NetFlix 2013 Annual Report Download - page 26

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The $226.1 million decrease in our domestic DVD revenues was due to a 20% decrease in the average
number of paid memberships.
The $132.1 million decrease in domestic DVD cost of revenues was primarily due to a $63.2 million
decrease in content acquisition expenses and a $47.7 million decrease in content delivery expenses resulting from
a 21% decrease in the number of DVDs mailed to paying members. The decrease in shipments was driven by a
decline in the number of DVD memberships. Other costs, primarily those associated with content processing and
customer service center expenses, decreased $21.2 million primarily due to a decrease in hub operation expenses
resulting from the decline in DVD shipments.
Our Domestic DVD segment had a contribution margin of 48% for the year ended December 31, 2013, and
was relatively flat as compared to the year ended December 31, 2012.
2012 Segment Results
Domestic Segments
As of /Year Ended December 31, Change
2012 2011 2012 vs. 2011
(in thousands, except percentages)
Members:
Domestic Streaming
Members at end of period .................. 27,146 21,671 25%
Paid members at end of period .............. 25,471 20,153 26%
Domestic DVD
Members at end of period .................. 8,224 11,165 (26)%
Paid members at end of period .............. 8,049 11,039 (27)%
Unique Domestic
Net additions ............................ 4,973 4,894 2%
Members at end of period .................. 29,368 24,395 20%
Paid members at end of period .............. 27,613 22,858 21%
Contribution Profit:
Revenues ............................... $3,321,740 $3,121,727 6%
Cost of revenues ......................... 2,150,296 1,932,419 11%
Marketing .............................. 264,285 302,752 (13)%
Contribution profit ....................... 907,159 886,556 2%
Contribution margin ...................... 27% 28%
Prior to July 2011, in the U.S., our streaming and DVDs-by-mail operations were combined and members
could receive both streaming content and DVDs under a single “hybrid” plan. In July 2011, we introduced DVD
only plans and separated the combined plans, making it necessary for members who wish to receive both
streaming services and DVDs-by-mail to have two separate membership plans. As members were able to receive
both streaming and DVDs-by-mail under a single hybrid plan prior to the fourth quarter of 2011, it is
impracticable to allocate revenues and expenses to the Domestic streaming and Domestic DVD segments prior to
the fourth quarter of 2011.
The $200.0 million increase in our domestic revenues in 2012 as compared to 2011 was primarily due to the
15% growth in the domestic average number of unique paying members driven by new streaming memberships.
This increase was offset in part by an 8% decline in domestic average monthly revenue per unique paying
member, resulting from the decline in DVD memberships.
The $217.9 million increase in domestic cost of revenues in 2012 as compared to 2011 was primarily due to a
$397.7 million increase in content licensing expenses. This increase was primarily attributable to continued
investments in existing and new streaming content. Content delivery expenses decreased by $162.0 million primarily
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