NetFlix 2008 Annual Report Download - page 15

by Blockbuster. To the extent this content is to be distributed exclusively to Blockbuster and not to retail vendors or
distributors, we could be prevented from obtaining such content. To the extent the content is also sold to retail
vendors or distributors, we would not be prohibited from obtaining and renting such content pursuant to the First
Sale Doctrine. Nonetheless, it does impact our ability to obtain such content in the most efficient manner and, in
some cases, in sufficient quantity to satisfy demand. If such arrangements were to become more commonplace or if
additional impediments to obtaining content were created (such as an exclusive rental window), our ability to obtain
content could be impacted and our business could be adversely affected.
If studios were to offer new releases of entertainment video to other distribution channels prior to, or on
parity with, the release on DVD, our business could be adversely affected.
Except for theatrical release, DVDs currently enjoy a competitive advantage over other distribution
channels, such as pay-per-view and VOD, because of the early distribution window on the DVD format. The
window for new releases on DVD is generally exclusive against other forms of non-theatrical movie distribution,
such as pay-per-view, Internet-delivery, premium television, basic cable and network and syndicated television.
The length of the exclusive window for movie rental and retail sales varies and the order, length and exclusivity
of each window for each distribution channel are determined solely by the studio releasing the title. Over the past
several years, the major studios have shortened the release windows and several studios have released movies
simultaneously on DVD and VOD. If other distribution channels were to receive priority over, or parity with,
DVD and such practices are widely adopted, our subscribers might find these other distribution channels of more
value than our service and our business could be adversely affected.
We depend on studios and distributors to license us content that we can stream instantly over the Internet.
Streaming content over the Internet involves the licensing of rights which are separate from and independent
of the rights we acquire when obtaining DVD content. Our ability to provide our subscribers with content they
can watch instantly therefore depends on studios and distributors licensing us content specifically for Internet
delivery. The license periods and the terms and conditions of such licenses vary. If the studios and distributors
change their terms and conditions or are no longer willing or able to provide us licenses, our ability to stream
content to our subscribers will be adversely affected. Unlike DVD, streaming content is not subject to the First
Sale Doctrine. As such, we are completely dependent on the studio or distributor providing us licenses in order to
access and stream content. Many of the licenses provide for the studios or distributor to withdraw content from
our service relatively quickly. Because of these provisions as well as other actions we may take, content available
through our service can be withdrawn on short notice. For example, in December 2008, certain content associated
with our license from the Starz Play service was withdrawn on short notice. In addition, the studios have great
flexibility in licensing content. They may elect to license content exclusively to a particular provider or otherwise
limit the types of services that can deliver streaming content. For example, HBO licenses content from studios
like Warner Bros. and the license provides HBO with the exclusive right to such content against other
subscription services, including Netflix. As such, Netflix cannot license certain Warner Bros. content for delivery
to its subscribers while Warner Bros. may nonetheless license the same content to transactional VOD providers.
This ability to carve-up and maintain ongoing control over distribution rights, including the ability to withdraw
content, is unique to streaming content. If we are unable to secure and maintain rights to streaming content or if
we cannot otherwise obtain such content upon terms that are acceptable to us, our ability to stream movies and
TV episodes to our subscribers will be adversely impacted, and our subscriber acquisition and retention could
also be adversely impacted. During the course of our license relationship, various contract administration issues
can arise. To the extent that we are unable to resolve any of these issues in an amicable manner, our relationship
with the studios and distributors or our access to content may be adversely impacted.
We intend to engage a number of partners to offer instant streaming of content from Netflix to various
devices.
We currently offer subscribers the ability to receive streaming content through their PCs, Macs and other
devices, including the Xbox 360, Internet connected Blu-ray players from LG Electronics and Samsung, TiVo
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