The Los Gatos resident, who has now been with Netflix for more than 2¹/2 years as a quality assurance engineer, says, "I wouldn't want to work anywhere else."

Similarly, Rick Sneed had been a Netflix customer, and fan, for a few months when he heard about one of its job openings.

"I think that's a real testament to this company, that the people who use this service like it enough to look for jobs there," says James Rocchi, Netflix's resident film critic.

"I love this company. I deal with movies," says Sneed, the director of corporate communications. Whenever he goes out of town on business, Sneed wears Netflix clothing. "I can't get on an airplane without somebody pulling me aside and chatting with me," he says. "It is a nice thing, to be working for a company with such a buzz."

With 670,000 subscribers currently—up from 500,000 in February—Netflix went public in May as one of the few initial public offerings of the year. That's given it the billing as one of the hottest dot-coms around and a business model for other companies.

Not bad for a company that relies on word of mouth as its primary form of marketing, along with some pop-up ads.

Customers pay $20 a month to get unlimited DVD rentals—unlimited in how many they can rent in a month and how long they can keep the movies, the only restriction being that they can only have three movies at any given time. The DVDs are shipped in lightweight paper mailers; when finished, customers send them back in postage-paid envelopes. Upon receipt, Netflix will then automatically mail the next movie from a list that the subscriber has developed online.

Los Gatos­Monte Sereno Police Capt. Alana Forrest has been a customer since November and calls herself "a happy Netflix user." Forrest says her lifestyle is so busy that she still has a movie that she rented in April. "Blockbuster would be after me, but with Netflix it's no big deal," Forrest says.

Housed in an unassuming two-story office building and identifiable only by a small red-and-white sign, Netflix is on University Avenue, just north of Vasona Reservoir.

The decor inside is sparse, but the Netflix office is very definitely a film-friendly environment. An old-fashioned popcorn maker, usually running, is right next to the front door. Large movie posters adorn the walls, and life-size cutouts are everywhere. Meeting rooms are named after films, and meetings are often preceded with discussions about recent flicks.

Since its inception in April 1998, the company's workforce has grown to more than 300, and 110 employees work out of the headquarters.

All the employees sit in identical cubicles, including execs. CEO and co-founder Reed Hastings doesn't even have a window office; his cube is upstairs, toward the back. The only thing that sets it apart from other cubicles is a black sport coat that he was given the day the company went public. The jacket, which hangs outside Hastings' office, has "NETFLIX" written on the back—with cut up Blockbuster cards.

Netflix came to town three years ago, after spending its infancy in Scotts Valley. "Los Gatos has been great for us. We're in Silicon Valley but nestled up in the mountains," Hastings says. "We're real happy in Los Gatos and hope to stay here forever."

Monthly company meetings are held at the Los Gatos Cinema, and, according to Los Gatan Pat Thompson, chief accounting manager, Netflix-ers often use Vasona to picnic, walk and bike during their lunch break. Many employees also go into downtown for lunch. Hastings' personal favorites include A Matter of Taste and Fleur de Cocoa, which he calls "my favorite bakery in the world."

"Part of what makes Los Gatos special is all of the great restaurants," Hastings says.

"Los Gatos is a great place to drive into. It's much more interesting than a big stale office complex in Mountain View," says Los Gatos resident Chris Darner, who works as a product manager. When the company was moving out of its first University Avenue building last January, Darner says, there was some anxiety within that Netflix was leaving town.

As the story goes, Netflix's conception came out of a frustrating experience Hastings had with Blockbuster. Hastings had rented Apollo 13 and gone out of town. When he returned, he had racked up $40 in late fees. After going through a few revisions, the Netflix of today was born—one completely without late fees.

Up until earlier this year, Netflix's only distribution center was in San Jose. That meant that Bay Area residents had a two-day turnaround time—one day for the hub to receive DVDs, another day for the residence to receive DVDs from the hub. It took closer to four or five days, however, for movies to reach subscribers who lived on the East Coast.

Photograph by Grant Wernick Jaren Thorsen processes orders by printing out mailing labels and sealing DVD envelopes.

As the largest of all the distribution centers, the San Jose facility fulfills about 30 percent of all Netflix orders, shipping 50,000 to 75,000 DVDs each day. Employees take a returned DVD, scan it in to see if there's an open order on it, print out a mailing label and pop it in the mail. "We're the largest first-class post office customer in the San Jose district," Sneed says.

Netflix has revenue-sharing agreements with Hollywood studios, in which Netflix gives the studios a percentage of its profits from each movie rental, on top of paying replication fees. "The studios have a vested interest in getting us as many titles as they can, and we try to rent them as much as possible," Sneed says.

Sneed says Netflix has 50 percent margins, due in part to not having much overhead or rent. The company doesn't have to staff or decorate many individual locations, and the work is such that employees in the hubs process around 1,000 orders each day.

Netflix's IPO debuted in late May at $15, reaching $18 at one point, dipping down to less than $10 at another, and has settled at $12 or $13 a share these days. Sneed, however, remains optimistic, pointing out that no stocks are doing well at the moment.

"We've pretty much been billed as the best IPO of the season," Sneed says.

Blockbuster, Netflix's main competitor, is doing its part to keep up with the online company. Blockbuster is running a pilot program, called the DVD Freedom Pass, in four markets, one of them New York. For $20, customers can rent two movies at a time with no due dates and no extended viewing fees.

Company spokesman Randy Hargrove says that while there has not been any empirical research done, the Freedom Pass in the past two months has "seemed to be going well. There was a lot of excitement among our employees."

Blockbuster has also extended the rental terms for most of its movies, allowing customers to keep tapes and DVDs for seven days. Plus, there's the new Rent It, Buy It option; if they like a DVD, customers can elect to purchase it for a low cost.

Sneed, however, says Netflix still has advantages over the Freedom Pass. Blockbuster users still have to go to a store and they have less selection, since the retailer has a 90-day window to push new releases.

With 1,000 to 2,000 videos in stores, "they just don't have the selection we have," Sneed says. Netflix, on the other hand, has 3¹/2 million titles. "We order everything. Every DVD that's published—every title," Sneed says, and that includes independent films.

"A lot of video stores are about what's new," says film critic Rocchi. "We're able to have a film library."

If Blockbuster starts doing things the way Netflix does, Netflix is still a step ahead, Sneed says. "Blockbuster knows retail very well but they don't know the online business," Sneed says. "Basically we think they can come in and throw a hell of a lot of money against us, but it'll take them a long, long time to get there."

"We see mail-order as a niche," Hargrove explains. "Right now we don't see that there's a broadband consumer demand for mail-order, nor do we think there's a sustainable financial model." Hargroves says Blockbuster's 48 million customers, compared to Netflix's 670,000, shows which market is more mainstream.

Also, Hargrove says, more than 80 percent of customers make the decision to rent movies the day of. "With Blockbuster, you've got immediate gratification," Hargrove says. "You can have the movie when you want it, on your terms."

Sneed says Netflix has convenience and selection on its side. On top of that, customers don't always remember what movies they've picked for their online queue so there's an "air of excitement" when they see the distinctive red envelope in their mail. "For every customer, every week Netflix sends them a couple of presents," Sneed says.

Senior account specialist Julie San Juan says she refuses to ever go to a chain video rental store. "If it's Saturday and I haven't picked a movie, I won't go to any of those places," says San Juan, a longtime Los Gatos resident. She prefers to stop by a mom-and-pop store.

Photograph by Grant Wernick Los Gatos residents (from left) Chris Darner, Julie San Juan, Pat Thompson and Emily Pickard have a short commute to their jobs at the Netflix headquarters.

Rocchi—known as "Mr. DVD"— is wildly passionate about the company and pop culture, peppering his conversation with references to movies and music.

Rocchi was writing "blurbs" for Netflix part time four years ago when company execs offered him a bigger position. "Completely out of the blue, I was offered a full-time gig, and I went, 'Good gravy, yes!' " Rocchi says. "Everybody involved was incredibly smart, and an enthusiasm and love of movies really permeates this place."

Rocchi says Netflix "is a great way to get people close to movies that they will love." As Mr. DVD, Rocchi now appears on 15 to 20 television stations and 25 radio stations regularly, reviewing films while wearing his Netflix gear.

Although he's traveling or working from home much of the time, Rocchi says he always loves going into the office and seeing his co-workers.

Same with Darner, who says his friends are "very impressed with the fact that I have a job that I look forward to every day."

Accounting manager Thompson, a 20-year Los Gatos resident, says, "Everybody works together as a team. And they all say that, but it's true here. It's the best place I ever worked. And the commute is an added benefit."