NetFlix 2009 Annual Report Download - page 12

whereby we make available Web-based banner ads and other advertisements that third parties may retrieve on a
self-assisted basis from our Web site and place on their Web sites. We also engage our consumer electronics
partners to generate new subscribers for our service. We also advertise our service on various regional and
national TV and radio stations. We use targeted, solo direct mail, shared mail and newspaper print advertising to
acquire new subscribers. We also participate in a variety of cooperative advertising programs with studios under
the terms of which we receive cash consideration in exchange for featuring the studios movies in Netflix
promotional advertising. We believe that our paid marketing efforts are significantly enhanced by the benefits of
word-of-mouth advertising, our subscriber referrals and our active public relations programs.
Content acquisition
We obtain content through direct purchases, revenue sharing agreements and license agreements. Under our
DVD and streaming revenue sharing agreements with studios and distributors, we generally obtain titles for a low
initial cost in exchange for a commitment for a defined period of time either to share a percentage of our
subscription revenues or to pay a fee based on content utilization. After the revenue sharing period expires for a
DVD, we generally have the option of returning the DVD to the studio, destroying the DVD or purchasing the
DVD. The principal structure of each agreement is similar in nature but the specific terms are generally unique to
each studio. We also purchase DVDs from various studios, distributors and other suppliers on a purchase order
basis. Under these arrangements, we typically pay a per disc fee for each of the DVDs we purchase. For titles that
are streamed to our subscribers, we generally license the content directly from studios and distributors for a
defined period of time. Following expiration of the license term, we remove the content from our service unless
we extend or renew the associated license agreement.
Fulfillment operations
We have allocated substantial resources to developing, maintaining and testing the technology that helps us
manage fulfillment and the integration of our web site, transaction processing systems, fulfillment operations,
inventory levels, content delivery networks and coordination of our shipping centers. We ship and receive DVDs
from a nationwide network of shipping centers located throughout the United States. We believe our shipping
centers allow us to improve the customer experience for subscribers by shortening the transit time for our DVDs
through the U.S. Postal Service. We also utilize third party content delivery networks to help us efficiently
stream movies and TV episodes in high volume to our subscribers over the Internet.
Customer service
We believe that our ability to establish and maintain long-term relationships with subscribers depends, in
part, on the strength of our customer support and service operations. As such, we work on maintaining and
improving the overall quality and level of customer service and support we provide to our subscribers. Our
customer service center is located in Hillsboro, Oregon, and primarily handles subscriber inquiries by telephone.
In addition, we continue to focus on eliminating the causes of customer support calls and providing certain self-
service features on our web site, such as the ability to report and correct most shipping problems. We continue to
explore new avenues to deliver efficient problem resolution and feedback channels.
Employees
As of December 31, 2009, we had 1,883 full-time employees. We also utilize part-time and temporary
employees, primarily in our fulfillment operations, to respond to the fluctuating demand for DVD shipments. As
of December 31, 2009, we had 2,197 part-time and temporary employees. Our employees are not covered by a
collective bargaining agreement, and we consider our relations with our employees to be good.
Intellectual property
We use a combination of patent, trademark, copyright and trade secret laws and confidentiality agreements
to protect our proprietary intellectual property. We have filed patents in the U.S. and abroad. While our patents
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