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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 growth in our streaming subscriptions and the decline in
our DVD subscriptions; the market opportunity for streaming content; our advantage of focus within the
subscription segment of the entertainment video market; contribution margin; liquidity; revenues; net income;
impacts relating to our pricing strategy; our content library investments; significance of future contractual
obligations; and international expansion. 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
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, our subscribers
can 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 domestically and globally. We are
continuously improving the customer experience, with a focus on expanding our streaming content, enhancing
our user interface and extending our streaming service to even more Internet-connected devices, while staying
within the parameters of our consolidated net income and operating segment contribution profit targets. In the
past, we have focused on operating margin targets. Going forward, we will be operating within the parameters of
contribution profit targets for each of our operating segments. Contribution profit is defined as revenue less cost
of revenues and marketing expenses.
We are a pioneer in the Internet delivery of TV shows and movies, launching our streaming service in 2007.
Since this launch, we have developed an ecosystem of Internet-connected devices and have licensed increasing
amounts of content that enable consumers to enjoy TV shows and movies directly on their TVs, computers and
mobile devices. As a result of these efforts, we have experienced growing consumer acceptance of and interest in
the delivery of TV shows and movies directly over the Internet. We believe that the DVD portion of our domestic
service will be a fading differentiator to our streaming success.
Prior to July 2011, in the United States, our streaming and DVD-by-mail operations were combined and
subscribers could receive both streaming content and DVDs under a single “hybrid” plan. In July 2011, we
introduced DVD only plans and separated the combined plans, making it necessary for subscribers who wish to
receive both DVDs-by-mail and streaming content to have two separate subscription plans. This resulted in a
price increase for our members who were taking a combination of our unlimited DVDs-by-mail and unlimited
streaming services. We made a subsequent announcement during the third quarter of 2011 concerning the
rebranding of our DVD-by-mail service and the separation of the DVD-by-mail and streaming websites. The
consumer reaction to the price change, and to a lesser degree, the branding announcement, was very negative,
leading to significant customer cancellations. We subsequently retracted our plans to rebrand our DVD-by-mail
service and separate the DVD-by-mail and streaming websites.
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