NetFlix 2014 Annual Report Download - page 8

Table of Contents
the extent we do not accurately anticipate costs or mitigate risks, including for content that we obtain but ultimately does not appear on our
service, or if we become liable for content we develop, 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 may not be indemnified against 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 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through our service can be withdrawn on short notice.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 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 unilaterally withdrawing 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.
We rely upon a number of partners to make our service available on their devices.
We currently offer members the ability to receive streaming content through a host of Internet-connected devices, including TVs, digital
video players, television set-top boxes and mobile devices. We have agreements with various cable, satellite and telecommunications operators
to make our service available through the television set-top boxes of these service providers.
We intend to continue to broaden our capability to
instantly stream TV shows and movies to other platforms and partners over time. If we are not successful in maintaining existing and creating
new relationships, or if we encounter technological, content licensing or other impediments to delivering our streaming content to our members
via these devices, our ability to grow our business could be adversely impacted. Our agreements with our device partners are typically between
one and three years in duration and our business could be adversely affected if, upon expiration, a number of our partners do not continue to
provide access to our service or are unwilling to do so on terms acceptable to us, which terms may include the degree of accessibility and
prominence of our service. Furthermore, devices are manufactured and sold by entities other than Netflix and while these entities should be
responsible for the devices' performance, the connection between these devices and Netflix may nonetheless result in consumer dissatisfaction
toward Netflix and such dissatisfaction could result in claims against us or otherwise adversely impact our business. In addition, technology
changes to our streaming functionality may require that partners update their devices. If partners do not update or otherwise modify their
devices, our service and our members' use and enjoyment could be negatively impacted.
Any significant disruption in or unauthorized access to our computer systems or those of third parties that we utilize in our operations,
including those relating to cybersecurity or arising from cyber attacks, could result in a loss or degradation of service, unauthorized
disclosure of data, including both member and corporate information, and could adversely impact our business.
Our reputation and ability to attract, retain and serve our members is dependent upon the reliable performance and security of our
computer systems and those of third parties that we utilize in our operations. These systems may be subject to damage or interruption from
earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, power loss, telecommunications failures, and cybersecurity
risks. Interruptions in these systems, or with the Internet in general, could make our service unavailable or degraded or otherwise hinder our
ability to deliver streaming content or fulfill DVD selections.
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