NetFlix 2002 Annual Report Download - page 39

If we fail to maintain or adequately replace our outside sources of new subscribers or are unable to continue to market our service in the manner currently conducted, our
subscriber levels may be affected adversely and our marketing expenses may increase.
We obtain a large portion of our new subscribers through incentive−based online marketing programs. We engage third parties to solicit new subscribers through the use of banner ads,
pop−under placements, direct links and e−mails. We also have an active affiliate program by which third parties register with us and obtain particular advertisements from us for use on their
Web sites or through other online marketing forums. In addition, we have engaged in various offline incentive−based marketing programs. For example, we obtain subscribers through
solicitations placed inside the packaging of stand alone DVD players through arrangements we have with DVD player manufacturers. We have also explored other incentive−based
advertising channels including newspaper and television advertising. These third parties may not continue to participate in our marketing programs if the programs do not provide sufficient
value for their participation, our competitors offer better terms or the market for incentive−based advertising decreases. If we are unable to maintain or replace these sources of subscribers,
our subscriber levels may be affected adversely and our cost of marketing may increase.
In addition, while the DVD player manufacturers with whom we have promotional relationships are required to include our promotional materials with every DVD player they sell, we
cannot effectively control what portion of DVD players sold by them actually include the promotional materials. If these DVD player manufacturers do not fully comply with the terms of our
promotional relationships, our ability to attract new subscribers may be affected adversely. In addition, as these agreements expire, we cannot assure you that we will be able to renew these
arrangements on terms acceptable to us.
If we are unable to continue our current marketing activities, our ability to attract new subscribers may be affected adversely.
We may not be able to continue to support the marketing of our service by e−mail or other online means if such activities are adverse to our business. Laws or regulations may be enacted
which prohibit use of e−mails or similar marketing activities. Even if no relevant law or regulation is enacted, we may discontinue use or support of these activities if we become concerned
that subscribers or potential subscribers deem them intrusive or they otherwise adversely affect our goodwill and brand. For example, we recently terminated our relationship with certain
e−mail marketers who did not meet our e−mail marketing standards which include that all recipients have given permission to receive e−mail solicitations directly from the marketer. If these
marketing activities are curtailed, our ability to attract new subscribers may be affected adversely.
We may need additional capital, and we cannot be sure that additional financing will be available.
Historically, we have funded our operating losses and capital expenditures through proceeds from private equity and debt financings, equipment leases and cash flow from operations.
Although we currently anticipate that the proceeds from our May 2002 public offering, together with our available funds and cash flow from operations, will be sufficient to meet our cash
needs for the foreseeable future, we may require additional financing. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating
performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to us on favorable terms when required, or at
all. If we raise additional funds through the issuance of equity, equity−linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common
stock, and our stockholders may experience dilution.
Any significant disruption in service on our Web site or in our computer systems could result in a loss of subscribers.
Subscribers and potential subscribers access our service through our Web site, where the title selection process is integrated with our delivery processing systems and software. Our
reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance of our Web site, network
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