NetFlix 2014 Annual Report Download - page 61

Table of Contents
At December 31, 2013, the Company had $7.3 billion of obligations comprised of $1.8 billion included in "Current content liabilities"
and $1.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $4.2 billion of obligations that are not reflected on
the Consolidated Balance Sheet.
The expected timing of payments for these streaming content obligations is as follows:
A streaming content obligation is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes
available, a content liability is generally recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license
rights for unknown future titles, the ultimate quantity and / or fees for which are not yet determinable as of the reporting date. Because the
amount is not reasonably estimable, the Company does not include any estimated obligation for these future titles beyond the known minimum
amount. However, the unknown obligations are expected to be significant and the expected timing of payments could range from less than one
year to more than five years.
The Company has entered into certain licenses with performing rights organizations ("PROs"), and is currently involved in negotiations
with other PROs, that hold certain rights to music and other entertainment works "publicly performed" in connection with streaming content
into various territories. Accruals for estimated license fees are recorded and then adjusted based on any change in estimates. These amounts are
included in the streaming content obligations. The results of these negotiations are uncertain and may be materially different from
management's estimates.
Lease obligations
The Company leases facilities under non-cancelable operating leases with various expiration dates through 2019. Several lease
agreements contain rent escalation clauses or rent holidays. For purposes of recognizing minimum rental expenses on a straight-line basis over
the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the
space and begins to make improvements in preparation for intended use. For scheduled rent escalation clauses during the lease terms or for
rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-
line basis over the terms of the leases in the Consolidated Statements of Operations. The Company has the option to extend or renew most of its
leases which may increase the future minimum lease commitments.
Because the terms of the Company’s original facilities lease agreements for its current Los Gatos, California headquarters site required
the Company’s involvement in the construction funding of the buildings, the Company is the “deemed owner” (for accounting purposes only)
of these buildings. Accordingly, the Company recorded an asset of $40.7 million , representing the total costs of the buildings and
improvements, including the costs paid by the lessor (the legal owner of the buildings), with corresponding liabilities. Upon completion of
construction of each building, the Company did not meet the sale-leaseback criteria for de-recognition of the building assets and liabilities.
Therefore the leases are accounted for as financing obligations.
In the first quarter of 2010, the Company extended the facilities leases for the current Los Gatos buildings for an additional five
year term
after the remaining term of the original lease, thus increasing the future minimum payments under lease financing obligations by approximately
$14 million
. The leases continue to be accounted for as financing obligations and no gain or loss was recorded as a result of the lease financing
modification. At December 31, 2014, the lease financing obligation balance was $29.6 million , of which $1.2 million and $28.4 million were
recorded in “Accrued expenses” and “Other non-current liabilities,” respectively, on the Consolidated Balance Sheets. The remaining future
minimum payments under the lease financing obligation are $9.4 million . The lease financing obligation balance at the end of the extended
lease term will be approximately $25.8 million which approximates the net book value of the buildings to be relinquished to the lessor.
54
As of December 31,
2014 2013
(in thousands)
Less than one year
$
3,747,648
$
2,972,325
Due after one year and through 3 years
4,495,103
3,266,907
Due after 3 years and through 5 years
1,164,308
929,645
Due after 5 years
44,053
83,284
Total streaming content obligations
$
9,451,112
$
7,252,161