NETFLIX INC, 10-Q filed on 4/23/2014
Quarterly Report
Document And Entity Information
3 Months Ended
Mar. 31, 2014
Document And Entity Information [Abstract]
 
Entity Registrant Name
NETFLIX INC 
Entity Central Index Key
0001065280 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Large Accelerated Filer 
Document Type
10-Q 
Document Period End Date
Mar. 31, 2014 
Document Fiscal Year Focus
2014 
Document Fiscal Period Focus
Q1 
Amendment Flag
false 
Entity Common Stock, Shares Outstanding
59,940,336 
Consolidated Statements Of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Income Statement [Abstract]
 
 
Revenues
$ 1,270,089 
$ 1,023,961 
Cost of revenues
869,186 
736,952 
Marketing
137,098 
119,086 
Technology and development
110,310 
91,975 
General and administrative
55,900 
44,126 
Operating income
97,595 
31,822 
Other income (expense):
 
 
Interest expense
(10,052)
(6,740)
Interest and other income (expense)
1,401 
977 
Loss on extinguishment of debt
0 
(25,129)
Income before income taxes
88,944 
930 
Provision (benefit) for income taxes
35,829 
(1,759)
Net income
$ 53,115 
$ 2,689 
Earnings per share:
 
 
Basic (in dollars per share)
$ 0.89 
$ 0.05 
Diluted (in dollars per share)
$ 0.86 
$ 0.05 
Weighted-average common shares outstanding:
 
 
Basic (in shares)
59,817 
55,972 
Diluted (in shares)
61,548 
60,146 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
Net income
$ 53,115 
$ 2,689 
Other comprehensive income (loss):
 
 
Foreign currency translation adjustments
461 
(2,289)
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $291 and $(212), respectively
467 
(339)
Total other comprehensive income (loss)
928 
(2,628)
Comprehensive income
$ 54,043 
$ 61 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
Change in unrealized gains on available for sale securities, tax (benefit)
$ 291 
$ (212)
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Cash flows from operating activities:
 
 
Net income
$ 53,115 
$ 2,689 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
Additions to streaming content library
(749,399)
(591,941)
Change in streaming content liabilities
42,244 
9,700 
Amortization of streaming content library
600,735 
485,740 
Amortization of DVD content library
16,121 
18,237 
Depreciation and amortization of property, equipment and intangibles
12,382 
12,051 
Stock-based compensation expense
25,825 
17,746 
Excess tax benefits from stock-based compensation
(32,732)
(11,615)
Other non-cash items
2,196 
1,750 
Loss on extinguishment of debt
0 
25,129 
Deferred taxes
(13,103)
(6,748)
Changes in operating assets and liabilities:
 
 
Other current assets
35,066 
(5,727)
Accounts payable
22,812 
17,019 
Accrued expenses
(442)
(4,132)
Deferred revenue
14,248 
9,406 
Other non-current assets and liabilities
7,291 
8,446 
Net cash provided by (used in) operating activities
36,359 
(12,250)
Cash flows from investing activities:
 
 
Acquisition of DVD content library
(14,914)
(21,193)
Purchases of property and equipment
(13,334)
(12,118)
Other assets
295 
4,050 
Purchases of short-term investments
(60,546)
(235,623)
Proceeds from sale of short-term investments
143,048 
81,228 
Proceeds from maturities of short-term investments
3,090 
4,420 
Net cash provided by (used in) investing activities
57,639 
(179,236)
Cash flows from financing activities:
 
 
Proceeds from issuance of common stock
32,448 
39,146 
Proceeds from issuance of debt
400,000 
500,000 
Issuance costs
(6,727)
(9,414)
Redemption of debt
0 
(219,362)
Excess tax benefits from stock-based compensation
32,732 
11,615 
Principal payments of lease financing obligations
(267)
(403)
Net cash provided by financing activities
458,186 
321,582 
Effect of exchange rate changes on cash and cash equivalents
301 
(2,336)
Net increase in cash and cash equivalents
552,485 
127,760 
Cash and cash equivalents, beginning of period
604,965 
290,291 
Cash and cash equivalents, end of period
$ 1,157,450 
$ 418,051 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 1,157,450 
$ 604,965 
Short-term investments
510,793 
595,440 
Current content library, net
1,771,410 
1,706,421 
Other current assets
147,131 
151,937 
Total current assets
3,586,784 
3,058,763 
Non-current content library, net
2,179,474 
2,091,071 
Property and equipment, net
133,473 
133,605 
Other non-current assets
148,375 
129,124 
Total assets
6,048,106 
5,412,563 
Current liabilities:
 
 
Current content liabilities
1,844,897 
1,775,983 
Accounts payable
133,883 
108,435 
Accrued expenses
54,858 
54,018 
Deferred revenue
230,015 
215,767 
Total current liabilities
2,263,653 
2,154,203 
Non-current content liabilities
1,321,879 
1,345,590 
Long-term debt
900,000 
500,000 
Other non-current liabilities
84,216 
79,209 
Total liabilities
4,569,748 
4,079,002 
Commitments and contingencies (Note 10)
   
   
Stockholders’ equity:
 
 
Common stock, $0.001 par value; 160,000,000 shares authorized at March 31, 2014 and December 31, 2013; 59,940,336 and 59,607,001 issued and outstanding at March 31, 2014 and December 31, 2013, respectively
60 
60 
Additional paid-in capital
868,195 
777,441 
Accumulated other comprehensive income
4,503 
3,575 
Retained earnings
605,600 
552,485 
Total stockholders’ equity
1,478,358 
1,333,561 
Total liabilities and stockholders’ equity
$ 6,048,106 
$ 5,412,563 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
160,000,000 
160,000,000 
Common stock, shares issued
59,940,336 
59,607,001 
Common stock, shares outstanding
59,940,336 
59,607,001 
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated interim financial statements of Netflix, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (the “SEC”) on February 3, 2014. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the amortization policy for the streaming content library; the recognition and measurement of income tax assets and liabilities; and the valuation of stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Interim results are not necessarily indicative of the results for a full year.
The Company is organized into three operating segments: Domestic streaming, International streaming and Domestic DVD. A majority of the Company’s revenues are generated in the United States, and substantially all of the Company’s long-lived tangible assets are held in the United States. The Company’s revenues are derived from monthly membership fees.
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Reclassifications
Reclassifications
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation in the consolidated financial statements.
Costs of revenues in the amount of $10.1 million for the three months ended March 31, 2013 related to free-trial periods that were previously allocated to “Marketing” on the Consolidated Statements of Operations have been reallocated to “Cost of revenues”. There was no impact to contribution profit or net income in any period presented and there was no impact to the Consolidated Balance Sheets or Consolidated Statements of Cash Flows.
Earnings Per Share
Earnings Per Share
Earnings Per Share
Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of shares issuable upon the assumed conversion of the Company’s Senior Convertible Notes (prior to the conversion of such notes in April 2013) and incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:
 
Three Months Ended
 
March 31,
2014
 
March 31,
2013
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
Net income
$
53,115

 
$
2,689

Shares used in computation:
 
 
 
Weighted-average common shares outstanding
59,817

 
55,972

Basic earnings per share
$
0.89

 
$
0.05

 
 
 
 
Diluted earnings per share:
 
 
 
Net income
$
53,115

 
$
2,689

Senior Convertible Notes interest expense, net of tax
—

 
49

Numerator for diluted earnings per share
$
53,115

 
$
2,738

Shares used in computation:
 
 
 
Weighted-average common shares outstanding
59,817

 
55,972

Senior Convertible Notes shares
—

 
2,331

Employee stock options
1,731

 
1,843

Weighted-average number of shares
61,548

 
60,146

Diluted earnings per share
$
0.86

 
$
0.05



Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the diluted calculation:
 
Three Months Ended
 
March 31,
2014
 
March 31,
2013
 
(in thousands)
Employee stock options
41

 
450

Short-term Investments
Short-term Investments
Short-term Investments
The Company’s investment policy is consistent with the definition of available-for-sale securities. The Company does not buy and hold securities principally for the purpose of selling them in the near future. The Company’s policy is focused on the preservation of capital, liquidity and return. From time to time, the Company may sell certain securities but the objectives are generally not to generate profits on short-term differences in price. The following tables summarize, by major security type, the Company’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
 
As of March 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
1,069,050

 
$
—

 
$
—

 
$
1,069,050

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
94,103

 
—

 
—

 
94,103

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
328,233

 
1,333

 
(218
)
 
329,348

Government securities
136,374

 
319

 
(9
)
 
136,684

Asset backed securities
3,382

 
4

 
—

 
3,386

Certificate of deposits
23,425

 
—

 
—

 
23,425

Agency securities
17,950

 
—

 
—

 
17,950

Total (1)
$
1,672,517

 
$
1,656

 
$
(227
)
 
$
1,673,946


 
As of December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
483,959

 
$
—

 
$
—

 
$
483,959

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
126,208

 
—

 
—

 
126,208

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
316,465

 
1,245

 
(654
)
 
317,056

Government securities
143,812

 
287

 
(18
)
 
144,081

Asset and mortgage-backed securities
93,118

 
229

 
(418
)
 
92,929

Certificate of deposits
23,425

 
—

 
—

 
23,425

Agency securities
17,951

 
—

 
(2
)
 
17,949

Total (2)
$
1,204,938

 
$
1,761

 
$
(1,092
)
 
$
1,205,607


(1)
Includes $1,157.5 million that is included in cash and cash equivalents, $510.8 million included in short-term investments and $5.7 million of restricted cash that is included in other non-current assets related to workers compensation deposits.
(2)
Includes $605.0 million that is included in cash and cash equivalents, $595.4 million included in short-term investments and $5.2 million of restricted cash that is included in other non-current assets related to workers compensation deposits.

Fair value is a market-based measurement that is determined based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy level assigned to each security in the Company’s available-for-sale portfolio and cash equivalents is based on its assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The fair value of available-for-sale securities and cash equivalents included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. The fair value of available-for-sale securities included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from an independent pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. The Company's procedures include controls to ensure that appropriate fair values are recorded, such as comparing prices obtained from multiple independent sources. See Note 6 to the consolidated financial statements for further information regarding the fair value of the Company’s debt instruments.
There were no investments in a material unrealized loss position as of March 31, 2014 or December 31, 2013, respectively. There were no material other-than-temporary impairments or credit losses related to available-for-sale securities in the three months ended March 31, 2014 and 2013. In addition, there were no material gross realized gains or losses in the three months ended March 31, 2014 and 2013.
The estimated fair value of short-term investments by contractual maturity as of March 31, 2014 is as follows:
 
(in thousands)
Due within one year
$
204,050

Due after one year and through 5 years
306,743

Due after 5 years and through 10 years
—

Due after 10 years
—

Total short-term investments
$
510,793

Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Content Library
Content library consisted of the following:
 
 
As of
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
Total content library, gross
$
6,784,831

 
$
6,474,688

Accumulated amortization
(2,833,947
)
 
(2,677,196
)
Total content library, net
3,950,884

 
3,797,492

Current content library, net
1,771,410

 
1,706,421

Non-current content library, net
$
2,179,474

 
$
2,091,071



Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:
 
 
 
As of
 
 
 
March 31,
2014
 
December 31,
2013
 
 
 
(in thousands)
Computer equipment
 
3 years
$
110,411

 
$
102,867

Operations and other equipment
 
5 years
96,180

 
96,361

Software
 
3 years
35,589

 
36,439

Furniture and fixtures
 
3 years
22,595

 
21,011

Building
 
30 years
40,681

 
40,681

Leasehold improvements
 
Over life of lease
53,064

 
51,194

Capital work-in-progress
 
 
9,584

 
8,643

Property and equipment, gross
 
 
368,104

 
357,196

Less: Accumulated depreciation
 
 
(234,631
)
 
(223,591
)
Property and equipment, net
 
 
$
133,473

 
$
133,605

Long-term Debt
Long-term Debt
Long-term Debt
Senior Convertible Notes
In November 2011, the Company issued $200.0 million aggregate principal amount of zero coupon Senior Convertible Notes due on December 1, 2018 (the “Convertible Notes”) in a private placement offering to TCV VII, L.P., TCV VII(A), L.P. and TCV Member Fund, L.P. A general partner of these funds also serves on the Company’s Board of Directors, and as such, the issuance of the notes was considered a related party transaction. At any time following May 28, 2012, the Company could have elected to cause the conversion of the Convertible Notes into shares of the Company’s common stock when specified conditions were satisfied, including that the daily volume weighted-average price of the Company’s common stock was equal to or greater than $111.54 for at least 50 trading days during a 65 trading day period prior to the conversion date.
In April 2013, after all specified conditions were satisfied, the Company elected to cause the conversion of all outstanding Convertible Notes with an aggregate principal amount of $200.0 million in accordance with the terms of the Indenture governing such notes. Pursuant to this conversion, the Company issued 2.3 million shares of common stock to the holders of the Convertible Notes at a conversion ratio of 11.6553. The fair market value of one share of common stock on the date of conversion was $216.99 per share.
5.375% Senior Notes
In February 2013, the Company issued $500.0 million aggregate principal amount of 5.375% Senior Notes due 2021 (the "5.375% Notes"). The 5.375% Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at a rate of 5.375% per annum on February 1 and August 1 of each year, commencing on August 1, 2013. The 5.375% Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the 5.375% Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest plus a make-whole payment equivalent to the present value of the remaining interest payments through maturity.
The 5.375% Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. At March 31, 2014 and December 31, 2013 the Company was in compliance with these covenants.
In the first quarter of 2013, the Company used $224.5 million of the net proceeds of the 5.375% Notes to redeem the outstanding $200.0 million aggregate principal amount of 8.50% Senior Notes due 2017 (the “8.50% Notes”) and pursuant to the make-whole provision in the Indenture governing the 8.50% Notes, paid a $19.4 million premium and $5.1 million of accrued and unpaid interest. The Company recognized a loss on extinguishment of debt of $25.1 million related to redemption of the 8.50% Notes which included the write off of unamortized debt issuance costs of $4.2 million.
Based on quoted market prices in less active markets (a Level 2 input for this financial instrument), the fair value of the 5.375% Notes as of March 31, 2014 and December 31, 2013 was approximately $525.0 million and $506.3 million, respectively.
5.750% Senior Notes

In February 2014, the Company issued $400.0 million aggregate principal amount of 5.750% Senior Notes due 2024 (the "5.750% Notes"). The 5.750% Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at a rate of 5.750% per annum on March 1 and September 1 of each year, commencing on September 1, 2014. The 5.750% Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the 5.750% Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest plus a make-whole payment equivalent to the present value of the remaining interest payments through maturity.
The 5.750% Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. At March 31, 2014 the Company was in compliance with these covenants.
The net proceeds to the Company were $392.9 million. Debt issuance costs of $7.1 million (of which $0.4 million were unpaid as of March 31, 2014) were recorded in "Other non-current assets" on the Consolidated Balance Sheets and are amortized over the term of the notes as "Interest expense" on the Consolidated Statements of Operations.
Based on quoted market prices in less active markets (a Level 2 input for this financial instrument), the fair value of the 5.750% Notes as of March 31, 2014 was approximately $414.0 million.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity
Stock Option Plan
In June 2011, the Company adopted the 2011 Stock Plan. The 2011 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. As of March 31, 2014, 3.3 million shares were reserved for future grants under the 2011 Stock Plan.
A summary of the activities related to the Company’s stock option plans is as follows:
 
 
 
Options Outstanding
 
 
 
 
 
Shares
Available
for Grant
 
Number of
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-Average Remaining
Contractual Term
(in Years)
 
Aggregate
Intrinsic Value
(in Thousands)
Balances as of December 31, 2013
3,406,317

 
3,526,898

 
$
95.25

 
 
 
 
Granted
(116,439
)
 
116,439

 
407.31

 
 
 
 
Exercised


 
(333,335
)
 
97.34

 
 
 
 
Balances as of March 31, 2014
3,289,878

 
3,310,002

 
106.01

 
5.98
 
$
821,101

Vested and exercisable at March 31, 2014
 
 
3,310,002

 
106.01

 
5.98
 
$
821,101



The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2014. This amount changes based on the fair market value of the Company’s common stock. The total intrinsic value of options exercised for the three months ended March 31, 2014 and 2013 was $101.5 million and $50.0 million, respectively.
Cash received from option exercises for the three months ended March 31, 2014 and 2013 was $32.4 million and $39.1 million, respectively.
Stock-Based Compensation
The following table summarizes the assumptions used to value stock option grants using the lattice-binomial model:
 
Three Months Ended
 
March 31,
2014
 
March 31,
2013
Dividend yield
—
%
 
—
%
Expected volatility
48
%
 
54
%
Risk-free interest rate
2.83
%
 
1.87
%
Suboptimal exercise factor
2.66 - 4.07

 
2.33 - 3.59



The Company bifurcates its option grants into two employee groupings (executive and non-executive) and considers several factors, including the historical option exercise behavior, the contractual terms and vesting periods of the options granted, in determining the suboptimal exercise factor.
The weighted-average fair value of employee stock options granted during the three months ended March 31, 2014 and 2013 was $221.79 and $72.71 per share, respectively.
Stock-based compensation expense related to stock option plans was $25.8 million and $17.7 million for the three months ended March 31, 2014 and 2013, respectively. The total income tax benefit recognized in the income statement related to stock option plans was $9.9 million and $6.8 million for the three months ended March 31, 2014 and 2013, respectively.
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income

The following table summarizes the changes in accumulated balances of other comprehensive income, net of tax for the three months ended March 31, 2014:
 
Foreign currency
 
Change in unrealized gains on available-for-sale securities
 
Total
 
(in thousands)
Balance as of December 31, 2013
$
3,153

 
$
422

 
$
3,575

Other comprehensive income before reclassifications
461

 
648

 
1,109

Amounts reclassified from accumulated other comprehensive income
—

 
(181
)
 
(181
)
Net increase in other comprehensive income
461

 
467

 
928

Balance as of March 31, 2014
$
3,614

 
$
889

 
$
4,503



All amounts reclassified from accumulated other comprehensive income were related to gains (losses) on available-for-sale securities. These reclassifications impacted "Interest and other income (expense)" on the Consolidated Statements of Operations.
Income Taxes
Income Taxes
Income Taxes
The effective tax rates (benefit) for the three months ended March 31, 2014 and 2013 were 40% and (189)%, respectively. The effective tax rate for the three months ended March 31, 2014 differed from the federal statutory rate primarily due to state taxes, foreign taxes and nondeductible expenses. The effective tax (benefit) for the three months ended March 31, 2013 differed from the federal statutory rate primarily due to a discrete benefit recorded for Federal R&D credit. On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8) was signed into law which retroactively extended the Federal R&D credit from January 1, 2012 through December 31, 2013. As a result, the Company recognized the retroactive benefit of the 2012 Federal R&D credit of approximately $3.1 million as a discrete item in the first quarter of 2013, the period in which the legislation was enacted.
The increase in our effective tax rates for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 was primarily attributable to the expiration of the Federal R&D tax credit on December 31, 2013 and from the significant effective tax (benefit) resulting from the discrete benefit recorded for the retroactive benefit of the 2012 Federal R&D credit in the three months ended March 31, 2013.
Gross unrecognized tax benefits were $73.4 million and $68.2 million as of March 31, 2014 and December 31, 2013, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $61.1 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. The Company’s unrecognized tax benefits are classified as “Other non-current liabilities” on the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision (benefit) for income taxes" on the Consolidated Statements of Operations. As of March 31, 2014, the total amount of gross interest and penalties accrued was $4.1 million, and is classified as “Other non-current liabilities” on the Consolidated Balance Sheets.
Deferred tax assets include $19.9 million and $21.5 million classified as “Other current assets” and $83.5 million and $69.1 million classified as “Other non-current assets” on the Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. As of March 31, 2014 and December 31, 2013, it was considered more likely than not that substantially all deferred tax assets would be realized, and no significant valuation allowance was recorded.
Income tax benefits attributable to the exercise of employee stock options of $32.5 million and $11.3 million, during the three months ended March 31, 2014 and 2013, respectively, were recorded directly to "Additional paid-in capital" on the Consolidated Balance Sheets.
The Company files U.S. federal, state and foreign tax returns. The Company is currently under examination by the IRS for the years 2008 through 2011. The IRS has completed its Field Exam of the 2008 and 2009 federal tax returns and has issued a Revenue Agent Report with a proposed assessment primarily related to the Company's R&D Credits claimed in those years. The Company has filed a protest against the proposed assessment and is currently awaiting the commencement of the IRS Appeals process. The IRS Field Exam of the 2010 and 2011 federal tax returns is in process. The 2012 federal tax return remains subject to examination by the IRS.
The Company is also currently under examination by the state of California for the years 2006 and 2007. California has completed its Field Exam of the 2006 and 2007 California tax returns and has issued a Notice of Proposed Assessment primarily related to our R&D Credits claimed in those years. The Company has filed a protest against the proposed assessment and is currently awaiting the commencement of the Protest process with the Franchise Tax Board. The years 1997 through 2005, as well as 2008 through 2012, remain subject to examination by the state of California.
The Company is currently not under examination in any foreign jurisdiction. The years 2011 and 2012 remain subject to examination by foreign jurisdictions.
Given the potential outcome of the current examinations, as well as the impact of the current examination on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

Streaming Content
At March 31, 2014, the Company had $7.1 billion of obligations comprised of $1.8 billion included in "Current content liabilities" and $1.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $4.0 billion of obligations that are not reflected on the Consolidated Balance Sheets.
At December 31, 2013, the Company had $7.3 billion of obligations comprised of $1.8 billion included in "Current content liabilities" and $1.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $4.2 billion of obligations that are not reflected on the Consolidated Balance Sheets.
The expected timing of payments for these streaming content obligations is as follows:
 
As of 
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
Less than one year
$
3,055,127

 
$
2,972,325

Due after one year and through 3 years
3,393,761

 
3,266,907

Due after 3 years and through 5 years
630,518

 
929,645

Due after 5 years
43,803

 
83,284

Total streaming content obligations
$
7,123,209

 
$
7,252,161



A streaming content obligation is incurred at the time the Company signs a license agreement to obtain future titles. Once a title becomes available, a content liability is generally 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. Because the amount is not reasonably estimable, the Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant and the expected timing of payments could range from less than one year to more than five years.
The Company has entered into certain licenses with performing rights organizations ("PROs"), and is currently involved in negotiations with other PROs, that hold certain rights to music and other entertainment works "publicly performed" in connection with streaming content into various territories. Accruals for estimated license fees are recorded and then adjusted based on any change in estimates. These amounts are included in the streaming content obligations. The results of these negotiations are uncertain and may be materially different from management's estimates.
Legal Proceedings
From time to time, in the normal course of its operations, the Company is a party to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.
On January 13, 2012, the first of three purported shareholder class action lawsuits was filed in the United States District Court for the Northern District of California against the Company and certain of its officers and directors. Two additional purported shareholder class action lawsuits were filed in the same court on January 27, 2012 and February 29, 2012 alleging substantially similar claims.  These lawsuits were consolidated into In re Netflix, Inc., Securities Litigation, Case No. 3:12-cv-00225-SC, and the Court selected lead plaintiffs. On June 26, 2012, lead plaintiffs filed a consolidated complaint which alleged violations of the federal securities laws. The Court dismissed the consolidated complaint with leave to amend on February 13, 2013. Lead plaintiffs filed a first amended consolidated complaint on March 22, 2013. The Court dismissed the first amended consolidated complaint with prejudice on August 20, 2013, and judgment was entered on September 27, 2013. Lead plaintiffs filed a motion to alter or amend the judgment and requested leave to file a second amended complaint on October 25, 2013. On January 17, 2014, the Court denied that motion. On February 18, 2014, plaintiffs appealed that decision to the Unites States Court of Appeals for the Ninth Circuit.
On November 23, 2011, the first of six purported shareholder derivative suits was filed in the Superior Court of California, Santa Clara County, against the Company and certain of its officers and directors. Five additional purported shareholder derivative suits were subsequently filed: two in the Superior Court of California, Santa Clara County on February 9, 2012 and May 2, 2012; and three in the United States District Court for the Northern District of California on February 13, 2012, February 24, 2012 and April 2, 2012. The purported shareholder derivative suits filed in the Northern District of California have been voluntarily dismissed. On July 5, 2012, the purported shareholder derivative suits filed in Santa Clara County were consolidated into In re Netflix, Inc. Shareholder Derivative Litigation, Case No. 1-12-cv-218399, and lead counsel was appointed. A consolidated complaint was filed on December 4, 2012, with plaintiffs seeking compensatory damages and other relief. The consolidated complaint alleges, among other things, that certain of the Company's current and former officers and directors breached their fiduciary duties, issued false and misleading statements primarily regarding the Company's streaming business, violated accounting rules concerning segment reporting, violated provisions of the California Corporations Code, and wasted corporate assets. The consolidated complaint further alleges that the defendants caused the Company to buy back stock at artificially inflated prices to the detriment of the Company and its shareholders while contemporaneously selling personally held Company stock. The Company filed a demurrer to the consolidated complaint and a motion to stay the derivative litigation in favor of the related federal securities class action on February 4, 2013. On June 21, 2013, the Court granted the motion to stay the derivative litigation pending resolution of the related federal securities class action. Management has determined a potential loss is reasonably possible however, based on its current knowledge, management does not believe that the amount of such possible loss or a range of potential loss is reasonably estimable.

The Company is involved in other litigation matters not listed above but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.
Indemnification
In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.
The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.
It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. No amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.
Segment Information
Segment Information
Segment Information
The Company has three operating segments: Domestic streaming, International streaming and Domestic DVD. Segment information is presented along the same lines that the Company’s chief operating decision maker reviews the operating results in assessing performance and allocating resources. The Company’s chief operating decision maker reviews revenues and contribution profit (loss) for each of the reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues and marketing expenses directly incurred by the segment.
The Domestic and International streaming segments derive revenues from monthly membership fees for services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment card fees are attributed to the operating segment based on the nature of the underlying membership (streaming or DVD) and the geographic region from which the membership originates. There are no internal revenue transactions between the Company’s reporting segments.
Cost of revenues are primarily attributed to the operating segment based on the amounts directly incurred by the segment to obtain content and deliver it to the specific region. Marketing expenses are primarily comprised of advertising expenses which are generally included in the segment in which the expenditures are directly incurred.
The Company's long-lived tangible assets were located as follows:
 
As of
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
United States
$
126,330

 
$
126,455

International
7,143

 
7,150


The following tables represent segment information for the three months ended March 31, 2014 and 2013:
 
 
As of/ Three months ended March 31, 2014
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
35,674

 
12,683

 
6,652

 
—

Revenues
$
798,617

 
$
267,118

 
$
204,354

 
$
1,270,089

Cost of revenues
517,094

 
245,267

 
106,825

 
869,186

Marketing
80,258

 
56,840

 
—

 
137,098

Contribution profit (loss)
$
201,265

 
$
(34,989
)
 
$
97,529

 
$
263,805

Other operating expenses
 
 
 
 
 
 
166,210

Operating income
 
 
 
 
 
 
97,595

Other income (expense)
 
 
 
 
 
 
(8,651
)
Provision for income taxes
 
 
 
 
 
 
35,829

Net income
 
 
 
 
 
 
$
53,115


 
As of/ Three months ended March 31, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
29,174

 
7,142

 
7,983

 
—

Revenues
$
638,649

 
$
142,019

 
$
243,293

 
$
1,023,961

Cost of revenues
440,334

 
166,892

 
129,726

 
736,952

Marketing
66,965

 
52,047

 
74

 
119,086

Contribution profit (loss)
$
131,350

 
$
(76,920
)
 
$
113,493

 
$
167,923

Other operating expenses
 
 
 
 
 
 
136,101

Operating income
 
 
 
 
 
 
31,822

Other income (expense)
 
 
 
 
 
 
(30,892
)
Benefit for income taxes
 
 
 
 
 
 
(1,759
)
Net income
 
 
 
 
 
 
$
2,689

The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
Three months ended March 31,
(in thousands)
2014
$
386,315

 
$
214,420

 
$
16,121

 
$
616,856

2013
335,748

 
149,992

 
18,237

 
503,977

The following table represents total content library, net:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
As of March 31, 2014
$
3,009,260

 
$
918,979

 
$
22,645

 
$
3,950,884

As of December 31, 2013
2,973,023

 
804,690

 
19,779

 
3,797,492



(1)
A membership (also referred to as a subscription) is defined as the right to receive either the Netflix streaming service or Netflix DVD service. Memberships are assigned to territories based on the geographic location used at time of sign up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to new and certain rejoining members. For inclusion in the definition of a member in the above metrics, a method of payment is required to be provided even during the free-trial period. Total members therefore include those who are on a free-trial and have provided a method of payment. A membership would be canceled and cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies (Policies)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the amortization policy for the streaming content library; the recognition and measurement of income tax assets and liabilities; and the valuation of stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.
Earnings Per Share Earnings Per Share (Tables)
Computation Of Net Income Per Share 
The computation of earnings per share is as follows:
 
Three Months Ended
 
March 31,
2014
 
March 31,
2013
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
Net income
$
53,115

 
$
2,689

Shares used in computation:
 
 
 
Weighted-average common shares outstanding
59,817

 
55,972

Basic earnings per share
$
0.89

 
$
0.05

 
 
 
 
Diluted earnings per share:
 
 
 
Net income
$
53,115

 
$
2,689

Senior Convertible Notes interest expense, net of tax
—

 
49

Numerator for diluted earnings per share
$
53,115

 
$
2,738

Shares used in computation:
 
 
 
Weighted-average common shares outstanding
59,817

 
55,972

Senior Convertible Notes shares
—

 
2,331

Employee stock options
1,731

 
1,843

Weighted-average number of shares
61,548

 
60,146

Diluted earnings per share
$
0.86

 
$
0.05

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share 
The following table summarizes the potential common shares excluded from the diluted calculation:
 
Three Months Ended
 
March 31,
2014
 
March 31,
2013
 
(in thousands)
Employee stock options
41

 
450

Short-term Investments Short-term Investments (Tables)
Available-For-Sale Securities Reported At Fair Value 
The following tables summarize, by major security type, the Company’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
 
As of March 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
1,069,050

 
$
—

 
$
—

 
$
1,069,050

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
94,103

 
—

 
—

 
94,103

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
328,233

 
1,333

 
(218
)
 
329,348

Government securities
136,374

 
319

 
(9
)
 
136,684

Asset backed securities
3,382

 
4

 
—

 
3,386

Certificate of deposits
23,425

 
—

 
—

 
23,425

Agency securities
17,950

 
—

 
—

 
17,950

Total (1)
$
1,672,517

 
$
1,656

 
$
(227
)
 
$
1,673,946


 
As of December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
483,959

 
$
—

 
$
—

 
$
483,959

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
126,208

 
—

 
—

 
126,208

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
316,465

 
1,245

 
(654
)
 
317,056

Government securities
143,812

 
287

 
(18
)
 
144,081

Asset and mortgage-backed securities
93,118

 
229

 
(418
)
 
92,929

Certificate of deposits
23,425

 
—

 
—

 
23,425

Agency securities
17,951

 
—

 
(2
)
 
17,949

Total (2)
$
1,204,938

 
$
1,761

 
$
(1,092
)
 
$
1,205,607


(1)
Includes $1,157.5 million that is included in cash and cash equivalents, $510.8 million included in short-term investments and $5.7 million of restricted cash that is included in other non-current assets related to workers compensation deposits.
(2)
Includes $605.0 million that is included in cash and cash equivalents, $595.4 million included in short-term investments and $5.2 million of restricted cash that is included in other non-current assets related to workers compensation deposits.

Estimated Fair Value Of Short-Term Investments By Contractual Maturity 
The estimated fair value of short-term investments by contractual maturity as of March 31, 2014 is as follows:
 
(in thousands)
Due within one year
$
204,050

Due after one year and through 5 years
306,743

Due after 5 years and through 10 years
—

Due after 10 years
—

Total short-term investments
$
510,793

Balance Sheet Components (Tables)
Components Of Content Library 
Content library consisted of the following:
 
 
As of
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
Total content library, gross
$
6,784,831

 
$
6,474,688

Accumulated amortization
(2,833,947
)
 
(2,677,196
)
Total content library, net
3,950,884

 
3,797,492

Current content library, net
1,771,410

 
1,706,421

Non-current content library, net
$
2,179,474

 
$
2,091,071

Property And Equipment And Accumulated Depreciation 
Property and equipment and accumulated depreciation consisted of the following:
 
 
 
As of
 
 
 
March 31,
2014
 
December 31,
2013
 
 
 
(in thousands)
Computer equipment
 
3 years
$
110,411

 
$
102,867

Operations and other equipment
 
5 years
96,180

 
96,361

Software
 
3 years
35,589

 
36,439

Furniture and fixtures
 
3 years
22,595

 
21,011

Building
 
30 years
40,681

 
40,681

Leasehold improvements
 
Over life of lease
53,064

 
51,194

Capital work-in-progress
 
 
9,584

 
8,643

Property and equipment, gross
 
 
368,104

 
357,196

Less: Accumulated depreciation
 
 
(234,631
)
 
(223,591
)
Property and equipment, net
 
 
$
133,473

 
$
133,605




Stockholders' Equity (Tables)
Summary Of Activity Related To Stock Option Plans 
A summary of the activities related to the Company’s stock option plans is as follows:
 
 
 
Options Outstanding
 
 
 
 
 
Shares
Available
for Grant
 
Number of
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-Average Remaining
Contractual Term
(in Years)
 
Aggregate
Intrinsic Value
(in Thousands)
Balances as of December 31, 2013
3,406,317

 
3,526,898

 
$
95.25

 
 
 
 
Granted
(116,439
)
 
116,439

 
407.31

 
 
 
 
Exercised


 
(333,335
)
 
97.34

 
 
 
 
Balances as of March 31, 2014
3,289,878

 
3,310,002

 
106.01

 
5.98
 
$
821,101

Vested and exercisable at March 31, 2014
 
 
3,310,002

 
106.01

 
5.98
 
$
821,101

Summary Of Assumptions Used To Value Stock Option Grants Using Lattice-Binomial Model 
The following table summarizes the assumptions used to value stock option grants using the lattice-binomial model:
 
Three Months Ended
 
March 31,
2014
 
March 31,
2013
Dividend yield
—
%
 
—
%
Expected volatility
48
%
 
54
%
Risk-free interest rate
2.83
%
 
1.87
%
Suboptimal exercise factor
2.66 - 4.07

 
2.33 - 3.59

Accumulated Other Comprehensive Income (Tables)
Schedule of Changes in Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated balances of other comprehensive income, net of tax for the three months ended March 31, 2014:
 
Foreign currency
 
Change in unrealized gains on available-for-sale securities
 
Total
 
(in thousands)
Balance as of December 31, 2013
$
3,153

 
$
422

 
$
3,575

Other comprehensive income before reclassifications
461

 
648

 
1,109

Amounts reclassified from accumulated other comprehensive income
—

 
(181
)
 
(181
)
Net increase in other comprehensive income
461

 
467

 
928

Balance as of March 31, 2014
$
3,614

 
$
889

 
$
4,503

Commitments and Contingencies (Tables)
Expected Timing Of Payments For Commitments
The expected timing of payments for these streaming content obligations is as follows:
 
As of 
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
Less than one year
$
3,055,127

 
$
2,972,325

Due after one year and through 3 years
3,393,761

 
3,266,907

Due after 3 years and through 5 years
630,518

 
929,645

Due after 5 years
43,803

 
83,284

Total streaming content obligations
$
7,123,209

 
$
7,252,161

Segment Information (Tables)
Long-lived Assets by Geographic Areas 
The Company's long-lived tangible assets were located as follows:
 
As of
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
United States
$
126,330

 
$
126,455

International
7,143

 
7,150

Information On Reportable Segments And Reconciliation To Consolidated Net Income 
The following tables represent segment information for the three months ended March 31, 2014 and 2013:
 
 
As of/ Three months ended March 31, 2014
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
35,674

 
12,683

 
6,652

 
—

Revenues
$
798,617

 
$
267,118

 
$
204,354

 
$
1,270,089

Cost of revenues
517,094

 
245,267

 
106,825

 
869,186

Marketing
80,258

 
56,840

 
—

 
137,098

Contribution profit (loss)
$
201,265

 
$
(34,989
)
 
$
97,529

 
$
263,805

Other operating expenses
 
 
 
 
 
 
166,210

Operating income
 
 
 
 
 
 
97,595

Other income (expense)
 
 
 
 
 
 
(8,651
)
Provision for income taxes
 
 
 
 
 
 
35,829

Net income
 
 
 
 
 
 
$
53,115


 
As of/ Three months ended March 31, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
29,174

 
7,142

 
7,983

 
—

Revenues
$
638,649

 
$
142,019

 
$
243,293

 
$
1,023,961

Cost of revenues
440,334

 
166,892

 
129,726

 
736,952

Marketing
66,965

 
52,047

 
74

 
119,086

Contribution profit (loss)
$
131,350

 
$
(76,920
)
 
$
113,493

 
$
167,923

Other operating expenses
 
 
 
 
 
 
136,101

Operating income
 
 
 
 
 
 
31,822

Other income (expense)
 
 
 
 
 
 
(30,892
)
Benefit for income taxes
 
 
 
 
 
 
(1,759
)
Net income
 
 
 
 
 
 
$
2,689

The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
Three months ended March 31,
(in thousands)
2014
$
386,315

 
$
214,420

 
$
16,121

 
$
616,856

2013
335,748

 
149,992

 
18,237

 
503,977

The following table represents total content library, net:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
As of March 31, 2014
$
3,009,260

 
$
918,979

 
$
22,645

 
$
3,950,884

As of December 31, 2013
2,973,023

 
804,690

 
19,779

 
3,797,492



(1)
A membership (also referred to as a subscription) is defined as the right to receive either the Netflix streaming service or Netflix DVD service. Memberships are assigned to territories based on the geographic location used at time of sign up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to new and certain rejoining members. For inclusion in the definition of a member in the above metrics, a method of payment is required to be provided even during the free-trial period. Total members therefore include those who are on a free-trial and have provided a method of payment. A membership would be canceled and cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies (Details)
3 Months Ended
Mar. 31, 2014
segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
Number of Operating Segments
3 
Reclassifications Schedule of Marketing and General and Administrative Expenses Reclassified (Details) (Marketing Expenses Reclassified to Costs of Revenues [Member], USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Marketing Expenses Reclassified to Costs of Revenues [Member]
 
Costs of free trials allocated to marketing reclassified to cost of revenues
$ 10.1 
Earnings Per Share (Computation Of Net Income Per Share) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Basic earnings per share:
 
 
Net income
$ 53,115 
$ 2,689 
Weighted-average common shares outstanding
59,817 
55,972 
Basic earnings per share (in dollars per share)
$ 0.89 
$ 0.05 
Diluted earnings per share:
 
 
Net income
53,115 
2,689 
Senior Convertible Notes interest expense, net of tax
0 
49 
Numerator for diluted earnings per share
$ 53,115 
$ 2,738 
Shares used in computation:
 
 
Weighted-average common shares outstanding
59,817 
55,972 
Senior Convertible Notes shares
0 
2,331 
Employee stock options
1,731 
1,843 
Weighted-average number of shares - Diluted
61,548 
60,146 
Diluted earnings per share (in dollars per share)
$ 0.86 
$ 0.05 
Earnings Per Share (Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) (Stock Options [Member])
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Stock Options [Member]
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
Antidilutive securities excluded from computation of earnings per share (in shares)
41 
450 
Short-term Investments (Available-For-Sale Securities Reported At Fair Value) (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Amortized Cost
$ 1,672,517 1
$ 1,204,938 2
Total, Unrealized Gains
1,656 1
1,761 2
Total, Unrealized Losses
(227)1
(1,092)2
Total, Estimated Fair Value
1,673,946 1
1,205,607 2
Cash and Cash Equivalents [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
1,157,500 
605,000 
Short-term Investments [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
510,800 
595,400 
Non-current Assets [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
5,700 
5,200 
Level 1 Securities [Member] |
Money market funds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash, Money market and Government and agency securities classified as cash equivalents, Amortized Cost
94,103 
126,208 
Cash, Money market and Government and agency securities classified as cash equivalents, Gross Unrealized Gains
0 
0 
Cash, Money market and Government and agency securities classified as cash equivalents, Gross Unrealized Losses
0 
0 
Cash, Money market and Government and agency securities classified as cash equivalents, Estimated Fair Value
94,103 
126,208 
Level 2 Securities [Member] |
Corporate debt securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
328,233 
316,465 
Available-for-sale Securities, Gross Unrealized Gains
1,333 
1,245 
Available-for-sale Securities, Gross Unrealized Losses
(218)
(654)
Available-for-sale Securities, Estimated Fair Value
329,348 
317,056 
Level 2 Securities [Member] |
Government securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
136,374 
143,812 
Available-for-sale Securities, Gross Unrealized Gains
319 
287 
Available-for-sale Securities, Gross Unrealized Losses
(9)
(18)
Available-for-sale Securities, Estimated Fair Value
136,684 
144,081 
Level 2 Securities [Member] |
Asset and mortgage-backed securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
3,382 
93,118 
Available-for-sale Securities, Gross Unrealized Gains
4 
229 
Available-for-sale Securities, Gross Unrealized Losses
0 
(418)
Available-for-sale Securities, Estimated Fair Value
3,386 
92,929 
Level 2 Securities [Member] |
Certificates of deposits [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
23,425 
23,425 
Available-for-sale Securities, Gross Unrealized Gains
0 
0 
Available-for-sale Securities, Gross Unrealized Losses
0 
0 
Available-for-sale Securities, Estimated Fair Value
23,425 
23,425 
Level 2 Securities [Member] |
Agency securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
17,950 
17,951 
Available-for-sale Securities, Gross Unrealized Gains
0 
0 
Available-for-sale Securities, Gross Unrealized Losses
0 
(2)
Available-for-sale Securities, Estimated Fair Value
17,950 
17,949 
Cash [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash, Money market and Government and agency securities classified as cash equivalents, Amortized Cost
1,069,050 
483,959 
Cash, Money market and Government and agency securities classified as cash equivalents, Gross Unrealized Gains
0 
0 
Cash, Money market and Government and agency securities classified as cash equivalents, Gross Unrealized Losses
0 
0 
Cash, Money market and Government and agency securities classified as cash equivalents, Estimated Fair Value
$ 1,069,050 
$ 483,959 
Short-term Investments (Estimated Fair Value Of Short-Term Investments By Contractual Maturity) (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Short-Term Investments And Fair Value Measurement [Abstract]
 
Due within one year
$ 204,050 
Due after one year and through 5 years
306,743 
Due after 5 years and through 10 years
0 
Due after 10 years
0 
Total short-term investments
$ 510,793 
Balance Sheet Components (Components of Content Library ) (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Balance Sheet Components Disclosure [Abstract]
 
 
Total content library, gross
$ 6,784,831 
$ 6,474,688 
Accumulated amortization
(2,833,947)
(2,677,196)
Total content library, net
3,950,884 
3,797,492 
Current content library, net
1,771,410 
1,706,421 
Non-current content library, net
$ 2,179,474 
$ 2,091,071 
Balance Sheet Components (Property And Equipment And Accumulated Depreciation) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Dec. 31, 2013
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 368,104 
$ 357,196 
Less: Accumulated depreciation
(234,631)
(223,591)
Property and equipment, net
133,473 
133,605 
Computer equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
110,411 
102,867 
Property and equipment, useful life (years)
3 years 
 
Operations and other equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
96,180 
96,361 
Property and equipment, useful life (years)
5 years 
 
Software [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
35,589 
36,439 
Property and equipment, useful life (years)
3 years 
 
Furniture and fixtures [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
22,595 
21,011 
Property and equipment, useful life (years)
3 years 
 
Building [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
40,681 
40,681 
Property and equipment, useful life (years)
30 years 
 
Leasehold improvements [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
53,064 
51,194 
Capital work-in-progress [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 9,584 
$ 8,643 
Long-term Debt (Senior Convertible Notes) (Narrative) (Details) (Director [Member], Convertible Debt [Member], Senior Convertible Note [Member], USD $)
Share data in Millions, except Per Share data, unless otherwise specified
0 Months Ended 1 Months Ended
May 28, 2012
Apr. 30, 2013
Nov. 30, 2011
Debt Instrument [Line Items]
 
 
 
Long-term debt due to related party
 
$ 200,000,000 
$ 200,000,000 
Interest rate
 
 
0.00% 
Weighted average price of common stock
$ 111.54 
 
 
Common stock, shares issued
 
2.3 
 
Common stock conversion ratio
 
11.6553 
 
Fair value at conversion
 
$ 217 
 
Minimum [Member]
 
 
 
Debt Instrument [Line Items]
 
 
 
Trading days prior to conversion date required for conversion
50 days 
 
 
Maximum [Member]
 
 
 
Debt Instrument [Line Items]
 
 
 
Trading days prior to conversion date required for conversion
65 days 
 
 
Long-term Debt (Senior Notes) (Narrative) (Details) (USD $)
3 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Mar. 31, 2014
Senior Notes [Member]
5.375% Senior Notes [Member]
Mar. 31, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Feb. 28, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Mar. 31, 2014
Senior Notes [Member]
5.375% Senior Notes [Member]
Level 2 Securities [Member]
Dec. 31, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Level 2 Securities [Member]
Mar. 31, 2013
Senior Notes [Member]
8.50% Senior Notes [Member]
Dec. 31, 2013
Senior Notes [Member]
8.50% Senior Notes [Member]
Feb. 28, 2014
Senior Notes [Member]
5.750% Senior Notes [Member]
Mar. 31, 2014
Senior Notes [Member]
5.750% Senior Notes [Member]
Mar. 31, 2014
Senior Notes [Member]
5.750% Senior Notes [Member]
Level 2 Securities [Member]
Mar. 31, 2014
Senior Notes [Member]
5.750% Senior Notes [Member]
Other non-current assets [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Face amount
 
 
 
 
$ 500,000,000 
 
 
 
$ 200,000,000.0 
$ 400,000,000.0 
 
 
 
Interest rate
 
 
5.375% 
 
5.375% 
 
 
8.50% 
 
5.75% 
 
 
 
Proceeds from debt, net of issuance costs
 
 
 
 
 
 
 
 
 
392,900,000 
 
 
 
Unamortized debt issuance expense
 
 
 
 
 
 
 
 
 
 
 
 
7,100,000 
Accrued debt issuance costs
 
 
 
 
 
 
 
 
 
 
400,000 
 
 
Redemption prices, percent of outstanding principal
 
 
101.00% 
 
 
 
 
 
 
 
101.00% 
 
 
Repayments
0 
219,362,000 
 
224,500,000 
 
 
 
 
 
 
 
 
 
Make-whole premium
 
 
 
 
 
 
 
19,400,000 
 
 
 
 
 
Interest payable
 
 
 
 
 
 
 
5,100,000 
 
 
 
 
 
Loss on extinguishment of debt
0 
(25,129,000)
 
 
 
 
 
25,100,000 
 
 
 
 
 
Write off of unamortized deferred financing costs
 
 
 
 
 
 
 
4,200,000 
 
 
 
 
 
Senior notes, fair value
 
 
 
 
 
$ 525,000,000 
$ 506,300,000 
 
 
 
 
$ 414,000,000 
 
Stockholders' Equity (Narrative) (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
employee_group
Mar. 31, 2013
Components of Stockholders' Equity [Line Items]
 
 
Total intrinsic value of options exercised
$ 101,500,000 
$ 50,000,000 
Proceeds from issuance of common stock
32,448,000 
39,146,000 
Number of employee groups
2 
 
Weighted-average fair value of employee stock options granted per share
$ 221.79 
$ 72.71 
Stock-based compensation expense
25,800,000 
17,700,000 
Income tax benefit
$ 9,900,000 
$ 6,800,000 
2011 Stock Plan [Member]
 
 
Components of Stockholders' Equity [Line Items]
 
 
Shares reserved for future issuance
3.3 
 
Stockholders' Equity (Summary Of Activity Related To Stock Option Plans) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
Shares Available for Grant, Beginning Balance
3,406,317 
Options Outstanding, Number of Shares, Beginning Balance
3,526,898 
Options Outstanding, Number of Shares, Granted
116,439 
Options Outstanding, Number of Shares, Exercised
(333,335)
Shares Available for Grant, Ending Balance
3,289,878 
Options Outstanding, Number of Shares, Ending Balance
3,310,002 
Options Outstanding, Number of Shares, Vested and exercisable
3,310,002 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
 
Options Outstanding, Weighted-Average Exercise Price, Beginning Balance
$ 95.25 
Options Outstanding, Weighted-Average Exercise Price, Granted
$ 407.31 
Options Outstanding, Weighted-Average Exercise Price, Exercised
$ 97.34 
Options Outstanding, Weighted-Average Exercise Price, Ending Balance
$ 106.01 
Options Outstanding, Weighted-Average Exercise Price, Vested and exercisable
$ 106.01 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
Weighted-Average Remaining Contractual Term, Ending Balance
5 years 11 months 23 days 
Weighted-Average Remaining Contractual Term, Vested and exercisable
5 years 11 months 23 days 
Aggregate Intrinsic Value, Ending Balance
$ 821,101 
Aggregate Intrinsic Value, Vested and exercisable
$ 821,101 
Stockholders' Equity (Summary Of Assumptions Used To Value Stock Option Grants Using Lattice-Binomial Model) (Details)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
 
 
Dividend yield
0.00% 
0.00% 
Expected volatility
48.00% 
54.00% 
Risk-free interest rate
2.83% 
1.87% 
Suboptimal exercise factor, minimum
2.66 
2.33 
Suboptimal exercise factor, maximum
4.07 
3.59 
Accumulated Other Comprehensive Income (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
Beginning balance
$ 3,575 
Other comprehensive income before reclassifications
1,109 
Amounts reclassified from accumulated other comprehensive income
(181)
Net increase in other comprehensive income
928 
Ending balance
4,503 
Foreign currency [Member]
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
Beginning balance
3,153 
Other comprehensive income before reclassifications
461 
Amounts reclassified from accumulated other comprehensive income
0 
Net increase in other comprehensive income
461 
Ending balance
3,614 
Change in unrealized gains on available-for-sale securities [Member]
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
Beginning balance
422 
Other comprehensive income before reclassifications
648 
Amounts reclassified from accumulated other comprehensive income
(181)
Net increase in other comprehensive income
467 
Ending balance
$ 889 
Income Taxes (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Dec. 31, 2013
Income Tax Disclosure [Abstract]
 
 
 
Effective tax rates
40.00% 
(189.00%)
 
2012 Federal R&D credit recognized
 
$ 3.1 
 
Unrecognized tax benefits
73.4 
 
68.2 
Reduction in provision for income taxes due to impact of effective tax rate
61.1 
 
 
Gross interest and penalties accrued
4.1 
 
 
Deferred tax assets, other current assets
19.9 
 
21.5 
Deferred tax assets, other non-current assets
83.5 
 
69.1 
Income tax benefits attributable to the exercise of employee stock options recorded directly to Additional paid-in-capital
$ 32.5 
$ 11.3 
 
Commitments and Contingencies Streaming Content Narrative (Details) (USD $)
Mar. 31, 2014
Dec. 31, 2013
Contractual Obligation [Line Items]
 
 
Total streaming content obligations
$ 7,123,209,000 
$ 7,252,161,000 
Unrecorded streaming obligations
4,000,000,000 
4,200,000,000 
Current Content Liabilities [Member]
 
 
Contractual Obligation [Line Items]
 
 
Recorded streaming obligations
1,800,000,000 
1,800,000,000 
Non-current Content Liabilities [Member]
 
 
Contractual Obligation [Line Items]
 
 
Recorded streaming obligations
$ 1,300,000,000 
$ 1,300,000,000 
Commitments and Contingencies Expected Timing Of Payments For Commitments (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
 
 
Less than one year
$ 3,055,127 
$ 2,972,325 
Due after one year and through 3 years
3,393,761 
3,266,907 
Due after 3 years and through 5 years
630,518 
929,645 
Due after 5 years
43,803 
83,284 
Total streaming content obligations
$ 7,123,209 
$ 7,252,161 
Commitments and Contingencies Legal Proceedings Narrative (Details) (Pending Litigation [Member])
Apr. 2, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Feb. 29, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Feb. 24, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Feb. 13, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Jan. 27, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
Jan. 13, 2012
United States District Court for the Northern District of California [Member]
lawsuits_filed
May 2, 2012
Superior Court of California, Santa Clara County [Member]
lawsuits_filed
Feb. 9, 2012
Superior Court of California, Santa Clara County [Member]
lawsuits_filed
Nov. 23, 2011
Superior Court of California, Santa Clara County [Member]
lawsuits_filed
Loss Contingencies [Line Items]
 
 
 
 
 
 
 
 
 
Loss Contingency, Pending Claims, Number
1 
1 
1 
1 
1 
1 
1 
1 
1 
Segment Information (Narrative) (Details)
3 Months Ended
Mar. 31, 2014
segment
Segment Reporting [Abstract]
 
Number of Operating Segments
3 
Segment Information (Long-lived Assets by Geographical Areas) (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
United States [Member]
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
Long-Lived Assets
$ 126,330 
$ 126,455 
International [Member]
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
Long-Lived Assets
$ 7,143 
$ 7,150 
Segment Information (Information On Reportable Segments And Reconciliation To Consolidated Net Income) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
subscription
Mar. 31, 2013
subscription
Dec. 31, 2013
Segment Reporting Information [Line Items]
 
 
 
Total members at end of period
0 1
0 1
 
Revenues
$ 1,270,089 
$ 1,023,961 
 
Cost of revenues
869,186 
736,952 
 
Marketing
137,098 
119,086 
 
Contribution profit (loss)
263,805 
167,923 
 
Other operating expenses
166,210 
136,101 
 
Operating income
97,595 
31,822 
 
Other income (expense)
(8,651)
(30,892)
 
Provision (benefit) for income taxes
35,829 
(1,759)
 
Net income
53,115 
2,689 
 
Amortization of content library
616,856 
503,977 
 
Total content library, net
3,950,884 
 
3,797,492 
Domestic Streaming [Member]
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total members at end of period
35,674,000 1
29,174,000 1
 
Revenues
798,617 
638,649 
 
Cost of revenues
517,094 
440,334 
 
Marketing
80,258 
66,965 
 
Contribution profit (loss)
201,265 
131,350 
 
Amortization of content library
386,315 
335,748 
 
Total content library, net
3,009,260 
 
2,973,023 
International Streaming [Member]
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total members at end of period
12,683,000 1
7,142,000 1
 
Revenues
267,118 
142,019 
 
Cost of revenues
245,267 
166,892 
 
Marketing
56,840 
52,047 
 
Contribution profit (loss)
(34,989)
(76,920)
 
Amortization of content library
214,420 
149,992 
 
Total content library, net
918,979 
 
804,690 
Domestic DVD [Member]
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total members at end of period
6,652,000 1
7,983,000 1
 
Revenues
204,354 
243,293 
 
Cost of revenues
106,825 
129,726 
 
Marketing
0 
74 
 
Contribution profit (loss)
97,529 
113,493 
 
Amortization of content library
16,121 
18,237 
 
Total content library, net
$ 22,645 
 
$ 19,779 
[1] A membership (also referred to as a subscription) is defined as the right to receive either the Netflix streaming service or Netflix DVD service. Memberships are assigned to territories based on the geographic location used at time of sign up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to new and certain rejoining members. For inclusion in the definition of a member in the above metrics, a method of payment is required to be provided even during the free-trial period. Total members therefore include those who are on a free-trial and have provided a method of payment. A membership would be canceled and cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.