NetFlix 2002 Annual Report Download - page 32

future expansion will likely place significant demands on our managerial, operational, administrative and financial resources. If we are not able to respond effectively to new or increased
demands that arise because of our growth, or, if in responding, our management is materially distracted from our current operations, our business may be affected adversely. In addition, if we
do not have sufficient breadth and depth of the titles necessary to satisfy increased demand arising from growth in our subscriber base, our subscriber satisfaction may be affected adversely.
In 2002, we opened approximately 12 shipping centers throughout the United States. We currently plan to open approximately 10 to 15 additional shipping centers in 2003. Although we
have a limited history in operating our shipping centers, we have seen a decrease in the delivery and return time for DVDs to those subscribers serviced by the shipping centers. In addition,
we have experienced an increase in the exchange of titles by subscribers in those areas. The more frequent exchange of titles has increased our shipping and delivery costs and revenue
sharing expenses while at the same time, along with other enhancements to our service, resulted in improved subscriber retention. If the improved retention is not maintained or improved as
necessary to offset the costs resulting from any increased usage, or if other mitigating factors do not offset such costs, our operating results will be adversely affected.
We have no experience offering our subscription service outside the United States. If we offer our service outside the United States, we will need to focus substantial resources to handling
operations in a foreign environment, including addressing issues related to foreign labor markets and the regulatory environments. As a result, our managerial, operational, administrative and
financial resources may be strained. Any international expansion may not achieve the subscriber acquisition or operating results anticipated by us at the time we determine to expand our
operations internationally.
If we experience excessive rates of subscriber churn, our revenues and business will be harmed.
We must minimize the rate of loss of existing subscribers while adding new subscribers. Subscribers cancel their subscription to our service for many reasons, including a perception that they
do not use the service sufficiently, delivery takes too long, the service is a poor value and customer service issues are not satisfactorily resolved. We must continually add new subscribers
both to replace subscribers who cancel and to continue to grow our business beyond our current subscriber base. If too many of our subscribers cancel our service, or if we are unable to
attract new subscribers in numbers sufficient to grow our business, our operating results will be adversely affected. Further, if excessive numbers of subscribers cancel our service, we may be
required to incur significantly higher marketing expenditures than we currently anticipate to replace these subscribers with new subscribers.
We have a limited operating history and history of net losses, and we may experience net losses in the future.
You should consider our business and prospects in light of the risks, expenses and difficulties encountered by companies in their early stage of development. We have experienced significant
net losses since our inception and, given the significant operating and capital expenditures associated with our business plan, we may experience net losses in the future. We cannot assure
you that we will be able to achieve profitability. If we do achieve profitability, we cannot be certain that we will be able to sustain or increase such profitability. We incurred net losses of
$21.9 million for the year ended 2002.
Our operating results are expected to be difficult to predict based on a number of factors that also will affect our long−term performance.
We expect our operating results to fluctuate in the future based on a variety of factors, many of which are outside our control and difficult to predict. As a result, period−to−period
comparisons of our operating results may
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