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Netflix Waves Ad Banner

14 Jul, 2005 By: Holly J. Wagner

Netflix will begin selling ads on its Web site and in mailers and e-mail bulletins with the potential of reaching the company's more than 3 million subscribers, just as it begins a new TV ad campaign promoting online rental.

The company appointed Peggy Fry as VP of advertising sales, a new position created to provide relevant advertisers with opportunities to gain exposure. She will be based in Netflix's Beverly Hills, Calif., office.

“Netflix's large and growing subscriber base offers a strong advertising platform, particularly for entertainment and other consumer-oriented marketers,” Fry said. “We'll work with advertisers to deliver messages that are both relevant and interesting, and add value to the Netflix customer experience.”

Entrenched in a brutal price war that is taking a toll on Netflix and Blockbuster's bottom lines, advertising would give the larger online rentailer another income stream to weather the battle.

Based on subscriber projections for next year, a Bear Stearns analyst believes ad sales could add 6 cents to 8 cents per share in earnings for 2006.

“Overall, we view the announcement as an incremental positive and believe Netflix should be able to add a small amount of high-margin ad revenue to its core operations,” the analyst said. “We believe that Netflix will focus on providing advertising that does not detract from the customer experience. Many consumers, for example, have had a negative response to in-theater advertising; Netflix management appears cognizant of this and will likely proceed cautiously.”

Bear Stearns retained its $16 price target on Netflix shares.

From 1997 to 2003, Fry held a series of sales positions at America Online, including VP of interactive marketing for the AOL Entertainment Group. In this role, she was responsible for all of AOL's movie studio sales, covering both filmed and home entertainment.

Since 2003, she has served as president of Smashing Entertainment, a film production and co-financing company she helped create to produce films for television and theatrical distribution.

Netflix announced the move to advertising, but the Internet also was abuzz this week with speculation that the company is preparing to offer a beta of a proprietary media player. The rumor started with a subscriber who claimed to have captured a Netflix screen shot July 8 that indicated the subscriber should choose a media player for downloadable movies. Although Netflix executives have said the site would offer downloads late this year or early next, this was the first reported indication that it is moving forward.

It's also possible, however, that Netflix is simply preparing to offer trailers, which would match a service Blockbuster Online recently started to offer. Shoppers at Blockbuster Online can select a title, read the description and, for many titles, a streaming trailer is available. The viewer must choose between Windows Media Player and RealPlayer applications and by connection speed. But the trailers are offered via dial-up connection.

The online rental giants are subtly escalating on another front: selection. Blockbuster's site says the company offers 40,000 titles; Netflix just boosted its number to 45,000.

Netflix also has launched a new TV ad campaign with five 30-second spots focusing on different genres (kidvid, romance, foreign, suspense and war). The theme of the campaign is “Netflix. There's a movie waiting for you at home.”

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