NetFlix 2010 Annual Report Download - page 25

additional markets in the second half of 2011 and will manage our business going forward with two distinct
operating segments: United States and International. In 2011 operating margins for the United States are
expected to increase, while international operating margins are expected to be negative as we invest in our
international operations.
Results of Operations
The following table sets forth, for the periods presented, the line items in our consolidated statements of
operations as a percentage of total revenues. The information contained in the table below should be read in
conjunction with the financial statements and notes thereto included in Item 8, Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.
Year Ended December 31,
2010 2009 2008
Revenues ............................................................. 100.0% 100.0% 100.0%
Cost of revenues:
Subscription ....................................................... 53.4 54.4 55.8
Fulfillment expenses ................................................ 9.4 10.2 10.9
Total cost of revenues ........................................... 62.8 64.6 66.7
Gross margin .......................................................... 37.2 35.4 33.3
Operating expenses:
Technology and development ......................................... 7.6 6.9 6.6
Marketing ......................................................... 13.6 14.2 14.6
General and administrative ........................................... 3.3 3.1 3.6
Gain on disposal of DVDs ............................................ (0.4) (0.3) (0.4)
Total operating expenses ......................................... 24.1 23.9 24.4
Operating income ....................................................... 13.1 11.5 8.9
Other income (expense):
Interest expense .................................................... (0.9) (0.4) (0.2)
Interest and other income ............................................. 0.2 0.4 0.9
Income before income taxes .............................................. 12.4 11.5 9.6
Provision for income taxes ................................................ 5.0 4.6 3.5
Net income ............................................................ 7.4% 6.9% 6.1%
Revenues
We derive substantially all of our revenues from monthly subscription fees and recognize subscription
revenues ratably over each subscriber’s monthly subscription period. We record refunds to subscribers as a
reduction of revenues. We currently generate substantially all of our revenues in the United States. In 2010, we
began international operations by offering an unlimited streaming plan without DVDs in Canada. We anticipate
further international expansion in the second half of 2011.
We offer subscription plans in the United States and Canada that allow our subscribers to instantly watch
unlimited TV shows and movies streamed over the Internet to their TVs, computers and mobile devices. In the
United States, we offer a variety of subscription plans that in addition to streaming, offer subscribers DVDs by
mail. The price per plan varies based on the number of DVDs that a subscriber has out at any given point. As of
December 31, 2010, approximately 85% of our subscriber base has chosen either the unlimited streaming plan
without DVDs at $7.99 per month or a 1 or 2 DVD-out unlimited plan, which are priced at $9.99 and $14.99 per
month, respectively. Customers electing access to high definition Blu-ray discs in addition to standard definition
DVDs pay a surcharge ranging from $1 to $4 for our most popular plans.
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