NetFlix 2003 Annual Report Download - page 45

• governmental regulation and taxation policies; and
• general economic conditions and economic conditions specific to the Internet, online commerce and the
movie industry.
In addition to these factors, our operating results may fluctuate based upon seasonal fluctuations in DVD
player sales and in the use of the Internet. During our limited operating history, we have experienced greater
additions of new subscribers during late fall and the winter months, and these seasonal fluctuations may continue
in future periods.
We face many risks associated with our plans to expand into international markets and may not succeed in
our efforts.
In 2004, we anticipate expanding our subscription service outside of the United States and we have no
experience in doing business internationally. It is costly to establish international facilities and operations,
promote our brand internationally and develop localized Web sites. We may not succeed in such efforts and
achieve our subscriber acquisition or operating goals. Our revenues from foreign markets may not exceed the
costs of establishing and maintaining such operations and therefore, these operations may not be profitable on a
sustained basis. We are subject to risks of doing business internationally, including the following:
• foreign exchange rate fluctuations;
• local economic and political conditions;
• strong local competitors;
• changes in governmental regulations;
• more stringent consumer and data protection laws;
• different intellectual property laws; and
• difficulties in developing, staffing and managing the operations as a result of distance, language and
cultural differences.
One or more of these factors could harm our business, operating results and financial condition. In addition,
we will need to devote substantial resources to managing our operations in a foreign environment. As a result,
our managerial, operational, administrative and financial resources may be strained.
We rely heavily on our proprietary technology to process deliveries and returns of our DVDs and to
manage other aspects of our operations, and the failure of this technology to operate effectively could
adversely affect our business.
We use complex proprietary software to process deliveries and returns of our DVDs and to manage other
aspects of our operations. Our proprietary technology is intended to allow our nationwide network of shipping
centers to be operated on an integrated basis. We continually enhance or modify the software used for our
distribution operations. For example, in early 2003, we introduced new software algorithms and procedures
designed to enhance local delivery of available DVDs to our subscribers and to provide operational efficiencies
at our shipping centers. We cannot be sure that the enhancements or other modifications we make to our
distribution operations will achieve the intended results or otherwise be of value to our subscribers. If we are
unable to maintain and enhance our technology to manage the processing of DVDs among our shipping centers
in a timely and efficient manner, our ability to retain existing subscribers and to add new subscribers may be
impaired.
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