NetFlix 2012 Annual Report Download - page 77

customer service are included in the total cost of revenues within each operating segment. Marketing is primarily
comprised of advertising expenses which are generally included in the segment in which the expenditures are
directly incurred. Marketing also includes an allocation of the cost of revenues incurred by that segment related
to free trials.
There are no internal revenue transactions between the Company’s reporting segments. As of December 31,
2012, the Company had $4.0 million in long-lived tangible assets located internationally and $127.7 million in
long-lived tangible assets located in the United States. As of December 31, 2011, all of the Company’s long-lived
tangible assets were held in the United States. The Domestic and International streaming segments derive
revenue from monthly subscription services consisting solely of streaming content. The Domestic DVD segment
derives revenue from monthly subscription services consisting solely of DVD-by-mail.
Between the fourth quarter of 2010 and the third quarter of 2011, the Company had two operating segments:
Domestic and International. During this time, the Company’s domestic streaming content and DVD-by-mail
operations were combined. Subscribers in the United States were able to receive both streaming content and
DVDs under a single hybrid plan. Accordingly, revenues were generated and marketing expenses were incurred
in connection with the subscription offerings as a whole. Therefore, it is impracticable to allocate revenues or
marketing expenses or present discrete segment information for the Domestic streaming and Domestic DVD
segments for periods prior to the fourth quarter of 2011.
In the third quarter of 2011, the Company made certain changes to its domestic pricing and plan structure
which require subscribers who wish to receive both DVDs-by-mail and streaming content to have two separate
subscription plans. Following this change, beginning in the fourth quarter of 2011, the Company was able to
generate discrete financial information for its Domestic DVD and Domestic streaming operations and began
reporting this information to the chief operating decision maker for review.
Prior to the fourth quarter of 2010, the Company had a single segment as international operations had not
yet commenced.
The following table represents segment information for the year ended December 31, 2012:
As of/Year ended December 31, 2012
Domestic
Streaming
International
Streaming
Domestic
DVD Consolidated
(in thousands)
Total subscriptions at end of period (1) . . . 27,146 6,121 8,224 —
Revenues ........................... $2,184,868 $ 287,542 $1,136,872 $3,609,282
Cost of revenues ..................... 1,558,864 475,570 591,432 2,625,866
Marketing .......................... 276,072 201,283 7,374 484,729
Contribution profit (loss) .......... $ 349,932 $(389,311) $ 538,066 $ 498,687
Other operating expenses .............. 448,695
Operating income ................ 49,992
Other income (expense) ............... (19,512)
Provision for income taxes ............. 13,328
Net income ..................... $ 17,152
As of/Year ended December 31, 2012
Domestic
Streaming
International
Streaming
Domestic
DVD Consolidated
(in thousands)
Total content library, net ................. $2,317,070 $527,235 $29,865 $2,874,170
Amortization of content library ............ 1,152,446 438,772 65,396 1,656,614
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