NetFlix 2006 Annual Report Download - page 21

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 and marketing expenses may be
adversely affected.
If we are unable to continue using our current marketing channels, our ability to attract new subscribers
may be adversely affected.
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 experience an increase in 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 adversely affected.
If we are not able to manage our growth, our business could be adversely affected.
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 adversely affected. In addition, if we do not have sufficient breadth and depth of DVD and
online titles necessary to satisfy increased demand arising from growth in our subscriber base, our subscriber
satisfaction may be adversely affected.
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. We cannot be sure that any enhancements or other modifications we make to our
distribution operations will achieve the intended results or otherwise be of value to our subscribers. Future
enhancements and modifications to our proprietary technology could consume considerable resources. 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. In addition, through our new instant-viewing feature, our subscribers will access titles on our Web site
through our proprietary movie player software and must maintain their connection to our Web site for an
uninterrupted viewing experience. If this proprietary software fails to satisfactorily display the available titles,
our ability to retain existing subscribers and to add new subscribers may be impaired. Also, any harm to our
subscribers’ personal computers caused by the proprietary software could have an adverse effect on our business,
results of operations and financial condition.
If we experience delivery problems or if our subscribers or potential subscribers lose confidence in the
U.S. mail system, we could lose subscribers, which could adversely affect our operating results.
We rely exclusively on the U.S. Postal Service to deliver DVDs from our shipping centers and to return
DVDs to us from our subscribers. We are subject to risks associated with using the public mail system to meet
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