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Netflix (NASDAQ: NFLX), established in 1998, is the largest online DVD rental service, offering flat rate rental-by-mail to customers in the United States. Headquartered in Los Gatos, California, it has am***ed a collection of 70,000 titles and has about six million subscribers. Currently, Netflix spends about $300 million a year on postage to ship 1.4 million DVDs a day. It is the largest purely online DVD rental company, and its success has inspired a number of other companies to enter the market.

Netflix began operations in 1998 with an online version of a more traditional pay-per-rental model (US$4 per rental plus US$2 in postage; late fees applied).[5] It did not introduce the monthly subscription concept until late 1999. Since then it has built its reputation on its policies of having no due dates, late fees, shipping or handling fees, or per-title rental fees.

Netflix has developed and maintained an extensive recommendation system based on rating and reviews by customers, similar to the system used by Amazon.com. The company believes this gives it an edge in competing with newcomers like Blockbuster. On October 1, 2006, Netflix offered a $1,000,000 prize for the first movie recommendation algorithm that could beat its existing algorithm, Cinematch, at predicting customer ratings by more than 10%. (see Netflix Prize for more information).

Unlike most online on-demand entertainment services, such as MovieLink, Netflix"s offerings cover the vast range of DVD movies (and increasingly, television series) with 70,000 titles, including titles by major and minor studios (excluding ***ographic movies). Particularly, Netflix has become noted for its extensive collection of do***entary films, Japanese anime, and independent films, many usually hard to find in traditional rental shops. Indeed, "some 35,000 different film titles are contained in the 1 million DVDs it sends out every day." The company"s published subscriber counts have increased from one million by the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006. Netflix"s growth has been fueled by the fast spread of DVD players in households; as of 2004, nearly two-thirds of U.S. 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 regarding copyright issues on the Internet. While it is possible and often more convenient to directly download movies via the Internet, licensing issues and the fear of piracy prevent the establishment such a service. The CEO of Netflix, Reed Hastings, said that while he believes it would not be an instant success because of complications in copyright handling and relatively slow adoption of broadband Internet, Netflix will offer limited video on demand sometime in the future, allowing users to download movies via the Internet and that it may even expand into the video game market.

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 US$15.00 per share. On June 14, 2002, it sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US$6.5 million profit on revenues of US$272 million. 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.



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