NetFlix 2012 Annual Report Download - page 13

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
or otherwise prohibit the use of certain acquisition channels, including commercial e-mail and direct mail. We
may limit or discontinue use or support of certain marketing sources or activities if we become concerned that
subscribers or potential subscribers deem such practices intrusive or damaging to our brand. If the available
marketing channels are curtailed, our ability to attract new subscribers may be adversely affected.
If we become subject to liability for content that we distribute through our service, our results of
operations would be adversely affected.
As a distributor of content, we face potential liability for negligence, copyright, or trademark infringement
or other claims based on the nature and content of materials that we distribute. We also may face potential
liability for content used in member reviews. If we become liable, then our business may suffer. Litigation to
defend these claims could be costly and the expenses and damages arising from any liability could harm our
results of operations. We cannot assure that we are indemnified to cover claims of these types or liability that
may be imposed on us, and we may not have insurance coverage for these types of claims.
If studios and other content providers refuse to license streaming content to us upon acceptable terms, our
business could be adversely affected.
Our ability to provide our subscribers with content they can watch instantly depends on studios and other
content providers licensing us content specifically for Internet delivery. The license periods and the terms and
conditions of such licenses vary. If the studios and other content providers change their terms and conditions or
are no longer willing or able to license us content, our ability to stream content to our subscribers will be
adversely affected. Unlike DVD, streaming content is not subject to the First Sale Doctrine. As such, we are
completely dependent on the various content providers to license us content in order to access and stream
content. Many of the licenses provide for the studios or other content providers to withdraw content from our
service relatively quickly. Because of these provisions as well as other actions we may take, content available
through our service can be withdrawn on short notice. In addition, the studios and other content providers have
great flexibility in licensing streaming content. They may elect to license content exclusively to a particular
provider or otherwise limit the types of services that can deliver streaming content. For example, HBO licenses
content from studios like Warner Bros. and the license provides HBO with the exclusive right to such content
against other subscription services, including Netflix. As such, Netflix cannot license certain Warner Bros.
content for delivery to its subscribers while Warner Bros. may nonetheless license the same content on a
transactional basis. Conversely, content providers may license the same content to multiple subscription-based
services and may do so on different terms and conditions. As such, Netflix and its competitors may offer
consumers many of the same content titles but license these at different rates. As competition increases, we may
see the cost for programming increase. As we seek to differentiate our service, we are increasingly focused on
securing certain exclusive rights when obtaining content. We are also focused on programming an overall mix of
content that delights our members in a cost efficient manner. Within this context, we are selective about the titles
we add and renew our service. If we do not maintain a compelling mix of content, our subscriber acquisition and
retention may be adversely affected.
If we are unable to secure and maintain rights to streaming content or if we cannot otherwise obtain such
content upon terms that are acceptable to us, including on an exclusive basis in some cases, our ability to stream
TV shows and movies to our subscribers will be adversely impacted, and our subscriber acquisition and retention
could also be adversely impacted.
We rely upon a number of partners to offer instant streaming of content from Netflix to various devices.
We currently offer subscribers the ability to receive streaming content through their PCs, Macs and other
Internet-connected devices, including Blu-ray players and TVs, digital video players, game consoles and mobile
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