NetFlix 2009 Annual Report Download - page 18

more often on a proportional basis compared to all titles selected, our revenue sharing and other content
acquisition expenses could increase, and our gross margins could be adversely affected. In addition, films
released on Blu-ray and those released for streaming may be more expensive to obtain than in the standard
definition DVD format. The rate of customer acceptance and adoption of these new formats is uncertain. If
subscribers select these formats on a proportional basis more often than the existing standard definition DVD
format, our content acquisition expenses could increase, and our gross margins could be adversely affected.
If our efforts to build strong brand identity and improve subscriber satisfaction and loyalty are not
successful, we may not be able to attract or retain subscribers, and our operating results may be adversely
affected.
We must continue to build and maintain strong brand identity. To succeed, we must continue to attract and
retain a large number of subscribers who have relied on other rental outlets and persuade them to subscribe to our
service. In addition, we may have to compete for subscribers against other brands which have greater recognition
than ours. We believe that the importance of brand loyalty will only increase in light of competition, both for
online subscription services and other means of distributing titles, such as VOD. From time to time, our
subscribers express dissatisfaction with our service, including among other things, our inventory allocation,
delivery processing and service interruptions. Furthermore, third party devices that enable instant streaming of
movies and TV episodes from Netflix may not meet consumer expectations. To the extent dissatisfaction with
our service is widespread or not adequately addressed, our brand may be adversely impacted. If our efforts to
promote and maintain our brand are not successful, our operating results and our ability to attract and retain
subscribers may be adversely affected.
If we are unable to manage the mix of subscriber acquisition sources, our subscriber levels and marketing
expenses may be adversely affected.
We utilize a broad mix of marketing programs to promote our service to potential new subscribers. We
obtain new subscribers through our online marketing efforts, including paid search listings, banner ads, text links
and permission-based e-mails, as well as our active affiliate program. We also engage our consumer electronics
partners to generate new subscribers for our service. In addition, we have engaged in various offline marketing
programs, including TV and radio advertising, direct mail and print campaigns, consumer package and mailing
insertions. We also acquire a number of subscribers who rejoin our service having previously cancelled their
membership. We maintain an active public relations program to increase awareness of our service and drive
subscriber acquisition. We opportunistically adjust our mix of marketing programs to acquire new subscribers at
a reasonable cost with the intention of achieving overall financial goals. If we are unable to maintain or replace
our sources of subscribers with similarly effective sources, or if the cost of our existing sources increases, our
subscriber levels and marketing expenses may be adversely affected.
If we are unable to continue using our current marketing channels, our ability to attract new subscribers
may be adversely affected.
We may not be able to continue to support the marketing of our service by current means if such activities
are no longer available to us, become cost prohibitive or are adverse to our business. If companies that currently
promote our service decide to enter our business or a similar business or decide to exclusively support our
competitors, we may no longer be given access to such channels. In addition, if ad rates increase, we may curtail
marketing expenses or otherwise experience an increase in our cost per subscriber. Laws and regulations impose
restrictions on the use of certain channels, including commercial e-mail and direct mail. We may limit or
discontinue use or support of e-mail and other activities if we become concerned that subscribers or potential
subscribers deem such activities intrusive, which could affect our goodwill or brand. If the available marketing
channels are curtailed, our ability to attract new subscribers may be adversely affected.
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