NetFlix 2005 Annual Report Download - page 27

If our efforts to build strong brand identity and improve subscriber satisfaction and loyalty are not
successful, we may not be able to attract or retain subscribers, and our operating results will be affected
adversely.
The Netflix brand is still developing, and we must continue to build strong brand identity. To succeed, we
must continue to attract and retain a large number of owners of DVD players who have traditionally relied on
store-based rental outlets and persuade them to subscribe to our service through our Web site. In addition, we
will have to compete for subscribers against other brands which have greater recognition than ours, such as
Blockbuster. We believe that the importance of brand loyalty will only increase in light of competition both for
online subscription services and other means of distributing titles, such as VOD. From time-to-time, our
subscribers express dissatisfaction with our service, including among other things, our inventory allocation and
delivery processing. To the extent such dissatisfaction is widespread or not adequately addressed, our brand may
be adversely impacted. If our efforts to promote and maintain our brand are not successful, our operating results
and our ability to attract and retain subscribers will be affected adversely.
If we are unable to manage the mix of subscriber acquisition sources, our subscriber levels may be affected
adversely and our marketing expenses may increase.
We utilize a broad mix of marketing programs to promote our service to potential new subscribers. We
obtain a large portion of our new subscribers through our online marketing efforts, including third party banner
ads, pop-under placements, direct links and permission-based e-mails as well as our active affiliate program. In
addition, we have engaged in various offline marketing programs, including television and radio advertising,
direct mail and print campaigns, consumer package and mailing insertions. We also acquire a number of
subscribers who rejoin our service having previously cancelled their membership. We maintain an active public
relations program to increase awareness of our service and drive subscriber acquisition. We opportunistically
adjust our mix of marketing programs to acquire new subscribers at a reasonable cost with the intention of
achieving overall financial goals. If we are unable to maintain or replace our sources of subscribers with similarly
effective sources, or if the cost of our existing sources increases, our subscriber levels may be affected adversely
and our marketing expenses may increase.
If we are unable to continue using our current marketing channels, 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 current means if such activities
are no longer available to us, become cost prohibitive or are adverse to our business. If companies that currently
promote our service decide to enter our business or a similar business or decide to exclusively support our
competitors, we may no longer be given access to such channels. In addition, if ad rates increase, we may curtail
marketing expenses or otherwise be required to increase our cost per subscriber. Laws and regulations impose
restrictions on the use of certain channels, including commercial e-mail and direct mail. We may limit or
discontinue use or support of e-mail and other activities if we become concerned that subscribers or potential
subscribers deem such activities intrusive, which could affect our goodwill or brand. If the available marketing
channels are curtailed, our ability to attract new subscribers may be affected adversely.
If we are not able to manage our growth, our business could be affected adversely.
We have expanded rapidly since we launched our Web site in April 1998. We anticipate further expanding
our operations to help grow our subscriber base and to take advantage of favorable market opportunities. Any
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.
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