NetFlix 2014 Annual Report Download - page 21

Table of Contents
Overview and Results of Operations
The following represents our consolidated performance highlights:
Consolidated revenues for 2014 and 2013 increased as compared to prior years due to growth in both international and domestic
streaming memberships, as well as increases in average revenue per paying member resulting from the introduction of higher priced plans. The
increases in operating income and net income in each of the two years ended December 31, 2014 and 2013 were due to the increase in
revenues, partially offset by the increase in the cost of revenues due to increased content expenses relating to our existing and new streaming
content.
We offer three types of streaming membership plans. In the U.S. our basic plan is priced at $7.99 per month and includes access to
standard definition quality streaming on a single screen at a time. Our most popular streaming plan, which includes access to high definition
quality streaming on two screens concurrently, is priced at $8.99 per month for members who joined after the second quarter of 2014 when we
had increased the membership fee from $7.99 per month. Existing members were grandfathered in at $7.99 for two years, as long as they
remain a member. Our premium plan, which we introduced in the second quarter of 2013, is priced at $11.99 per month and includes access to
high definition and ultra-high definition quality content on four screens concurrently. Internationally, pricing for the three types of membership
plans is structured similar to the U.S. and ranges from the U.S. dollar equivalent of approximately $6.00 per month to $19.00.
The following represents the key elements to our segment results of operations:
17
Item 7. Management’
s Discussion and Analysis of Financial Condition and Results of Operations
As of/ Year Ended December 31, Change
2014 2013 2012 2014 vs. 2013 2013 vs. 2012
(in thousands)
Revenues
$
5,504,656
$
4,374,562
$
3,609,282
26
%
21
%
Operating income
$
402,648
$
228,347
$
49,992
76
%
357
%
Net income
$
266,799
$
112,403
$
17,152
137
%
555
%
Global streaming members
57,391
44,350
33,267
29
%
33
%
• We define contribution profit as revenues less cost of revenues and marketing expenses. We believe this is an important measure of
our operating segment performance as it represents each segment's performance before discrete global corporate costs.
• For the Domestic and International streaming segments, content expenses, which include the amortization of the streaming content
library and other expenses associated with the licensing and acquisition of streaming content, represent the vast majority of cost of
revenues. Streaming content rights are generally specific to a geographic region and accordingly our international expansion will
require us to obtain additional streaming content to support new international markets. Other cost of revenues such as streaming
delivery expenses, customer service and payment processing fees tend to be lower as a percentage of total cost of revenues as
compared to content expenses. We utilize both our own and third-party content delivery networks to help us efficiently stream a high
volume of content to our members over the Internet. Streaming delivery expenses, therefore, also include equipment costs related to
our content delivery network ("Open Connect") and all third-party costs associated with delivering streaming content over the
Internet. Cost of revenues in the Domestic DVD segment consist primarily of delivery expenses, content expenses, including
amortization of DVD content library and revenue sharing expenses, and other expenses associated with our DVD processing and
customer service centers. Delivery expenses for the Domestic DVD segment consist of the postage costs to mail DVDs to and from
our members and the packaging and label costs for the mailers.
• For the Domestic and International streaming segments, marketing expenses consist primarily of advertising expenses and payments
made to our affiliates and device partners. Advertising expenses include promotional activities such as television and online
advertising. Payments to our affiliates and device partners include fixed fee and /or revenue sharing payments. Marketing expenses are
primarily incurred by our Domestic and International streaming segments given our focus on building consumer awareness of the
streaming offerings. Marketing expenses incurred by our International streaming segment have been significant and will fluctuate
dependent upon the number of international territories in