NetFlix 2015 Annual Report Download - page 8

Item 1A. Risk Factors
If any of the following risks actually occur, our business, financial condition and results of operations could
be harmed. In that case, the trading price of our common stock could decline, and you could lose all or part of
your investment.
Risks Related to Our Business
If our efforts to attract and retain members are not successful, our business will be adversely affected.
We have experienced significant membership growth over the past several years. Our ability to continue to
attract members will depend in part on our ability to consistently provide our members with compelling content
choices, as well as a quality experience for selecting and viewing TV shows and movies. Furthermore, the
relative service levels, content offerings, pricing and related features of competitors to our service may adversely
impact our ability to attract and retain memberships. Competitors include other entertainment video providers,
such as MVPDs, Internet-based movie and TV content providers (including those that provide pirated content)
and DVD rental outlets. If consumers do not perceive our service offering to be of value, including if we
introduce new or adjust existing features, adjust pricing or service offerings, or change the mix of content in a
manner that is not favorably received by them, we may not be able to attract and retain members. In addition,
many of our members are rejoining our service or originate from word-of-mouth advertising from existing
members. If our efforts to satisfy our existing members are not successful, we may not be able to attract
members, and as a result, our ability to maintain and/or grow our business will be adversely affected. Members
cancel our service for many reasons, including a perception that they do not use the service sufficiently, the need
to cut household expenses, availability of content is unsatisfactory, competitive services provide a better value or
experience and customer service issues are not satisfactorily resolved. We must continually add new
memberships both to replace canceled memberships and to grow our business beyond our current membership
base. If growth rates slow faster than expected, given, in particular that our content costs are largely fixed in
nature and contracted over several years, we may not be able to adjust our expenditures or increase our (per
membership) revenues commensurate with the lowered growth rate such that our margins, liquidity and results of
operation may be adversely impacted. If we are unable to successfully compete with current and new competitors
in both retaining our existing memberships and attracting new memberships, our business will be adversely
affected. Further, if excessive numbers of members cancel our service, we may be required to incur significantly
higher marketing expenditures than we currently anticipate to replace these members with new members.
Changes in competitive offerings for entertainment video, including the potential rapid adoption of piracy-
based video offerings, could adversely impact our business.
The market for entertainment video is intensely competitive and subject to rapid change. Through new and
existing distribution channels, consumers have increasing options to access entertainment video. The various
economic models underlying these channels include subscription, transactional, ad-supported and piracy-based
models. All of these have the potential to capture meaningful segments of the entertainment video market.
Piracy, in particular, threatens to damage our business, as its fundamental proposition to consumers is so
compelling and difficult to compete against: virtually all content for free. Furthermore, in light of the compelling
consumer proposition, piracy services are subject to rapid global growth. Traditional providers of entertainment
video, including broadcasters and cable network operators, as well as Internet based e-commerce or
entertainment video providers are increasing their Internet-based video offerings. Several of these competitors
have long operating histories, large customer bases, strong brand recognition and significant financial, marketing
and other resources. They may secure better terms from suppliers, adopt more aggressive pricing and devote
more resources to product development, technology, infrastructure, content acquisitions and marketing. New
entrants may enter the market or existing providers may adjust their services with unique offerings or approaches
to providing entertainment video. Companies also may enter into business combinations or alliances that
strengthen their competitive positions. If we are unable to successfully or profitably compete with current and
new competitors, our business will be adversely affected, and we may not be able to increase or maintain market
share, revenues or profitability.
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