NetFlix 2010 Annual Report Download - page 3

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; the growth of Internet delivery of content; the market opportunity for streaming content; our advantage
of focus within the subscription segment of the entertainment video market; gross margin; liquidity; revenue per
average paying subscriber; impacts relating to our pricing strategy; our content library investments;
significance of future contractual obligations; international expansion; and, our stock-based compensation
expense for 2011. 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
About us
With 20 million subscribers as of December 31, 2010, Netflix Inc. (“Netflix”, “the Company”, “we”, or
“us”) is the world’s leading Internet subscription service for enjoying TV shows and movies. Our subscribers can
instantly watch unlimited TV shows and movies streamed over the Internet to their TVs, computers and mobile
devices and, in the United States, subscribers can also receive standard definition DVDs, and their high definition
successor, Blu-ray discs (collectively referred to as “DVD”), delivered quickly to their homes.
Our core strategy is to grow our streaming subscription business within the United States and globally. We
are continuously improving the customer experience, with a focus on expanding our streaming content,
enhancing our user interfaces and extending our streaming service to even more Internet-connected devices,
while staying within the parameters of our operating margin targets.
By continuously improving the customer experience, we believe we drive additional subscriber growth in
the following ways:
• Additional subscriber growth enables us to obtain more content, which in turn drives more subscriber
growth.
• Additional subscriber growth leads to greater word-of-mouth promotion of our service, which in turn
leads to more subscriber growth at an increasingly cost-effective marketing spend.
• Additional subscriber growth enables us to invest in further improvements to our service offering, which
in turn leads to more subscriber growth.
Our business has and continues to evolve rapidly. In 2010, we passed a significant milestone with the
majority of our subscribers viewing more of their TV shows and movies via streaming than by DVD. Going
forward, we expect we will be primarily a global streaming business, with the added feature of DVDs-by-mail in
the U.S. We believe delivery of entertainment video over the Internet will be a very large global market
opportunity, and that our focus on one segment of that market—consumer-paid, commercial-free streaming
subscription of TV shows and movies—will enable us to continue to grow rapidly and profitably.
Competition
The market for entertainment video is intensely competitive and subject to rapid change. New competitors
may be able to launch new businesses at relatively low cost. Many consumers maintain simultaneous
1