NetFlix 2011 Annual Report Download - page 8

If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract
subscribers may be adversely affected. From time to time, our subscribers express dissatisfaction with our
service, including among other things, our title availability, inventory allocation, delivery processing and service
interruptions. Furthermore, third-party devices that enable instant streaming of TV shows and movies from
Netflix may not meet consumer expectations. To the extent dissatisfaction with our service is widespread or not
adequately addressed, our brand may be adversely impacted and our ability to attract and retain subscribers may
be adversely affected. With respect to our planned international expansion, we will also need to establish our
brand and to the extent we are not successful, our business in new markets would be adversely impacted.
If we are unable to manage the mix of subscriber acquisition sources, our subscriber levels and marketing
expenses may be adversely affected.
We utilize a broad mix of marketing programs to promote our service to potential new subscribers. We
obtain new subscribers through our online marketing efforts, including paid search listings, banner ads, text links
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 marketing costs. 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. Such contractual commitments are detailed in the
Contractual Obligations section of Item 7 Management’s Discussion and Analysis of Financial Condition and
Results of Operations. Furthermore, we plan on increasing the level of committed content licensing in
anticipation of our service and subscriber base growing. 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.
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