NetFlix 2015 Annual Report Download - page 36

Streaming content obligations include amounts related to the acquisition, licensing and production of
streaming content. An obligation for the production of content includes non-cancelable commitments under
creative talent and employment agreements. An obligation for the acquisition and licensing of content is
incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a
content liability is 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. Traditional film output deals, like the U.S. output deal with Disney, or
certain TV series license agreements where the number of seasons to be aired is unknown, are examples of
these types of agreements. The contractual obligations table above does not include any estimated obligation
for the unknown future titles, payment for which could range from less than one year to more than five
years. However, these unknown obligations are expected to be significant and we believe could include
approximately $3 billion to $5 billion over the next three years, with the payments for the vast majority of
such amounts expected to occur after the next twelve months. The foregoing range is based on considerable
management judgments and the actual amounts may differ. Once we know the title that we will receive and
the license fees, we include the amount in the contractual obligations table above.
(2) Long-term debt obligations include our Notes consisting of principal and interest payments. See Note 5 of
Item 8, Financial Statements and Supplementary Data for further details.
(3) Lease obligations include lease financing obligations of $21.1 million related to our current Los Gatos,
California headquarters for which we are the deemed owner for accounting purposes, commitments of
$428.7 million for our expanded headquarters in Los Gatos, California and our new office space in Los
Angeles, California and other commitments of $79.9 million for facilities under non-cancelable operating
leases. These leases have expiration dates varying through approximately 2028.
(4) Other purchase obligations include all other non-cancelable contractual obligations. These contracts are
primarily related to streaming delivery, DVD content acquisition, and miscellaneous open purchase orders
for which we have not received the related services or goods.
As of December 31, 2015, we had gross unrecognized tax benefits of $17.1 million of which $3.6 million
was recorded in “Accrued Expenses” in the Consolidated Balance Sheets. For the remaining $13.5 million, we
are unable to make a reasonably reliable estimate of the timing of payments in individual years due to
uncertainties in the timing of tax audit outcomes, therefore, such amounts are not included in the above
contractual obligation table.
Off-Balance Sheet Arrangements
We do not have transactions with unconsolidated entities, such as entities often referred to as structured
finance or special purpose entities, whereby we have financial guarantees, subordinated retained interests,
derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent
liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing,
liquidity, market risk, or credit risk support to us.
Indemnifications
The information set forth under Note 7 of Item 8, Financial Statements and Supplementary Data under the
caption “Guarantees—Indemnification Obligations” is incorporated herein by reference.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the
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