NetFlix 2007 Annual Report Download - page 42

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cost of our investment in lower prices by reducing our spending on marketing programs. Subscriber acquisition
cost decreased in 2007 as compared to 2006 primarily due to a mix of lower prices and more efficient marketing
spending.
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. 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.
We anticipate that our marketing expense will decrease in absolute dollars in 2008 due to more efficient use
of our marketing dollars.
General and Administrative
Year Ended December 31,
2007 2006 2005
(in thousands, except percentages)
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,532 $36,155 $35,486
As a percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4% 3.6% 5.2%
Percentage change over prior period . . . . . . . . . . . . . . . . . . . . . . . . . 45.3% 1.9%
The increase in general and administrative expenses in absolute dollars in 2007 as compared to 2006 was
primarily attributable to an increase in personnel-related costs due to growth in headcount. The increase was also
attributable to higher costs related to legal proceedings.
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.
We expect that our general and administrative expenses will continue to increase in absolute dollars in 2008
in order to support our growing operations.
Gain on Disposal of DVDs
Year Ended December 31,
2007 2006 2005
(in thousands, except percentages)
Gain on disposal of DVDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,196) $(4,797) $(1,987)
As a percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.6)% (0.5)% (0.3)%
Percentage change over prior period . . . . . . . . . . . . . . . . . . . . . . . . . . 50.0% 141.4%
The increase in gain on disposal of DVDs in absolute dollars in 2007 and 2006 as compared to 2006 and
2005, respectively, was primarily attributable to an increase in the volume of DVDs sold, offset in part by an
increase in the cost of DVD sales.
Gain on Legal Settlement
On June 25, 2007, we resolved a pending patent litigation with Blockbuster, Inc. As part of the settlement,
we received a one-time payment of $7.0 million during the second quarter of 2007.
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