NetFlix 2013 Annual Report Download - page 6

Item 1A. Risk Factors
If any of the following risks actually occurs, our business, financial condition and results of operations
could be harmed. In that case, the trading price of our common stock could decline, and you could lose all or
part of your investment.
Risks Related to Our Business
If our efforts to attract and retain members are not successful, our business will be adversely affected.
We have experienced significant member growth over the past several years. Our ability to continue to
attract members will depend in part on our ability to consistently provide our members with a valuable and
quality experience for selecting and viewing TV shows and movies. Furthermore, the relative service levels,
content offerings, pricing and related features of competitors to our service may adversely impact our ability to
attract and retain members. Competitors include multichannel video programming distributors providing free on
demand content through authenticated Internet applications, Internet-based movie and TV content providers,
including both those that provide legal and illegal (or pirated) entertainment video content, DVD rental outlets
and kiosk services and entertainment video retail stores. If consumers do not perceive our service offering to be
of value, or if we introduce new or adjust existing features or change the mix of content in a manner that is not
favorably received by them, we may not be able to attract and retain members. In addition, many of our members
are rejoining our service or originate from word-of-mouth advertising from existing members. If our efforts to
satisfy our existing members are not successful, we may not be able to attract members, and as a result, our
ability to maintain and/or grow our business will be adversely affected. Members cancel our service for many
reasons, including a perception that they do not use the service sufficiently, the need to cut household expenses,
availability of content is unsatisfactory, competitive services provide a better value or experience and customer
service issues are not satisfactorily resolved. We must continually add new members both to replace members
who cancel and to grow our business beyond our current member base. If too many of our members cancel our
service, or if we are unable to attract new members in numbers sufficient to grow our business, our operating
results will be adversely affected. If we are unable to successfully compete with current and new competitors in
both retaining our existing members and attracting new members, our business will be adversely affected.
Further, if excessive numbers of members cancel our service, we may be required to incur significantly higher
marketing expenditures than we currently anticipate to replace these members with new members.
If we are unable to compete effectively, our business will be adversely affected.
The market for entertainment video is intensely competitive and subject to rapid change. New technologies
and evolving business models for delivery of entertainment video continue to develop at a fast pace. The growth
of Internet-connected devices, including TVs, computers and mobile devices has increased the consumer
acceptance of Internet delivery of entertainment video. Through these new and existing distribution channels,
consumers are afforded various means for consuming entertainment video. The various economic models
underlying these differing means of entertainment video delivery include subscription, transactional, ad-
supported and piracy-based models. All of these have the potential to capture meaningful segments of the
entertainment video market. Several competitors have longer operating histories, large customer bases, strong
brand recognition and significant financial, marketing and other resources. They may secure better terms from
suppliers, adopt more aggressive pricing and devote more resources to technology, fulfillment, and marketing.
New entrants may enter the market with unique service offerings or approaches to providing entertainment video
and other companies also may enter into business combinations or alliances that strengthen their competitive
positions. If we are unable to successfully or profitably compete with current and new competitors, programs and
technologies, our business will be adversely affected, and we may not be able to increase or maintain market
share, revenues or profitability.
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