NetFlix 2012 Annual Report Download - page 10

Item 1A. Risk Factors
If any of the following risks actually occurs, our business, financial condition and results of operations
could be harmed. In that case, the trading price of our common stock could decline, and you could lose all or
part of your investment.
Risks Related to Our Business
If our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
We have experienced significant subscriber growth over the past several years. Our ability to continue to
attract subscribers will depend in part on our ability to consistently provide our subscribers with a valuable and
quality experience for selecting and viewing TV shows and movies. Furthermore, the relative service levels,
content offerings, pricing and related features of competitors to our service may adversely impact our ability to
attract and retain subscribers. Competitors include multichannel video programming distributors (“MVPDs”)
with free TV Everywhere and other on demand content, Internet movie and TV content providers, including both
those that provide legal and illegal (or pirated) entertainment video content, DVD rental outlets and kiosk
services and entertainment video retail stores. If consumers do not perceive our service offering to be of value, or
if we introduce new or adjust existing features or change the mix of content in a manner that is not favorably
received by them, we may not be able to attract and retain subscribers. In addition, many of our subscribers are
rejoining our service or originate from word-of-mouth advertising from existing subscribers. If our efforts to
satisfy our existing subscribers are not successful, we may not be able to attract subscribers, and as a result, our
ability to maintain and/or grow our business will be adversely affected. Subscribers cancel their subscription to
our service for many reasons, including a perception that they do not use the service sufficiently, the need to cut
household expenses, availability of content is unsatisfactory, competitive services provide a better value or
experience and customer service issues are not satisfactorily resolved. We must continually add new subscribers
both to replace subscribers who cancel and to grow our business beyond our current subscriber base. If too many
of our subscribers cancel our service, or if we are unable to attract new subscribers in numbers sufficient to grow
our business, our operating results will be adversely affected. If we are unable to successfully compete with
current and new competitors in both retaining our existing subscribers and attracting new subscribers, our
business will be adversely affected. Further, if excessive numbers of subscribers cancel our service, we may be
required to incur significantly higher marketing expenditures than we currently anticipate to replace these
subscribers with new subscribers.
If we are unable to compete effectively, our business will be adversely affected.
The market for entertainment video is intensely competitive and subject to rapid change. New technologies
and evolving business models for delivery of entertainment video continue to develop at a fast pace. The growth
of Internet-connected devices, including TVs, computers and mobile devices has increased the consumer
acceptance of Internet delivery of entertainment video. Through these new and existing distribution channels,
consumers are afforded various means for consuming entertainment video. The various economic models
underlying these differing means of entertainment video delivery include subscription, transactional, ad-
supported and piracy-based models. All of these have the potential to capture meaningful segments of the
entertainment video market. Several competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other resources than we do. They may secure
better terms from suppliers, adopt more aggressive pricing and devote more resources to technology, fulfillment,
and marketing. New entrants may enter the market with unique service offerings or approaches to providing
entertainment video and other companies also may enter into business combinations or alliances that strengthen
their competitive positions. If we are unable to successfully or profitably compete with current and new
competitors, programs and technologies, our business will be adversely affected, and we may not be able to
increase or maintain market share, revenues or profitability.
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