NetFlix 2010 Annual Report Download - page 4

relationships with multiple entertainment video providers and can easily shift spending from one provider to
another. Our principal competitors include:
• Multichannel video programming distributors (MVPDs) with free TV Everywhere and VOD
(video-on-demand) content including cable providers, such as Time Warner and Comcast; direct
broadcast satellite providers, such as DIRECTV and Echostar; and telecommunication providers such as
AT&T and Verizon;
• Internet movie and TV content providers, such as Apple’s iTunes, Amazon.com, Hulu.com and Google’s
YouTube;
• DVD rental outlets and kiosk services, such as Blockbuster and Redbox;
• Entertainment video retailers, such as Best Buy, Wal-Mart and Amazon.com.
Operations
We obtain content from various studios and other content providers through fixed-fee licenses, revenue
sharing agreements and direct purchases. We market our service through various channels, including online
advertising, broad-based media, such as television and radio, as well as various strategic partnerships. In
connection with marketing the service, we offer free-trial memberships to new and certain rejoining members.
Rejoining members are an important source of subscriber additions. We utilize the services of third-party cloud
computing providers, more specifically, Amazon Web Services, as well as content delivery networks such as
Level 3 Communications, to help us efficiently stream TV shows and movies. We also ship and receive DVDs in
the United States from a nationwide network of shipping centers.
Segments
We derive revenues from monthly subscription fees in our two segments, United States and International. In
September 2010, we began international operations by offering an unlimited streaming plan without DVDs in
Canada. We anticipate further international expansion to additional markets in the second half of 2011. We
currently generate substantially all our revenues in the United States and hold all our long lived assets in the
United States.
Seasonality
Our subscriber growth exhibits a seasonal pattern that reflects variations in when consumers buy Internet-
connected devices and when they tend to increase video watching. As a consequence, subscriber growth is
generally greatest in our fourth and first quarters (October through March), slowing in our second quarter (April
through June) and then accelerating in our third quarter (July through September). Additionally, the variable
expenses associated with shipments of DVDs are impacted by the seasonal nature of the DVD release of movies.
Intellectual Property
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets,
proprietary technologies and similar intellectual property as important to our success. We use a combination of
patent, trademark, copyright and trade secret laws and confidential agreements to protect our proprietary
intellectual property. Our ability to protect and enforce our intellectual property rights is subject to certain risks
and from time to time we encounter disputes over rights and obligations concerning intellectual property. We
cannot provide assurance that we will prevail in any intellectual property disputes.
Employees
As of December 31, 2010, we had 2,180 full-time employees. We also utilize part-time and temporary
employees, primarily in our DVD fulfillment operations, to respond to the fluctuating demand for DVD
shipments. As of December 31, 2010, we had 2,149 part-time and temporary employees. Our employees are not
covered by a collective bargaining agreement, and we consider our relations with our employees to be good.
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