NetFlix 2013 Annual Report Download - page 16

If memberships to our Domestic DVD segment decline faster than anticipated, our business could be
adversely affected.
The number of memberships to our DVD-by-mail offering is declining, and we anticipate that this decline
will continue. We believe, however, that the domestic DVD business will continue to generate significant
contribution profit for our business. The contribution profit generated by our domestic DVD business will help
provide capital resources to fund losses arising from our growth internationally. To the extent that the rate of
decline in our DVD-by-mail business is greater than we anticipate, our business could be adversely affected. We
do not anticipate increasing resources to our DVD operations and the technology used in its operations will not
be meaningfully improved. To the extent that we experience service interruptions or other degradations in our
DVD-by-mail service, members’ satisfaction could be negatively impacted and we could experience an increase
in DVD-by-mail member cancellations, which could adversely impact our business.
Changes in U.S. Postal rates or operations could adversely impact our operating results and member
satisfaction.
We rely exclusively on the U.S. Postal Service to deliver DVDs from our shipping centers and to return
DVDs to us from our members. Increases in postage delivery rates, including those resulting from changes to
policies on the requirements of first class mail such as size, weight or machinability, could adversely affect our
Domestic DVD segment’s contribution profit. If the U.S. Postal Service were to implement other changes to
improve its financial position, such as closing mail processing facilities or service reductions, such changes could
lead to a decrease in customer satisfaction and our Domestic DVD segment’s contribution profit could be
adversely affected.
Risks Related to Our Stock Ownership
Provisions in our charter documents and under Delaware law could discourage a takeover that
stockholders may consider favorable.
Our charter documents may discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable because they:
• authorize our board of directors, without stockholder approval, to issue up to 10,000,000 shares of
undesignated preferred stock;
• provide for a classified board of directors;
• prohibit our stockholders from acting by written consent;
• establish advance notice requirements for proposing matters to be approved by stockholders at
stockholder meetings; and
• prohibit stockholders from calling a special meeting of stockholders.
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under
Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its
capital stock unless the holder has held the stock for three years or, among other things, the board of directors has
approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of
us.
In addition, a merger or acquisition may trigger retention payments to certain executive employees under the
terms of our Executive Severance and Retention Incentive Plan, thereby increasing the cost of such a transaction.
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