NetFlix 2009 Annual Report Download - page 17

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.
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 rely upon 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 Internet-connected Blu-ray players and TVs, digital video players and game consoles. We
intend to broaden our capability to instantly stream movies and TV episodes to other platforms and partners over
time. If we are not successful in maintaining existing and creating new relationships, or if we encounter
technological, content licensing or other impediments to our streaming content, our ability to grow our business
could be adversely impacted. Our agreements with our consumer electronics partners are typically between one
and three years in duration and our business could be adversely affected if, upon expiration, our partners do not
continue to provide access to our service or are unwilling to do so on terms acceptable to us. Furthermore,
devices are manufactured and sold by entities other than Netflix and while these entities should be responsible
for the devices’ performance, the connection between these devices and Netflix may nonetheless result in
consumer dissatisfaction toward Netflix and such dissatisfaction could result in claims against us or otherwise
adversely impact our business. In addition, technology changes to our streaming functionality may require that
partners update their devices. If partners do not update or otherwise modify their devices, our service and our
subscribers use and enjoyment could be negatively impacted.
If we experience increased demand for titles which we are unable to offset with increased subscriber
retention or operating margins, our operating results may be adversely affected.
With our unlimited plans, there is no established limit to the number of movies and TV episodes that
subscribers may rent on DVD or watch instantly. We are continually adjusting our service in ways that may
impact subscriber content usage. Such adjustments include new Web site features and merchandising practices,
improvements in the technology that enable subscribers to instantly watch movies and TV episodes, an expanded
DVD distribution network and software and process changes. In addition, demand for titles may increase for a
variety of reasons beyond our control, including promotion by studios and seasonal variations or shifts in
consumer content watching.
If our subscriber retention does not increase or our operating margins do not improve to an extent necessary
to offset the effect of any increased operating costs associated with increased usage, our operating results will be
adversely affected. In addition, our subscriber growth and retention may be adversely affected if we attempt to
alter our service or increase our monthly subscription fees to offset any increased costs of acquiring or delivering
titles.
If our subscribers select titles or formats that are more expensive for us to obtain and deliver more
frequently, our expenses may increase.
Certain titles cost us more to purchase or result in greater revenue sharing expenses, depending on the
source from which they are obtained and the terms on which they are obtained. If subscribers select these titles
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