NetFlix 2015 Annual Report Download - page 12

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 membership 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 collection management organizations (“CMOs”) 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 CMOs and other third parties in various territories could
adversely impact our negotiations with CMOs, or result in music publishers represented by certain CMOs
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
screens, 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, regulatory 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 member and corporate
information, or theft of intellectual property, including digital content assets, which 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. Service interruptions, errors in our
software or the unavailability of computer systems used in our operations could diminish the overall
attractiveness of our membership service to existing and potential members.
Our computer systems and those of third parties we use in our operations are vulnerable to cybersecurity
risks, including cyber-attacks such as computer viruses, denial of service attacks, physical or electronic break-ins
8