Netflix (NFLX)

Recent Developments and Initiatives

We continue to make progress in the area of streaming content. We have announced several partnerships with technology and consumer electronics companies that will enable our subscribers to stream content directly to their television sets. These partners include Roku, LG, Microsoft, Samsung, and TiVo. The Netflix Player by Roku as well as LG’s BD300 Blu-ray player are currently

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available for retail purchase. We continue to increase our streaming content offering as well, including recent additions of content from CBS, Disney and Starz Play.

We believe that recent deterioration in the economy has slowed our growth. We would anticipate that a continued deterioration in the economy or a prolonged recession would slow the rate of subscriber growth or otherwise impact our business, including churn and subscriber acquisition costs.

Recent Developments and Initiatives

In January 2007, we introduced the ability to stream content over the Internet so subscribers could watch movies and TV episodes on their PCs. We intend to broaden this distribution capability for other platforms and with partners over time. To this end, in July 2008, we finalized an agreement with LG Electronics to develop a Blu-ray disc player that will enable our subscribers to watch movies and TV episodes directly on their televisions. In July 2008, we also announced a partnership with Microsoft that will allow our subscribers to stream content to their televisions via Microsoft’s Xbox 360 video game and entertainment system. This feature will be available to Xbox LIVE Gold members who are also Netflix subscribers. In May 2008, we announced the introduction of The Netflix Player by Roku, a device that enables our subscribers to instantly stream content to their televisions. We are also working with other consumer electronics manufacturers to offer other devices that can stream movies and TV episodes to subscribers’ televisions.

Recent Developments and Initiatives

In January 2007, we introduced the ability to stream content over the Internet so subscribers could watch movies and TV episodes on their PCs. We intend to broaden this distribution capability for other platforms and with partners over time. In January 2008, we announced a development arrangement with LG Electronics. While the terms of this arrangement have not been finalized, we anticipate developing, in conjunction with LG Electronics, a set-top box that will enable our subscribers to watch movies and TV episodes directly on their televisions. We are also working with other consumer electronics manufacturers to offer devices that can stream movies and TV episodes to subscribers’ televisions.

In late 2006, Blockbuster launched its integrated store-based and online program, Total Access, whereby Blockbuster online subscribers may return DVDs delivered to them from Blockbuster Online to Blockbuster stores in exchange for an in-store rental. Total Access was aggressively priced and experienced rapid subscriber growth and large operating losses in the first half of 2007. In the second half of 2007, Blockbuster adopted a new competitive strategy which emphasized profitable growth. As part of this new strategy, Blockbuster reduced their marketing spending and raised prices on Total Access, which we believe contributed to an acceleration in our subscriber growth.

Recent Developments and Initiatives

In late 2006, Blockbuster launched its integrated store-based and online program, Total Access, whereby Blockbuster online subscribers may return DVDs delivered to them from Blockbuster Online to Blockbuster stores in exchange for an in-store rental. During 2007, Blockbuster began aggressively promoting and pricing their Total Access program through in-store promotions and sign-ups as well as advertising on television and other mass-media channels. However, in the third quarter of 2007, Blockbuster modified their Total Access program and indicated their intent to decrease discretionary marketing spending. As a result, we expect to see renewed subscriber growth.

Our core strategy is to grow a large DVD subscription business and to expand into Internet-based delivery of content as that market develops. We believe that the DVD format, along with its successor formats of HD DVD and Blu-Ray, will continue to be the main vehicle for watching content in the home for the foreseeable future and that by growing a large DVD subscription business, we will be well positioned to transition our subscribers and our business to Internet-based delivery as it becomes a mainstream method for content distribution. To this end, we introduced a new feature in January 2007 that allows subscribers to instantly watch movies and television series on their personal computers. We will continue to improve its quality, content and functionality. We intend to broaden the distribution capability of this service to multiple platforms over time.

We expect revenue to increase slightly during the three months ended December 31, 2007 as compared to the three months ended September 30, 2007, due to growth in our subscriber base, partially offset by a decline in average monthly revenue per paying subscriber resulting from the continued growth of our lower cost subscription plans.

Recent Developments and Initiatives

In late 2006, Blockbuster launched its integrated store-based and online program, Total Access, whereby Blockbuster online subscribers may return DVDs delivered to them from Blockbuster Online to Blockbuster stores in exchange for an in-store rental. We have seen Blockbuster aggressively promote and price their Total Access program through in-store promotions and sign-ups as well as advertising on television and other mass-media channels and Blockbuster has indicated their intent to continue to aggressively grow their online rental business through the remainder of the year. As a result, we anticipate that growth in our subscribers and revenue will continue to be under competitive pressure for the remainder of 2007.

Our core strategy is to grow a large DVD subscription business and to expand into internet-based delivery of content as that market develops. We believe that the DVD format, along with its successor formats of HD DVD and Blu-Ray, will continue to be the main vehicle for watching content in the home for the foreseeable future and that by growing a large DVD

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subscription business, we will be well positioned to transition our subscribers and our business to internet-based delivery as it becomes a mainstream method for content distribution. To this end, we introduced a new feature in January 2007 that allows subscribers to instantly watch movies and television series on their personal computers. We will continue to improve its quality, content and functionality. We intend to broaden the distribution capability of this service to multiple platforms over time.

In the second quarter of 2007, we lowered the prices of three of our most popular subscription plans. As a result, we expect revenues to decline during the remainder of 2007. We expect revenue to slightly decline during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007, due to the lowered prices of our subscription plans, coupled with the decline in average monthly revenue per paying subscriber resulting from the increased popularity of our lower cost subscription plans, partly offset by growth in our subscriber base.

Recent Developments and Initiatives

In late 2006, Blockbuster launched its integrated store-based and online program, Total Access, whereby Blockbuster online subscribers may return DVDs delivered to them from Blockbuster Online to Blockbuster stores in exchange for an in-store rental. We have seen Blockbuster aggressively promote and price their Total Access program through in-store promotions and sign-ups as well as advertising on television and other mass-media channels and Blockbuster has indicated their intent to aggressively grow their online rental business. As a result, we expect the growth in our revenue and subscribers to slow during 2007.

Our core strategy is to grow a large DVD subscription business and to expand into internet-based movie delivery as that market develops. We believe that the DVD format, along with its successor formats of HD DVD and Blu-Ray, will continue to be the main vehicle for watching movies in the home for the foreseeable future and that by growing a large DVD subscription business, we will be well positioned to transition our subscribers and our business to internet-based movie delivery as it becomes a mainstream method for movie distribution. To this end, we introduced a new feature in January 2007 that allows subscribers to instantly watch movies and television series on their personal computers. We will continue to improve its quality, content and functionality. We intend to broaden the distribution capability of this service to multiple platforms over time.

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On April 17, 2007, the Company’s Board of Directors authorized a stock repurchase program allowing the Company to repurchase up to $100.0 million of its common stock through the end of 2007.

Recent Developments and Initiatives

We continue to face direct competition from Blockbuster. It remains possible that other potential entrants will offer competing services, either directly or in conjunction with others or that Blockbuster will gain more traction in its current business. We continue to focus on retaining our leadership position and growing our business.

Our core strategy is to grow a large DVD subscription business and to expand into Internet-based movie delivery as that market develops. We believe that the DVD format, along with its successor formats of HD DVD

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and Blu-Ray, will continue to be the main vehicle for watching movies in the home for the foreseeable future and that by growing a large DVD subscription business, we will be well positioned to transition our subscribers and our business to Internet-based movie delivery as it becomes a mainstream method for movie distribution. To this end, we introduced a new feature in January 2007 that allows subscribers to instantly watch movies and television series on their personal computers. We expect to roll out this instant-viewing feature to all subscribers within six months from the date of launch, and we will continue to improve its quality, content and functionality. We intend to broaden the distribution capability of this service to multiple platforms over time.

Recent Developments and Initiatives

We continue to face direct competition from Blockbuster. It remains possible that other potential entrants will offer competing services, either directly or in conjunction with others or that Blockbuster will gain more traction in its current business. We continue to focus on retaining our leadership position and growing our business.

We launched two new revenue initiatives in 2005: retail sales of previously-viewed DVDs and our Ad Sales program. We also continue to invest resources to develop solutions for downloading movies to consumers. Our core strategy has been and remains to grow a large DVD subscription business. However, as technology and infrastructure develop to allow effective and convenient delivery of movies over the Internet and when meaningful content becomes available, we intend to offer our subscribers the choice of receiving their movies on DVD or by downloading, whichever they prefer.