NetFlix 2012 Annual Report Download - page 8

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Future of the Consumer Electronic Ecosystem: “Internet on Every Screen”—We intend to broaden our
already expansive partner relationships over time so that even more devices are capable of streaming content
from Netflix. By making Netflix accessible on a broad array of devices, we believe that we enhance the value of
our service to subscribers as well as position ourselves for continued growth as Internet and mobile delivery of
content becomes more popular. We are pioneering the use of tablets and smartphones as second-screen choosing
devices for TV viewing, and are actively engaged with all of our device partners in evaluating how Netflix can
enhance and improve the user experience in conjunction with their product innovations.
International Market Expansion—The international streaming segment represents a significant long-term
growth opportunity as people around the world discover the benefits of Netflix. We plan to continue our
international investment strategy of upfront investment in content and marketing to build out scale required for
profitability. We believe that scale advantages increase barriers to entry for our competitors. Today, 18% of all of
Netflix’s global streaming subscribers are outside of the US.
Operations
We obtain content from various content providers through streaming content license agreements, DVD
direct purchases and DVD revenue sharing agreements. We market our service through various channels,
including online advertising, broad-based media, such as television and radio, as well as various strategic
partnerships. In connection with marketing the service, we offer free-trial memberships to new members.
Rejoining members are an important source of subscriber additions. We utilize the services of third-party cloud
computing providers, more specifically, Amazon Web Services, and utilize both our own content delivery
network (“Open Connect”) and third-party content delivery networks, such as Level 3 Communications, to help
us efficiently stream content in high volume to our subscribers over the Internet. We also ship and receive DVDs
in the U.S. from a nationwide network of shipping centers.
Seasonality
Our subscriber growth exhibits a seasonal pattern that reflects variations when consumers buy Internet-
connected devices and when they tend to increase video watching. Our domestic subscriber growth is generally
greatest in our fourth and first quarters (October through March), slowing in our second quarter (April through
June) and then accelerating in our third quarter (July through September). We expect each market in our
international segment to demonstrate more predictable seasonal patterns as our service offering in each market
becomes more established and we have a longer history to assess such patterns. Additionally, the variable
expenses associated with shipments of DVDs are highest in the first quarter due to the seasonal nature of DVD
usage.
Intellectual Property
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets,
proprietary technologies and similar intellectual property as important to our success. We use a combination of
patent, trademark, copyright and trade secret laws and confidential agreements to protect our proprietary
intellectual property. Our ability to protect and enforce our intellectual property rights is subject to certain risks
and from time to time we encounter disputes over rights and obligations concerning intellectual property. We
cannot provide assurance that we will prevail in any intellectual property disputes.
Employees
As of December 31, 2012, we had 2,045 full-time employees. We also utilize part-time and temporary
employees, primarily in our DVD fulfillment operations, to respond to the fluctuating demand for DVD
shipments. Our use of temporary employees has decreased significantly due to decreased DVD shipments in
2012, as well as increased automation of our shipment centers. As of December 31, 2012, we had 384 part-time
and temporary employees. Our employees are not covered by a collective bargaining agreement, and we consider
our relations with our employees to be good.
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