NetFlix 2010 Annual Report Download - page 7

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Changes in consumer viewing habits, including more widespread usage of TV Everywhere, VOD or other
similar on demand methods of entertainment video consumption could adversely affect our business.
The manner in which consumers view entertainment video is changing rapidly. Digital cable, wireless and
Internet content providers are continuing to improve technologies, content offerings, user interface, and business
models that allow consumers to access entertainment video on demand with interactive capabilities including
start, stop and rewind. The devices through which entertainment video can be consumed are also changing
rapidly. Today, content from cable service providers may be viewed on laptops and content from Internet content
providers may be viewed on televisions. Although we provide our own Internet-based delivery of content
allowing our subscribers to stream certain TV shows and movies to their Internet-connected televisions and other
devices, if other providers of entertainment video address the changes in consumer viewing habits in a manner
that is better able to meet content distributor and consumer needs and expectations, our business could be
adversely affected.
If we are not able to manage our growth, our business could be adversely affected.
We have expanded rapidly since we launched our Web site in April 1998. We are currently engaged in an
effort to expand our operations internationally, grow our streaming service with new content and across more
devices, as well as continue to operate our DVD service within the United States. Many of our systems and
operational practices were implemented when we were at a smaller scale of operations and solely focused on
domestic DVD operations. As we undertake all these changes, if we are not able to manage the growing
complexity of our business, including improving, refining or revising our legacy systems and operational
practices, our business may be adversely affected.
If the market segment for consumer paid commercial free Internet streaming of TV shows and movies
saturates, our business will be adversely affected.
The market segment for consumer paid commercial free Internet streaming of TV shows and movies has
grown significantly. Much of the increasing growth can be attributed to the ability of our subscribers to stream
TV shows and movies on their TVs, computers and mobile devices. A decline in our rate of growth could
indicate that the market segment for online subscription-based entertainment video is beginning to saturate.
While we believe that this segment will continue to grow for the foreseeable future, if this market segment were
to saturate, our business would 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. We believe that strong brand identity will be
important in attracting subscribers who may have a number of choices from which to obtain entertainment video.
If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract
subscribers may be adversely affected. From time to time, our subscribers express dissatisfaction with our
service, including among other things, our title availability, inventory allocation, delivery processing and service
interruptions. Furthermore, third-party devices that enable instant streaming of TV shows and movies 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 and our ability to attract and retain subscribers may
be adversely affected. With respect to our planned international expansion, we will also need to establish our
brand and to the extent we are not successful, our business in new markets would be adversely impacted.
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
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