NetFlix 2015 Annual Report Download - page 9

The long-term and fixed cost nature of our content commitments may limit our operating flexibility and
could adversely affect our liquidity and results of operations.
In connection with obtaining streaming content, we typically enter into multi-year commitments with
studios and other content providers, the payment terms of which are not tied to member usage or the size of our
membership base (“fixed cost”) but which may be tied to such factors as titles licensed and/or theatrical
exhibition receipts. Such commitments are included in the Contractual Obligations section of Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 6,
Commitments and Contingencies in Item 8 .Given the multiple-year duration and largely fixed cost nature of
content commitments, if membership acquisition and retention do not meet our expectations, our margins may be
adversely impacted. Payment terms for certain content commitments, such as programming that is initially
available in the applicable territory on our service (“original programming”), will typically require more up-front
cash payments than other licensing agreements. To the extent membership and/or revenue growth do not meet
our expectations, our liquidity and results of operations could be adversely affected as a result of content
commitments and accelerated payment requirements of certain agreements. In addition, the long-term and fixed
cost nature of our content commitments may limit our flexibility in planning for, or reacting to changes in our
business and the market segments in which we operate. As we have expanded internationally, we have licensed
content in advance of entering into a new geographical market. If we license content that is not favorably
received by consumers in the applicable territory, or is unable to be shown in the applicable territory, acquisition
and retention may be adversely impacted and given the long-term and fixed cost nature of our content
commitments, we may not be able to adjust our content offering quickly and our results of operation may be
adversely impacted.
We are devoting more resources toward the development, production, marketing and distribution of original
programming, including TV series and movies. We believe that original programming can help differentiate our
service from other offerings, enhance our brand and otherwise attract and retain members. To the extent our
original programming does not meet our expectations, in particular, in terms of costs, viewing and popularity, our
business, including our brand and results of operations may be adversely impacted.
If we are not able to manage change and growth, our business could be adversely affected.
We are expanding our operations internationally, scaling our streaming service to effectively and reliably
handle anticipated growth in both members and features related to our service, ramping up our ability to produce
original content, as well as continuing to operate our DVD service within the U.S. As we expand internationally,
we are managing and adjusting our business to address varied content offerings, consumer customs and practices,
in particular those dealing with e-commerce and Internet video, as well as differing legal and regulatory
environments. As we scale our streaming service, we are developing technology and utilizing third-party “cloud”
computing services. As we ramp up our original content production, we are building out expertise in a number of
disciplines, including creative, marketing, legal, finance and other resources related to the development and
physical production of content. If we are not able to manage the growing complexity of our business, including
improving, refining or revising our systems and operational practices related to our streaming operations and
original content, our business may be adversely affected.
We could be subject to economic, political, regulatory and other risks arising from our international
operations.
Operating in international markets requires significant resources and management attention and will subject
us to regulatory, economic and political risks that may be different from or incremental to those in the U.S. In
addition to the risks that we face in the U.S., our international operations involve risks that could adversely affect
our business, including:
• the need to adapt our content and user interfaces for specific cultural and language differences, including
licensing a certain portion of our content assets before we have developed a full appreciation for its
performance within a given territory;
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