NetFlix 2014 Annual Report Download - page 7

Table of Contents
applicable territory on our service (“original programming”), will typically require more up-front cash payments than other licensing
agreements. To the extent member and/or revenue growth do not meet our expectations, our liquidity and results of operations could be
adversely affected as a result of content commitments and accelerated payment requirements of certain agreements. In addition, the long-term
and fixed cost nature of our content commitments may limit our flexibility in planning for, or reacting to changes in our business and the
market segments in which we operate. As we expand internationally, we must license content in advance of entering into a new geographical
market. If we license content that is not favorably received by consumers in the applicable territory, acquisition and retention may be adversely
impacted and given the long-term and fixed cost nature of our content commitments, we may not be able to adjust our content offering quickly
and our results of operation may be adversely impacted.
We are devoting more resources toward the development, production, marketing and distribution of original programming, including TV
series and movies. We believe that original programming can help differentiate our service from other offerings, enhance our brand and
otherwise attract and retain members. To the extent our original programming does not meet our expectations, in particular, in terms of costs,
viewing and popularity, our business, including our brand and results of operations may be adversely impacted.
If we are not able to manage change and growth, our business could be adversely affected.
We are expanding our operations internationally, scaling our streaming service to effectively and reliably handle anticipated growth in
both members and features related to our service, as well as continuing to operate our DVD service within the U.S. As we expand
internationally, we are managing our business to address varied content offerings, consumer customs and practices, in particular those dealing
with e-commerce and Internet video, as well as differing legal and regulatory environments. As we scale our streaming service, we are
developing technology and utilizing third-party “cloud” computing services. If we are not able to manage the growing complexity of our
business, including improving, refining or revising our systems and operational practices related to our streaming operations, our business may
be adversely affected.
If we fail to maintain or, in new markets establish, a positive reputation with consumers concerning our service, including the content
we offer, we may not be able to attract or retain members, and our operating results may be adversely affected.
We believe that a positive reputation with consumers concerning our service is important in attracting and retaining members who have a
number of choices from which to obtain entertainment video. To the extent our content, in particular, our original programming, is perceived as
low quality, offensive or otherwise not compelling to consumers, our ability to establish and maintain a positive reputation may be adversely
impacted. Furthermore, to the extent our marketing, customer service and public relations efforts are not effective or result in negative
consumer reaction, our ability to establish and maintain a positive reputation may likewise be adversely impacted. As we expand into new
markets, we will also need to establish our reputation with consumers and to the extent we are not successful in creating positive impressions,
our business in these new markets may be adversely impacted.
Changes in how we market our service could adversely affect our marketing expenses and member levels may be adversely affected.
We utilize a broad mix of marketing and public relations programs, including social media sites such as Facebook and Twitter, to promote
our service to potential new members. We may limit or discontinue use or 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 promote our service decide that we negatively impact 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 have 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 develop, produce, license and/or distribute
through our service.
As a distributor of content, we face potential liability for negligence, copyright and 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
production, such as completion and key talent risk. To
4