NetFlix 2009 Annual Report Download - page 7

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PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal
securities laws. These forward-looking statements include, but are not limited to, statements regarding: our core
strategy; expected competition and our competitive advantage; the growth of Internet delivery of content; the
continued popularity of the DVD format; the growth of streaming content choices available through our service;
the expansion of electronic equipment that will enable streamed content; gross margin; liquidity; revenue per
average paying subscriber; impacts relating to our pricing strategy; our content library investments;
international expansion; and, our stock-based compensation expense for 2010. These forward-looking statements
are subject to risks and uncertainties that could cause actual results and events to differ. A detailed discussion of
these and other risks and uncertainties that could cause actual results and events to differ materially from such
forward-looking statements is included throughout this filing and particularly in Item 1A: “Risk Factors” section
set forth in this Annual Report on Form 10-K. All forward-looking statements included in this document are
based on information available to us on the date hereof, and we assume no obligation to revise or publicly
release any revision to any such forward-looking statement, except as may otherwise be required by law.
Item 1. Business
With more than 12 million subscribers, we are the world’s largest subscription service streaming movies and
TV episodes over the Internet and sending DVDs by mail. Our subscribers can instantly watch unlimited movies
and TV episodes streamed to their TVs and computers and can receive DVDs delivered quickly to their homes.
We offer a variety of subscription plans, with no due dates, no late fees, no shipping fees and no pay-per-view
fees. Aided by our proprietary recommendation and merchandising technology, subscribers can select from a
growing library of titles that can be watched instantly and a vast array of titles on DVD. On average,
approximately 2 million discs are shipped daily from our distribution centers across the United States.
Additionally, more than 48% of our subscribers instantly watched more than 15 minutes of streaming content in
the fourth quarter of 2009.
Subscribers can:
• Watch streaming content without commercial interruption on their computers and TVs. The viewing
experience is enabled by Netflix controlled software that can run on a variety of consumer electronics
devices (“Netflix Ready Devices”). These Netflix Ready Devices currently include Blu-ray disc players,
Internet-connected TVs, digital video players and game consoles.
• Receive DVDs by U.S. mail and return them to us at their convenience using our prepaid mailers. After a
DVD has been returned, we mail the next available DVD in a subscriber’s queue.
Our core strategy is to grow a large subscription business consisting of streaming and DVD-by-mail content.
By combining streaming and DVD as part of the Netflix subscription, we are able to offer subscribers a uniquely
compelling selection of movies for one low monthly price. We believe this creates a competitive advantage as
compared to a streaming only subscription service. This advantage will diminish over time as more content
becomes available over the Internet from competing services, by which time we expect to have further developed
our other advantages such as brand, distribution, and our proprietary merchandising platform. Despite the
growing popularity of Internet delivered content, we expect that the standard definition DVD, along with its high
definition successor, Blu-ray (collectively referred to as “DVD”), will continue to be the primary means by
which a majority of Netflix subscribers view content for the foreseeable future. However, at some point in the
future, we expect that Internet delivery of content to the home will surpass DVD as the primary means by which
most Netflix subscribers view content.
We promote our service to consumers through various marketing programs, including online promotions,
TV and radio advertising, package inserts, direct mail and other promotions with third parties. We also engage
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