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Netflix was the first major online DVD rental service. Located in Los Gatos, California, the company provides a monthly flat-fee service for rental of unlimited numbers of DVD movies. Netflix customers each create an ordered list (called a 'rental queue') of DVDs that they would like to rent. The DVDs are delivered one-at-a-time by mail. The subscriber keeps the rented DVD as long as he likes, but has a limit on the number of DVDs he can have checked out at any one time. To rent a new DVD, customers return (via postage-paid mail) a currently-held DVD to Netflix. Netflix logs the disc's return and ships the next disc in the customer's rental queue. At present (2004), Netflix offers monthly programs ranging from $14 to $40 with different checkout limits.

Netflix is one of more successful dot-com ventures. It posted its first ever profit of $3.31 million in the second quarter of 2003 on revenues of $63.2 million. Founded by Reed Hastings, initially Netflix offered a similar service to traditional DVD rental shops on-line until late 1999, fearing that flat-monthly programs might be too radical. However, after launching its subscription service, Netflix became very successful. They have never offered adult DVD rentals.

Because of Netflix's success, other companies have begun launching similar services. Wal-Mart, the world's largest retailer, started an online DVD-rental service in October 2002. Blockbuster, the world's largest movie rental chain, began test-marketing a fixed monthly price for unlimited video rentals.

Key points of the Netflix's success have been its ease-of-use and comprehensiveness. Unlike traditional DVD rental shops such as Blockbuster Video, there are no due dates, late fees, shipping or handling, or per-title rental fees. Unlike most online on-demand entertainment services, such as EMusic, the company offerings covers the vast range of DVD movies with over 13,500 titles (as of 2003), including titles by major and minor studios.

Netflix is an example of the odd situation about copyright issues on the Internet. While it is possible and probably more convenient to download directly movies via the network, license issues and the fear of piracy prevents such a service. However, the bandwidth costs would be enormous.

A New York Times article in September 2002 said that Netflix mails about 190,000 discs per day to its 670,000 monthly subscribers. The article estimated that the company therefore distributes 1,500 terabytes of data per day, almost as much data that travels across the entire Internet in one day.

Netflix operates an affiliate program which has helped it to build online sales for DVD rentals.

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