In its second-largest acquisition, Amazon buys the company for $970 million.
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But it`s not all smooth sailing ahead for Netflix, as it faces mounting competition from among the biggest names in retail. Wal-Mart Stores Inc.`s Walmart.com offers a similar online DVD rental service at a lower price; Blockbuster Video has introduced a combined online and store-based rental service. Netflix recently cut its monthly subscription to $17.99 from $21.99 after Hastings heard that Amazon.com might enter the market.
But Netflix gets credit for founding the market and it keeps forging ahead. It now has 29 warehouses to support overnight deliveries for 80% of customers. To maximize efficiency, Netflix ships whatever is available in inventory from among a subscriber`s top three movie preferences. By analyzing subscriber activity and improving the way it fulfills orders, it is now able to send the top choice 95% of the time, Hastings says. That has helped reduce subscriber churn, as the number of subscribers has tripled to over 2 million
Netflix receives high marks for its web site as well as its delivery process. "The site is clean, fast and informative," says Peter Franczak, a partner at Consumer Consulting LLC.
The challenge ahead, he says, is for Netflix to build on its brand and reputation to offer additional products and services. Hastings says Netflix will continue to expand its movie selection, already at 25,000 titles, up from 15,000 a year ago, and will introduce more service improvements next year.
It will also launch in 2005 a service with TiVo Inc. that will let consumers download movies from Netflix.com to TiVo digital movie recorders.
But DVDs will remain the Netflix mainstay for several years, Hastings says. "There`s $8 billion in store-based DVD rental revenue in the U.S.," he says, "and the vast majority of store customers will try online rentals over the next two years. The land grab for those consumers will be an amazing market phenomenon, but we`ll win because our service works."
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*comScore Networks report, October 2004