NetFlix 2006 Annual Report Download - page 44

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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 continue to develop and enhance solutions for the online delivery of content to our subscribers. As a result,
we expect our technology and development expenses to increase in absolute dollars in 2007.
Marketing
Year Ended December 31,
2004 2005 2006
(in thousands, except percentages and
subscriber acquisition cost)
Marketing ........................................... $100,534 $144,562 $225,524
As a percentage of revenues ......................... 20.1% 21.2% 22.6%
Percentage change over prior period ...................... 43.8% 56.0%
Other data:
Gross subscriber additions .............................. 2,716 3,729 5,250
Percentage change over prior period ...................... 37.3% 40.8%
Subscriber acquisition cost .............................. $ 37.02 $ 38.77 $ 42.96
Percentage change over prior period ...................... 4.7% 10.8%
The increase in marketing expenses in absolute dollars in 2006 as compared to 2005 was primarily
attributable to an increase in marketing program costs, which included direct mail, online advertising and
television advertising, to attract new subscribers. As a percentage of revenues, marketing expenses increased
primarily due to a greater increase in marketing expenses than revenues. Subscriber acquisition cost increased in
2006 as compared to 2005 primarily due to an increase in marketing program spending offset in part by a
decrease in cost of providing free trials associated with our lower priced plans coupled with a slight decline in
personnel-related costs.
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.
We anticipate that our marketing expense will increase in absolute dollars in 2007 as we grow our business.
General and Administrative
Year Ended December 31,
2004 2005 2006
(in thousands, except percentages)
General and administrative ................................ $22,104 $35,486 $36,155
As a percentage of revenues ............................ 4.4% 5.2% 3.6%
Percentage change over prior period ......................... 60.5% 1.9%
The increase in general and administrative expenses in absolute dollars in 2006 as compared to 2005 is
primarily attributable to an increase in costs related to ongoing legal proceedings, personnel costs and
professional fees to support our growing operations. As a percentage of revenues, the decrease in general and
administrative expenses was primarily due to a greater increase in revenues than general and administrative
expenses.
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