NetFlix 2013 Annual Report Download - page 11

We rely heavily on our proprietary technology to stream TV shows and movies and to manage other
aspects of our operations, and the failure of this technology to operate effectively could adversely affect
our business.
We continually enhance or modify the technology used for our operations. We cannot be sure that any
enhancements or other modifications we make to our operations will achieve the intended results or otherwise be
of value to our members. Future enhancements and modifications to our technology could consume considerable
resources. If we are unable to maintain and enhance our technology to manage the streaming of TV shows and
movies to our members in a timely and efficient manner and/or the processing of DVDs among our shipping
centers, our ability to retain existing members and to add new members may be impaired. In addition, if our
technology or that of third parties we utilize in our operations fails or otherwise operates improperly, our ability
to retain existing members and to add new members may be impaired. Also, any harm to our members’ personal
computers or other devices caused by software used in our operations could have an adverse effect on our
business, results of operations and financial condition.
If government regulations relating to the Internet or other areas of our business change, we may need to
alter the manner in which we conduct our business, or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the Internet or other areas of our business
could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the
continued growth and development of the market for online commerce may lead to more stringent consumer
protection laws, which may impose additional burdens on us. If we are required to comply with new regulations
or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
The adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet,
including laws impacting Internet neutrality, could decrease the demand for our service and increase our cost of
doing business. For example, in late 2010, the Federal Communications Commission (FCC) adopted so-called
net neutrality rules intended, in part, to prevent network operators from discriminating against legal traffic that
transverse their networks. Recently, the U.S. Court of Appeals for the District of Columbia struck down the
FCC’s net neutrality rules and it is currently uncertain how the FCC will respond to this decision. To the extent
network operators attempt to use this ruling to extract fees from us to deliver our traffic or otherwise engage in
discriminatory practices, our business could be adversely impacted. As we expand internationally, government
regulation concerning the Internet, and in particular, network neutrality, may be nascent or non-existent. Within
such a regulatory environment, coupled with potentially significant political and economic power of local
network operators, we could experience discriminatory or anti-competitive practices that could impede our
growth, cause us to incur additional expense or otherwise negatively affect our business.
Changes in how network operators handle and charge for access to data that travel across their networks
could adversely impact our business.
We rely upon the ability of consumers to access our service through the Internet. To the extent that network
operators implement usage based pricing, including meaningful bandwidth caps, or otherwise try to monetize
access to their networks by data providers, we could incur greater operating expenses and our member
acquisition and retention could be negatively impacted. Furthermore, to the extent network operators were to
create tiers of Internet access service and either charge us for or prohibit us from being available through these
tiers, our business could be negatively impacted.
Most network operators that provide consumers with access to the Internet also provide these consumers
with multichannel video programming. As such, many network operators have an incentive to use their network
infrastructure in a manner adverse to our continued growth and success. For example, Comcast exempted certain
of its own Internet video traffic (e.g., Streampix videos to the Xbox 360) from a bandwidth cap that applies to all
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