Indaba's Webtech Research: Netflix & Coinstar Initiation report from 1-18-2012. Published at a time when NFLX share price was depressed and investors were unsure about what to do with the stock.

1. Video Content Distribution
Investing in Digital Streaming and DVD Distribution
- Jan 18, 2012 -
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4. Investment Universe + Report Focus
Our Universe of
Web Technology
SEARCH MERCHANTS
ADVERTISING E-COMMERCE
Content
MEASUREMENT CONTENT
AGENCY /
TRAVEL Video
DIVERSIFIED
GOVERNMENT
Music Games
POLICY
SOFTWARE &
IDENTITY SERVICES
Traditional Publishers
LOCATION CONTENT
SERVICES DELIVERY
SOCIAL INFRASTRUCTURE
DATA
PLATFORMS
CENTERS
Focus of this Report
Video Content Distribution Value Chain
Studio Content Compatible
End Consumers
Distributors Devices
Warner Bros., Paramount, Fox, Digital: Cable/DBS, Netflix, HBO Digital: PC/tablet/smartphone,
Walt Disney / Touchstone, Go, iTunes, Hulu, Amazon Gaming Consoles, TV+Cable/DBS
Columbia / TriStar, Universal Physical: Amazon, Wal-Mart Physical: TV + DVD/BlueRay
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5. -5-

6. The Content Flow (chronological order)
Medium of Incentive to
Release Windows(1) Studio Economics
Distribution Studio
1
Theatres/ Tentative Duration: ~80-100% of ticket price (~$7.50) in the first week, 4
Box Office 4-5 Months dropping to ~20% after one month
2
Pay-per-View/
2-8 Weeks ~60-70% of PPV Price 3
Video on Demand
3
DVD For Purchase: ~20-30% of DVD price($10-$20 for
(Purchase, Rental & 6 Weeks standard DVD, $20-$30 for Blue Ray) 1
Streaming) For Rental & Streaming: minimal revenue share
4
Premium Cable Based on film’s box office performance
(HBO, Starz, Showtime, 18 Months ($6mm-$8mm per film, up to $25mm for a 2
Cinemax) blockbuster)
5
Free over-the-air cable 12-18 Months
$3mm-$15mm per movie 2
(depending on title and the number of runs)
_____
Source: Canaccord, November 2011
1) Release windows are prescribed time gaps between which films are aired over different media -6-

7. US Video Rental Market Opportunity
Infrastructure improvements will facilitate the growth of digital models, while
competitive pricing will drive kiosk growth.
NCR Estimates Screen Digest Estimates
USD Billion USD Billion
10.0 8.0
9.3 7.4
7.9 6.2
8.0 24.5% 14.0%
6.0
2 2
13.9%
6.0
7.3%
4.0
4.0 12.3%
2.0
2.0
(22.2%) (14.6%)
- -
2009 2013F 2010 2015F
_____
Brick and Mortar Subscription Digital Kiosk Traditional Subscription Kiosk
Source: NCR, Screen Digest
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8. US Streaming Opportunity
Increased broadband penetration – rising from 63.2% in 2010 to 71.0% in 2015 – will
contribute to driving demand for online digital content.
72.0% 71.0% 100.0
70.2%
69.1%
67.6%
68.0% 80.0
65.6%
64.0% 60.0
63.2%
60.0% 60.5% 40.0
56.0% 20.0
52.0% -
2009 2010 2011E 2012E 2013E 2014E 2015E
Broadband Subscribers (mm) Broadband Household Penetration
_____
Source: IDC, December 2011
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9. Worldwide Streaming Opportunity
Broadband penetration, combined with improving internet speeds, has helped to
establish internet streaming as the preferred medium for viewing video content.
According to Cisco’s Visual Networking Index (VNI) Global IP Traffic Forecast, video traffic is
expected to experience ~48% CAGR from 2010-2015, driven increasingly by long-form video content
_____
Source: Internet World Stats Broadband Presentation
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10. Growth of Networked Devices
Strong growth in networked video devices – laptops, tablets, gaming
consoles – is expected to further fuel online streaming of movies/TV shows.
U.S. Networked Video Device Installed Base (Units in mm)
200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
-
2009 2010 2011E 2012E 2013E 2014E
_____
Source: IDC
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11. 5 Key Trends
• Successful streaming model by NFLX resulted in other technology companies (APPL, GOOG,
Growing AMZN) entering the market (primarily through a la carte models)
Competition • However, cost advantage remains with incumbent streaming operators such as NFLX, given
their focus on older content
Studios Evaluating • Decline in theater attendance (~90% since mid-1970s) and DVD sales (~50-70% of studio
revenue) has forced studios to reevaluate existing release window schedules
Changing Release
• PPV/VOD/OTT window will offer the biggest opportunity for studios to maximize their
Windows profits
• As VHS was superseded by DVD, it is expected that DVD will ultimately be superseded by
Content Moving digital/streaming models
Digital • However, the tail of DVD is TBD
• Could prove to be a powerful new subscriber acquisition tool (especially in international
Integration with markets)
Social Networking • Will facilitate improvements in recommendation engine by employing users’ social data
• ISPs – especially those with significant cable distribution businesses, such as Time Warner
Internet Service and Comcast – could spoil the party, as they control the pipes which businesses such as
Providers? NFLX rely upon
• The ability to implement data usage caps will be ultimately decided in the courts
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12. Competitive Analysis
Content
Brand Offering Pricing Library Subscribers (mm)
Availability
• Unlimited Streaming: • Unlimited Streaming -
$7.99/month (+$2 for Blu- 20K+ Titles (50%
28-Day delay for Fox,
ray) movies, 50% TV
Online Streaming + Universal and Warner
• DVD-by-mail: $7.99- Shows) 23.8
DVD-by-mail Bros. titles; street date(1)
$11.99/month • DVD-by-mail - 125K+
for other studios
• Streaming and DVD-by-mail: titles (80% movies,
$15.98/month 20% TV Shows)
28-Day delay for Fox,
Universal and Warner
Automated DVD vending $1.20/night ~200 titles on average to
Bros. titles; street date(1) na
kiosks for movies & games (Blu-ray – $1.50/night) browse on each kiosk
for other studios
Free with HBO subscription
Available free with HBO (HBO subscription is Within 24 Hours of HBO Subs = 28.2
1400 + HBO Shows
subscription ~$10.00/month, incremental to Broadcast HBO Go Subs = na
a cable package)
Online streaming for Available free with Comcast 75K+ Movies and TV Comcast Subs = 14.0
na
Movies and TV Shows Cable TV Subscription Shows xfinity Subs = na
Unlimited, commercial-
free, streaming-only 12K+ movies and TV
$79.00/year na 5.0
offering for Amazon Prime shows
members
_____
Canaccord, November 2011
1) Street date is the date the movie is to be released for sale to the general public
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13. Competitive Analysis
Content Subscribers
Brand Offering Pricing Library
Availability (million)
• 1.5K seasons of TV
Shows (comprising
Streaming-only offering
$7.99/month 33K+ episodes) na 1.0
for TV Shows
• Hundreds of movies
and documentaries
• $4.99 to $14.99 for DTO
movies
DTO or VoD for movies • $0.99 to $3.99 for VoD 100K+ movies and TV
na na
and TV Shows movies Shows
• $0.99 to $2.99 for DTO TV
shows
• $9.99 to $19.99 for DTO
movies
STO or VoD for movies 50K+ TV Shows, 8K+
• $0.99 to $4.99 for VoD Street date(1) na
and TV Shows movies
• $0.99 to $1.99 for DTO TV
Episodes
• 100K+ movies and TV
• $10.00 for 1 DVD out at a shows by mail
DVD-by-Mail and time • 4K streaming titles to
Street date(1) na
unlimited streaming • $15.00-$20.00 for multiple computer
DVDs out at a time plans • 3K streaming titles to
TV
• $9.99 for DTO movies
DTO or VoD for movies • $3.99 to $4.99 for VoD 30K+ movies and TV
Street Date na
and TV Episodes movies Shows
• $1.99 for DTO TV Episodes
_____
Canaccord, November 2011
1) Street date is the date the movie is to be released for sale to the general public
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14. - 14 -

15. Content Distribution Comps
Takeaways Key Statistics
• Data Availability Company Netflix Coinstar
Ticker NFLX CSTR
Share Price $94.72 $44.93
o Considering most players in the content Market Cap $5,225.0 $1,387.7
distribution space have diversified business Less: Cash $365.8 $255.3
Plus: Debt $234.7 $397.9
mixes, we have focused on NFLX and CSTR. Enterprise Value $5,093.9 $1,530.3
• Key Metric(s) Revenue
2013E $4,162.3 $2,209.2
o Subscribers / Same-store Sales Growth: Given Y/Y Growth 16.2% 1.8%
2012E $3,582.0 $2,170.2
the intense competition, will the company be Y/Y Growth 12.4% 19.1%
LTM $2,924.9 $1,715.7
able to grow subscribers or same-store sales 2013 EV/Sales 1.22x 0.69x
2012 EV/Sales 1.42x 0.71x
through attractive pricing and content LTM EV/Sales 1.74x 0.89x
acquisition? EBITDA
2013E $395.3 $406.5
• Market Valuation Y/Y Growth
2012E
147.3%
$159.9
(2.3%)
$416.1
Y/Y Growth (64.7%) 17.6%
o Based on 2013E P/E, NFLX trades at a premium LTM $432.6 $341.1
2013 EV/EBITDA 12.9x 3.8x
to both the market and CSTR due to position of 2012 EV/EBITDA 31.9x 3.7x
LTM EV/EBITDA 11.8x 4.5x
strength in online streaming space – the
primary long-term growth segment in video EPS
2013E $3.60 $4.01
rental market. CSTR trades at a discount to the Y/Y Growth 370.5% NM
2012E $0.77 $3.92
market due to its reliance on DVD rental kiosks, Y/Y Growth (83.7%) NM
LTM $4.40 $2.62
a distribution medium with questionable long- 2013 P/E 26.3x 11.2x
2012 P/E 123.7x 11.5x
term prospects (and despite its high margin LTM P/E 21.5x 17.1x
coin business). Subscribers / SSS Growth
2013E 28.9% 0.0%
(14.4%)
2012E 26.3% 9.5%
7.3%
_____
Source: Company Filings, Company Press Releases, Bloomberg Estimates and WebTech Research Estimates
- 15 -

16. Stock Price and Market Share Analysis
NFLX & CSTR stock performance follows subscriber / same store sales growth.
1/27/10: NFLX Q4 ’09 beat, guidance 2010: NFLX continues to deliver 7/12/11: NFLX separates DVD and 7/25/11: NFLX Q2 ‘11 miss, 10/24/11: NFLX Q3 ‘11 beat,
for Q1 & 2011 exceeds expectations strong subscriber growth in ‘10 streaming packages, effectively guidance for Q3 below but subscriber & churn
raising prices expectations guidance disappoints
4/29/10: CSTR Q1 ‘10 beat, 350.00
110.0% guidance for Q2 & 2011 1/13/11: CSTR negative 2/3/11: CSTR misses consensus 2/3/11: CSTR misses consensus 2/3/11: CSTR
exceeds expectations preannouncement for Q4’ 10 after preannouncement after preannouncement raises DVD rental
100.0% price in response
to Durbin related 300.00
90.0% expenses
80.0% 250.00
70.0%
Stock Price ($)
Market Share
200.00
60.0%
50.0% 150.00
40.0%
30.0% 100.00
20.0%
50.00
10.0%
0.0% -
Q2 '09
Q3 '09
Q4 '09
Q1 '10
Q2 '10
Q3 '10
Q4 '10
Q1 '11
Q2 '11
Q3 '11
Q4 '11
- Netflix - All Other B&M (Includes Local) - NFLX (annotations in top row)
Online/By Mail Rental Provider National B&M Rental Chains (Includes .com) All Other B&M (Includes Local) Redbox
- National B&M Rental Chains (Includes .com) - Redbox - CSTR (annotations in bottom row)
_____
Source: NPD VideoWatch data from CSTR’s quarterly filings
Note: National B&M doesn’t include Movie Gallery and Hollywood Video Due to bankruptcy liquidation - 16 -

17. Netflix [NASDAQ: NFLX]
NFLX, the market leader in content distribution, saw shares fall ~50% LTM due to a price
increase and intense competition.
KEY SEGMENTS
• Online Streaming: Provides access to TV shows and movies streamed over the Internet to TVs, computers and
networked devices. Subscribers = ~21.5 million. Priced at $7.99/month. Contribution margin = ~8%
• DVD-by-mail: DVDs are sent by US first-class mail and returned using pre-paid mailers. NFLX’s library currently
contains over 125K DVD titles. Subscribers = ~13.9 million. Priced at $7.99/month (hybrid plan priced at
$15.98/month). Contribution margin = ~50%
CONSENSUS CONCERNS
• Increasing Content Spend: NFLX announced a marked increase in 2012 content spend (~100% y-o-y)
• Our view: We share the concern, and believe NFLX will continue to face rising digital content costs given its
focus on streaming. Note that high quality movie content (Sony/Columbia, Warner Bros., Universal, Fox
Searchlight etc.) is locked up next few years under current pay TV window and the contract with Starz is
ending in Q1 ‘12. We believe that certain studios will continue to limit NFLX’s access to given its value
proposition to studios. This coupled with international expansion will impact 2012 profitability
• Continued Sub Loss: NFLX lost ~800K subs in Q3 ‘11 due to the increased pricing / Qwikster debacle
• Our view: We don’t share this concern – the pricing change was appropriate, but not the way it was
communicated. Pricing related sub losses have subsided and NFLX will return to sub growth
- 17 -

18. Netflix [CONTINUED]
Price Target = $112.77 (19.1% appreciation). Accumulate under $80.69.
WHAT WE LIKE
• Market Leader: NFLX leads the market with a subscriber base of ~24 million in the US. Given its penetration at
~30% of broadband subscribers and revenue at ~13% of the home video market, Netflix has room for growth.
Additionally, NFLX holds a scale advantage not easily replicable without significant investment
• Monetization Channel for Catalog Content: Much of the content consumed on NFLX is 1-2 year old catalog
content. NFLX’s ability to generate demand for catalog content through its rating system and recommendation
engine gives NFLX leverage with studios who are all seeking to monetize older content
WEBTECH RESEARCH RECOMMENDATION = BUY under $80.69, aggressively under $77.78
• Price Target: We arrive at a price target of $112.77 based on valuing the earnings potential of the streaming
business (we disregard the more profitable, but contracting DVD business in our valuation). We assume NFLX exits
2013 with a streaming ARPU of $8/month, streaming contribution margin of 14.5% (up from 8%) and 34.5mm
total subs (up from 25mm). We then tax affect (35% tax rate) the 2013E contribution dollars to arrive at 2013E net
income, and apply a 20x P/E multiple (consistent with our view of near-term sub CAGR of 20%)
• Price Support: Capital infusions by T.Rowe at $70.00 (equity) and by TCV at $85.80 (zero coupon
convertible) will provide support for shares in the event of a pull back
• Short: The risk reward ratio for a short trade becomes favorable (at >4.5x) above $107.72. We would
consider a fundamental short position if the long-thesis is “over-confirmed” (if shares rise above $124.05)
• Stock will move after… a) Q4 earnings (Jan 25th); b) acquisition rumors; c) positive data from and/or further
international expansion; d) DVD window extension by other studios
- 18 -

19. Coinstar [NASDAQ: CSTR]
CSTR, the cheapest DVD rental provider, has plummeted on concerns of the long term
viability of DVDs. We believe these concerns are premature.
KEY SEGMENTS
• DVD Rental (Redbox): Operates 34,400 self-service DVD rental kiosks. Rentals priced at $1.20/night. Contributes
~84% of revenues. Operating Margin = ~18.7%. Market Share = ~34.7% in US DVD rentals
• Coin Services: Owns and operates fully automated network of 18,900 self-service coin-counting machines across
the US, Canada, Puerto Rico, Ireland and the UK. Charges 9.8 % processing fee. Contributes ~16% of revenues.
Operating Margin = ~36.2%
CONSENSUS CONCERNS
• Impact of Price Hike: In October 2011, Redbox increased daily rental rates from $1.00/night to $1.20/night, citing
increased operational costs due to the Durbin agreement
• Our view: We do not share this concern as pricing remains competitive relative to other rental options
(PPV or VOD). Management guided to incremental $10-$14mm (~3% of Redbox revenues) of expenses on
account of the Durbin agreement. The 20% price increase will provide sufficient cushion for additional
costs and any loss in rental volumes. We expect our lack of concern to be confirmed when Q4 numbers are
released
• Lengthening DVD Windows: Recently Warner Bros. doubled DVD window from 28 days to 56 days. While NFLX
has agreed to this, both Blockbuster and Redbox are opposing the move
• Our view: We share this concern. Without prior agreements, Redbox may have to purchase the DVDs from
retail outlets on the street date (first-sale doctrine), which will pressure margins
- 19 -

20. Coinstar [CONTINUED]
Price Target = $59.31 (32.0% appreciation). Accumulate under $44.08.
WHAT WE LIKE
• Platform to Launch Streaming Business: Redbox customers rent DVDs from over 30K points of presence (kiosks).
Management is taking a captious approach to leveraging its customer base to launch a new streaming business
• Low Cost and Geographical Footprint: Capital requirements tend to be low (~$15,000- $20,000 to install a kiosk).
Marketing costs are minimal and moreover, ~68% of households are within 5-minute drive-time of a Redbox kiosk
• Market Share Gains: VOD prices tend to be $4.99+ for new releases. Until these price points come down, Redbox
remains the low price leader for a la carte rentals at $1.20/night. Redbox reported ~20% growth in unique credit
cards and ~60% growth in unique email addresses at kiosks in Q3 2011
WEBTECH RESEARCH RECOMMENDATION = BUY under $44.00, aggressively under $42.70
• Price Target: We arrive at a price target of $59.31 (32.0% upside). Given the distinct margin and growth profiles of
CSTR’s two business lines, we assign a 3x EBITDA multiple to the coin business (high margin, but limited growth)
and a 6x multiple to the DVD business (prospect of leveraging existing customers if a streaming business is
launched). Our EBITDA estimates are based on annualizing the last 9 months for each business segment
• Price Support: We recommend closely watching $39.00-$40.00 – a key technical level
• Short: The risk reward ratio for a short trade becomes favorable (at >4.5x) above $55.61. We would
consider a fundamental short position if the long-thesis is “over-confirmed” (if shares rise above $65.24)
• Stock will move after… a) Q4 earnings (Feb 6th); b) announcement of a streaming plan (may include partnership
with Verizon); c) DVD window extension by other studios
- 20 -

21. For questions and comments, please contact:
Brian Murphy
Indaba Global Research
617-571-1550
brian@indabaglobalresearch.com
www.indabaglobalresearch.com
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