NETFLIX INC, 10-Q filed on 10/25/2013
Quarterly Report
Document And Entity Information
9 Months Ended
Sep. 30, 2013
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
Sep. 30, 2013 
Document Fiscal Year Focus
2013 
Document Fiscal Period Focus
Q3 
Amendment Flag
false 
Entity Common Stock, Shares Outstanding
59,257,798 
Consolidated Statements Of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Income Statement [Abstract]
 
 
 
 
Revenues
$ 1,105,999 
$ 905,089 
$ 3,199,332 
$ 2,664,043 
Cost of revenues
791,019 
662,638 
2,271,407 
1,929,999 
Marketing
116,109 
108,448 
367,044 
352,340 
Technology and development
95,540 
82,521 
280,641 
246,869 
General and administrative
46,211 
35,347 
134,181 
104,481 
Operating income
57,120 
16,135 
146,059 
30,354 
Other income (expense):
 
 
 
 
Interest expense
(7,436)
(4,990)
(21,704)
(14,970)
Interest and other income (expense)
(193)
801 
(2,156)
192 
Loss on extinguishment of debt
0 
0 
(25,129)
0 
Income before income taxes
49,491 
11,946 
97,070 
15,576 
Provision for income taxes
17,669 
4,271 
33,088 
6,321 
Net income
$ 31,822 
$ 7,675 
$ 63,982 
$ 9,255 
Earnings per share:
 
 
 
 
Basic (in dollars per share)
$ 0.54 
$ 0.14 
$ 1.11 
$ 0.17 
Diluted (in dollars per share)
$ 0.52 
$ 0.13 
$ 1.06 
$ 0.16 
Weighted average common shares outstanding:
 
 
 
 
Basic (in shares)
59,108 
55,541 
57,769 
55,508 
Diluted (in shares)
60,990 
58,729 
60,578 
58,829 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 31,822 
$ 7,675 
$ 63,982 
$ 9,255 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
2,409 
1,084 
150 
1,128 
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $515, $604, $(936), and $736, respectively
825 
961 
(1,499)
1,172 
Total other comprehensive income (loss)
3,234 
2,045 
(1,349)
2,300 
Comprehensive income
$ 35,056 
$ 9,720 
$ 62,633 
$ 11,555 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Statement of Comprehensive Income [Abstract]
 
 
 
 
Change in unrealized gains on available for sale securities, tax
$ 515 
$ 604 
$ (936)
$ 736 
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Cash flows from operating activities:
 
 
 
 
Net income
$ 31,822 
$ 7,675 
$ 63,982 
$ 9,255 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Additions to streaming content library
(878,314)
(744,714)
(2,063,709)
(1,883,859)
Change in streaming content liabilities
310,191 
274,196 
327,175 
631,802 
Amortization of streaming content library
553,394 
410,947 
1,549,384 
1,126,680 
Amortization of DVD content library
17,546 
13,132 
53,492 
49,482 
Depreciation and amortization of property, equipment and intangibles
11,452 
11,128 
35,529 
33,506 
Stock-based compensation expense
18,477 
18,472 
54,178 
56,254 
Excess tax benefits from stock-based compensation
(20,492)
(111)
(52,475)
(4,173)
Other non-cash items
1,994 
(2,078)
4,932 
(5,176)
Loss on extinguishment of debt
0 
0 
25,129 
0 
Deferred taxes
(2,424)
(15,606)
(11,212)
(26,449)
Changes in operating assets and liabilities:
 
 
 
 
Prepaid content
1,542 
15,358 
29,407 
22,855 
Other current assets
8,378 
(3,476)
8,548 
188 
Accounts payable
(5,877)
(9,727)
6,004 
(11,167)
Accrued expenses
(11,451)
15,294 
(5,089)
23,931 
Deferred revenue
9,252 
2,356 
26,351 
6,350 
Other non-current assets and liabilities
(10,797)
4,229 
4,760 
6,112 
Net cash provided by (used in) operating activities
34,693 
(2,925)
56,386 
35,591 
Cash flows from investing activities:
 
 
 
 
Acquisitions of DVD content library
(15,471)
(8,586)
(50,687)
(30,126)
Purchases of property and equipment
(10,828)
(10,808)
(31,034)
(18,933)
Other assets
(1,329)
1,857 
3,808 
6,323 
Purchases of short-term investments
(116,116)
(67,779)
(497,789)
(430,549)
Proceeds from sale of short-term investments
81,185 
52,172 
196,392 
272,680 
Proceeds from maturities of short-term investments
48,890 
2,695 
58,720 
23,685 
Net cash used in investing activities
(13,669)
(30,449)
(320,590)
(176,920)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of common stock
25,561 
318 
93,553 
2,066 
Proceeds from issuance of debt
0 
0 
500,000 
0 
Issuance costs
0 
0 
(9,414)
(759)
Redemption of debt
0 
0 
(219,362)
0 
Excess tax benefits from stock-based compensation
20,492 
111 
52,475 
4,173 
Principal payments of lease financing obligations
(258)
(587)
(916)
(1,723)
Net cash provided by (used in) financing activities
45,795 
(158)
416,336 
3,757 
Effect of exchange rate changes on cash and cash equivalents
1,559 
1,579 
(3,367)
(183)
Net increase (decrease) in cash and cash equivalents
68,378 
(31,953)
148,765 
(137,755)
Cash and cash equivalents, beginning of period
370,678 
402,251 
290,291 
508,053 
Cash and cash equivalents, end of period
$ 439,056 
$ 370,298 
$ 439,056 
$ 370,298 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 439,056 
$ 290,291 
Short-term investments
695,931 
457,787 
Current content library, net
1,577,514 
1,368,162 
Prepaid content
30,522 
59,929 
Other current assets
106,255 
64,622 
Total current assets
2,849,278 
2,240,791 
Non-current content library, net
1,808,387 
1,506,008 
Property and equipment, net
127,263 
131,681 
Other non-current assets
116,397 
89,410 
Total assets
4,901,325 
3,967,890 
Current liabilities:
 
 
Current content liabilities
1,591,981 
1,366,847 
Accounts payable
100,899 
86,468 
Accrued expenses
46,433 
53,139 
Deferred revenue
195,823 
169,472 
Total current liabilities
1,935,136 
1,675,926 
Non-current content liabilities
1,179,055 
1,076,622 
Long-term debt
500,000 
200,000 
Long-term debt due to related party
0 
200,000 
Other non-current liabilities
82,764 
70,669 
Total liabilities
3,696,955 
3,223,217 
Commitments and contingencies (Note 10)
   
   
Stockholders’ equity:
 
 
Common stock, $0.001 par value; 160,000,000 shares authorized at September 30, 2013 and December 31, 2012; 59,257,798 and 55,587,167 issued and outstanding at September 30, 2013 and December 31, 2012, respectively
59 
56 
Additional paid-in capital
698,677 
301,616 
Accumulated other comprehensive income
1,570 
2,919 
Retained earnings
504,064 
440,082 
Total stockholders’ equity
1,204,370 
744,673 
Total liabilities and stockholders’ equity
$ 4,901,325 
$ 3,967,890 
Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2013
Dec. 31, 2012
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
59,257,798 
55,587,167 
Common stock, shares outstanding
59,257,798 
55,587,167 
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, 2012 filed with the Securities and Exchange Commission (the “SEC”) on February 1, 2013. 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, we evaluate our 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, 2012. 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. 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, 2012.
Reclassifications
Reclassifications
Reclassifications and Changes in Estimates
Certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Statements of Operations. Payroll and related expenses of $4.8 million and $15.0 million for the three and nine months ended September 30, 2012, respectively, associated with corporate marketing personnel, previously classified in "Marketing" on the Consolidated Statements of Operations, have been reclassified as "General and administrative." Historically these costs were substantially recorded in the Domestic streaming segment and impacted segment contribution profit. Management and the Company's chief operating decision maker consider such employee costs to be global corporate costs rather than marketing costs directly attributable to the segment and as such are not indicative of any given segment's performance. Accordingly, such costs have been reclassified as "General and administrative" expenses which are not a component of contribution profit. There was no impact to operating income in any period.
Certain prior period amounts in the Consolidated Statements of Cash Flows have been revised to correctly present changes in accounts payable related to purchases of fixed assets. For the three and nine months ended September 30, 2012, a $3.1 million and $3.4 million increase in accounts payable has been reclassified from purchases of fixed assets in "Net cash used in investing activities" to changes in accounts payable in "Net cash provided by (used in) operating activities." There was no impact to the Consolidated Statements of Operations or Consolidated Balance Sheets.
The Company had a change in estimate that is reflected in the consolidated financial statements for the three months ended September 30, 2013. When the Company started with original content, the Company did not have specific data about viewing patterns over time for content that premieres on Netflix. Based on experience with other similar television series and initial estimates of viewing patterns, the Company amortized this type of content on a straight-line basis over the shorter of four years or the license period. If a subsequent season is added, the remaining amortization period is extended by a year. Current estimates of viewing patterns indicate that viewing in the first few months is significantly higher, relative to the remaining amortization period, than previously estimated. As a result, in the third quarter of 2013, the Company began amortizing this type of content on an accelerated basis over the amortization period. The effect of this change in estimate was a $20.2 million decrease in contribution profit for the Domestic streaming segment and a $6.5 million increase in contribution loss for the International streaming segment for the three and nine months ended September 30, 2013. The effect to operating income and net income is a decrease of $26.7 million and $16.7 million, respectively, for the three and nine months ended September 30, 2013. The effect to basic earnings per share and diluted earnings per share was a decrease of $0.28 and $0.27, respectively, for the three months ended September 30, 2013 and a decrease of $0.29 and $0.27, respectively for the nine months ended September 30, 2013. The effect of this change in estimate relates primarily to titles that first premiered on Netflix in the first and second quarters of 2013.
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) and incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
 
 
Net income
$
31,822

 
$
7,675

 
$
63,982

 
$
9,255

Shares used in computation:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
59,108

 
55,541

 
57,769

 
55,508

Basic earnings per share
$
0.54

 
$
0.14

 
$
1.11

 
$
0.17

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
Net income
$
31,822

 
$
7,675

 
$
63,982

 
$
9,255

Senior Convertible Notes interest expense, net of tax
—

 
49

 
49

 
146

Numerator for diluted earnings per share
$
31,822

 
$
7,724

 
$
64,031

 
$
9,401

Shares used in computation:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
59,108

 
55,541

 
57,769

 
55,508

Senior Convertible Notes shares
—

 
2,331

 
956

 
2,331

Employee stock options
1,882

 
857

 
1,853

 
990

Weighted-average number of shares
60,990

 
58,729

 
60,578

 
58,829

Diluted earnings per share
$
0.52

 
$
0.13

 
$
1.06

 
$
0.16



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
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
(in thousands)
Employee stock options
12

 
1,782

 
260

 
1,199

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 table summarizes, 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 September 30, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
420,235

 
$
—

 
$
—

 
$
420,235

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
24,024

 
—

 
—

 
24,024

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
324,422

 
975

 
(788
)
 
324,609

Government and agency securities
163,610

 
352

 
(18
)
 
163,944

Asset and mortgage-backed securities
207,852

 
288

 
(762
)
 
207,378

Total (1)
$
1,140,143

 
$
1,615

 
$
(1,568
)
 
$
1,140,190

 
As of December 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
284,661

 
$
—

 
$
—

 
$
284,661

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
10,500

 
—

 
—

 
10,500

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
150,322

 
1,605

 
(32
)
 
151,895

Government and agency securities
166,643

 
285

 
—

 
166,928

Asset and mortgage-backed securities
138,340

 
750

 
(125
)
 
138,965

Total (2)
$
750,466

 
$
2,640

 
$
(157
)
 
$
752,949

(1)
Includes $439.1 million that is included in cash and cash equivalents, $695.9 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.
(2)
Includes $290.3 million that is included in cash and cash equivalents, $457.8 million included in short-term investments and $4.8 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.
Because the Company does not intend to sell the investments that are in a material unrealized loss position and it is not likely that the Company will be required to sell any investments before recovery of their amortized cost basis, the Company does not consider those investments with an unrealized loss to be other-than-temporarily impaired at September 30, 2013. There were no investments in a material unrealized loss position as of September 30, 2013 or December 31, 2012, respectively. There were no material other-than-temporary impairments or credit losses related to available-for-sale securities in the three and nine months ended September 30, 2013 and 2012. In addition, there were no material gross realized gains or losses in the three and nine months ended September 30, 2013 and 2012.
The estimated fair value of short-term investments by contractual maturity as of September 30, 2013 is as follows:
 
 
(in thousands)
Due within one year
$
128,506

Due after one year and through 5 years
519,446

Due after 5 years and through 10 years
4,015

Due after 10 years
43,964

Total short-term investments
$
695,931

Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Content Library
Content library consisted of the following:
 
 
As of
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
Total content library, gross
$
5,951,485

 
$
5,001,524

Accumulated amortization
(2,565,584
)
 
(2,127,354
)
Total content library, net
3,385,901

 
2,874,170

Current content library, net
1,577,514

 
1,368,162

Non-current content library, net
$
1,808,387

 
$
1,506,008



Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:

 
 
 
As of
 
 
 
September 30,
2013
 
December 31,
2012
 
 
 
(in thousands)
Computer equipment
 
3 years
$
87,967

 
$
84,193

Operations and other equipment
 
5 years
98,539

 
100,207

Software
 
3 years
39,242

 
39,073

Furniture and fixtures
 
3 years
20,594

 
18,208

Building
 
30 years
40,681

 
40,681

Leasehold improvements
 
Over life of lease
49,681

 
45,393

Capital work-in-progress
 
 
7,715

 
8,282

Property and equipment, gross
 
 
344,419

 
336,037

Less: Accumulated depreciation
 
 
(217,156
)
 
(204,356
)
Property and equipment, net
 
 
$
127,263

 
$
131,681

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.
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 September 30, 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 September 30, 2013 was approximately $496.3 million.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity
In April 2013, the Company issued 2.3 million shares of common stock in connection with the conversion of the Convertible Notes. See Note 6 to the consolidated financial statements for further details.
Preferred Stock
In 2012, the Company designated 1,000,000 shares of its preferred stock with par value of $0.001 per share as Series A Participating Preferred Stock. The remaining 9,000,000 shares of preferred stock with par value of $0.001 remain undesignated. None of the preferred shares were issued and outstanding at September 30, 2013 or December 31, 2012.
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 September 30, 2013, 3.5 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, 2012
4,049,037

 
4,572,952

 
$
71.33

 
 
 
 
Granted
(541,378
)
 
541,378

 
184.71

 
 
 
 
Exercised


 
(1,339,571
)
 
69.84

 
 
 
 
Balances as of September 30, 2013
3,507,659

 
3,774,759

 
88.12

 
6.37
 
$
834,555

Vested and exercisable at September 30, 2013
 
 
3,774,759

 
88.12

 
6.37
 
$
834,555



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 third quarter of 2013 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 September 30, 2013. 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 September 30, 2013 and 2012 was $64.5 million and $0.4 million, respectively. The total intrinsic value of options exercised for the nine months ended September 30, 2013 and 2012 was $182.8 million and $13.2 million, respectively.
Cash received from option exercises for the three months ended September 30, 2013 and 2012 was $25.6 million and $0.3 million, respectively. Cash received from option exercises for the nine months ended September 30, 2013 and 2012 was $93.6 million and $2.1 million, respectively.
Stock-Based Compensation
Vested stock options granted before June 30, 2004 can be exercised up to three months following termination of employment. Vested stock options granted after June 30, 2004 and before January 1, 2007 can be exercised up to one year following termination of employment. Vested stock options granted on or after January 1, 2007 will remain exercisable for the full ten year contractual term regardless of employment status.
The following table summarizes the assumptions used to value stock option grants using the lattice-binomial model:

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Dividend yield
—
%
 
—
%
 
—
%
 
—
%
Expected volatility
51
%
 
60
%
 
51% - 54%

 
60% - 65%

Risk-free interest rate
2.55
%
 
1.61
%
 
1.87% - 2.55%

 
1.61% - 2.01%

Suboptimal exercise factor
2.43 - 3.79

 
2.27 - 3.64

 
2.33 - 3.79

 
2.26 - 3.65



The Company bifurcates its option grants into two employee groupings (executive and non-executive) based on exercise behavior and considers several factors in determining the estimate of expected term for each group, including the historical option exercise behavior, the terms and vesting periods of the options granted.
The weighted-average fair value of employee stock options granted during the three months ended September 30, 2013 and 2012 was $136.78 and $32.57 per share, respectively. The weighted-average fair value of employee stock options granted during the nine months ended September 30, 2013 and 2012 was $100.08 and $42.58 per share, respectively.
Stock-based compensation expense related to stock option plans was $18.5 million for each of the three months ended September 30, 2013 and 2012. Stock-based compensation expense related to stock option plans was $54.2 million and $56.3 million for the nine months ended September 30, 2013 and 2012, respectively. The total income tax benefit recognized in the income statement related to stock option plans was $7.1 million for each of the three months ended September 30, 2013 and 2012. The total income tax benefit recognized in the income statement related to stock option plans was $20.8 million and $21.7 million for the nine months ended September 30, 2013 and 2012, respectively.
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income

The following tables summarize the changes in accumulated balances of other comprehensive income (loss), net of tax for the three and nine months ended September 30, 2013:
 
Foreign currency
 
Change in unrealized gains on available for sale securities
 
Total
 
(in thousands)
Balance as of June 30, 2013
$
(878
)
 
$
(786
)
 
$
(1,664
)
Other comprehensive income before reclassifications
2,409

 
340

 
2,749

Amounts reclassified from accumulated other comprehensive income
—

 
485

 
485

Net increase in other comprehensive income
2,409

 
825

 
3,234

Balance as of September 30, 2013
$
1,531

 
$
39

 
$
1,570



 
Foreign currency
 
Change in unrealized gains on available for sale securities
 
Total
 
(in thousands)
Balance as of December 31, 2012
$
1,381

 
$
1,538

 
$
2,919

Other comprehensive income before reclassifications
150

 
(2,023
)
 
(1,873
)
Amounts reclassified from accumulated other comprehensive income
—

 
524

 
524

Net increase (decrease) in other comprehensive income
150

 
(1,499
)
 
(1,349
)
Balance as of September 30, 2013
$
1,531

 
$
39

 
$
1,570




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 for each of the three months ended September 30, 2013 and 2012 was 36%. The effective tax rates for the nine months ended September 30, 2013 and 2012 were 34% and 41%, respectively. These rates differed from the federal statutory rate primarily due to the Federal and California R&D tax credits partially offset by state taxes and nondeductible expenses. The decrease in the Company's effective tax rate for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 was primarily due to the retroactive reinstatement of the 2012 Federal R&D credit in January 2013.

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.
Gross unrecognized tax benefits were $59.7 million and $43.3 million as of September 30, 2013 and December 31, 2012, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $50.1 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 for income taxes" on the Consolidated Statements of Operations. As of September 30, 2013, the total amount of gross interest and penalties accrued was $3.7 million, and is classified as “Other non-current liabilities” on the Consolidated Balance Sheets.
Deferred tax assets include $11.4 million and $11.0 million classified as “Other current assets” and $68.6 million and $56.9 million classified as “Other non-current assets” on the Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, 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 September 30, 2013 and December 31, 2012, 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 $19.7 million and $0.1 million, during the three months ended September 30, 2013 and 2012, respectively, were recorded directly to "Additional paid-in capital" on the Consolidated Balance Sheets. Income tax benefits attributable to the exercise of employee stock options of $51.1 million and $4.2 million, during the nine months ended September 30, 2013 and 2012, 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 year 2012 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. The years 1997 through 2005, as well as 2008 through 2011, remain subject to examination by the state of California.
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

The Company had $6.5 billion and $5.6 billion of obligations at September 30, 2013 and December 31, 2012, respectively, including agreements to license streaming content that represent current or long-term liabilities or that are not reflected on the Consolidated Balance Sheets because they do not meet the content library asset recognition criteria. The license agreements that are not reflected on the Consolidated Balance Sheets do not meet the content library asset recognition criteria because either the fee is not known or reasonably determinable for a specific title or it is known but the title is not yet available for streaming to members.
For those agreements with variable terms, the Company does not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date. For those agreements that include renewal provisions that are solely at the option of the content provider, the Company includes the commitments associated with the renewal period to the extent such commitments are fixed or a minimum amount is specified.
The Company has entered into certain license agreements that include an unspecified or a maximum number of titles that the Company may or may not receive in the future and/or that include pricing contingent upon certain variables, such as theatrical exhibition receipts for the title. As of the reporting date, it is unknown whether the Company will receive access to these titles or what the ultimate price per title will be. Accordingly, such amounts are not reflected in the commitments described below. However such amounts are expected to be significant and the expected timing of payments could range from less than one year to more than five years.
The expected timing of payments for these agreements to license streaming content that represent current or long-term liabilities as well as obligations not reflected on the Consolidated Balance Sheets is as follows:
 
 
As of 
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
Less than one year
$
2,766,597

 
$
2,299,562

Due after one year and through 3 years
2,829,201

 
2,715,294

Due after 3 years and through 5 years
803,942

 
540,346

Due after 5 years
105,611

 
78,483

Total streaming content obligations
$
6,505,351

 
$
5,633,685




The Company has licenses with certain performing rights organizations (“PROs”), and is currently involved in negotiations with other PROs, that hold certain rights to music "publicly performed" in connection with streaming content into various territories. The Company accrues for estimated royalties that are expected to be due to PROs and adjusts these accruals based on any changes in estimates. These amounts are included in "Current content liabilities" on the Company's Consolidated Balance Sheets. If the Company is unable to reach mutually acceptable terms with the PROs, it could become involved in litigation and/or could be enjoined from delivering certain musical compositions, which could adversely impact the Company. Additionally, pending and ongoing litigation between certain PROs and other third parties in various territories could impact the Company's negotiations with PROs. 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. Lead plaintiffs filed a consolidated complaint which alleged violations of the federal securities laws on June 26, 2012. 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.
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 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 litigation on February 4, 2013 and on June 21, 2013, the Court granted the motion to stay the litigation. 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 services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly membership services consisting solely of DVD-by-mail. Revenues and the related credit card fees are attributed to the operating segment based on the nature of the underlying membership (DVD or streaming) 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.
As of September 30, 2013, the Company had $4.7 million in long-lived tangible assets located internationally and $122.6 million in long-lived tangible assets located in the United States. As of December 31, 2012, the Company had $4.0 million in long-lived tangible assets located internationally and $127.7 million in long-lived tangible assets located in the United States.
The following tables represent segment information for the quarter ended September 30, 2013 and 2012:
 
 
As of/ Three months ended September 30, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
31,092

 
9,188

 
7,148

 
—

Revenues
$
701,083

 
$
183,051

 
$
221,865

 
$
1,105,999

Cost of revenues
470,631

 
207,989

 
112,399

 
791,019

Marketing
63,971

 
49,359

 
2,779

 
116,109

Contribution profit (loss)
$
166,481

 
$
(74,297
)
 
$
106,687

 
$
198,871

Other operating expenses
 
 
 
 
 
 
141,751

Operating income
 
 
 
 
 
 
57,120

Other income (expense)
 
 
 
 
 
 
(7,629
)
Provision for income taxes
 
 
 
 
 
 
17,669

Net income
 
 
 
 
 
 
$
31,822


 
As of/ Three months ended September 30, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
25,101

 
4,311

 
8,606

 
—

Revenues
$
556,027

 
$
77,744

 
$
271,318

 
$
905,089

Cost of revenues
399,124

 
124,379

 
139,135

 
662,638

Marketing
61,197

 
45,742

 
1,509

 
108,448

Contribution profit (loss)
$
95,706

 
$
(92,377
)
 
$
130,674

 
$
134,003

Other operating expenses
 
 
 
 
 
 
117,868

Operating income
 
 
 
 
 
 
16,135

Other income (expense)
 
 
 
 
 
 
(4,189
)
Provision for income taxes
 
 
 
 
 
 
4,271

Net income
 
 
 
 
 
 
$
7,675

The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
Three months ended September 30,
(in thousands)
2013
$
363,787

 
$
189,607

 
$
17,546

 
$
570,940

2012
$
296,234

 
$
114,713

 
$
13,132

 
$
424,079








The following tables represent segment information for the nine months ended September 30, 2013 and 2012:
 
As of/ Nine months ended September 30, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
31,092

 
9,188

 
7,148

 
—

Revenues
$
2,010,821

 
$
490,972

 
$
697,539

 
$
3,199,332

Cost of revenues
1,356,610

 
555,898

 
358,899

 
2,271,407

Marketing
205,066

 
152,124

 
9,854

 
367,044

Contribution profit (loss)
$
449,145

 
$
(217,050
)
 
$
328,786

 
$
560,881

Other operating expenses
 
 
 
 
 
 
414,822

Operating income
 
 
 
 
 
 
146,059

Other income (expense)
 
 
 
 
 
 
(48,989
)
Provision for income taxes
 
 
 
 
 
 
33,088

Net income
 
 
 
 
 
 
$
63,982

 
As of/ Nine months ended September 30, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
25,101

 
4,311

 
8,606

 
—

Revenues
$
1,595,397

 
$
186,142

 
$
882,504

 
$
2,664,043

Cost of revenues
1,138,474

 
324,332

 
467,193

 
1,929,999

Marketing
201,334

 
146,297

 
4,709

 
352,340

Contribution profit (loss)
$
255,589

 
$
(284,487
)
 
$
410,602

 
$
381,704

Other operating expenses
 
 
 
 
 
 
351,350

Operating income
 
 
 
 
 
 
30,354

Other income (expense)
 
 
 
 
 
 
(14,778
)
Provision for income taxes
 
 
 
 
 
 
6,321

Net income
 
 
 
 
 
 
$
9,255

The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
Nine months ended September 30,
(in thousands)
2013
$
1,043,976

 
$
505,408

 
$
53,492

 
$
1,602,876

2012
$
826,254

 
$
300,426

 
$
49,482

 
$
1,176,162

The following table represents total content library, net:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
As of September 30, 2013
$
2,643,433

 
$
715,962

 
$
26,506

 
$
3,385,901

As of December 31, 2012
$
2,317,070

 
$
527,235

 
$
29,865

 
$
2,874,170




(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. In connection with these services, 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, we evaluate our 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
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
 
 
Net income
$
31,822

 
$
7,675

 
$
63,982

 
$
9,255

Shares used in computation:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
59,108

 
55,541

 
57,769

 
55,508

Basic earnings per share
$
0.54

 
$
0.14

 
$
1.11

 
$
0.17

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
Net income
$
31,822

 
$
7,675

 
$
63,982

 
$
9,255

Senior Convertible Notes interest expense, net of tax
—

 
49

 
49

 
146

Numerator for diluted earnings per share
$
31,822

 
$
7,724

 
$
64,031

 
$
9,401

Shares used in computation:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
59,108

 
55,541

 
57,769

 
55,508

Senior Convertible Notes shares
—

 
2,331

 
956

 
2,331

Employee stock options
1,882

 
857

 
1,853

 
990

Weighted-average number of shares
60,990

 
58,729

 
60,578

 
58,829

Diluted earnings per share
$
0.52

 
$
0.13

 
$
1.06

 
$
0.16

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
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
(in thousands)
Employee stock options
12

 
1,782

 
260

 
1,199

Short-term Investments Short-term Investments (Tables)
Available-For-Sale Securities Reported At Fair Value 
The following table summarizes, 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 September 30, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
420,235

 
$
—

 
$
—

 
$
420,235

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
24,024

 
—

 
—

 
24,024

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
324,422

 
975

 
(788
)
 
324,609

Government and agency securities
163,610

 
352

 
(18
)
 
163,944

Asset and mortgage-backed securities
207,852

 
288

 
(762
)
 
207,378

Total (1)
$
1,140,143

 
$
1,615

 
$
(1,568
)
 
$
1,140,190

 
As of December 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(in thousands)
Cash
$
284,661

 
$
—

 
$
—

 
$
284,661

Level 1 securities:
 
 
 
 
 
 
 
Money market funds
10,500

 
—

 
—

 
10,500

Level 2 securities:
 
 
 
 
 
 
 
Corporate debt securities
150,322

 
1,605

 
(32
)
 
151,895

Government and agency securities
166,643

 
285

 
—

 
166,928

Asset and mortgage-backed securities
138,340

 
750

 
(125
)
 
138,965

Total (2)
$
750,466

 
$
2,640

 
$
(157
)
 
$
752,949

(1)
Includes $439.1 million that is included in cash and cash equivalents, $695.9 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.
(2)
Includes $290.3 million that is included in cash and cash equivalents, $457.8 million included in short-term investments and $4.8 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 September 30, 2013 is as follows:
 
 
(in thousands)
Due within one year
$
128,506

Due after one year and through 5 years
519,446

Due after 5 years and through 10 years
4,015

Due after 10 years
43,964

Total short-term investments
$
695,931

Balance Sheet Components (Tables)
Components Of Content Library 
Content library consisted of the following:
 
 
As of
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
Total content library, gross
$
5,951,485

 
$
5,001,524

Accumulated amortization
(2,565,584
)
 
(2,127,354
)
Total content library, net
3,385,901

 
2,874,170

Current content library, net
1,577,514

 
1,368,162

Non-current content library, net
$
1,808,387

 
$
1,506,008

Property And Equipment And Accumulated Depreciation 
Property and equipment and accumulated depreciation consisted of the following:

 
 
 
As of
 
 
 
September 30,
2013
 
December 31,
2012
 
 
 
(in thousands)
Computer equipment
 
3 years
$
87,967

 
$
84,193

Operations and other equipment
 
5 years
98,539

 
100,207

Software
 
3 years
39,242

 
39,073

Furniture and fixtures
 
3 years
20,594

 
18,208

Building
 
30 years
40,681

 
40,681

Leasehold improvements
 
Over life of lease
49,681

 
45,393

Capital work-in-progress
 
 
7,715

 
8,282

Property and equipment, gross
 
 
344,419

 
336,037

Less: Accumulated depreciation
 
 
(217,156
)
 
(204,356
)
Property and equipment, net
 
 
$
127,263

 
$
131,681



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, 2012
4,049,037

 
4,572,952

 
$
71.33

 
 
 
 
Granted
(541,378
)
 
541,378

 
184.71

 
 
 
 
Exercised


 
(1,339,571
)
 
69.84

 
 
 
 
Balances as of September 30, 2013
3,507,659

 
3,774,759

 
88.12

 
6.37
 
$
834,555

Vested and exercisable at September 30, 2013
 
 
3,774,759

 
88.12

 
6.37
 
$
834,555

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
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Dividend yield
—
%
 
—
%
 
—
%
 
—
%
Expected volatility
51
%
 
60
%
 
51% - 54%

 
60% - 65%

Risk-free interest rate
2.55
%
 
1.61
%
 
1.87% - 2.55%

 
1.61% - 2.01%

Suboptimal exercise factor
2.43 - 3.79

 
2.27 - 3.64

 
2.33 - 3.79

 
2.26 - 3.65

Accumulated Other Comprehensive Income (Tables)
Schedule of Changes in Accumulated Other Comprehensive Income
The following tables summarize the changes in accumulated balances of other comprehensive income (loss), net of tax for the three and nine months ended September 30, 2013:
 
Foreign currency
 
Change in unrealized gains on available for sale securities
 
Total
 
(in thousands)
Balance as of June 30, 2013
$
(878
)
 
$
(786
)
 
$
(1,664
)
Other comprehensive income before reclassifications
2,409

 
340

 
2,749

Amounts reclassified from accumulated other comprehensive income
—

 
485

 
485

Net increase in other comprehensive income
2,409

 
825

 
3,234

Balance as of September 30, 2013
$
1,531

 
$
39

 
$
1,570



 
Foreign currency
 
Change in unrealized gains on available for sale securities
 
Total
 
(in thousands)
Balance as of December 31, 2012
$
1,381

 
$
1,538

 
$
2,919

Other comprehensive income before reclassifications
150

 
(2,023
)
 
(1,873
)
Amounts reclassified from accumulated other comprehensive income
—

 
524

 
524

Net increase (decrease) in other comprehensive income
150

 
(1,499
)
 
(1,349
)
Balance as of September 30, 2013
$
1,531

 
$
39

 
$
1,570

Commitments and Contingencies (Tables)
Expected Timing Of Payments For Commitments
The expected timing of payments for these agreements to license streaming content that represent current or long-term liabilities as well as obligations not reflected on the Consolidated Balance Sheets is as follows:
 
 
As of 
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
Less than one year
$
2,766,597

 
$
2,299,562

Due after one year and through 3 years
2,829,201

 
2,715,294

Due after 3 years and through 5 years
803,942

 
540,346

Due after 5 years
105,611

 
78,483

Total streaming content obligations
$
6,505,351

 
$
5,633,685

Segment Information (Tables)
Information On Reportable Segments And Reconciliation To Consolidated Net Income
The following tables represent segment information for the quarter ended September 30, 2013 and 2012:
 
 
As of/ Three months ended September 30, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
31,092

 
9,188

 
7,148

 
—

Revenues
$
701,083

 
$
183,051

 
$
221,865

 
$
1,105,999

Cost of revenues
470,631

 
207,989

 
112,399

 
791,019

Marketing
63,971

 
49,359

 
2,779

 
116,109

Contribution profit (loss)
$
166,481

 
$
(74,297
)
 
$
106,687

 
$
198,871

Other operating expenses
 
 
 
 
 
 
141,751

Operating income
 
 
 
 
 
 
57,120

Other income (expense)
 
 
 
 
 
 
(7,629
)
Provision for income taxes
 
 
 
 
 
 
17,669

Net income
 
 
 
 
 
 
$
31,822


 
As of/ Three months ended September 30, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
25,101

 
4,311

 
8,606

 
—

Revenues
$
556,027

 
$
77,744

 
$
271,318

 
$
905,089

Cost of revenues
399,124

 
124,379

 
139,135

 
662,638

Marketing
61,197

 
45,742

 
1,509

 
108,448

Contribution profit (loss)
$
95,706

 
$
(92,377
)
 
$
130,674

 
$
134,003

Other operating expenses
 
 
 
 
 
 
117,868

Operating income
 
 
 
 
 
 
16,135

Other income (expense)
 
 
 
 
 
 
(4,189
)
Provision for income taxes
 
 
 
 
 
 
4,271

Net income
 
 
 
 
 
 
$
7,675

The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
Three months ended September 30,
(in thousands)
2013
$
363,787

 
$
189,607

 
$
17,546

 
$
570,940

2012
$
296,234

 
$
114,713

 
$
13,132

 
$
424,079








The following tables represent segment information for the nine months ended September 30, 2013 and 2012:
 
As of/ Nine months ended September 30, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
31,092

 
9,188

 
7,148

 
—

Revenues
$
2,010,821

 
$
490,972

 
$
697,539

 
$
3,199,332

Cost of revenues
1,356,610

 
555,898

 
358,899

 
2,271,407

Marketing
205,066

 
152,124

 
9,854

 
367,044

Contribution profit (loss)
$
449,145

 
$
(217,050
)
 
$
328,786

 
$
560,881

Other operating expenses
 
 
 
 
 
 
414,822

Operating income
 
 
 
 
 
 
146,059

Other income (expense)
 
 
 
 
 
 
(48,989
)
Provision for income taxes
 
 
 
 
 
 
33,088

Net income
 
 
 
 
 
 
$
63,982

 
As of/ Nine months ended September 30, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
25,101

 
4,311

 
8,606

 
—

Revenues
$
1,595,397

 
$
186,142

 
$
882,504

 
$
2,664,043

Cost of revenues
1,138,474

 
324,332

 
467,193

 
1,929,999

Marketing
201,334

 
146,297

 
4,709

 
352,340

Contribution profit (loss)
$
255,589

 
$
(284,487
)
 
$
410,602

 
$
381,704

Other operating expenses
 
 
 
 
 
 
351,350

Operating income
 
 
 
 
 
 
30,354

Other income (expense)
 
 
 
 
 
 
(14,778
)
Provision for income taxes
 
 
 
 
 
 
6,321

Net income
 
 
 
 
 
 
$
9,255

The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
Nine months ended September 30,
(in thousands)
2013
$
1,043,976

 
$
505,408

 
$
53,492

 
$
1,602,876

2012
$
826,254

 
$
300,426

 
$
49,482

 
$
1,176,162

The following table represents total content library, net:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
As of September 30, 2013
$
2,643,433

 
$
715,962

 
$
26,506

 
$
3,385,901

As of December 31, 2012
$
2,317,070

 
$
527,235

 
$
29,865

 
$
2,874,170




(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. In connection with these services, 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)
9 Months Ended
Sep. 30, 2013
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) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2013
Sep. 30, 2012
Marketing Reclassified to General and Administrative [Member]
Sep. 30, 2012
Marketing Reclassified to General and Administrative [Member]
Sep. 30, 2012
Net Cash Used in Investing Activities Reclassified to Net Cash Provided By Operating Activities [Member]
Sep. 30, 2013
Net Cash Used in Investing Activities Reclassified to Net Cash Provided By Operating Activities [Member]
Sep. 30, 2013
Domestic Streaming [Member]
Sep. 30, 2013
Domestic Streaming [Member]
Sep. 30, 2013
International Streaming [Member]
Sep. 30, 2013
International Streaming [Member]
Prior period reclassification adjustment
 
 
$ 4.8 
$ 15.0 
$ 3.1 
$ 3.4 
 
 
 
 
Content library useful life
 
4 years 
 
 
 
 
 
 
 
 
Decrease in contribution profit/increase in contribution loss from change in estimate
 
 
 
 
 
 
20.2 
20.2 
6.5 
6.5 
Decrease in operating income from change in estimate
26.7 
26.7 
 
 
 
 
 
 
 
 
Decrease in net income from change in estimate
$ 16.7 
$ 16.7 
 
 
 
 
 
 
 
 
Decrease in basic earnings per share from change in estimate
$ 0.28 
$ 0.29 
 
 
 
 
 
 
 
 
Decrease in diluted earnings per share from change in estimate
$ 0.27 
$ 0.27 
 
 
 
 
 
 
 
 
Earnings Per Share (Computation Of Net Income Per Share) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Basic earnings per share:
 
 
 
 
Net income
$ 31,822 
$ 7,675 
$ 63,982 
$ 9,255 
Weighted-average common shares outstanding - Basic
59,108 
55,541 
57,769 
55,508 
Basic earnings per share (in dollars per share)
$ 0.54 
$ 0.14 
$ 1.11 
$ 0.17 
Diluted earnings per share:
 
 
 
 
Net income
31,822 
7,675 
63,982 
9,255 
Senior Convertible Notes interest expense, net of tax
0 
49 
49 
146 
Numerator for diluted earnings per share
$ 31,822 
$ 7,724 
$ 64,031 
$ 9,401 
Shares used in computation:
 
 
 
 
Weighted-average common shares outstanding - Basic
59,108 
55,541 
57,769 
55,508 
Senior Convertible Notes shares
0 
2,331 
956 
2,331 
Employee stock options
1,882 
857 
1,853 
990 
Weighted-average number of shares - Diluted
60,990 
58,729 
60,578 
58,829 
Diluted earnings per share (in dollars per share)
$ 0.52 
$ 0.13 
$ 1.06 
$ 0.16 
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 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
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)
12 
1,782 
260 
1,199 
Short-term Investments (Available-For-Sale Securities Reported At Fair Value) (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Amortized Cost
$ 1,140,143 1
$ 750,466 2
Total, Unrealized Gains
1,615 1
2,640 2
Total, Unrealized Losses
(1,568)1
(157)2
Total, Estimated Fair Value
1,140,190 1
752,949 2
Cash and Cash Equivalents [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
439,100 
290,300 
Short-term Investments [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
695,900 
457,800 
Non-current Assets [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
5,200 
4,800 
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
24,024 
10,500 
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
24,024 
10,500 
Level 2 Securities [Member] |
Corporate debt securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
324,422 
150,322 
Available-for-sale Securities, Gross Unrealized Gains
975 
1,605 
Available-for-sale Securities, Gross Unrealized Losses
(788)
(32)
Available-for-sale Securities, Estimated Fair Value
324,609 
151,895 
Level 2 Securities [Member] |
Government and agency securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
163,610 
166,643 
Available-for-sale Securities, Gross Unrealized Gains
352 
285 
Available-for-sale Securities, Gross Unrealized Losses
(18)
0 
Available-for-sale Securities, Estimated Fair Value
163,944 
166,928 
Level 2 Securities [Member] |
Asset and mortgage-backed securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
207,852 
138,340 
Available-for-sale Securities, Gross Unrealized Gains
288 
750 
Available-for-sale Securities, Gross Unrealized Losses
(762)
(125)
Available-for-sale Securities, Estimated Fair Value
207,378 
138,965 
Cash [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash, Money market and Government and agency securities classified as cash equivalents, Amortized Cost
420,235 
284,661 
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
$ 420,235 
$ 284,661 
Short-term Investments (Estimated Fair Value Of Short-Term Investments By Contractual Maturity) (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Short-Term Investments And Fair Value Measurement [Abstract]
 
Due within one year
$ 128,506 
Due after one year and through 5 years
519,446 
Due after 5 years and through 10 years
4,015 
Due after 10 years
43,964 
Total short-term investments
$ 695,931 
Balance Sheet Components (Components of Content Library ) (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Balance Sheet Components Disclosure [Abstract]
 
 
Total content library, gross
$ 5,951,485 
$ 5,001,524 
Accumulated amortization
(2,565,584)
(2,127,354)
Total content library, net
3,385,901 
2,874,170 
Current content library, net
1,577,514 
1,368,162 
Non-current content library, net
$ 1,808,387 
$ 1,506,008 
Balance Sheet Components (Property And Equipment And Accumulated Depreciation) (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Dec. 31, 2012
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 344,419 
$ 336,037 
Less: Accumulated depreciation
(217,156)
(204,356)
Property and equipment, net
127,263 
131,681 
Computer equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
87,967 
84,193 
Property and equipment, useful life (years)
3 years 
 
Operations and other equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
98,539 
100,207 
Property and equipment, useful life (years)
5 years 
 
Software [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
39,242 
39,073 
Property and equipment, useful life (years)
3 years 
 
Furniture and fixtures [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
20,594 
18,208 
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
49,681 
45,393 
Capital work-in-progress [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 7,715 
$ 8,282 
Long-term Debt (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
1 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 0 Months Ended
Apr. 30, 2013
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Dec. 31, 2012
May 28, 2012
Convertible Debt [Member]
Director [Member]
Senior Convertible Note [Member]
Apr. 30, 2013
Convertible Debt [Member]
Director [Member]
Senior Convertible Note [Member]
Nov. 30, 2011
Convertible Debt [Member]
Director [Member]
Senior Convertible Note [Member]
Mar. 31, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Sep. 30, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Feb. 28, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Sep. 30, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Level 2 Securities [Member]
Mar. 31, 2013
Senior Notes [Member]
8.50% Senior Notes [Member]
May 28, 2012
Minimum [Member]
Convertible Debt [Member]
Director [Member]
Senior Convertible Note [Member]
May 28, 2012
Maximum [Member]
Convertible Debt [Member]
Director [Member]
Senior Convertible Note [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt due to related party
 
$ 0 
 
$ 0 
 
$ 200,000,000 
 
 
$ 200,000,000 
 
 
 
 
 
 
 
Weighted average price of common stock
 
 
 
 
 
 
$ 111.54 
 
 
 
 
 
 
 
 
 
Trading days prior to conversion date required for conversion
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50 days 
65 days 
Common stock, shares issued
2.3 
 
 
 
 
 
 
2.3 
 
 
 
 
 
 
 
 
Common stock conversion ratio
 
 
 
 
 
 
 
11.6553 
 
 
 
 
 
 
 
 
Fair value at conversion
 
 
 
 
 
 
 
$ 216.99 
 
 
 
 
 
 
 
 
Face amount
 
 
 
 
 
 
 
 
 
 
 
500,000,000 
 
200,000,000 
 
 
Interest rate
 
 
 
 
 
 
 
 
0.00% 
 
5.375% 
5.375% 
 
8.50% 
 
 
Redemption prices, percent of outstanding principal
 
 
 
 
 
 
 
 
 
 
101.00% 
 
 
 
 
 
Repayments
 
0 
0 
219,362,000 
0 
 
 
 
 
224,500,000 
 
 
 
 
 
 
Make-whole premium
 
 
 
 
 
 
 
 
 
 
 
 
 
19,400,000 
 
 
Interest payable
 
 
 
 
 
 
 
 
 
 
 
 
 
5,100,000 
 
 
Loss on extinguishment of debt
 
0 
0 
(25,129,000)
0 
 
 
 
 
 
 
 
 
25,100,000 
 
 
Write off of unamortized deferred financing costs
 
 
 
 
 
 
 
 
 
 
 
 
 
4,200,000 
 
 
Senior notes, fair value
 
 
 
 
 
 
 
 
 
 
 
 
$ 496,300,000 
 
 
 
Stockholders' Equity (Narrative) (Details) (USD $)
1 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended 30 Months Ended
Apr. 30, 2013
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
employee_group
Sep. 30, 2012
Dec. 31, 2012
Sep. 30, 2013
2011 Stock Plan [Member]
Jun. 30, 2004
Granted before June 30, 2004 [Member]
Jan. 1, 2007
Granted after June 30, 2004 and bfore January 1, 2007 [Member]
Dec. 31, 2012
Series A Preferred Stock [Member]
Components of Stockholders' Equity [Line Items]
 
 
 
 
 
 
 
 
 
 
Common stock, shares issued
2,300,000 
 
 
 
 
 
 
 
 
 
Preferred Stock, Shares Authorized
 
 
 
 
 
9,000,000 
 
 
 
1,000,000 
Preferred Stock, Par or Stated Value Per Share
 
 
 
 
 
$ 0.001 
 
 
 
$ 0.001 
Shares reserved for future issuance
 
 
 
 
 
 
3,500,000 
 
 
 
Total intrinsic value of options exercised
 
$ 64,500,000 
$ 400,000 
$ 182,800,000 
$ 13,200,000 
 
 
 
 
 
Proceeds from issuance of common stock
 
25,561,000 
318,000 
93,553,000 
2,066,000 
 
 
 
 
 
Exercise period after employment termination
 
 
 
 
 
 
 
3 months 
1 year 
 
Full exercise period
 
 
 
10 years 
 
 
 
 
 
 
Number of employee groups
 
 
 
2 
 
 
 
 
 
 
Weighted-average fair value of employee stock options granted per share
 
$ 136.78 
$ 32.57 
$ 100.08 
$ 42.58 
 
 
 
 
 
Stock-based compensation expense
 
18,500,000 
18,500,000 
54,200,000 
56,300,000 
 
 
 
 
 
Income tax benefit
 
 
$ 7,100,000 
$ 20,800,000 
$ 21,700,000 
 
 
 
 
 
Stockholders' Equity (Summary Of Activity Related To Stock Option Plans) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
Shares Available for Grant, Beginning Balance
4,049,037 
Options Outstanding, Number of Shares, Beginning Balance
4,572,952 
Options Outstanding, Number of Shares, Granted
541,378 
Options Outstanding, Number of Shares, Exercised
(1,339,571)
Shares Available for Grant, Ending Balance
3,507,659 
Options Outstanding, Number of Shares, Ending Balance
3,774,759 
Options Outstanding, Number of Shares, Vested and exercisable
3,774,759 
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
$ 71.33 
Options Outstanding, Weighted-Average Exercise Price, Granted
$ 184.71 
Options Outstanding, Weighted-Average Exercise Price, Exercised
$ 69.84 
Options Outstanding, Weighted-Average Exercise Price, Ending Balance
$ 88.12 
Options Outstanding, Weighted-Average Exercise Price, Vested and exercisable
$ 88.12 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
Weighted-Average Remaining Contractual Term, Ending Balance
6 years 4 months 13 days 
Weighted-Average Remaining Contractual Term, Vested and exercisable
6 years 4 months 13 days 
Aggregate Intrinsic Value, Ending Balance
$ 834,555 
Aggregate Intrinsic Value, Vested and exercisable
$ 834,555 
Stockholders' Equity (Summary Of Assumptions Used To Value Stock Option Grants Using Lattice-Binomial Model) (Details)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
 
 
 
 
Dividend yield
0.00% 
0.00% 
0.00% 
0.00% 
Expected volatility, minimum
 
 
51.00% 
60.00% 
Expected volatility
51.00% 
60.00% 
 
 
Expected volatility, maximum
 
 
54.00% 
65.00% 
Risk free interest rate, minimum
 
 
1.87% 
1.61% 
Risk-free interest rate
2.55% 
1.61% 
 
 
Risk free interest rate, maximum
 
 
2.55% 
2.01% 
Suboptimal exercise factor, minimum
2.43 
2.27 
2.33 
2.26 
Suboptimal exercise factor, maximum
3.79 
3.64 
3.79 
3.65 
Accumulated Other Comprehensive Income (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
Beginning balance
$ (1,664)
$ 2,919 
Other comprehensive income before reclassifications
2,749 
(1,873)
Amounts reclassified from accumulated other comprehensive income
485 
524 
Net increase in other comprehensive income
3,234 
(1,349)
Ending balance
1,570 
1,570 
Foreign currency [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
Beginning balance
(878)
1,381 
Other comprehensive income before reclassifications
2,409 
150 
Amounts reclassified from accumulated other comprehensive income
0 
0 
Net increase in other comprehensive income
2,409 
150 
Ending balance
1,531 
1,531 
Change in unrealized gains on available for sale securities [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
Beginning balance
(786)
1,538 
Other comprehensive income before reclassifications
340 
(2,023)
Amounts reclassified from accumulated other comprehensive income
485 
524 
Net increase in other comprehensive income
825 
(1,499)
Ending balance
$ 39 
$ 39 
Income Taxes (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Mar. 31, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Dec. 31, 2012
Income Tax Disclosure [Abstract]
 
 
 
 
 
 
Effective tax rates
36.00% 
 
36.00% 
34.00% 
41.00% 
 
2012 Federal R&D credit recognized
 
$ 3.1 
 
 
 
 
Unrecognized tax benefits
59.7 
 
 
59.7 
 
43.3 
Reduction in provision for income taxes due to impact of effective tax rate
50.1 
 
 
50.1 
 
 
Gross interest and penalties accrued
3.7 
 
 
3.7 
 
 
Deferred tax assets, other current assets
11.4 
 
 
11.4 
 
11.0 
Deferred tax assets, other non-current assets
68.6 
 
 
68.6 
 
56.9 
Income tax benefits attributable to the exercise of employee stock options recorded directly to Additional paid-in-capital
$ 19.7 
 
$ 0.1 
$ 51.1 
$ 4.2 
 
Commitments and Contingencies Streaming Content Narrative (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
 
 
Total streaming content obligations
$ 6,505,351 
$ 5,633,685 
Commitments and Contingencies Expected Timing Of Payments For Commitments (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
 
 
Less than one year
$ 2,766,597 
$ 2,299,562 
Due after one year and through 3 years
2,829,201 
2,715,294 
Due after 3 years and through 5 years
803,942 
540,346 
Due after 5 years
105,611 
78,483 
Total streaming content obligations
$ 6,505,351 
$ 5,633,685 
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 (Information On Reportable Segments And Reconciliation To Consolidated Net Income) (Details) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
subscription
Sep. 30, 2012
subscription
Sep. 30, 2013
segment
subscription
Sep. 30, 2012
subscription
Dec. 31, 2012
Segment Reporting Information [Line Items]
 
 
 
 
 
Number of Operating Segments
 
 
3 
 
 
Total members at end of period
0 1
0 1
0 1
0 1
 
Revenues
$ 1,105,999,000 
$ 905,089,000 
$ 3,199,332,000 
$ 2,664,043,000 
 
Cost of revenues
791,019,000 
662,638,000 
2,271,407,000 
1,929,999,000 
 
Marketing
116,109,000 
108,448,000 
367,044,000 
352,340,000 
 
Contribution profit (loss)
198,871,000 
134,003,000 
560,881,000 
381,704,000 
 
Other operating expenses
141,751,000 
117,868,000 
414,822,000 
351,350,000 
 
Operating income
57,120,000 
16,135,000 
146,059,000 
30,354,000 
 
Other income (expense)
(7,629,000)
(4,189,000)
(48,989,000)
(14,778,000)
 
Provision for income taxes
17,669,000 
4,271,000 
33,088,000 
6,321,000 
 
Net income
31,822,000 
7,675,000 
63,982,000 
9,255,000 
 
As of September 30, 2013
3,385,901,000 
 
3,385,901,000 
 
2,874,170,000 
Amortization of content library
570,940,000 
424,079,000 
1,602,876,000 
1,176,162,000 
 
Domestic Streaming [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Total members at end of period
31,092,000 1
25,101,000 1
31,092,000 1
25,101,000 1
 
Revenues
701,083,000 
556,027,000 
2,010,821,000 
1,595,397,000 
 
Cost of revenues
470,631,000 
399,124,000 
1,356,610,000 
1,138,474,000 
 
Marketing
63,971,000 
61,197,000 
205,066,000 
201,334,000 
 
Contribution profit (loss)
166,481,000 
95,706,000 
449,145,000 
255,589,000 
 
As of September 30, 2013
2,643,433,000 
 
2,643,433,000 
 
2,317,070,000 
Amortization of content library
363,787,000 
296,234,000 
1,043,976,000 
826,254,000 
 
International Streaming [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Total members at end of period
9,188,000 1
4,311,000 1
9,188,000 1
4,311,000 1
 
Revenues
183,051,000 
77,744,000 
490,972,000 
186,142,000 
 
Cost of revenues
207,989,000 
124,379,000 
555,898,000 
324,332,000 
 
Marketing
49,359,000 
45,742,000 
152,124,000 
146,297,000 
 
Contribution profit (loss)
(74,297,000)
(92,377,000)
(217,050,000)
(284,487,000)
 
As of September 30, 2013
715,962,000 
 
715,962,000 
 
527,235,000 
Amortization of content library
189,607,000 
114,713,000 
505,408,000 
300,426,000 
 
Domestic DVD [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Total members at end of period
7,148,000 1
8,606,000 1
7,148,000 1
8,606,000 1
 
Revenues
221,865,000 
271,318,000 
697,539,000 
882,504,000 
 
Cost of revenues
112,399,000 
139,135,000 
358,899,000 
467,193,000 
 
Marketing
2,779,000 
1,509,000 
9,854,000 
4,709,000 
 
Contribution profit (loss)
106,687,000 
130,674,000 
328,786,000 
410,602,000 
 
As of September 30, 2013
26,506,000 
 
26,506,000 
 
29,865,000 
Amortization of content library
17,546,000 
13,132,000 
53,492,000 
49,482,000 
 
International [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Long-Lived Assets
4,700,000 
 
4,700,000 
 
4,000,000 
Domestic [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Long-Lived Assets
$ 122,600,000 
 
$ 122,600,000 
 
$ 127,700,000 
[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. In connection with these services, 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.