NetFlix 2012 Annual Report Download - page 12

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to overall growth in the segment may decline. Further, 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 and retaining subscribers who may have a number of choices from which to obtain
entertainment video. To build a strong brand we believe we must continue to offer content and service features
that our subscribers value and enjoy. We also believe that these must be coupled with effective consumer
communications, such as marketing, customer service and public relations. If our efforts to promote and maintain
our brand are not successful, our ability to attract and retain subscribers may be adversely affected. Such a result,
coupled with the increasingly long-term and fixed cost nature of our content acquisition licenses, may adversely
affect our operating results.
From time to time, our subscribers express dissatisfaction with our service, including among other things,
our title selection, pricing, delivery speed 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. In 2011, we made a series of
announcements regarding our business, including the separation of our DVD-by-mail and 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,
which negatively affected our operating results. While we have seen significant improvements to our brand since
the events of 2011, we nonetheless believe that it will continue to take time to repair our brand to the levels we
enjoyed prior to the events of 2011. With respect to our expansion into international markets, 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.
Changes in our subscriber acquisition sources could adversely affect our marketing expenses and
subscriber levels 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 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, including through social media sites such as Facebook and
Twitter, 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.
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
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