NetFlix 2007 Annual Report Download - page 25

If we become subject to liability for content that we publish or distribute through our service, our results
of operations would be adversely affected.
As a publisher of content, a host of third party content and a distributor of content, we face potential liability
for negligence, copyright, patent or trademark infringement or other claims based on the nature and content of
materials that we publish or distribute. For example, our wholly-owned subsidiary, Red Envelope Entertainment,
LLC, or REE, LLC, which is dedicated to acquiring and funding original content productions, may be exposed to
liability for copyright infringement and other claims relating to the original content. We also may face potential
liability for content uploaded from our users in connection with our community-related content or movie reviews.
If we become liable, then our business may suffer. Litigation to defend these claims could be costly and the
expenses and damages arising from any liability could harm our results of operations. We cannot assure that we
are adequately insured to cover claims of these types or to indemnify us for all liability that may be imposed on
us.
If government regulation of the Internet or other areas of our business changes or if consumer attitudes
toward use of the Internet change, we may need to change the manner in which we conduct our business,
or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the Internet or other areas of our business
could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the
growth and development of the market for online commerce may lead to more stringent consumer protection
laws, which may impose additional burdens on us. If we are required to comply with new regulations or
legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
The manner in which Internet and other legislation may be interpreted and enforced cannot be precisely
determined and may subject either us or our customers to potential liability, which in turn could have an adverse
effect on our business, results of operations and financial condition. The adoption of any laws or regulations that
adversely affect the popularity or growth in use of the Internet, including laws limiting Internet neutrality, could
decrease the demand for our subscription service and increase our cost of doing business. In addition, if
consumer attitudes toward use of the Internet change, consumers may become unwilling to select their
entertainment online or otherwise provide us with information necessary for them to become subscribers.
Further, we may not be able to effectively market our services online to users of the Internet. If we are unable to
interact with consumers because of changes in their attitude toward use of the Internet, our subscriber acquisition
and retention may be adversely affected.
We are engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a
significant amount of our management’s time and attention.
From time to time, we are subject to litigation or claims that could negatively affect our business operations
and financial position. As we have grown, we have seen a rise in the number of litigation matters against us.
Most of these matters relate to patent infringement lawsuits, which are typically expensive to defend. Litigation
disputes could cause us to incur unforeseen expenses, could occupy a significant amount of our management’s
time and attention and could negatively affect our business operations and financial position.
Changes in securities laws and regulations have increased and may continue to increase our costs.
Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-
Oxley Act of 2002 and recently enacted rules promulgated by the Securities and Exchange Commission, have
increased and may continue to increase our expenses as we devote resources to their requirements.
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