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Business Segments
Beginning with the fourth quarter of 2011, the Company has three operating segments: Domestic streaming,
International streaming and Domestic DVD. The Domestic and International streaming segments derive revenues
from monthly subscription services consisting solely of streaming content. The Domestic DVD segment derives
revenues from monthly subscription services consisting solely of DVD-by-mail. For additional information
regarding our segments, see Note 10 of Item 8, Financial Statements and Supplementary Data.
Domestic Streaming
The Domestic streaming segment provides our more than 27 million members with access to a broad range
of exclusive, non-exclusive and original content delivered over the Internet to a host of connected devices—
including PCs and Macs, game consoles such as PlayStations, smart TVs, Blu-ray players, home theater systems,
Internet video players such as Apple TV and Roku, digital video recorders, and mobile devices. We have a
leading market position in domestic streaming, having grown by more than 5 million subscriptions in 2012—an
increase of 25% from 2011.
International Streaming
The large numbers of pay television and broadband households outside the U.S. provide our International
streaming segment with a large long-term growth opportunity through significantly expanding our base of
potential subscribers. From our initial international market launch in Canada in September 2010, our
international streaming service has grown to be available in more than 40 countries outside of the U.S. as of
December 31, 2012. We believe that international markets will be a significant source of growth and cash flow in
the long term, and as a result we are strategically investing internationally today. Our focus in international
markets is to provide a compelling service offering to subscribers, which allows us to gain market share in the
near term. We view long-term international success as consumer adoption and contribution margins at the levels
of our domestic market.
Domestic DVD
Our Domestic DVD business launched in 1999 with DVD-by-mail subscription plans. As technology has
changed and consumer preference has shifted, we have seen subscribers move away from DVD rental and toward
streaming their video content.
Competition
The market for entertainment video is intensely competitive and subject to rapid change. Many consumers
maintain simultaneous relationships with multiple entertainment video providers and can easily shift spending
from one provider to another. Our principal competitors vary by geographic region and include:
• Multichannel video programming distributors (“MVPDs”) with free TV Everywhere applications such as
HBO GO or Showtime Anytime in the U.S. and SkyGo or BBC iPlayer in the U.K., and other on demand
content from cable providers, such as Time Warner and Comcast; direct broadcast satellite providers,
such as DIRECTV and Echostar; and telecommunication providers such as AT&T and Verizon
• “Over-the-top” Internet movie and TV content providers, such as, Amazon.com’s Prime Video,
Hulu.com and Hulu Plus, LOVEFiLM, Clarovideo, Viaplay, and Google’s YouTube
• Transactional content providers, such as Apple’s iTunes, Amazon’s Instant Video, GooglePlay, and
Vudu
• DVD rental outlets and kiosk services, such as Blockbuster and Redbox
• Entertainment video retailers, such as Best Buy, Wal-Mart and Amazon.com
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