NetFlix 2013 Annual Report Download - page 8

support of certain marketing sources or activities if advertising rates increase or if we become concerned that
members or potential members deem certain marketing practices intrusive or damaging to our brand. If the
available marketing channels are curtailed, our ability to attract new members may be adversely affected.
If companies that currently promote our service decide that we are negatively impacting their business, that
they want to compete more directly with our business or enter a similar business or decide to exclusively support
our competitors, we may no longer be given access to such marketing channels. We also acquire a number of
members who rejoin our service having previously cancelled their membership. If we are unable to maintain or
replace our sources of members with similarly effective sources, or if the cost of our existing sources increases,
our member levels and marketing expenses may be adversely affected
We face risks, such as unforeseen costs and potential liability in connection with content we produce,
license and/or distribute through our service.
As a distributor of content, we face potential liability for negligence, copyright, or trademark infringement
or other claims based on the nature and content of materials that we produce, license and/or distribute. We also
may face potential liability for content used in promoting our service, including marketing materials and features
on our website such as member reviews. As we expand our original programming, we will become responsible
for production costs and other expenses, such as ongoing guild payments. We will also take on risks associated
with the production, such as completion and key talent risk. To the extent we do not accurately anticipate costs or
mitigate risks, or if we become liable for content we produce, license and/or distribute, our business may suffer.
Litigation to defend these claims could be costly and the expenses and damages arising from any liability or
unforeseen production risks could harm our results of operations. We cannot assure that we are indemnified to
cover claims or costs of these types and we may not have insurance coverage for these types of claims.
If studios, content providers or other rights holders refuse to license streaming content or other rights
upon terms acceptable to us, our business could be adversely affected.
Our ability to provide our members with content they can watch instantly depends on studios, content
providers and other rights holders licensing rights to distribute such content and certain related elements thereof,
such as the public performance of music contained within the content we distribute. The license periods and the
terms and conditions of such licenses vary. If the studios, content providers and other rights holders are not or are
no longer willing or able to license us content upon terms acceptable to us, our ability to stream content to our
members will be adversely affected and/or our costs could increase. Many of the licenses for content provide for
the studios or other content providers to withdraw content from our service relatively quickly. Because of these
provisions as well as other actions we may take, content available through our service can be withdrawn on short
notice. As competition increases, we may see the cost of programming increase. As we seek to differentiate our
service, we are increasingly focused on securing certain exclusive rights when obtaining content, including
original content. We are also focused on programming an overall mix of content that delights our members in a
cost efficient manner. Within this context, we are selective about the titles we add and renew to our service. If we
do not maintain a compelling mix of content, our member acquisition and retention may be adversely affected.
Music contained within content we distribute may require us to obtain licenses for such distribution. In this
regard, we engage in negotiations with performing rights organizations and collection societies (“PROs”) that
hold certain rights to music interests when “publicly performed” or “communicated to the public” in connection
with streaming content into various territories. If we are unable to reach mutually acceptable terms with these
organizations, we could become involved in litigation and/or could be enjoined from distributing certain content,
which could adversely impact our business. Additionally, pending and ongoing litigation as well as negotiations
between certain PROs and other third parties in various territories could adversely impact our negotiations with
PROs, or result in music publishers represented by certain PROs to unilaterally withdraw rights, and thereby
adversely impact our ability to reach licensing agreements reasonably acceptable to us. Failure to reach such
licensing agreements could expose us to potential liability for copyright infringement or otherwise increase our
costs.
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