• Because of their small size, light weight, and durability, DVDs could be distributed to
subscribers on a cost effective basis via regular U.S. mail. Including the costs associated with
processing the order, McCarthy estimated the round-trip cost of shipping a DVD to a
subscriber and back to NetFlix to be about $1.00.
• In order to promote sales of DVD players, manufacturers were willing to include NetFlix
promotional offers with their packaging materials at essentially no cost, which allowed
customer acquisition costs to be kept to a minimum. Management had negotiated agreements
with most of the leading DVD manufacturers, including Sony, Toshiba, Panasonic, and RCA.
These manufacturers accounted for over 90% of the DVD players sold in the United States in
1999.