NetFlix 2003 Annual Report Download - page 70

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NETFLIX, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(in thousands, except share, per share and per DVD data)
the same accelerated method of amortization over one year. The change in life has been accounted for as a
change in accounting estimate and was accounted for on a prospective basis from January 1, 2001. Had the
DVDs acquired prior to January 1, 2001 been amortized using the three-year life, amortization expense for 2001
would have been $4,700 lower than the amount recorded in the accompanying financial statements, which
represents a $1.29 impact on net loss per share in 2001.
Under certain revenue sharing agreements, the Company remits an upfront payment to acquire titles from
the studios. This payment includes a contractually specified initial fixed license fee that is capitalized and
amortized in accordance with the Company’s DVD library amortization policy. Some payments also include a
contractually specified prepayment of future revenue sharing obligations that is classified as prepaid revenue
sharing expense and is charged to expense as future revenue sharing obligations are incurred.
For those DVDs that the Company estimates it will sell at the end of their useful lives, a salvage value of
$2.00 per DVD is provided. For those DVDs that the Company does not expect to sell, no salvage value is
provided. As of December 31, 2002 and 2003, the salvage values of $929 and $1,717, respectively, are included
in DVD library in the accompanying financial statements.
DVD library and accumulated amortization consisted of the following:
As of December 31,
2002 2003
DVD library .............................................. $58,795 $114,186
Less: accumulated amortization ............................... (48,823) (91,948)
DVD library, net .......................................... $ 9,972 $ 22,238
3. Intangible Assets
Intangible assets and accumulated amortization consisted of the following:
As of December 31,
2002 2003
Studio intangible assets ....................................... $11,528 $11,528
Strategic marketing alliance intangible assets ...................... 416 416
Intangible assets, gross ....................................... 11,944 11,944
Less: accumulated amortization ................................ (5,850) (8,996)
Intangible assets, net ......................................... $ 6,094 $ 2,948
Studio Intangible Assets
During 2000, in connection with revenue sharing agreements with three studios, the Company agreed to
issue each studio an equity interest equal to 1.204 percent of the Company’s fully diluted equity securities
outstanding in the form of Series F Non-Voting Convertible Preferred Stock (“Series F Preferred Stock”). In
2001, in connection with revenue sharing agreements with two additional studios, the Company agreed to issue
each studio an equity interest equal to 1.204 percent of the Company’s fully diluted equity securities outstanding
in the form of Series F Preferred Stock.
F-12