
Growth in online spending will strengthen Netflix's core market
Netflix's core business is based on the internet and is directly related to online consumer
spending. According to the US Department of Commerce, online retail sales in the US increased
from $144.6 billion in 2009 to $193.7 billion in 2011, representing a compound annual growth
rate of 15.7%. e-commerce sales accounted for 4.7% of the total retail sales in the US in 2011
compared to 3% in 2006. Furthermore, in the third quarter of 2012, the online retail sales
reached $57 billion, an increase of 3.7% from the second quarter of 2012. With 30 million
subscribers, Netflix is the largest company providing internet based DVD rental service. As
Netflix only operates on the online platform, its growth is directly linked to the online spending
potential of the consumers. As the outlook in this arena is positive in the longer term, Netflix can
penetrate the market effectively by leveraging its dominant position in the e-commerce segment.
Strategic partnerships expand subscriber base
Netflix has entered into a number of strategic partnerships in the recent past. In December
2012, the company entered into a new multi-year licensing agreement with The Walt Disney
Studios to become exclusive US subscription television service provider for first-run live-action
and animated feature films from The Walt Disney Studios. Beginning with its 2016 theatrically
released feature films, new Disney, Walt Disney Animation Studios, Pixar Animation Studios,
Marvel Studios and Disney nature titles will be made available for Netflix members to watch
instantly in the pay TV window on multiple platforms. Netflix entered into a new multi-year
licensing agreement with The Weinstein Company in February 2012 that makes foreign
language, documentary and certain other movies from The Weinstein Company exclusively
available for Netflix members in the US to watch instantly. In May 2012, the company entered
into a new multi-year licensing agreement with Twentieth Century Fox Distribution to make its
TV series and films available for Netflix members to instantly watch in Latin America and Brazil.
In November 2011, Netflix entered into a multi-year licensing agreement with Lionsgate UK, a
subsidiary of Lions Gate Entertainment Corp, to provide exclusive subscription streaming
service in the UK and Ireland for first-run feature films from the studio. Further, in the same
month, the company entered into a new multi-year digital licensing agreement with Miramax to

bring a broad range of Miramax films to Netflix members in the UK and Ireland. The company, in
January 2011, announced the introduction of Netflix One-click remote which enables
subscribers to instantly watch movies and TV shows streamed from Netflix. Major consumer
electronics manufacturers such as Haier, Memorex, Panasonic, Samsung, Sharp, Sony, and
Toshiba are to place the Netflix one-click button on remote controls. Remote controls for the
Boxee, Iomega and Roku set-top boxes also will feature the Netflix one-click remote. This move
increases convenience as well as brand awareness of Netflix, which in turn will lead to increase
in subscriptions. Strategic partnerships such as these would increase the subscriber base and
enhance the topline for Netflix.
Netflix, Inc.: Threats
Cost of delivering DVDs on the rise
Netflix delivers DVDs directly to the members' addresses by mail with a postage-paid return
envelope. The US Postal Service has increased the postage charges in recent times. The US
Postal Service increased the rate for first class postage to 42 cents in May 2008, to 44 cents in
May 2009 and to 45 cents again in January 2012. The US Postal Service is expected to raise
rates again in subsequent years. Moreover the US Postal Service recently announced changes
to its service that would close many of its mail processing facilities and eliminate next day
service for first class mail which will result in slower delivery of the company's DVDs. If the US
Postal Service changes any policies relative to the requirements of first-class mail, including
changes in size, weight or machinability qualifications of the company's DVD envelopes, such
changes could result in increased shipping costs or higher breakage for DVDs and could
adversely affect the company's gross margin.
Price increases affect subscriber base
In the third quarter of 2011, Netflix introduced DVD only plans and separated the unlimited
DVDs by mail and unlimited streaming into separate plans. This change enables subscribers to
subscribe to a streaming only plan, a DVD only plan or both. As a result, the plan that includes
both unlimited streaming and DVDs by mail is no longer on offer. Subscribers who want to
subscribe to both streaming and DVD plans need to pay separately for each plan, paying more
than its earlier offering. This move resulted in higher than expected customer cancellations with
negative reactions from consumers. This could affect market share of the company as
customers may cancel their subscriptions and look for alternatives from competitors. The
company's results of operations may be adversely impacted.
Increasing internet frauds caution customers and dampen growth rates
Netflix maintains personal data on subscribers including billing data and has taken stringent
measures to protect its systems from frauds like hacking and credit card fraud. However, in
recent times, according to the Internet Crime Complaint Center's (IC3) statistics, internet fraud

has been on a rise. The IC3 is a partnership between the Federal Bureau of Investigation (FBI)
and the National White Collar Crime Center (NWC3). It receives internet related criminal
complaints, and after further research, refers them to appropriate law enforcement agencies.
During 2011, IC3 registered more than 300,000 complaints, an increase of 3.4% over 2010.
According to IC3, in 2011 it has received and processed, on an average, more than 26,000
complaints per month. The trend of increasing internet frauds tends to increase caution among
customers and this will deter the market from growing at a fast pace.
According to industry sources, a fake Netflix Android App was in circulation very recently. It
looks like the real app but is a fake that steals account information. Using the stolen log-in
information, the accounts of the users could be hacked. Netflix's reputation could be affected
and there could be a loss of confidence among consumers due to such incidents. Netflix has to
incur high expenses to curb internet frauds given the trend of their increase in recent times
coupled with increase in privacy concerns among customers. In spite of the measures taken,
Netflix is still exposed to the risk of hacking and other such related frauds.

Future Prospects
Source: http://venturebeat.com/2013/04/24/heres-how-netflix-sees-the-future-of-tv/

The future of TV
Traditional TV viewing is dying and will eventually be replaced by Internet TV apps, the
company outlines in the document. A variety of causes are behind this, including faster Internet
speeds and a desire to stream higher-resolution video.
Eventually, as linear TV is viewed less, the spectrum it now uses on cable and
fiber will be reallocated to expanding data transmission. Satellite TV
subscribers will be fewer, and mostly be in places where high-speed Internet
(cable or fiber) is not available. The importance of high-speed Internet will
increase.

Spending
Netflix is spending about $350 million annually to maintain and improve its streaming service.
This includes pushing the Netflix service across several platforms and devices, improving the
user interface, monitoring performance, etc. Thats a pretty hefty sum, but it pales in comparison
to the companys content budget.
Netflixs vast content library of movies and TV shows costs about $2 billion per year. The bulk of
that money goes to licensing deals, such as the agreement Netflix made with Disney back in
December. A very small portion of content spending goes to exclusive original content, such
as House of Cards, Hemlock Grove, Arrested Development, and Orange is the New Black.

Netflixs content
The company also plans to limit its content to shows that have long-term value (e.g. shows you
can re-watch often) and shows that are in high demand. Netflix wont always have the most
complete library of content, but thats not necessarily a bad thing.
As weve gained experience, weve realized that the 20th documentary about
the financial crisis will mostly just take away viewing from the other 19 such
docs, and instead of trying to have everything, we should strive to have the
best in each category. As such, we are actively curating our service rather than
carrying as many titles as we can.

Netflix also reiterated why its not interested in content that deals with current affairs, reality
television, or sports. It has a strong commitment to scripted stories and documentaries. This
could be part of why the company is choosing not to renew its licensing deal with Viacom but
does want to strike separate deals to bring select shows to the Netflix library.
Thoughts on competition
We dont and cant compete on breadth with Comcast, Sky, Amazon, Apple,
Microsoft, Sony, or Google. For us to be hugely successful we have to be a
focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not
Dish.

More specifically, competing with HBO, Hulu, and Amazon

Netflix estimates that it will eventually grow its subscriber base to be about two to three times
the size of HBO. That means the Netflix of the future will have 60 million to 90 million
subscribers. That doesnt mean this will happen overnight. It also views services like Amazon
Prime and Hulu as secondary competitors that wont be able to offer the scope of content that
Netflix can at a comparable experience.
Behind HBO would come Amazon/Lovefilm/Prime, Hulu, Now TV, and many
cable and broadcast networks in various territories. Amazon in particular is
spending heavily and commissioning its own original programming, presumably
because they see the same exciting big picture for Internet TV that we do. Many
consumers will subscribe to multiple services if they each have unique compelling
content. Success relative to these competitors-for-content would be us having
substantially larger revenue and therefore sustainable increasing content, tech
and marketing spending, leading to further growth, and a virtuous cycle.

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