NetFlix 2005 Annual Report Download - page 49

Download and view the complete annual report

Please find page 49 of the 2005 NetFlix annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

The increase in technology and development expenses in absolute dollars for 2005 as compared 2004 was
primarily the result of an increase in personnel-related and systems infrastructure costs. As a percentage of
revenues, technology and development expenses remained constant in 2005 as compared to 2004.
The increase in technology and development expenses in absolute dollars in 2004 as compared to 2003 was
primarily the result of an increase in personnel-related costs. As a percentage of revenues, technology and
development expenses decreased primarily due to a greater increase in revenues than technology and
development expenses.
We continuously research and test a variety of potential improvements to our internal hardware and
software systems in an effort to improve our productivity and enhance our subscribers’ experience. Additionally,
we are developing solutions for downloading movies to subscribers. As a result, we expect our technology and
development expenses will continue to increase in absolute dollars in 2006.
Marketing
Year Ended December 31,
2003
Percent
Change 2004
Percent
Change 2005
(in thousands, except percentages and
subscriber acquisition cost)
Marketing ............................ $49,949 96.3% $98,027 44.9% $141,997
As a percentage of revenues .............. 18.5% 19.6% 20.8%
Other data:
Gross subscriber additions ............... 1,571 72.9% 2,716 37.3% 3,729
Subscriber acquisition cost ............... $ 31.79 13.5% $ 36.09 5.5% $ 38.08
The increase in marketing expenses in absolute dollars in 2005 as compared to 2004 was primarily
attributable to an increase in marketing program costs, primarily direct mail, radio, television and online
advertising, to attract new subscribers. As a percentage of revenues, the increase in marketing expenses was
primarily due to a greater increase in marketing expenses than revenues. Subscriber acquisition cost increased in
2005 as compared to 2004 due to an increase in overall marketing program spending and spending on a per
acquired subscriber basis offset partially by a decrease in the cost of providing free trials associated with our new
lower priced plans, and by a $2.1 million reduction in liability due to the final settlement of certain marketing
programs.
The increase in marketing expenses in absolute dollars in 2004 as compared to 2003 was primarily
attributable to an increase in marketing program costs, primarily television and online advertising, to attract new
subscribers. In addition, personnel-related costs increased in order to support the higher volume of marketing
activities. As a percentage of revenues, the increase in marketing expenses was primarily due to a greater
increase in marketing expenses than revenues. Subscriber acquisition cost increased in 2004 compared to 2003 as
a result of an increase in marketing program spending, primarily the introduction of television advertising as an
acquisition channel and increases in online advertising rates.
The competitive landscape, including the continued offering by Blockbuster of its online service, the
potential entry of others into the online subscription rental business, could adversely impact our marketing
expenditures as we seek to maintain and increase our market leadership. We anticipate that our marketing
expense will increase in absolute dollars in 2006 as we grow our business.
33