NetFlix 2010 Annual Report Download - page 8

and permission-based e-mails, as well as our active affiliate program. We also engage our consumer electronics
partners to generate new subscribers for our service. In addition, we have engaged in various offline marketing
programs, including TV and radio advertising, direct mail and print campaigns, consumer package and mailing
insertions. We also acquire a number of subscribers who rejoin our service having previously cancelled their
membership. We maintain an active public relations program to increase awareness of our service and drive
subscriber acquisition. We opportunistically adjust our mix of marketing programs to acquire new subscribers at
a reasonable cost with the intention of achieving overall financial goals. If we are unable to maintain or replace
our sources of subscribers with similarly effective sources, or if the cost of our existing sources increases, our
subscriber levels and marketing expenses may be adversely affected.
If we are unable to continue using our current marketing channels, our ability to attract new subscribers
may be adversely affected.
We may not be able to continue to support the marketing of our service by current means if such activities
are no longer available to us, become cost prohibitive or are adverse to our business. If companies that currently
promote our service decide that we are negatively impacting their business, that they want to compete more
directly with our business or enter a similar business or decide to exclusively support our competitors, we may no
longer be given access to such marketing channels. In addition, if ad rates increase, we may curtail marketing
expenses or otherwise experience an increase in our cost per subscriber. Laws and regulations impose restrictions
on the use of certain channels, including commercial e-mail and direct mail. We may limit or discontinue use or
support of e-mail and other activities if we become concerned that subscribers or potential subscribers deem such
activities intrusive, which could affect our goodwill or brand. If the available marketing channels are curtailed,
our ability to attract new subscribers may be adversely affected.
The increasingly long-term and fixed-cost nature of our content acquisition licenses may adversely affect
our financial condition and future financial results.
In connection with obtaining content, particularly for streaming content, we typically enter into multi-year,
fixed-fee licenses with studios and other distributors. As of December 31, 2010, we had over $1.2 billion in such
contractual commitments covering payments due over the next several years. Furthermore, we plan on increasing
the level of committed content licensing in anticipation of our service and subscriber base continuing to grow. To
the extent subscriber and/or revenue growth do not meet our expectations, our liquidity and results of operations
could be adversely affected as a result of these content licensing commitments and our flexibility in planning for,
or reacting to changes in our business and the market segments in which we operate could be limited.
If we become subject to liability for content that we distribute through our service, our results of
operations would be adversely affected.
As a distributor of content, we face potential liability for negligence, copyright, patent or trademark
infringement or other claims based on the nature and content of materials that we distribute. We also may face
potential liability for content uploaded from our users in connection with our community-related content or
movie reviews. If we become liable, then our business may suffer. Litigation to defend these claims could be
costly and the expenses and damages arising from any liability could harm our results of operations. We cannot
assure that we are insured or indemnified to cover claims of these types or liability that may be imposed on us.
If studios and other content distributors refuse to license streaming content to us upon acceptable terms,
our business could be adversely affected.
Streaming content over the Internet involves the licensing of rights which are separate from and independent
of the rights we acquire when obtaining DVD content. Our ability to provide our subscribers with content they
can watch instantly therefore depends on studios and other content distributors licensing us content specifically
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