NetFlix 2011 Annual Report Download - page 13

Download and view the complete annual report

Please find page 13 of the 2011 NetFlix annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 82

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82

If we are unable to effectively utilize our recommendation and merchandising technology or develop user
interfaces that maintain or increase subscriber engagement with our service, our business may suffer.
Our proprietary recommendation and merchandising technology enables us to predict and recommend titles
and effectively merchandise our library to our subscribers. We also develop, test and implement various user
interfaces across multiple devices, in an effort to maintain and increase subscriber engagement with our service.
We are continually refining our recommendation and merchandising technology as well as our various user
interfaces in an effort to improve the predictive accuracy of our TV show and movie recommendations and the
usefulness of and engagement with our service by our subscribers. We may experience difficulties in
implementing refinements. In addition, we cannot assure that we will be able to continue to make and implement
meaningful refinements to our recommendation technology.
If our recommendation and merchandising technology does not enable us to predict and recommend titles
that our subscribers will enjoy or if we are unable to implement meaningful improvements thereto or otherwise
improve our user interfaces, our service may be less useful to our subscribers. Such failures could lead to the
following:
• our subscriber satisfaction may decrease, subscribers may perceive our service to be of lower value and
our ability to attract and retain subscribers may be adversely affected;
• our ability to effectively merchandise and utilize our library will be adversely affected; and
• our subscribers may default to choosing titles from among new releases or other titles that cost us more
to provide, and our margins may be adversely affected.
We rely heavily on our proprietary technology to stream TV shows and movies and to manage other
aspects of our operations, including processing delivery and return of our DVDs to our subscribers, and
the failure of this technology to operate effectively could adversely affect our business.
We continually enhance or modify the technology used for our operations. We cannot be sure that any
enhancements or other modifications we make to our operations will achieve the intended results or otherwise be
of value to our subscribers. Future enhancements and modifications to our technology could consume
considerable resources. If we are unable to maintain and enhance our technology to manage the streaming of TV
shows and movies to our subscribers in a timely and efficient manner and/or the processing of DVDs among our
shipping centers, our ability to retain existing subscribers and to add new subscribers may be impaired. In
addition, if our technology or that of third-parties we utilize in our operations fails or otherwise operates
improperly, our ability to retain existing subscribers and to add new subscribers may be impaired. Also, any harm
to our subscribers’ personal computers or other devices caused by software used in our operations could have an
adverse effect on our business, results of operations and financial condition.
If we experience delivery problems or if our subscribers or potential subscribers lose confidence in the
U.S. mail system, we could lose subscribers, which could adversely affect our operating results.
We rely exclusively on the U.S. Postal Service to deliver DVDs from our shipping centers and to return
DVDs to us from our subscribers. We are subject to risks associated with using the public mail system to meet
our shipping needs, including delays or disruptions caused by inclement weather, natural disasters, labor
activism, health epidemics or bioterrorism. Our DVDs are also subject to risks of breakage and theft during our
processing of shipments as well as during delivery and handling by the U.S. Postal Service. The risk of breakage
is also impacted by the materials and methods used to replicate our DVDs. If the entities replicating our DVDs
use materials and methods more likely to break during delivery and handling or we fail to timely deliver DVDs
to our subscribers, our subscribers could become dissatisfied and cancel our service, which could adversely affect
our operating results. In addition, increased breakage and theft rates for our DVDs will increase our cost of
acquiring titles.
11