netflix (nflx) - university of virginia · netflix (nflx) mii presentation september 10, 2002. ......
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September 10, 2002
Maintain a list, 8 recommended
CinaMatch: Netflix will send the highest on your list when received
Average user has rated 145 titles
Maintains 25 title list
2-4 day first class delivery from 10 distribution centers
All DVDs come with a return envelope
One month free trial
$19.95 per month for 3 DVDs
Not late fees
Carol Duncan, a 57-year-old postal carrier who lives in rural Dillwyn, Va., 70 miles west of Richmond, said she has little use for the recommendations. She finds Netflixs long lists of "ancient movies" -- to her, anything that's not a new release -- especially annoying.
Duncan and her husband also wish Netflix would deliver movies faster. While the service can be speedy in urban areas (Netflix opened 10 regional distribution centers this movies faster. While the service can be speedy in urban areas (Netflix opened 10 regional distribution centers this year), Duncan says delivery to Dillwyn hasn't improved since the Gaithersburg facility opened. While she's entitled to three titles at once, often she has none or only one.
"I want to get my money's worth if I'm paying $20 a month," she said. "Otherwise my husband and I will just watch pay-per-view movies on our DirecTV system."
Martin Kane, a trade show manager in Bowie, said he and his wife generally get their replacements within two or three days of returning one. Occasionally they have to wait for their top choice. "We have been wait for their top choice. "We have been waiting for a while for 'All the President's Men,' " he said. "That apparently is a hot rental for older movies."
35M players sold to date penetrating 1/3 of US households
Rapid year-over-year growth
Prices from $200-500 have fallen to $100 level
Netflix still must change the way people rent movies. Rather than go to the video store on Friday night, they must build a library ahead of time and hope they have the right DVD on movie night.
His epiphany came in 1997. He had just sold his software company, Pure Atria, to Rational Software, and after returning a late copy of "Apollo 13," he garnered a $40 fee. There had to be a better way. be a better way.
"We weren't particularly attracted by the dot-com phenomena but "We're certainly attracted by people that we trust-- like Reed." - Mike Schuh, General Partner with Foundation Capital.
President of California state board of education
$285.4MLock-up Period:11/18/2002Short Interest:
46.7% Float: Float:
Cable providers like AOL and Comcast
Direct broadcast satellite providers like DirectTV and EchoStar
HBO, Showtime, and other premium networksnetworks
5-15 years away from mass commercial use
There will be a little bit of "buffering" and then the movie begins playing.
Movies currently offered at 700k bit rate
Harry Potter $3.99
To download a feature length film, it will take anywhere from 1-4 hours with even the fastest Internet connection from 1-4 hours with even the fastest Internet connection 550MB
"From Microsoft's perspective, digital entertainment and digital media are important catalysts for driving the next big cycle of PC upgrades, and The challenge for Microsoft is to convince content creators their intellectual property won't be pirated - Directions on Microsoft analyst Matt Rosoff
Market cap: $4.26B
Q2 Revenue: $1.27B
48-52M active accounts
64% of US within 10 minutes of store
Co-branded DIRECTV pay-per-view
10% of Blockbusters revenues come from late fees
Peak time is 30-90 days after a release
Netflix still must change the way people rent movies. Rather than go to the rent movies. Rather than go to the video store on Friday night, they must build a library ahead of time and hope they have the right DVD on movie night.
"One of the things we are actually going to be testing in our stores in the not-too-distant future is a prepaid mailer," "We don't know whether there is going to be a huge demand for that product." - Blockbuster CEO John Antioco, July 2424
Blockbuster last week lengthened its standard rental window for all rentals except new releases by two days, to seven
DVD Freedom Pass
10 week rental card and free DVD for $24.99
Gross profit: $18.3M
Operating loss: $(2.5)M
Stock-based compensation not included: $(2.7)M$(2.7)M
Net loss: $(5.2)M
Cash & short-term: $91.7M
Current assets current liabilities: $64.9
High fixed-cost structure will increase DVDs, Infrastructure, up front fees for DVD licensing
Gross margins expected to fall 3%
Subscriber acquisition: $34 up from $25 Subscriber acquisition: $34 up from $25
10 new 3,000 square feet distribution centers will impact income
Q3 Revenue Guidance: $37-40
Q4 Revenue Guidance:$41-44
Concerns Churn: 6.7% declining
Churn calculation is misleading
Operating cash flow Does not include amortization of DVDs
Growing 12,000 DVD database Capitalized, cant sell, rental window is 30-90 days
DVD market is growing Increased availability will make it easier for consumers to rent/buy at retail locations
Longs agree that the current business model is not sustainable in the long-run
Q: What happens if a movie gets lost in the mail?A: There is no cost to you. Just report it as "lost" in the "Shipping Problems" section of the Your Account page.
If Netflix thinks having a Wal-Mart or Blockbuster in the industry will help them, they are nuts President of DVD rental company
Interviews with ReedCNBC: May 23, 2002
MACCALLUM: When do you expect to be profitable, Mr. Hastings?
HASTINGS: We don't have any projections on that.
MACCALLUM: All right. I'm sorry. Can you tell me that again? I didn't hear your answer.
HASTINGS: We don't have any projections on profitability.
MACCALLUM: All right, no projections. MACCALLUM: All right, no projections.
Thank you very much and good of you to spend sometime with us. Appreciate it.
HASTINGS: Thank you very much.
Biz Buzz: January 25, 2001
PILGRIM: All this seed money, how many subscriptions do you need to break even? You're not breaking even quite yet, are you?
HASTINGS: No, it's true. Like many Internet businesses, we're not yet profitable, but we have acquired over 300,000 subscribers that are active subscribers today. And we break even at 500,000. So, you know, we're not there yet but we're over halfway there.
The key thing with the service is, as you said, you get to try it. It sounds great, but it also sounds kind of strange, I mean, to rent the movies by mail. And, what we encourage people to do is try NetFlixfor free. Anyone can go to the web site and try it for free. Get a bunch of movies on us. And, what we've found, nine out of ten people stay a paying subscriber. Reed Hastings Money & markets June 24, 2002
(603,000 +236,000 670,000)/(603,000 + 236,000)/3 = 6.7% per month Q2 Financialsmonth Q2 Financials OR 20.1% per quarter, 24% assuming 9/10 stay Q2 Trial subscribers down 24%
The business is dependant on having more than a quarter of the current subscriber base as trial members in order to replace lost ones on a continual basis
90-95% of customers who leave will not come back again
Targeted areas away from retail locations are less likely to have Internet and DVD and will have to wait longer for delivery Growing customers increases number of hit titles necessary to maintain customer service Saturation: Most likely consumers were targeted in initial marketing wavestargeted in initial marketing waves NetFlixs success speeds up their competitors interest in their model Net distribution centers will generate more fulfillment expenses, geographic issues, high expectations, and more rentals per month DVD sales provide cheap used DVDs currently around $9.99 including shipping
Business model is not sustainable
Pressure on VOD technology developers
Increased costs to sustaining growth will impact this years financialsimpact this years financials
DVD presence is increasing at retail locations
A large amount of shares will hit the market after the lockup period from employees and investors
Best Buy is helping acquire subscribers
Revenue and subscribers are growing
Potential acquisition candidate
Forecasting profitability before stock based compensation expense in 2003based compensation expense in 2003
Some advertising is linked to performance
High capital need to grow verses competitors
Penetration of 3.2% in local area
End of Show