Jul. 2--In an unmarked office in a southeast Memphis corporate park, movie posters blanket the walls, a King Kong cutout stands guard and workers in red Netflix T-shirts are getting ready to mail 11,000 DVDs.

The clatter and hum of bulk mailing machinery, specially adapted to process disc mailers, is also the sound of profits ringing up for the Silicon Valley, Calif.-based DVD rental subscription service.

Steve Swasey, Netflix vice president of corporate communications, reached into a stack of fabric-sleeved DVDs and randomly retrieved thriller "Body of Lies."

A customer watched it, dropped it in Tuesday's mail and got an e-mail early Wednesday saying Netflix got it back, Swasey said.

After 12 hours in Netflix's Memphis distribution center, "Body of Lies" was back in the U.S. mail pipeline to be delivered today and watched, perhaps tonight, if there's nothing good on TV.

"People go to Netflix because they don't have to go anywhere. They don't have to go to a store and take what they have. They're not limited to a handful of new releases," Swasey said.

The Memphis distribution center was the 35th regional facility when it opened in 2005. Netflix now has 58 centers, providing next-day access to 97 percent of subscribers. There are also nearby centers in Little Rock, Nashville, St. Louis and Baton Rouge.

The far-flung distribution network is crucial to growth through increased market penetration, chief financial officer Barry McCarthy told a recent investors' conference.

In the San Francisco Bay area, where the company began, market penetration is more than 20 percent of potential customers, compared with 9 percent nationwide.

"We noticed in each market where we opened a distribution center and offered next-day service, the growth of subscribers looked very similar to the growth profile we'd seen in the Bay Area," McCarthy said.

Netflix has grown to 10.3 million subscribers as it approaches its 10th anniversary in December. McCarthy said the ceiling could be 40 million subscribers.

But Redbox, a vending machine approach to DVD rentals, is growing quickly and competing for some of the same dollars. Kiosks stock about 700 discs and 200 titles, heavy on new releases.

Officials at Coinstar Inc., Redbox's parent company, say they're up to more than 15,000 kiosks and are adding a kiosk an hour to satisfy consumer demand for $1-per-night rentals.

The kiosks can been seen outside Memphis-area Walgreens, Wal-Marts and Wal-Mart Neighborhood Centers. Redbox spokesman Christopher Goodrich said there are 79 Redbox locations in Greater Memphis.

Swasey said Netflix officials aren't very worried about Redbox. They see it as competition more for free-standing DVD rental businesses.

Netflix doesn't think competitors come close to the company's combination of home-delivered convenience, an inventory of 89 million DVDs that includes 100,000 titles, and the value of monthly fees starting at $4.99 with no return deadlines or late fees.

Netflix also offers subscribers digital access to about 12,000 titles via online streaming, which will eventually replace physical DVDs.

"In the distant future," said Swasey, defining that as maybe 2030. "We're building the future with streaming now."

-- Wayne Risher: 529-2874

Netflix numbers

Subscribers: 10.3 million

Daily rentals: 2.2 million DVDs

2008 profit: $83 million on revenues of $1.37 billion

Inventory: 89 million discs, 100,000 separate titles

Online: netflix.com

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