NetFlix 2015 Annual Report Download - page 25

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview and Results of Operations
The following represents our consolidated performance highlights:
As of/ Year Ended December 31, Change
2015 2014 2013 2015 vs. 2014 2014 vs. 2013
(in thousands, except revenue per membership and percentages)
Global streaming memberships ........... 74,762 57,391 44,350 30% 29%
Global streaming average monthly revenue
per paying membership ............... $ 8.15 $ 8.20 $ 8.03 (1)% 2%
Revenues ............................ $6,779,511 $5,504,656 $4,374,562 23% 26%
Operating income ..................... $ 305,826 $ 402,648 $ 228,347 (24)% 76%
Net income .......................... $ 122,641 $ 266,799 $ 112,403 (54)% 137%
Consolidated revenues for 2015 and 2014 increased as compared to prior years due to growth in global
streaming average paying memberships, the majority of which was growth in our international memberships
reflecting our expansion and focus on Netflix as a global Internet TV network. For the year ended December 31,
2015, the impact from membership growth was slightly offset by a decrease in average monthly revenue per
paying streaming membership resulting from unfavorable foreign currency fluctuations impacting our
International streaming segment. This was partially offset by increases resulting from price changes and plan
mix. The decrease in operating income for the year ended December 31, 2015 as compared to the year ended
December 31, 2014 is due primarily to increased marketing and headcount costs to support our international
expansion in addition to increased content expenses as we continue to acquire, license and produce content,
including more Netflix originals. Net income is further impacted by the increase in interest expense associated
with our debt issuance in the first quarter of 2015 as well as to an increase in losses on foreign currency
denominated transactions.
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 is priced at $9.99 per month and includes access to high definition quality streaming on two
screens concurrently. Our premium plan is priced at $11.99 per month and includes access to high definition and
ultra-high definition quality content on four screens concurrently. Internationally, the membership plans are
structured similarly to the U.S. and range in price from the U.S. dollar equivalent of approximately $5.00 to
$18.00 per month.
We expect that from time to time the prices of our membership plans in each country may change. For
instance, in the second half of 2015, we increased the price of our two-screen high definition plan in the U.S. and
several European countries. In May 2014, in the U.S., we increased the price of our high definition plan from
$7.99 per month to $8.99 per month with existing memberships grandfathered for a two year period. In October
2015, in the U.S., we increased the price of this same high definition plan from $8.99 per month to $9.99 per
month with existing memberships grandfathered for a one year period. In 2016, the grandfathered pricing period
will expire for a substantial number of U.S. memberships and the members will have the option of electing the
basic streaming plan at $7.99 or continuing on the high definition plan at the higher price of $9.99.
The following represents the key elements to our segment results of operations:
• We define contribution profit (loss) as revenues less cost of revenues and marketing expenses incurred by
the segment. We believe this is an important measure of our operating segment performance as it
represents each segment’s performance before global corporate costs.
• For the Domestic and International streaming segments, content expenses, which include the
amortization of the streaming content assets and other expenses associated with the licensing and
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