NetFlix 2011 Annual Report Download - page 7

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If we are unable to continue to recover from the negative consumer reaction to our price change and other
announcements made during the third quarter of 2011, our business will be adversely affected.
In the third quarter of 2011, we made a series of announcements regarding our business, including the
separation of our unlimited DVD-by-mail and unlimited streaming plans with a corresponding price change for
some of our customers, the rebranding of our DVD-by-mail service, and the subsequent retraction of our plans to
rebrand our DVD-by-mail service. Consumers reacted negatively to these announcements, adversely impacting
our brand and resulting in higher than expected customer cancellations. These adverse effects, coupled with the
increasingly long-term and fixed-cost nature of our content acquisition licenses, will likely continue to have an
adverse impact on our results of operations. While we have seen a return to growth in our core domestic
streaming segment, we believe the process of repairing our brand will take time. If we are unable to continue to
repair the damage to our brand, our results of operations, including cash flow, will be adversely affected.
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 TVs. 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 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 we are undertaking efforts to migrate the vast majority of our systems (other than DVD-related) to
cloud-based processors. 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 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.
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