NetFlix 2011 Annual Report Download - page 4

In September 2010, we began international operations by offering our streaming service in Canada. In
September 2011, we expanded our streaming service to Latin America and the Caribbean. In January 2012, we
launched our streaming service in the UK and Ireland. We anticipate significant contribution losses in the
International streaming segment in 2012. Until we reach our goal of global profitability, we do not intend to
launch additional international markets.
Competition
The market for entertainment video is intensely competitive and subject to rapid change. New competitors
may be able to launch new businesses at relatively low cost. Many consumers maintain simultaneous
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 applications such as
HBO GO or Showtime Anytime in the US and SkyGo or BBC iPlayer in the UK 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;
• “Over-the-top” Internet movie and TV content providers, such as Apple’s iTunes, Amazon.com’s Prime
Video, Hulu.com and Hulu Plus, LOVEFiLM 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 streaming content license
agreements, DVD direct purchases and DVD revenue sharing agreements. 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
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
Beginning with the fourth quarter of 2011, the Company has three operating segments: Domestic streaming,
International streaming and Domestic DVD. The Domestic and International streaming segments derive revenue
from monthly subscription services consisting solely of streaming content. The Domestic DVD segment derives
revenue from monthly subscription services consisting solely of DVD-by-mail. For additional information
regarding our segments, see Note 10 of Item 8, Financial Statements and Supplementary Data.
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 DVD usage.
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
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