NetFlix 2009 Annual Report Download - page 16

market and, in connection therewith, would prohibit certain of their wholesalers from selling to various rental
outlets, such as us and Redbox. In fact, Universal Studios and Twentieth Century Fox are engaged in litigation
brought by Redbox over this practice. Furthermore, certain content owners, from time to time, have established
exclusive rental windows with particular outlets. This happened in late 2006 and again in late 2007 when
Blockbuster announced arrangements with certain content owners pursuant to which Blockbuster would receive
content on DVDs for rental exclusively by Blockbuster. To the extent content is to be distributed exclusively 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, to the extent content owners do not distribute to us directly or
through their wholesalers or otherwise establish exclusive rental windows, it will 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, our ability to obtain content could be impacted and our business could be adversely affected.
Delayed availability of new release DVDs for rental could adversely affect our business.
We recently entered into a licensing agreement with Warner Bros. whereby we agreed not to rent new
release Warner Bros. DVDs until twenty-eight days after such DVDs are first made available for retail sale. We
believe that this agreement, and perhaps others like it, will provide us with less expensive content as well as
deeper copy depth, thus improving both our business and consumer experience. Nonetheless, it is possible that
the delay in obtaining new release content both from Warner Bros. and any other suppliers that may adopt similar
licensing strategies could impact consumer perception of our service or otherwise negatively impact subscriber
satisfaction. If this were to happen, our business could be adversely impacted.
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 TV, basic cable and network and syndicated TV. 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
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