NETFLIX INC, 10-K filed on 2/3/2014
Annual Report
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Jan. 30, 2014
Jun. 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-K 
 
 
Document Period End Date
Dec. 31, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
59,807,236 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 10,368,444,430 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Income Statement [Abstract]
 
 
 
Revenues
$ 4,374,562 
$ 3,609,282 
$ 3,204,577 
Cost of revenues
3,083,256 
2,625,866 
2,039,901 
Marketing
503,889 
465,400 
381,269 
Technology and development
378,769 
329,008 
259,033 
General and administrative
180,301 
139,016 
148,306 
Operating income
228,347 
49,992 
376,068 
Other income (expense):
 
 
 
Interest expense
(29,142)
(19,986)
(20,025)
Interest and other income (expense)
(3,002)
474 
3,479 
Loss on extinguishment of debt
(25,129)
0 
0 
Income before income taxes
171,074 
30,480 
359,522 
Provision for income taxes
58,671 
13,328 
133,396 
Net income
$ 112,403 
$ 17,152 
$ 226,126 
Earnings per share:
 
 
 
Basic (in dollars per share)
$ 1.93 
$ 0.31 
$ 4.28 
Diluted (in dollars per share)
$ 1.85 
$ 0.29 
$ 4.16 
Weighted-average common shares outstanding:
 
 
 
Basic (in shares)
58,198 
55,521 
52,847 
Diluted (in shares)
60,761 
58,904 
54,369 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 112,403 
$ 17,152 
$ 226,126 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
1,772 
1,357 
24 
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $(697), $538, and $(43), respectively
(1,116)
856 
(68)
Total other comprehensive income (loss)
656 
2,213 
(44)
Comprehensive income
$ 113,059 
$ 19,365 
$ 226,082 
Consolidated Statement of Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Statement of Comprehensive Income [Abstract]
 
 
 
Change in unrealized gains on available for sale securities, tax
$ (697)
$ 538 
$ (43)
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:
 
 
 
Net income
$ 112,403 
$ 17,152 
$ 226,126 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Additions to streaming content library
(3,049,758)
(2,515,506)
(2,320,732)
Change in streaming content liabilities
673,785 
762,089 
1,463,955 
Amortization of streaming content library
2,121,981 
1,591,218 
699,128 
Amortization of DVD content library
71,325 
65,396 
96,744 
Depreciation and amortization of property, equipment and intangibles
48,374 
45,469 
43,747 
Stock-based compensation expense
73,100 
73,948 
61,582 
Excess tax benefits from stock-based compensation
(81,663)
(4,543)
(45,784)
Other non-cash items
5,332 
(8,392)
(4,050)
Loss on extinguishment of debt
25,129 
0 
0 
Deferred taxes
(22,044)
(30,071)
(18,597)
Changes in operating assets and liabilities:
 
 
 
Other current assets
62,234 
(5,432)
1,436 
Accounts payable
18,374 
(4,943)
23,968 
Accrued expenses
1,941 
9,806 
65,560 
Deferred revenue
46,295 
20,676 
21,613 
Other non-current assets and liabilities
(8,977)
4,719 
3,016 
Net cash provided by operating activities
97,831 
21,586 
317,712 
Cash flows from investing activities:
 
 
 
Acquisition of DVD content library
(65,927)
(48,275)
(85,154)
Purchases of property and equipment
(54,143)
(40,278)
(49,682)
Other assets
5,939 
8,816 
3,674 
Purchases of short-term investments
(550,264)
(477,321)
(223,750)
Proceeds from sale of short-term investments
347,502 
282,953 
50,993 
Proceeds from maturities of short-term investments
60,925 
29,365 
38,105 
Net cash used in investing activities
(255,968)
(244,740)
(265,814)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
124,557 
4,124 
19,614 
Proceeds from public offering of common stock, net of issuance costs
0 
(464)
199,947 
Proceeds from issuance of debt, net of issuance costs
490,586 
(295)
198,060 
Repurchases of common stock
0 
0 
(199,666)
Redemption of debt
(219,362)
0 
0 
Excess tax benefits from stock-based compensation
81,663 
4,543 
45,784 
Principal payments of lease financing obligations
(1,180)
(2,319)
(2,083)
Net cash provided by financing activities
476,264 
5,589 
261,656 
Effect of exchange rate changes on cash and cash equivalents
(3,453)
(197)
0 
Net increase (decrease) in cash and cash equivalents
314,674 
(217,762)
313,554 
Cash and cash equivalents, beginning of year
290,291 
508,053 
194,499 
Cash and cash equivalents, end of year
604,965 
290,291 
508,053 
Supplemental disclosure:
 
 
 
Income taxes paid
7,465 
28,853 
79,069 
Interest paid
$ 19,114 
$ 19,009 
$ 19,395 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 604,965 
$ 290,291 
Short-term investments
595,440 
457,787 
Current content library, net
1,706,421 
1,368,162 
Other current assets
151,937 
124,551 
Total current assets
3,058,763 
2,240,791 
Non-current content library, net
2,091,071 
1,506,008 
Property and equipment, net
133,605 
131,681 
Other non-current assets
129,124 
89,410 
Total assets
5,412,563 
3,967,890 
Current liabilities:
 
 
Current content liabilities
1,775,983 
1,366,847 
Accounts payable
108,435 
86,468 
Accrued expenses
54,018 
53,139 
Deferred revenue
215,767 
169,472 
Total current liabilities
2,154,203 
1,675,926 
Non-current content liabilities
1,345,590 
1,076,622 
Long-term debt
500,000 
200,000 
Long-term debt due to related party
0 
200,000 
Other non-current liabilities
79,209 
70,669 
Total liabilities
4,079,002 
3,223,217 
Commitments and contingencies (Note 6)
   
   
Stockholders’ equity:
 
 
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2013 and 2012; no shares issued and outstanding at December 31, 2013 and 2012
0 
0 
Common stock, $0.001 par value; 160,000,000 shares authorized at December 31, 2013 and 2012; 59,607,001 and 55,587,167 issued and outstanding at December 31, 2013 and 2012, respectively
60 
56 
Additional paid-in capital
777,441 
301,616 
Accumulated other comprehensive income
3,575 
2,919 
Retained earnings
552,485 
440,082 
Total stockholders’ equity
1,333,561 
744,673 
Total liabilities and stockholders’ equity
$ 5,412,563 
$ 3,967,890 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2013
Dec. 31, 2012
Statement of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
160,000,000 
160,000,000 
Common stock, shares issued
59,607,001 
55,587,167 
Common stock, shares outstanding
59,607,001 
55,587,167 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Other Comprehensive Income [Member]
Retained Earnings [Member]
Beginning Balance at Dec. 31, 2010
$ 290,164 
$ 53 
$ 51,622 
$ 750 
$ 237,739 
Beginning Balance (in shares) at Dec. 31, 2010
 
52,781,949 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
226,126 
 
 
 
226,126 
Other comprehensive income
(44)
 
 
(44)
 
Issuance of common stock upon exercise of options (in shares)
659,370 
659,370 
 
 
 
Issuance of common stock upon exercise of options
19,614 
0 
19,614 
 
 
Issuance of common stock, net of costs (in shares)
 
2,857,143 
 
 
 
Issuance of common stock, net of costs
199,486 
3 
199,483 
 
 
Repurchases of common stock (in shares)
(900,000)
(899,847)
 
 
 
Repurchases of common stock
(199,666)
(1)
(158,730)
 
(40,935)
Stock-based compensation expense
61,582 
 
61,582 
 
 
Excess stock option income tax benefits
45,548 
 
45,548 
 
 
Ending Balance at Dec. 31, 2011
642,810 
55 
219,119 
706 
422,930 
Ending Balance (in shares) at Dec. 31, 2011
 
55,398,615 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
17,152 
 
 
 
17,152 
Other comprehensive income
2,213 
 
 
2,213 
 
Issuance of common stock upon exercise of options (in shares)
188,552 
188,552 
 
 
 
Issuance of common stock upon exercise of options
4,124 
1 
4,123 
 
 
Stock-based compensation expense
73,948 
 
73,948 
 
 
Excess stock option income tax benefits
4,426 
 
4,426 
 
 
Ending Balance at Dec. 31, 2012
744,673 
56 
301,616 
2,919 
440,082 
Ending Balance (in shares) at Dec. 31, 2012
 
55,587,167 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
112,403 
 
 
 
112,403 
Other comprehensive income
656 
 
 
656 
 
Issuance of common stock upon exercise of options (in shares)
1,688,774 
1,688,774 
 
 
 
Issuance of common stock upon exercise of options
124,557 
2 
124,555 
 
 
Note conversion (in shares)
 
2,331,060 
 
 
 
Note conversion
198,208 
2 
198,206 
 
 
Stock-based compensation expense
73,100 
 
73,100 
 
 
Excess stock option income tax benefits
79,964 
 
79,964 
 
 
Ending Balance at Dec. 31, 2013
$ 1,333,561 
$ 60 
$ 777,441 
$ 3,575 
$ 552,485 
Ending Balance (in shares) at Dec. 31, 2013
 
59,607,001 
 
 
 
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies
Description of Business
Netflix, Inc. (the “Company”) was incorporated on August 29, 1997 and began operations on April 14, 1998. The Company is the world’s leading Internet television network with more than 44 million streaming members in over 40 countries enjoying more than one billion hours of TV shows and movies per month, including original series. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments. Additionally, in the United States ("U.S."), members can receive DVDs.
The Company is organized into three operating segments, Domestic streaming, International streaming and Domestic DVD. A substantial 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.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. 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. Actual results may differ from these estimates.
Cash Equivalents and Short-term Investments
The Company considers investments in instruments purchased with an original maturity of 90 days or less to be cash equivalents. The Company also classifies amounts in transit from payment processors for customer credit card and debit card transactions as cash equivalents.
The Company classifies short-term investments, which consist of marketable securities with original maturities in excess of 90 days as available-for-sale. Short-term investments are reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income” within stockholders’ equity in the Consolidated Balance Sheets. The amortization of premiums and discounts on the investments, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in “Interest and other income (expense)” in the Consolidated Statements of Operations. The Company uses the specific identification method to determine cost in calculating realized gains and losses upon the sale of short-term investments.
Short-term investments are reviewed periodically to identify possible other-than-temporary impairment. When evaluating the investments, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, the Company’s intent to sell, or whether it would be more likely than not that the Company would be required to sell the investments before the recovery of their amortized cost basis.

Streaming Content
The Company licenses rights to stream TV shows, movies and original content to members for unlimited viewing. These licenses are for a fixed fee and specify license windows that generally range from six months to five years. Payment terms may extend over the license window, or may require more up-front payments as is typically the case for original content or content that is licensed in an earlier window through an output arrangement.

The Company capitalizes the fee per title and records a corresponding liability at the gross amount of liabilities when the license period begins, the cost of the title is known and the title is accepted and available for streaming. The portion available for streaming within one year is recognized as “Current content library” and the remaining portion as “Non-current content library”. The acquisition of streaming content license rights and the changes in related liabilities, are classified within cash used in operating activities on the Consolidated Statements of Cash Flows.

The Company amortizes the content library in “Cost of revenues” on a straight line or on an accelerated basis, as appropriate:

•
For content that does not premiere on the Netflix service (representing the vast majority of content), the Company amortizes on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. The amortization period typically ranges from six months to five years.

•
For content that premieres on the Netflix service, the Company expects more upfront viewing due to the additional merchandising and marketing efforts for this original content available only on Netflix. Hence, the Company amortizes on an accelerated basis over the amortization period, which is the shorter of four years or the license period, beginning with the month of first availability. If a subsequent season is added, the amortization period is extended by a year.

•
If the cost per title cannot be reasonably estimated, the license fee is not capitalized and costs are expensed on a straight line basis over the license period. This typically occurs when the license agreement does not specify the number of titles, the license fee per title or the windows of availability per title.
The content library is stated at the lower of unamortized cost or net realizable value. Streaming content licenses (whether capitalized or not) are reviewed in aggregate at the geographic region level for impairment when an event or change in circumstances indicates a change in the expected usefulness of the content. The level of geographic aggregation is determined based on the streaming content rights which are generally specific to a geographic region inclusive of several countries (such as Latin America). No material write down from unamortized cost to a lower net realizable value was recorded in any of the periods presented.

DVD Content Library
The Company acquires DVD content for the purpose of renting such content to its members and earning membership rental revenues, and, as such, the Company considers its direct purchase DVD library to be a productive asset. Accordingly, the Company classifies its DVD library in “Non-current content library, net” on the Consolidated Balance Sheets. The acquisition of DVD content library, net of changes in related liabilities, is classified within cash used in investing activities on the Consolidated Statements of Cash Flows because the DVD content library is considered a productive asset. Other companies in the in-home entertainment video industry classify these cash flows as operating activities. The Company amortizes its direct purchase DVDs on an accelerated basis over their estimated useful lives, which range from one year to two years. The Company also obtains DVD content through revenue sharing agreements with studios and other content providers. Revenue sharing obligations are expensed as incurred based on shipments.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of the estimated useful lives of the respective assets, generally up to 30 years, or the lease term for leasehold improvements, if applicable. Leased buildings are capitalized and included in property and equipment when the Company was involved in the construction funding and did not meet the “sale-leaseback” criteria.
Impairment of Long-Lived Assets
Long-lived assets such as DVD content library, property and equipment and intangible assets subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. There were no events or changes in circumstances that would indicate that the carrying amount of an asset group may not be recoverable in any of the years presented.
Revenue Recognition
Revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. Deferred revenue consists of membership fees billed to members that have not been recognized and gift memberships that have not been redeemed.
Marketing
Marketing expenses consist primarily of advertising expenses and also include payments made to the Company’s affiliates and consumer electronics partners. Advertising expenses include promotional activities such as television and online advertising. Advertising costs are expensed as incurred. Advertising expenses were $437.9 million, $377.2 million and $299.1 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. There was no significant valuation allowance as of December 31, 2013 or 2012.
The Company did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. See Note 10 to the consolidated financial statements for further information regarding income taxes.
Foreign Currency
The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustment included in "Accumulated other comprehensive income" in stockholders’ equity on the Consolidated Balance Sheets.
The Company remeasures monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from these remeasurements are recognized in interest and other income (expense). Foreign currency transactions resulted in losses of $8.4 million and $4.0 million for the years ended December 31, 2013 and 2012, respectively. The gains (losses) from foreign currency transactions were immaterial for the year ended December 31, 2011.
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 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:
 
 
Year ended December 31,
 
2013
 
2012
 
2011
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
Net income
$
112,403

 
$
17,152

 
$
226,126

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
58,198

 
55,521

 
52,847

Basic earnings per share
$
1.93

 
$
0.31

 
$
4.28

Diluted earnings per share:
 
 
 
 
 
Net income
$
112,403

 
$
17,152

 
$
226,126

Convertible Notes interest expense, net of tax
49

 
195

 
17

Numerator for diluted earnings per share
112,452

 
17,347

 
226,143

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
58,198

 
55,521

 
52,847

Convertible Notes shares
715

 
2,331

 
217

Employee stock options
1,848

 
1,052

 
1,305

Weighted-average number of shares
60,761

 
58,904

 
54,369

Diluted earnings per share
$
1.85

 
$
0.29

 
$
4.16


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:
 
 
Year ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Employee stock options
198

 
1,207

 
225


Stock-Based Compensation
The Company grants stock options to its employees on a monthly basis. The Company has elected to grant all options as fully vested non-qualified stock options. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option forfeitures. See Note 8 to the consolidated financial statements for further information regarding stock-based compensation.
Stock Repurchases
To facilitate a stock repurchase program, shares are repurchased by the Company in the open market and are accounted for when the transaction is settled. Shares held for future issuance are classified as Treasury stock. Shares formally or constructively retired are deducted from common stock for par value and from additional paid-in capital for the excess over par value. If additional paid-in capital has been exhausted, the excess over par value is deducted from Retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Reclassifications and Changes in Estimates
Reclassifications and Changes in Estimates
Reclassifications and Changes in Estimates
Certain prior year amounts have been reclassified to conform to the current year presentation in the consolidated financial statements. Payroll and related expenses of $19.3 million and $21.4 million for the years ended December 31, 2012 and 2011, 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 year presented.
Prepaid content amounts are now included in Other current assets on both the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as they are not material.
Certain prior year 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 year ended December 31, 2012, a $1.2 million increase in accounts payable has been reclassified from purchases of property and equipment in "Net cash used in investing activities" to changes in accounts payable in "Net cash provided by 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 year ended December 31, 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 an $18.9 million decrease in contribution profit for the Domestic streaming segment and a $6.1 million increase in contribution loss for the International streaming segment for the year ended December 31, 2013. The effect of this change in estimate was a decrease in operating income and net income of $25.0 million and $15.4 million, respectively for the year ended December 31, 2013. The effect to basic earnings per share and diluted earnings per share was a decrease of $0.27 and $0.25, respectively, for the year ended December 31, 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.
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.
 
 
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 (1)
$
1,204,938

 
$
1,761

 
$
(1,092
)
 
$
1,205,607


 
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 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 $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.
(2)
Includes $290.3 million 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 should be 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 5 to the consolidated financial statements for further information regarding the fair value of the Company’s senior convertible notes and senior notes.
Because the Company does not intend to sell the investments that are in an 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 December 31, 2013. There were no material other-than-temporary impairments or credit losses related to available-for-sale securities in the years ended December 31, 2013, 2012 or 2011.
There were no material gross realized gains or losses from the sale of available-for-sale investments in the years ended December 31, 2013, 2012 and 2011. Realized gains and losses and interest income are included in interest and other income.
The estimated fair value of short-term investments by contractual maturity as of December 31, 2013 is as follows:
 
 
 
(in thousands)
Due within one year
 
$
144,267

Due after one year and through 5 years
 
408,048

Due after 5 years and through 10 years
 
1,703

Due after 10 years
 
41,422

Total short-term investments
 
$
595,440

Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Content Library
Content library consisted of the following:
 
 
As of December 31,
 
2013
 
2012
 
(in thousands)
Total content library, gross
$
6,474,688

 
$
5,001,524

Accumulated amortization
(2,677,196
)
 
(2,127,354
)
Total content library, net
3,797,492

 
2,874,170

Current content library, net
1,706,421

 
1,368,162

Non-current content library, net
$
2,091,071

 
$
1,506,008




 


Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:
 
 
 
As of December 31,
 
 
2013
 
2012
 
 
(in thousands)
Computer equipment
 
3 years
 
$
102,867

 
$
84,193

Operations and other equipment
 
5 years
 
96,361

 
100,207

Software
 
3 years
 
36,439

 
39,073

Furniture and fixtures
 
3 years
 
21,011

 
18,208

Building
 
30 years
 
40,681

 
40,681

Leasehold improvements
 
Over life of lease
 
51,194

 
45,393

Capital work-in-progress
 
8,643

 
8,282

Property and equipment, gross
 
357,196

 
336,037

Less: Accumulated depreciation
 
(223,591
)
 
(204,356
)
Property and equipment, net
 
$
133,605

 
$
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 is considered a related party transaction. The net proceeds to the Company were approximately $197.8 million. Debt issuance costs of $2.2 million (of which $0.3 million was paid in the year ended December 31, 2012) were recorded in “Other non-current assets” on the Consolidated Balance Sheets and were amortized over the term of the notes as interest expense. 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.
The Company determined that the embedded conversion option in the Convertible Notes did not require separate accounting treatment as a derivative instrument because it was both indexed to the Company's own stock and would be classified in stockholders' equity if freestanding. Additionally, the Convertible Notes did not require or permit any portion of the obligation to be settled in cash and accordingly the liability and equity (conversion option) components were not required to be accounted for separately.
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 November 2009, the Company issued $200.0 million aggregate principal amount of 8.50% senior notes due November 15, 2017 (the “8.50% Notes”). The net proceeds to the Company were approximately $193.9 million. Debt issuance costs of $6.1 million were recorded in “Other non-current assets” on the Consolidated Balance Sheets and were amortized over the term of the notes as interest expense. The notes were issued at par and were senior unsecured obligations of the Company. Interest was payable semi-annually at a rate of 8.50% per annum on May 15 and November 15 of each year, commencing on May 15, 2010. The 8.50% Notes were 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 could redeem the 8.50% Notes prior to November 15, 2013 in whole or in part at a redemption price of 100% of the principal plus accrued interest, plus a “make-whole” premium.

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 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% 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 December 31, 2013 was approximately $506.3 million.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Streaming Content
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 Sheet.
At December 31, 2012, the Company had $5.6 billion of obligations comprised of $1.3 billion included in "Current content liabilities" and $1.1 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $3.2 billion of obligations that are not reflected on the Consolidated Balance Sheet.
The expected timing of payments for these streaming content obligations is as follows:


 
As of December 31,
 
2013
 
2012
 
(in thousands)
Less than one year
$
2,972,325

 
$
2,299,562

Due after one year and through 3 years
3,266,907

 
2,715,294

Due after 3 years and through 5 years
929,645

 
540,346

Due after 5 years
83,284

 
78,483

Total streaming content obligations
$
7,252,161

 
$
5,633,685


    
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 Sheet. 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 royalties are recorded and then adjusted based on any changes 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.

Lease obligations
The Company leases facilities under non-cancelable operating leases with various expiration dates through 2019. Several lease agreements contain rent escalation clauses or rent holidays. For purposes of recognizing minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation for intended use. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases in the Consolidated Statements of Operations. The Company has the option to extend or renew most of its leases which may increase the future minimum lease commitments.
Because the terms of the Company’s original facilities lease agreements for its current Los Gatos, California headquarters site required the Company’s involvement in the construction funding of the buildings, the Company is the “deemed owner” (for accounting purposes only) of these buildings. Accordingly, the Company recorded an asset of $40.7 million, representing the total costs of the buildings and improvements, including the costs paid by the lessor (the legal owner of the buildings), with corresponding liabilities. Upon completion of construction of each building, the Company did not meet the sale-leaseback criteria for de-recognition of the building assets and liabilities. Therefore the leases are accounted for as financing obligations.
In the first quarter of 2010, the Company extended the facilities leases for the current Los Gatos buildings for an additional five year term after the remaining term of the original lease, thus increasing the future minimum payments under lease financing obligations by approximately $14 million. The leases continue to be accounted for as financing obligations and no gain or loss was recorded as a result of the lease financing modification. At December 31, 2013, the lease financing obligation balance was $30.6 million, of which $1.1 million and $29.5 million were recorded in “Accrued expenses” and “Other non-current liabilities,” respectively, on the Consolidated Balance Sheets. The remaining future minimum payments under the lease financing obligation are $12.1 million. The lease financing obligation balance at the end of the extended lease term will be approximately $25.8 million which approximates the net book value of the buildings to be relinquished to the lessor.
In the third quarter of 2013, the Company entered into facilities lease agreements to expand its Los Gatos headquarters. At the time the Company entered into these lease agreements, the prior agreement signed in the fourth quarter of 2012 was simultaneously terminated. The 124 month lease term for each of the new leases will commence after the construction of the buildings is complete. Future minimum lease payments associated with these leases are $121.2 million as of December 31, 2013 and are included below.
Future minimum payments under lease financing obligations and non-cancelable operating leases as of December 31, 2013 are as follows:
 
Year Ending December 31,
Future
Minimum
Payments
 
(in thousands)
2014
$
25,101

2015
26,637

2016
26,073

2017
21,846

2018
15,586

Thereafter
86,179

Total minimum payments
$
201,422


Rent expense associated with the operating leases was $27.9 million, $29.7 million and $16.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.

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 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.
Guarantees-Indemnification Obligations
Guarantees-Indemnification Obligations
Guarantees—Indemnification Obligations
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 financial statements with respect to these indemnification guarantees.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity
On November 2, 2012, the Board of Directors (the “Board”) of the Company authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.001 per share (the “Common Shares”), of the Company to stockholders of record at the close of business on November 12, 2012 (the “Record Date”). Each Right entitled the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company at an exercise price of $350 per one one-thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”). The Rights were exercisable in the event any person or group acquires 10% (or 20% in the case of certain institutional investors who report their holdings on Schedule 13G) or more of the Common Shares without the approval of the Board, and until such time are inseparable from and trade with the Company's common stock. The Rights had a de minimus fair value. The Rights Agreement was amended on December 30, 2013 to accelerate the expiration of the Rights from the close of business on November 2, 2015 to the close of business on December 30, 2013, and had the effect of terminating the Rights Agreement on that date. At the time of the termination of the Rights Agreement, all of the Rights distributed to holders of the Company’s common stock pursuant to the Rights Agreement expired.
On November 28, 2011, the Company issued 2.9 million shares of common stock upon the closing of a public offering for $200.0 million net of issuance costs of $0.5 million.
In April 2013, the Company issued 2.3 million shares of common stock in connection with the conversion of the Convertible Notes. See Note 5 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 remained undesignated. In connection with the expiration of the Rights and the termination of the Rights Agreement on December 30, 2013, the shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock of the Company, and the Company therefore now has 10,000,000 shares of preferred stock with a par value of $0.001 that are undesignated.
None of the preferred shares were issued and outstanding at December 31, 2013 and 2012.
Voting Rights
The holders of each share of common stock shall be entitled to one vote per share on all matters to be voted upon by the Company’s stockholders.
Stock Option Plans
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 December 31, 2013, 3.4 million shares were reserved for future grants under the 2011 Stock Plan.
In February 2002, the Company adopted the 2002 Stock Plan, which was amended and restated in May 2006. The 2002 Stock Plan provided for the grant of incentive stock options to employees and for the grant of non-statutory stock options and stock purchase rights to employees, directors and consultants. In the first quarter of 2012, 1.2 million shares reserved for future grants under the 2002 Stock Plan expired.
A summary of the activities related to the Company’s stock option plans is as follows:
 
 
Shares Available
for Grant
 
Options Outstanding
 
Weighted- Average Remaining Contractual Term (in Years)
 
Aggregate
Intrinsic Value
(in Thousands)
 
Number of
Shares
 
Weighted- Average Exercise Price
 
Balances as of December 31, 2010
2,038,502

 
2,892,130

 
36.11

 
 
 
 
Authorized
5,700,000

 
—

 
—

 
 
 
 
Granted
(724,994
)
 
724,994

 
154.09

 
 
 
 
Exercised
—

 
(659,370
)
 
29.11

 
 
 
 
Balances as of December 31, 2011
7,013,508

 
2,957,754

 
66.59

 
 
 
 
Granted
(1,803,798
)
 
1,803,798

 
73.94

 
 
 
 
Exercised
—

 
(188,552
)
 
21.85

 
 
 
 
Canceled
48

 
(48
)
 
35.95

 
 
 
 
Expired
(1,160,721
)
 
—

 


 
 
 
 
Balances as of December 31, 2012
4,049,037

 
4,572,952

 
71.33

 
 
 
 
Granted
(642,720
)
 
642,720

 
208.94

 
 
 
 
Exercised
—

 
(1,688,774
)
 
73.75

 
 
 
 
Balances as of December 31, 2013
3,406,317

 
3,526,898

 
 
 
 
 
 
Vested and exercisable at
December 31, 2013
 
 
3,526,898

 
95.25

 
6.16
 
$
962,570


The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day 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 December 31, 2013. This amount changes based on the fair market value of the Company’s common stock. Total intrinsic value of options exercised for the years ended December 31, 2013, 2012 and 2011 was $274.2 million, $14.7 million and $128.1 million, respectively.
Cash received from option exercises for the years ended December 31, 2013, 2012 and 2011 was $124.6 million, $4.1 million and $19.6 million, respectively.
Employee Stock Purchase Plan
In February 2002, the Company adopted the 2002 ESPP under which employees purchased common stock of the Company through accumulated payroll deductions. The purchase price of the common stock acquired by the employees participating in the ESPP is 85% of the closing price on either the first day of the offering period or the last day of the purchase period, whichever was lower. Under the ESPP, the offering and purchase periods took place concurrently in consecutive six month increments. Therefore, the look-back for determining the purchase price was six months. Employees could invest up to 15% of their gross compensation through payroll deductions. In no event was an employee permitted to purchase more than 8,334 shares of common stock during any six-month purchase period.
As of December 31, 2013, there were 2,785,721 shares available for future issuance under the 2002 Employee Stock Purchase Plan. The Company’s ESPP was suspended in 2011 and there were no offerings subsequent to 2011.
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 after January 2007 will remain exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model:
 
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Dividend yield
 
—
%
 
—
%
 
—
%
Expected volatility
 
51% - 54%

 
55% - 65%

 
51% – 65%

Risk-free interest rate
 
1.87% - 2.71%

 
1.61% - 2.01%

 
2.05% – 3.42%

Suboptimal exercise factor
 
2.33 - 3.92

 
2.26 - 3.65

 
2.17 – 3.64



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 Company estimates expected volatility based on a blend of historical volatility of the Company’s common stock and implied volatility of tradable forward call options to purchase shares of its common stock. The Company believes that implied volatility of publicly traded options in its common stock is expected to be more reflective of market conditions and, therefore, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock. The Company includes historical volatility in its computation due to low trade volume of its tradable forward call options in certain periods, thereby precluding sole reliance on implied volatility.
In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date. The weighted-average fair value of employee stock options granted during 2013, 2012 and 2011 was $113.74, $41.00 and $84.94 per share, respectively.
Stock-based compensation expense related to stock option plans was $73.1 million, $73.9 million and $61.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. The total income tax benefit recognized in the income statement related to stock option plans was $28.1 million, $28.5 million and $22.8 million for 2013, 2012 and 2011, respectively.
Stock Repurchase Program
The following table presents a summary of the Company’s stock repurchases for the year ended December 31, 2011 (in thousands, except per share data):
 
Total number of shares repurchased
900

Dollar amount of shares repurchased
$
199,666

Average price paid per share
$
221.88

Range of price paid per share
$160.11 – $248.78


Under the stock repurchase plan announced on June 11, 2010, the Company was authorized to repurchase up to $300 million of its common stock through the end of 2012. As of December 31, 2012, the Company has repurchased $259.0 million of its common stock under this plan. As of December 31, 2012, the plan has expired and the remaining $41.0 million was unused.
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 (loss), net of tax:

 
Foreign currency
 
Change in unrealized gains on available for sale securities
 
Total
 
(in thousands)
Balance as of December 31, 2011
$
24

 
$
682

 
$
706

Other comprehensive income before reclassifications
1,357

 
1,275

 
2,632

Amounts reclassified from accumulated other comprehensive income
—

 
(419
)
 
(419
)
Net increase in other comprehensive income
1,357

 
856

 
2,213

Balance as of December 31, 2012
$
1,381

 
$
1,538

 
$
2,919

Other comprehensive income before reclassifications
1,772

 
(1,597
)
 
175

Amounts reclassified from accumulated other comprehensive income
—

 
481

 
481

Net increase (decrease) in other comprehensive income
1,772

 
(1,116
)
 
656

Balance as of December 31, 2013
$
3,153

 
$
422

 
$
3,575




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
Income before provision for income taxes was as follows:
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
United States
$
159,126

 
$
27,885

 
$
359,786

Foreign
11,948

 
2,595

 
(264
)
Income before income taxes
$
171,074

 
$
30,480

 
$
359,522


The components of provision for income taxes for all periods presented were as follows:
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Current tax provision:
 
 
 
 
 
Federal
$
58,558

 
$
34,387

 
$
123,406

State
15,154

 
7,850

 
28,657

Foreign
7,003

 
1,162

 
(70
)
Total current
80,715

 
43,399

 
151,993

Deferred tax provision:
 
 
 
 
 
Federal
(18,930
)
 
(26,903
)
 
(14,008
)
State
(2,751
)
 
(3,168
)
 
(4,589
)
Foreign
(363
)
 
—

 
—

Total deferred
(22,044
)
 
(30,071
)
 
(18,597
)
Provision for income taxes
$
58,671

 
$
13,328

 
$
133,396



U.S. income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on a cumulative total of $9.5 million of undistributed earnings for certain foreign subsidiaries as of December 31, 2013. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes net of available foreign tax credits associated with these earnings. The amount of unrecognized deferred income tax liability related to these earnings is approximately $3.3 million.
Income tax benefits attributable to the exercise of employee stock options of $80.0 million, $4.4 million and $45.5 million for the years ended December 31, 2013, 2012 and 2011, respectively, were recorded directly to additional paid-in-capital.
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Expected tax expense at U.S. federal statutory rate of 35%
$
59,878

 
$
10,667

 
$
125,833

State income taxes, net of Federal income tax effect
8,053

 
2,914

 
15,042

R&D tax credit
(13,841
)
 
(1,803
)
 
(8,365
)
Other
4,581

 
1,550

 
886

Provision for income taxes
$
58,671

 
$
13,328

 
$
133,396



The components of deferred tax assets and liabilities were as follows:
 
 
As of December 31,
 
2013
 
2012
 
(in thousands)
Deferred tax assets (liabilities):
 
 
 
Stock-based compensation
$
69,201

 
$
66,827

Accruals and reserves
13,022

 
11,155

Depreciation and amortization
(11,159
)
 
(18,356
)
R&D credits
19,196

 
8,480

Other
824

 
(244
)
Total deferred tax assets
91,084

 
67,862

Valuation allowance
(481
)
 
—

Net deferred tax assets
$
90,603

 
$
67,862


Deferred tax assets include $21.5 million and $11.0 million classified as “Other current assets” and $69.1 million and $56.9 million classified as “Other non-current assets” in the Consolidated Balance Sheets as of December 31, 2013 and 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 December 31, 2013 and 2012, it was considered more likely than not that substantially all deferred tax assets would be realized, and no significant valuation allowance was recorded.

As of December 31, 2013, our federal R&D tax credit and state tax credit carryforwards for tax return purposes were $16.3 million and $29.7 million, respectively. The federal R&D tax credit carryforwards expire in 2033. State tax credit carryforwards of $0.9 million expire in 2023 and the remaining tax credit carryforwards of $28.8 million can be carried forward indefinitely.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8) was signed into law which retroactively extends the Federal research and development credit from January 1, 2012 through December 31, 2013. As a result, the Company recognized the retroactive benefit of the Federal research and development 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 Company classifies unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as “Other non-current liabilities” in the Consolidated Balance Sheets. As of December 31, 2013, the total amount of gross unrecognized tax benefits was $68.2 million, of which $57.0 million, if recognized, would favorably impact the Company’s effective tax rate. The aggregate changes in the Company’s total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
 
Balance as of December 31, 2011
$
28,133

Increases related to tax positions taken during prior periods
8,487

Decreases related to tax positions taken during prior periods
(320
)
Increases related to tax positions taken during the current period
7,037

Balance as of December 31, 2012
$
43,337

Increases related to tax positions taken during prior periods
4

Decreases related to tax positions taken during prior periods
(25
)
Increases related to tax positions taken during the current period
24,915

Balance as of December 31, 2013
$
68,231


The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2013 and December 31, 2012, the total amount of gross interest and penalties accrued was $3.9 million and $3.1 million, respectively, which is classified as “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in our provision for income taxes were not material in all the periods presented.
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 Agents Report with a proposed assessment primarily related to our R&D Credits claimed in those years. We have filed a protest against the proposed assessment and are currently awaiting the commencement of the IRS Appeals process. The IRS Field Exam of the 2010 and 2011 federal tax returns is still underway. 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. 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. We have filed a protest against the proposed assessment and are 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 examinations 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.
Employee Benefit Plan
Employee Benefit Plan
Employee Benefit Plan
The Company maintains a 401(k) savings plan covering substantially all of its employees. Eligible employees may contribute up to 60% of their annual salary through payroll deductions, but not more than the statutory limits set by the Internal Revenue Service. The Company matches employee contributions at the discretion of the Board. During 2013, 2012 and 2011, the Company’s matching contributions totaled $6.5 million, $5.2 million and $4.0 million, respectively.
Segment Information
Segment Information
Segment Information
Beginning in the fourth quarter of 2011, 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 revenue and contribution profit 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 (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.
The Company's long-lived tangible assets were located as follows:
 
As of December 31,
 
2013
 
2012
 
(in thousands)
United States
$
126,455

 
$
127,712

International
7,150

 
3,969


Prior to the fourth quarter of 2011 the Company had two operating segments: Domestic and International. During this time, the Company’s domestic streaming content and DVD-by-mail operations were combined. Members in the United States were able to receive both streaming content and DVDs under a single hybrid plan. Accordingly, revenues were generated and marketing expenses were incurred in connection with the membership offerings as a whole. Therefore, it is impracticable to allocate revenues or marketing expenses or present discrete segment information for the Domestic streaming and Domestic DVD segments for periods prior to the fourth quarter of 2011.
In the third quarter of 2011, the Company made certain changes to its domestic pricing and plan structure which require members who wish to receive both DVDs-by-mail and streaming content to have two separate membership plans. Following this change, beginning in the fourth quarter of 2011, the Company was able to generate discrete financial information for its Domestic DVD and Domestic streaming operations and began reporting this information to the chief operating decision maker for review.
The following tables represent segment information for the year ended December 31, 2013:
 
 
As of/Year ended December 31, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
33,420

 
10,930

 
6,930

 
—

Revenues
$
2,751,375

 
$
712,390

 
$
910,797

 
$
4,374,562

Cost of revenues
1,849,154

 
774,753

 
459,349

 
3,083,256

Marketing
279,454

 
211,969

 
12,466

 
503,889

Contribution profit (loss)
$
622,767

 
$
(274,332
)
 
$
438,982

 
$
787,417

Other operating expenses
 
 
 
 
 
 
559,070

Operating income
 
 
 
 
 
 
228,347

Other income (expense)
 
 
 
 
 
 
(57,273
)
Provision for income taxes
 
 
 
 
 
 
58,671

Net income
 
 
 
 
 
 
$
112,403



 
As of/Year ended December 31, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total content library, net
$
2,973,023

 
$
804,690

 
$
19,779

 
$
3,797,492

Amortization of content library
1,420,076

 
701,905

 
71,325

 
2,193,306


The following tables represent segment information for the year ended December 31, 2012:
 
 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
27,146

 
6,121

 
8,224

 
—

Revenues
$
2,184,868

 
$
287,542

 
$
1,136,872

 
$
3,609,282

Cost of revenues
1,558,864

 
475,570

 
591,432

 
2,625,866

Marketing
256,995

 
201,115

 
7,290

 
465,400

Contribution profit (loss)
$
369,009

 
$
(389,143
)
 
$
538,150

 
$
518,016

Other operating expenses
 
 
 
 
 
 
468,024

Operating income
 
 
 
 
 
 
49,992

Other income (expense)
 
 
 
 
 
 
(19,512
)
Provision for income taxes
 
 
 
 
 
 
13,328

Net income
 
 
 
 
 
 
$
17,152


 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total content library, net
$
2,317,070

 
$
527,235

 
$
29,865

 
$
2,874,170

Amortization of content library
1,152,446

 
438,772

 
65,396

 
1,656,614


The following table represents the Company's segment information for the fourth quarter of 2011:
 
As of/Three Months ended December 31, 2011
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
21,671

 
1,858

 
11,165

 
—

Revenues
$
476,334

 
$
28,988

 
$
370,253

 
$
875,575

Cost of revenues
345,026

 
55,909

 
174,220

 
575,155

Marketing
73,335

 
32,822

 
1,490

 
107,647

Contribution profit (loss)
$
57,973

 
$
(59,743
)
 
$
194,543

 
$
192,773

Other operating expenses
 
 
 
 
 
 
130,901

Operating income
 
 
 
 
 
 
61,872

Other income (expense)
 
 
 
 
 
 
(5,037
)
Provision for income taxes
 
 
 
 
 
 
21,616

Net income
 
 
 
 
 
 
$
35,219


The following table represents the Company’s segment information for the year ended December 31, 2011 based on the Company’s segment reporting prior to the fourth quarter of 2011:
 
 
As of/Year ended December 31, 2011
 
Domestic
 
International
 
Consolidated
 
(in thousands)
Total unique members at end of period (1) (2)
24,395

 
1,858

 
26,253

Revenues
$
3,121,727

 
$
82,850

 
$
3,204,577

Cost of revenues
1,932,419

 
107,482

 
2,039,901

Marketing
302,752

 
78,517

 
381,269

Contribution profit (loss)
$
886,556

 
$
(103,149
)
 
$
783,407

Other operating expenses
 
 
 
 
407,339

Operating income
 
 
 
 
376,068

Other income (expense)
 
 
 
 
(16,546
)
Provision for income taxes
 
 
 
 
133,396

Net income
 
 
 
 
$
226,126




(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 our 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.

(2)
For purposes of determining the number of unique members, domestic members who have elected both a DVD and a streaming membership plan are considered a single unique member.
Selected Quarterly Financial Data (Unaudited)
Selected Quarterly Financial Data (Unaudited)
Selected Quarterly Financial Data (Unaudited)
 
 
December 31
 
September 30
 
June 30
 
March 31
 
(in thousands, except for per share data)
2013
 
Total revenues
$
1,175,230

 
$
1,105,999

 
$
1,069,372

 
$
1,023,961

Gross profit
363,381

 
314,980

 
315,847

 
297,098

Net income
48,421

 
31,822

 
29,471

 
2,689

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.81

 
$
0.54

 
$
0.51

 
$
0.05

Diluted
0.79

 
0.52

 
0.49

 
0.05

2012
 
 
 
 
 
 
 
Total revenues
$
945,239

 
$
905,089

 
$
889,163

 
$
869,791

Gross profit
249,372

 
242,451

 
245,735

 
245,858

Net income (loss)
7,897

 
7,675

 
6,164

 
(4,584
)
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.11

 
$
(0.08
)
Diluted
0.13

 
0.13

 
0.11

 
(0.08
)
Organization and Summary of Significant Accounting Policies (Policy)
Use of Estimates 
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. 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. Actual results may differ from these estimates.
Cash Equivalents and Short-Term Investments 
Cash Equivalents and Short-term Investments
The Company considers investments in instruments purchased with an original maturity of 90 days or less to be cash equivalents. The Company also classifies amounts in transit from payment processors for customer credit card and debit card transactions as cash equivalents.
The Company classifies short-term investments, which consist of marketable securities with original maturities in excess of 90 days as available-for-sale. Short-term investments are reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income” within stockholders’ equity in the Consolidated Balance Sheets. The amortization of premiums and discounts on the investments, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in “Interest and other income (expense)” in the Consolidated Statements of Operations. The Company uses the specific identification method to determine cost in calculating realized gains and losses upon the sale of short-term investments.
Short-term investments are reviewed periodically to identify possible other-than-temporary impairment. When evaluating the investments, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, the Company’s intent to sell, or whether it would be more likely than not that the Company would be required to sell the investments before the recovery of their amortized cost basis.
Streaming Content 
Streaming Content
The Company licenses rights to stream TV shows, movies and original content to members for unlimited viewing. These licenses are for a fixed fee and specify license windows that generally range from six months to five years. Payment terms may extend over the license window, or may require more up-front payments as is typically the case for original content or content that is licensed in an earlier window through an output arrangement.

The Company capitalizes the fee per title and records a corresponding liability at the gross amount of liabilities when the license period begins, the cost of the title is known and the title is accepted and available for streaming. The portion available for streaming within one year is recognized as “Current content library” and the remaining portion as “Non-current content library”. The acquisition of streaming content license rights and the changes in related liabilities, are classified within cash used in operating activities on the Consolidated Statements of Cash Flows.

The Company amortizes the content library in “Cost of revenues” on a straight line or on an accelerated basis, as appropriate:

•
For content that does not premiere on the Netflix service (representing the vast majority of content), the Company amortizes on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. The amortization period typically ranges from six months to five years.

•
For content that premieres on the Netflix service, the Company expects more upfront viewing due to the additional merchandising and marketing efforts for this original content available only on Netflix. Hence, the Company amortizes on an accelerated basis over the amortization period, which is the shorter of four years or the license period, beginning with the month of first availability. If a subsequent season is added, the amortization period is extended by a year.

•
If the cost per title cannot be reasonably estimated, the license fee is not capitalized and costs are expensed on a straight line basis over the license period. This typically occurs when the license agreement does not specify the number of titles, the license fee per title or the windows of availability per title.
The content library is stated at the lower of unamortized cost or net realizable value. Streaming content licenses (whether capitalized or not) are reviewed in aggregate at the geographic region level for impairment when an event or change in circumstances indicates a change in the expected usefulness of the content. The level of geographic aggregation is determined based on the streaming content rights which are generally specific to a geographic region inclusive of several countries (such as Latin America). No material write down from unamortized cost to a lower net realizable value was recorded in any of the periods presented.

DVD Content Library 
DVD Content Library
The Company acquires DVD content for the purpose of renting such content to its members and earning membership rental revenues, and, as such, the Company considers its direct purchase DVD library to be a productive asset. Accordingly, the Company classifies its DVD library in “Non-current content library, net” on the Consolidated Balance Sheets. The acquisition of DVD content library, net of changes in related liabilities, is classified within cash used in investing activities on the Consolidated Statements of Cash Flows because the DVD content library is considered a productive asset. Other companies in the in-home entertainment video industry classify these cash flows as operating activities. The Company amortizes its direct purchase DVDs on an accelerated basis over their estimated useful lives, which range from one year to two years. The Company also obtains DVD content through revenue sharing agreements with studios and other content providers. Revenue sharing obligations are expensed as incurred based on shipments.
Property and Equipment 
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of the estimated useful lives of the respective assets, generally up to 30 years, or the lease term for leasehold improvements, if applicable. Leased buildings are capitalized and included in property and equipment when the Company was involved in the construction funding and did not meet the “sale-leaseback” criteria.
Impairment of Long-Lived Assets 
Impairment of Long-Lived Assets
Long-lived assets such as DVD content library, property and equipment and intangible assets subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. There were no events or changes in circumstances that would indicate that the carrying amount of an asset group may not be recoverable in any of the years presented
Revenue Recognition 
Revenue Recognition
Revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. Deferred revenue consists of membership fees billed to members that have not been recognized and gift memberships that have not been redeemed
Marketing 
Marketing
Marketing expenses consist primarily of advertising expenses and also include payments made to the Company’s affiliates and consumer electronics partners. Advertising expenses include promotional activities such as television and online advertising. Advertising costs are expensed as incurred
Income Taxes 
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. There was no significant valuation allowance as of December 31, 2013 or 2012.
The Company did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. See Note 10 to the consolidated financial statements for further information regarding income taxes.
Foreign Currency 
Foreign Currency
The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in cumulative translation adjustment included in "Accumulated other comprehensive income" in stockholders’ equity on the Consolidated Balance Sheets.
The Company remeasures monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from these remeasurements are recognized in interest and other income (expense)
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 Convertible Notes (prior to the conversion of such notes) and incremental shares issuable upon the assumed exercise of stock options
Stock-Based Compensation 
Stock-Based Compensation
The Company grants stock options to its employees on a monthly basis. The Company has elected to grant all options as fully vested non-qualified stock options. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option forfeitures. See Note 8 to the consolidated financial statements for further information regarding stock-based compensation.
Stock Repurchases 
Stock Repurchases
To facilitate a stock repurchase program, shares are repurchased by the Company in the open market and are accounted for when the transaction is settled. Shares held for future issuance are classified as Treasury stock. Shares formally or constructively retired are deducted from common stock for par value and from additional paid-in capital for the excess over par value. If additional paid-in capital has been exhausted, the excess over par value is deducted from Retained earnings. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Organization and Summary of Significant Accounting Policies (Tables)
Computation of Net Income Per Share 
The computation of earnings per share is as follows:
 
 
Year ended December 31,
 
2013
 
2012
 
2011
 
(in thousands, except per share data)
Basic earnings per share:
 
 
 
 
 
Net income
$
112,403

 
$
17,152

 
$
226,126

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
58,198

 
55,521

 
52,847

Basic earnings per share
$
1.93

 
$
0.31

 
$
4.28

Diluted earnings per share:
 
 
 
 
 
Net income
$
112,403

 
$
17,152

 
$
226,126

Convertible Notes interest expense, net of tax
49

 
195

 
17

Numerator for diluted earnings per share
112,452

 
17,347

 
226,143

Shares used in computation:
 
 
 
 
 
Weighted-average common shares outstanding
58,198

 
55,521

 
52,847

Convertible Notes shares
715

 
2,331

 
217

Employee stock options
1,848

 
1,052

 
1,305

Weighted-average number of shares
60,761

 
58,904

 
54,369

Diluted earnings per share
$
1.85

 
$
0.29

 
$
4.16

Summary of Potential Common Shares Excluded from Diluted Calculation 
The following table summarizes the potential common shares excluded from the diluted calculation:
 
 
Year ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Employee stock options
198

 
1,207

 
225

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.
 
 
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 (1)
$
1,204,938

 
$
1,761

 
$
(1,092
)
 
$
1,205,607


 
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 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 $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.
(2)
Includes $290.3 million 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
Estimated Fair Value Of Short-Term Investments By Contractual Maturity 
The estimated fair value of short-term investments by contractual maturity as of December 31, 2013 is as follows:
 
 
 
(in thousands)
Due within one year
 
$
144,267

Due after one year and through 5 years
 
408,048

Due after 5 years and through 10 years
 
1,703

Due after 10 years
 
41,422

Total short-term investments
 
$
595,440

Balance Sheet Components (Tables)
Components Of Content Library 
Content library consisted of the following:
 
 
As of December 31,
 
2013
 
2012
 
(in thousands)
Total content library, gross
$
6,474,688

 
$
5,001,524

Accumulated amortization
(2,677,196
)
 
(2,127,354
)
Total content library, net
3,797,492

 
2,874,170

Current content library, net
1,706,421

 
1,368,162

Non-current content library, net
$
2,091,071

 
$
1,506,008

Property And Equipment And Accumulated Depreciation 
Property and equipment and accumulated depreciation consisted of the following:
 
 
 
As of December 31,
 
 
2013
 
2012
 
 
(in thousands)
Computer equipment
 
3 years
 
$
102,867

 
$
84,193

Operations and other equipment
 
5 years
 
96,361

 
100,207

Software
 
3 years
 
36,439

 
39,073

Furniture and fixtures
 
3 years
 
21,011

 
18,208

Building
 
30 years
 
40,681

 
40,681

Leasehold improvements
 
Over life of lease
 
51,194

 
45,393

Capital work-in-progress
 
8,643

 
8,282

Property and equipment, gross
 
357,196

 
336,037

Less: Accumulated depreciation
 
(223,591
)
 
(204,356
)
Property and equipment, net
 
$
133,605

 
$
131,681

Commitments and Contingencies (Tables)
Expected timing of payments for streaming content obligations 
The expected timing of payments for these streaming content obligations is as follows:


 
As of December 31,
 
2013
 
2012
 
(in thousands)
Less than one year
$
2,972,325

 
$
2,299,562

Due after one year and through 3 years
3,266,907

 
2,715,294

Due after 3 years and through 5 years
929,645

 
540,346

Due after 5 years
83,284

 
78,483

Total streaming content obligations
$
7,252,161

 
$
5,633,685

Future minimum payments under lease financing obligations and non-cancelable operating leases 
Future minimum payments under lease financing obligations and non-cancelable operating leases as of December 31, 2013 are as follows:
 
Year Ending December 31,
Future
Minimum
Payments
 
(in thousands)
2014
$
25,101

2015
26,637

2016
26,073

2017
21,846

2018
15,586

Thereafter
86,179

Total minimum payments
$
201,422

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:
 
 
Shares Available
for Grant
 
Options Outstanding
 
Weighted- Average Remaining Contractual Term (in Years)
 
Aggregate
Intrinsic Value
(in Thousands)
 
Number of
Shares
 
Weighted- Average Exercise Price
 
Balances as of December 31, 2010
2,038,502

 
2,892,130

 
36.11

 
 
 
 
Authorized
5,700,000

 
—

 
—

 
 
 
 
Granted
(724,994
)
 
724,994

 
154.09

 
 
 
 
Exercised
—

 
(659,370
)
 
29.11

 
 
 
 
Balances as of December 31, 2011
7,013,508

 
2,957,754

 
66.59

 
 
 
 
Granted
(1,803,798
)
 
1,803,798

 
73.94

 
 
 
 
Exercised
—

 
(188,552
)
 
21.85

 
 
 
 
Canceled
48

 
(48
)
 
35.95

 
 
 
 
Expired
(1,160,721
)
 
—

 


 
 
 
 
Balances as of December 31, 2012
4,049,037

 
4,572,952

 
71.33

 
 
 
 
Granted
(642,720
)
 
642,720

 
208.94

 
 
 
 
Exercised
—

 
(1,688,774
)
 
73.75

 
 
 
 
Balances as of December 31, 2013
3,406,317

 
3,526,898

 
 
 
 
 
 
Vested and exercisable at
December 31, 2013
 
 
3,526,898

 
95.25

 
6.16
 
$
962,570

Summary Of Assumptions Used To Value Stock Option Grants Using Lattice-Binomial Model 
The following table summarizes the assumptions used to value option grants using the lattice-binomial model:
 
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Dividend yield
 
—
%
 
—
%
 
—
%
Expected volatility
 
51% - 54%

 
55% - 65%

 
51% – 65%

Risk-free interest rate
 
1.87% - 2.71%

 
1.61% - 2.01%

 
2.05% – 3.42%

Suboptimal exercise factor
 
2.33 - 3.92

 
2.26 - 3.65

 
2.17 – 3.64

Summary Of Stock Repurchases 
The following table presents a summary of the Company’s stock repurchases for the year ended December 31, 2011 (in thousands, except per share data):
 
Total number of shares repurchased
900

Dollar amount of shares repurchased
$
199,666

Average price paid per share
$
221.88

Range of price paid per share
$160.11 – $248.78

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 (loss), net of tax:

 
Foreign currency
 
Change in unrealized gains on available for sale securities
 
Total
 
(in thousands)
Balance as of December 31, 2011
$
24

 
$
682

 
$
706

Other comprehensive income before reclassifications
1,357

 
1,275

 
2,632

Amounts reclassified from accumulated other comprehensive income
—

 
(419
)
 
(419
)
Net increase in other comprehensive income
1,357

 
856

 
2,213

Balance as of December 31, 2012
$
1,381

 
$
1,538

 
$
2,919

Other comprehensive income before reclassifications
1,772

 
(1,597
)
 
175

Amounts reclassified from accumulated other comprehensive income
—

 
481

 
481

Net increase (decrease) in other comprehensive income
1,772

 
(1,116
)
 
656

Balance as of December 31, 2013
$
3,153

 
$
422

 
$
3,575

Income Taxes (Tables)
Schedule of Income before Income Taxes 
Income before provision for income taxes was as follows:
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
United States
$
159,126

 
$
27,885

 
$
359,786

Foreign
11,948

 
2,595

 
(264
)
Income before income taxes
$
171,074

 
$
30,480

 
$
359,522

Components of Provision for Income Taxes 
The components of provision for income taxes for all periods presented were as follows:
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Current tax provision:
 
 
 
 
 
Federal
$
58,558

 
$
34,387

 
$
123,406

State
15,154

 
7,850

 
28,657

Foreign
7,003

 
1,162

 
(70
)
Total current
80,715

 
43,399

 
151,993

Deferred tax provision:
 
 
 
 
 
Federal
(18,930
)
 
(26,903
)
 
(14,008
)
State
(2,751
)
 
(3,168
)
 
(4,589
)
Foreign
(363
)
 
—

 
—

Total deferred
(22,044
)
 
(30,071
)
 
(18,597
)
Provision for income taxes
$
58,671

 
$
13,328

 
$
133,396

Reconciliation of Provision for Income Taxes 
A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Expected tax expense at U.S. federal statutory rate of 35%
$
59,878

 
$
10,667

 
$
125,833

State income taxes, net of Federal income tax effect
8,053

 
2,914

 
15,042

R&D tax credit
(13,841
)
 
(1,803
)
 
(8,365
)
Other
4,581

 
1,550

 
886

Provision for income taxes
$
58,671

 
$
13,328

 
$
133,396

Deferred Tax Assets and Liabilities 
 
 
As of December 31,
 
2013
 
2012
 
(in thousands)
Deferred tax assets (liabilities):
 
 
 
Stock-based compensation
$
69,201

 
$
66,827

Accruals and reserves
13,022

 
11,155

Depreciation and amortization
(11,159
)
 
(18,356
)
R&D credits
19,196

 
8,480

Other
824

 
(244
)
Total deferred tax assets
91,084

 
67,862

Valuation allowance
(481
)
 
—

Net deferred tax assets
$
90,603

 
$
67,862

Summary of Changes in Unrecognized Tax Benefits 
The aggregate changes in the Company’s total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
 
Balance as of December 31, 2011
$
28,133

Increases related to tax positions taken during prior periods
8,487

Decreases related to tax positions taken during prior periods
(320
)
Increases related to tax positions taken during the current period
7,037

Balance as of December 31, 2012
$
43,337

Increases related to tax positions taken during prior periods
4

Decreases related to tax positions taken during prior periods
(25
)
Increases related to tax positions taken during the current period
24,915

Balance as of December 31, 2013
$
68,231

Segment Information (Tables)
Long-lived Assets by Geographic Areas 
The Company's long-lived tangible assets were located as follows:
 
As of December 31,
 
2013
 
2012
 
(in thousands)
United States
$
126,455

 
$
127,712

International
7,150

 
3,969

Information On Reportable Segments And Reconciliation To Consolidated Net Income 
The following tables represent segment information for the year ended December 31, 2013:
 
 
As of/Year ended December 31, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
33,420

 
10,930

 
6,930

 
—

Revenues
$
2,751,375

 
$
712,390

 
$
910,797

 
$
4,374,562

Cost of revenues
1,849,154

 
774,753

 
459,349

 
3,083,256

Marketing
279,454

 
211,969

 
12,466

 
503,889

Contribution profit (loss)
$
622,767

 
$
(274,332
)
 
$
438,982

 
$
787,417

Other operating expenses
 
 
 
 
 
 
559,070

Operating income
 
 
 
 
 
 
228,347

Other income (expense)
 
 
 
 
 
 
(57,273
)
Provision for income taxes
 
 
 
 
 
 
58,671

Net income
 
 
 
 
 
 
$
112,403



 
As of/Year ended December 31, 2013
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total content library, net
$
2,973,023

 
$
804,690

 
$
19,779

 
$
3,797,492

Amortization of content library
1,420,076

 
701,905

 
71,325

 
2,193,306


The following tables represent segment information for the year ended December 31, 2012:
 
 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
27,146

 
6,121

 
8,224

 
—

Revenues
$
2,184,868

 
$
287,542

 
$
1,136,872

 
$
3,609,282

Cost of revenues
1,558,864

 
475,570

 
591,432

 
2,625,866

Marketing
256,995

 
201,115

 
7,290

 
465,400

Contribution profit (loss)
$
369,009

 
$
(389,143
)
 
$
538,150

 
$
518,016

Other operating expenses
 
 
 
 
 
 
468,024

Operating income
 
 
 
 
 
 
49,992

Other income (expense)
 
 
 
 
 
 
(19,512
)
Provision for income taxes
 
 
 
 
 
 
13,328

Net income
 
 
 
 
 
 
$
17,152


 
As of/Year ended December 31, 2012
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total content library, net
$
2,317,070

 
$
527,235

 
$
29,865

 
$
2,874,170

Amortization of content library
1,152,446

 
438,772

 
65,396

 
1,656,614


The following table represents the Company's segment information for the fourth quarter of 2011:
 
As of/Three Months ended December 31, 2011
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total members at end of period (1)
21,671

 
1,858

 
11,165

 
—

Revenues
$
476,334

 
$
28,988

 
$
370,253

 
$
875,575

Cost of revenues
345,026

 
55,909

 
174,220

 
575,155

Marketing
73,335

 
32,822

 
1,490

 
107,647

Contribution profit (loss)
$
57,973

 
$
(59,743
)
 
$
194,543

 
$
192,773

Other operating expenses
 
 
 
 
 
 
130,901

Operating income
 
 
 
 
 
 
61,872

Other income (expense)
 
 
 
 
 
 
(5,037
)
Provision for income taxes
 
 
 
 
 
 
21,616

Net income
 
 
 
 
 
 
$
35,219


The following table represents the Company’s segment information for the year ended December 31, 2011 based on the Company’s segment reporting prior to the fourth quarter of 2011:
 
 
As of/Year ended December 31, 2011
 
Domestic
 
International
 
Consolidated
 
(in thousands)
Total unique members at end of period (1) (2)
24,395

 
1,858

 
26,253

Revenues
$
3,121,727

 
$
82,850

 
$
3,204,577

Cost of revenues
1,932,419

 
107,482

 
2,039,901

Marketing
302,752

 
78,517

 
381,269

Contribution profit (loss)
$
886,556

 
$
(103,149
)
 
$
783,407

Other operating expenses
 
 
 
 
407,339

Operating income
 
 
 
 
376,068

Other income (expense)
 
 
 
 
(16,546
)
Provision for income taxes
 
 
 
 
133,396

Net income
 
 
 
 
$
226,126




(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 our 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.

(2)
For purposes of determining the number of unique members, domestic members who have elected both a DVD and a streaming membership plan are considered a single unique member.
Selected Quarterly Financial Data (Tables)
Selected Quarterly Financial Data
 
December 31
 
September 30
 
June 30
 
March 31
 
(in thousands, except for per share data)
2013
 
Total revenues
$
1,175,230

 
$
1,105,999

 
$
1,069,372

 
$
1,023,961

Gross profit
363,381

 
314,980

 
315,847

 
297,098

Net income
48,421

 
31,822

 
29,471

 
2,689

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.81

 
$
0.54

 
$
0.51

 
$
0.05

Diluted
0.79

 
0.52

 
0.49

 
0.05

2012
 
 
 
 
 
 
 
Total revenues
$
945,239

 
$
905,089

 
$
889,163

 
$
869,791

Gross profit
249,372

 
242,451

 
245,735

 
245,858

Net income (loss)
7,897

 
7,675

 
6,164

 
(4,584
)
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.14

 
$
0.11

 
$
(0.08
)
Diluted
0.13

 
0.13

 
0.11

 
(0.08
)

 

Organization and Summary of Significant Accounting Policies (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2011
segments
Dec. 31, 2013
segments
country
member
Dec. 31, 2012
Dec. 31, 2011
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
Number of streaming members
 
44,000,000 
 
 
Number of Countries
 
40 
 
 
Number of Hours
 
1000000000 hours 
 
 
Number of Operating Segments
2 
3 
 
 
Original content useful life
 
4 years 
 
 
Advertising expense
 
$ 437.9 
$ 377.2 
$ 299.1 
Foreign currency transaction loss
 
$ 8.4 
$ 4.0 
 
Minimum [Member]
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
Streaming content library useful life
 
6 months 
 
 
DVD content library useful life
 
1 year 
 
 
Maximum [Member]
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
Streaming content library useful life
 
5 years 
 
 
DVD content library useful life
 
2 years 
 
 
Estimated useful life
 
30 years 
 
 
Content Library, Current [Member]
 
 
 
 
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
Streaming content library useful life
 
1 year 
 
 
Organization and Summary of Significant Accounting Policies (Computation of Net Income Per Share) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$ 48,421 
$ 31,822 
$ 29,471 
$ 2,689 
$ 7,897 
$ 7,675 
$ 6,164 
$ (4,584)
$ 35,219 
$ 112,403 
$ 17,152 
$ 226,126 
Weighted-average common shares outstanding (in shares)
 
 
 
 
 
 
 
 
 
58,198 
55,521 
52,847 
Basic earnings per share (in dollars per share)
$ 0.81 
$ 0.54 
$ 0.51 
$ 0.05 
$ 0.14 
$ 0.14 
$ 0.11 
$ (0.08)
 
$ 1.93 
$ 0.31 
$ 4.28 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
48,421 
31,822 
29,471 
2,689 
7,897 
7,675 
6,164 
(4,584)
35,219 
112,403 
17,152 
226,126 
Convertible Notes interest expense, net of tax
 
 
 
 
 
 
 
 
 
49 
195 
17 
Numerator for diluted earnings per share
 
 
 
 
 
 
 
 
 
$ 112,452 
$ 17,347 
$ 226,143 
Shares used in computation:
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding (in shares)
 
 
 
 
 
 
 
 
 
58,198 
55,521 
52,847 
Convertible Notes shares
 
 
 
 
 
 
 
 
 
715 
2,331 
217 
Employee stock options
 
 
 
 
 
 
 
 
 
1,848 
1,052 
1,305 
Weighted-average number of shares (in shares)
 
 
 
 
 
 
 
 
 
60,761 
58,904 
54,369 
Diluted earnings per share (in dollars per share)
$ 0.79 
$ 0.52 
$ 0.49 
$ 0.05 
$ 0.13 
$ 0.13 
$ 0.11 
$ (0.08)
 
$ 1.85 
$ 0.29 
$ 4.16 
Organization And Summary Of Significant Accounting Policies (Summary of Potential Common Shares Excluded From Diluted Calculation) (Details) (Equity Option [Member])
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Equity Option [Member]
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
Employee stock options
198 
1,207 
225 
Reclassifications and Changes in Estimates (Details) (USD $)
3 Months Ended 12 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Content library useful life
 
 
 
 
 
 
 
 
 
4 years 
 
 
Decrease in contribution profit/increase in contribution loss from change in estimate
 
 
 
 
 
 
 
 
$ (192,773,000)
$ (787,417,000)
$ (518,016,000)
$ (783,407,000)
Decrease in operating income from change in estimate
 
 
 
 
 
 
 
 
(61,872,000)
(228,347,000)
(49,992,000)
(376,068,000)
Decrease in net income from change in estimate
(48,421,000)
(31,822,000)
(29,471,000)
(2,689,000)
(7,897,000)
(7,675,000)
(6,164,000)
4,584,000 
(35,219,000)
(112,403,000)
(17,152,000)
(226,126,000)
Decrease in basic earnings per share from change in estimate
$ (0.81)
$ (0.54)
$ (0.51)
$ (0.05)
$ (0.14)
$ (0.14)
$ (0.11)
$ 0.08 
 
$ (1.93)
$ (0.31)
$ (4.28)
Decrease in diluted earnings per share from change in estimate
$ (0.79)
$ (0.52)
$ (0.49)
$ (0.05)
$ (0.13)
$ (0.13)
$ (0.11)
$ 0.08 
 
$ (1.85)
$ (0.29)
$ (4.16)
Marketing Reclassified to General and Administrative [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Prior period reclassification adjustment
 
 
 
 
 
 
 
 
 
 
19,300,000 
21,400,000 
Net Cash Provided By (Used in) Investing Activities Reclassified to Net Cash Provided By (Used in) Operating Activities [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Prior period reclassification adjustment
 
 
 
 
 
 
 
 
 
 
1,200,000 
 
Domestic Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in contribution profit/increase in contribution loss from change in estimate
 
 
 
 
 
 
 
 
(57,973,000)
(622,767,000)
(369,009,000)
 
International Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in contribution profit/increase in contribution loss from change in estimate
 
 
 
 
 
 
 
 
59,743,000 
274,332,000 
389,143,000 
 
Service Life [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in operating income from change in estimate
 
 
 
 
 
 
 
 
 
25,000,000 
 
 
Decrease in net income from change in estimate
 
 
 
 
 
 
 
 
 
15,400,000 
 
 
Decrease in basic earnings per share from change in estimate
 
 
 
 
 
 
 
 
 
$ 0.27 
 
 
Decrease in diluted earnings per share from change in estimate
 
 
 
 
 
 
 
 
 
$ 0.25 
 
 
Service Life [Member] |
Domestic Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in contribution profit/increase in contribution loss from change in estimate
 
 
 
 
 
 
 
 
 
18,900,000 
 
 
Service Life [Member] |
International Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in contribution profit/increase in contribution loss from change in estimate
 
 
 
 
 
 
 
 
 
$ 6,100,000 
 
 
Short-Term Investments (Available-For-Sale Securities Reported At Fair Value) (Details) (Fair Value, Measurements, Recurring [Member], USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Amortized Cost
$ 1,204,938 1
$ 750,466 2
Total, Gross Unrealized Gains
1,761 1
2,640 2
Total, Gross Unrealized Losses
(1,092)1
(157)2
Total, Estimated Fair Value
1,205,607 1
752,949 2
Cash and Cash Equivalents [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
605,000 
290,300 
Short-term Investments [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Total, Estimated Fair Value
595,400 
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 and Money market funds, Amortized Cost
126,208 
10,500 
Cash and Money market funds, Gross Unrealized Gains
0 
0 
Cash and Money market funds, Gross Unrealized Losses
0 
0 
Cash and Money market funds, Fair Value Disclosure
126,208 
10,500 
Level 2 Securities [Member] |
Corporate debt securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
316,465 
150,322 
Available-for-sale Securities, Gross Unrealized Gains
1,245 
1,605 
Available-for-sale Securities, Gross Unrealized Losses
(654)
(32)
Available-for-sale Securities, Estimated Fair Value
317,056 
151,895 
Level 2 Securities [Member] |
Government securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
143,812 
166,643 
Available-for-sale Securities, Gross Unrealized Gains
287 
285 
Available-for-sale Securities, Gross Unrealized Losses
(18)
0 
Available-for-sale Securities, Estimated Fair Value
144,081 
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
93,118 
138,340 
Available-for-sale Securities, Gross Unrealized Gains
229 
750 
Available-for-sale Securities, Gross Unrealized Losses
(418)
(125)
Available-for-sale Securities, Estimated Fair Value
92,929 
138,965 
Level 2 Securities [Member] |
Certificates of deposit [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
23,425 
 
Available-for-sale Securities, Gross Unrealized Gains
0 
 
Available-for-sale Securities, Gross Unrealized Losses
0 
 
Available-for-sale Securities, Estimated Fair Value
23,425 
 
Level 2 Securities [Member] |
Agency securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale Securities, Amortized Cost
17,951 
 
Available-for-sale Securities, Gross Unrealized Gains
0 
 
Available-for-sale Securities, Gross Unrealized Losses
(2)
 
Available-for-sale Securities, Estimated Fair Value
17,949 
 
Cash [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash and Money market funds, Amortized Cost
483,959 
284,661 
Cash and Money market funds, Gross Unrealized Gains
0 
0 
Cash and Money market funds, Gross Unrealized Losses
0 
0 
Cash and Money market funds, Fair Value Disclosure
$ 483,959 
$ 284,661 
Short-Term Investments (Estimated Fair Value Of Short-Term Investments By Contractual Maturity) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Short-Term Investments And Fair Value Measurement [Abstract]
 
Due within one year
$ 144,267 
Due after one year and through 5 years
408,048 
Due after 5 years and through 10 years
1,703 
Due after 10 years
41,422 
Total short-term investments
$ 595,440 
Balance Sheet Components (Components of Content Library) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Balance Sheet Related Disclosures [Abstract]
 
 
Total content library, gross
$ 6,474,688 
$ 5,001,524 
Accumulated amortization
(2,677,196)
(2,127,354)
Total content library, net
3,797,492 
2,874,170 
Current content library, net
1,706,421 
1,368,162 
Non-current content library, net
$ 2,091,071 
$ 1,506,008 
Balance Sheet Components (Property and Equipment and Accumulated Depreciation) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 357,196 
$ 336,037 
Less: Accumulated depreciation
(223,591)
(204,356)
Property and equipment, net
133,605 
131,681 
Computer equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
102,867 
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
96,361 
100,207 
Property and equipment, useful life, years
5 years 
 
Software [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
36,439 
39,073 
Property and equipment, useful life, years
3 years 
 
Furniture and fixtures [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
21,011 
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
51,194 
45,393 
Capital work-in-progress [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 8,643 
$ 8,282 
Long-Term Debt (Senior Convertible Notes) (Narrative) (Details) (USD $)
1 Months Ended 12 Months Ended 0 Months Ended 1 Months Ended 12 Months Ended 0 Months Ended
Apr. 30, 2013
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
May 28, 2012
Director [Member]
Convertible Debt [Member]
Senior Convertible Notes [Member]
Apr. 30, 2013
Director [Member]
Convertible Debt [Member]
Senior Convertible Notes [Member]
Nov. 30, 2011
Director [Member]
Convertible Debt [Member]
Senior Convertible Notes [Member]
Dec. 31, 2012
Director [Member]
Convertible Debt [Member]
Senior Convertible Notes [Member]
May 28, 2012
Minimum [Member]
Director [Member]
Convertible Debt [Member]
Senior Convertible Notes [Member]
May 28, 2012
Maximum [Member]
Director [Member]
Convertible Debt [Member]
Senior Convertible Notes [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
Long-term debt due to related party
 
$ 0 
$ 200,000,000 
 
 
 
$ 200,000,000 
 
 
 
Proceeds from issuance of debt, net of issuance costs
 
490,586,000 
(295,000)
198,060,000 
 
 
197,800,000 
 
 
 
Debt issuance costs, net
 
 
 
 
 
 
2,200,000 
 
 
 
Payment of debt issuance costs
 
 
 
 
 
 
 
$ 300,000 
 
 
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
2,300,000 
 
 
 
 
2,300,000 
 
 
 
 
Common stock conversion ratio
 
 
 
 
 
11.6553 
 
 
 
 
Fair value at conversion
 
 
 
 
 
$ 216.99 
 
 
 
 
Long-Term Debt (Senior Notes) (Narrative) (Details) (USD $)
12 Months Ended 0 Months Ended 1 Months Ended 3 Months Ended 12 Months Ended 3 Months Ended 12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Nov. 15, 2013
Senior Notes [Member]
8.50% Senior Notes [Member]
Nov. 30, 2009
Senior Notes [Member]
8.50% Senior Notes [Member]
Mar. 31, 2013
Senior Notes [Member]
8.50% Senior Notes [Member]
Dec. 31, 2013
Senior Notes [Member]
8.50% Senior Notes [Member]
Mar. 31, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Dec. 31, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Feb. 28, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Dec. 31, 2013
Senior Notes [Member]
5.375% Senior Notes [Member]
Level 2 Securities [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Face amount
 
 
 
 
$ 200,000,000.0 
 
 
 
 
$ 500,000,000 
 
Interest rate
 
 
 
 
8.50% 
 
 
 
 
5.375% 
 
Proceeds from issuance of debt, net of issuance costs
490,586,000 
(295,000)
198,060,000 
 
193,900,000 
 
 
 
 
 
 
Debt issuance costs, net
 
 
 
 
6,100,000 
 
 
 
 
 
 
Redemption price, percent of outstanding principal
 
 
 
100.00% 
 
 
101.00% 
 
101.00% 
 
 
Repayments
219,362,000 
0 
0 
 
 
 
 
224,500,000 
 
 
 
Make-whole premium
 
 
 
 
 
19,400,000 
 
 
 
 
 
Interest paid
19,114,000 
19,009,000 
19,395,000 
 
 
5,100,000 
 
 
 
 
 
Loss on extinguishment of debt
(25,129,000)
0 
0 
 
 
25,100,000 
 
 
 
 
 
Write off of unamortized deferred financing costs
 
 
 
 
 
4,200,000 
 
 
 
 
 
Senior notes, fair value
 
 
 
 
 
 
 
 
 
 
$ 506,300,000 
Commitments and Contingencies Commitments and Contingencies (Streaming Content) (Narrative) (Details) (USD $)
Dec. 31, 2013
Dec. 31, 2012
Contractual Obligation [Line Items]
 
 
Total streaming content obligations
$ 7,252,161,000 
$ 5,633,685,000 
Unrecorded streaming obligations
4,200,000,000 
3,200,000,000 
Current Content Liabilities [Member]
 
 
Contractual Obligation [Line Items]
 
 
Recorded streaming obligations
1,800,000,000 
1,300,000,000 
Non-current Content Liabilities [Member]
 
 
Contractual Obligation [Line Items]
 
 
Recorded streaming obligations
$ 1,300,000,000 
$ 1,100,000,000 
Commitments and Contingencies (Expected Timing of Payments for Commitments) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
 
 
Less than one year
$ 2,972,325 
$ 2,299,562 
Due after one year and through 3 years
3,266,907 
2,715,294 
Due after 3 years and through 5 years
929,645 
540,346 
Due after 5 years
83,284 
78,483 
Total streaming content obligations
$ 7,252,161 
$ 5,633,685 
Commitments and Contingencies (Lease Obligations) (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended 3 Months Ended 12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Mar. 31, 2010
Land, Buildings and Improvements[Member]
Los Gatos Buildings [Member]
Dec. 31, 2013
Land, Buildings and Improvements[Member]
Los Gatos Buildings [Member]
Dec. 31, 2013
Land, Buildings and Improvements[Member]
Los Gatos Buildings [Member]
Accrued Expenses [Member]
Dec. 31, 2013
Land, Buildings and Improvements[Member]
Los Gatos Buildings [Member]
Other non-current liabilities [Member]
Dec. 31, 2013
Land, Buildings and Improvements[Member]
Los Gatos Buildings Expanded Site [Member]
Capital Leased Assets [Line Items]
 
 
 
 
 
 
 
 
Total costs of buildings and improvements
 
 
 
 
$ 40.7 
 
 
 
Extended lease term
 
 
 
5 years 
 
 
 
 
Capital leases increase in future minimum payments due
 
 
 
14 
 
 
 
 
Capital lease obligations
 
 
 
 
30.6 
1.1 
29.5 
 
Capital leases, future minimum payments due
 
 
 
 
12.1 
 
 
121.2 
Capital lease financing obligation under extended lease term
 
 
 
 
25.8 
 
 
 
Lease term
 
 
 
 
 
 
 
124 months 
Rent expense
$ 27.9 
$ 29.7 
$ 16.9 
 
 
 
 
 
Commitments and Contingencies (Future Minimum Payments Under Lease Financing Obligations and Non-Cancelable Operating Leases) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
 
2014
$ 25,101 
2015
26,637 
2016
26,073 
2017
21,846 
2018
15,586 
Thereafter
86,179 
Total minimum payments
$ 201,422 
Commitments and Contingencies Commitments and Contingencies (Legal Proceedings) (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]
 
 
 
 
 
 
 
 
 
Shareholder suits
1 
1 
1 
1 
1 
1 
1 
1 
1 
Stockholders' Equity (Narrative) (Details) (USD $)
0 Months Ended 1 Months Ended 12 Months Ended
Nov. 28, 2011
Apr. 30, 2013
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Nov. 2, 2012
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
 
 
 
 
 
 
Number of rights
 
 
 
 
 
$ 1 
Common stock, par value
 
 
$ 0.001 
$ 0.001 
 
$ 0.001 
Preferred stock, par value
 
 
$ 0.001 
$ 0.001 
 
$ 0.001 
Right to purchase preferred stock, conversion ratio
 
 
 
 
 
0.001 
Right to purchase preferred stock, exercise price
 
 
 
 
 
350,000 
Percent ownership threshold of common stock to become exercisable
 
 
10.00% 
 
 
 
Percent ownership threshold of common stock to become exercisable for certain institutional investors
 
 
20.00% 
 
 
 
Common stock, shares issued
2,900,000 
 
 
 
 
 
Proceeds from issuance of common stock
$ 200,000,000 
 
$ 124,557,000 
$ 4,124,000 
$ 19,614,000 
 
Issuance costs
$ 500,000 
 
 
 
 
 
Common stock, shares issued
 
2,300,000 
 
 
 
 
Stockholders' Equity Stockholders' Equity (Preferred Stock and Voting Rights) (Narrative) (Details) (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Nov. 2, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Preferred stock, shares authorized
10,000,000 
10,000,000 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
$ 0.001 
Preferred stock, shares issued
0 
0 
 
Preferred stock, shares outstanding
0 
0 
 
Number of voting rights per share
1 
 
 
Series A [Member]
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Preferred stock, shares authorized
 
1,000,000 
 
Preferred stock, par value
 
$ 0.001 
 
Undesignated Stock [Member]
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Preferred stock, shares authorized
 
9,000,000 
 
Preferred stock, par value
 
$ 0.001 
 
Stockholders' Equity Stockholders' Equity (Stock Option Plans) (Narrative) (Details) (USD $)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
2011 Stock Plan [Member]
Employee Stock Option [Member]
Mar. 31, 2012
2002 Stock Plan [Member]
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
Shares available for future issuance
 
 
 
3,400,000 
1,200,000 
Total intrinsic value of options exercised
$ 274,200,000 
$ 14,700,000 
$ 128,100,000 
 
 
Cash received from option exercised
$ 124,557,000 
$ 4,124,000 
$ 19,614,000 
 
 
Stockholders' Equity (Summary of Activity Related to Stock Option Plans) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
 
 
Shares Available for Grant, Beginning Balances
4,049,037 
7,013,508 
2,038,502 
Options Outstanding, Number of Shares, Beginning Balances
4,572,952 
2,957,754 
2,892,130 
Shares Available for Grant, Authorized
 
 
5,700,000 
Options Outstanding, Number of Shares, Granted
642,720 
1,803,798 
724,994 
Options Outstanding, Number of Shares, Exercised
(1,688,774)
(188,552)
(659,370)
Options Outstanding, Number of Shares, Canceled
 
48 
 
Shares Available for Grant, Expired
 
(1,160,721)
 
Shares Available for Grant, Ending Balances
3,406,317 
4,049,037 
7,013,508 
Options Outstanding, Number of Shares, Ending Balances
3,526,898 
4,572,952 
2,957,754 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
 
 
 
Options Outstanding, Weighted-Average Exercise Price, Beginning Balances
$ 71.33 
$ 66.59 
$ 36.11 
Options Outstanding, Weighted-Average Exercise Price, Granted
$ 208.94 
$ 73.94 
$ 154.09 
Options Outstanding, Weighted-Average Exercise Price, Exercised
$ 73.75 
$ 21.85 
$ 29.11 
Options Outstanding, Weighted-Average Exercise Price, Canceled
 
$ 35.95 
 
Options Outstanding, Weighted-Average Exercise Price, Ending Balances
 
$ 71.33 
$ 66.59 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
 
 
Options Outstanding, Number of Shares, Vested and exercisable
3,526,898 
 
 
Options Outstanding, Weighted-Average Exercise Price, Vested and exercisable
$ 95.25 
 
 
Weighted-Average Remaining Contractual Term, Vested and exercisable (in Years)
6 years 1 month 28 days 
 
 
Aggregate Intrinsic Value, Vested and exercisable
$ 962,570 
 
 
Stockholders' Equity Stockholders' Equity (Employee Stock Purchase Plan) (Narrative) (Details) (2002 Employee Stock Purchase Plan [Member])
12 Months Ended
Dec. 31, 2013
2002 Employee Stock Purchase Plan [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Purchase price as a percent of closing price
85.00% 
Common stock purchase period
6 months 
Common stock look-back period
6 months 
Maximum percent employees can invest of their gross compensation through payroll deductions
15.00% 
Maximum number of shares employee can purchase
8,334 
Shares available for future issuance
2,785,721 
Stockholders' Equity Stockholders' Equity (Stock-Based Compensation) (Narrative) (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended 84 Months Ended 0 Months Ended 30 Months Ended
Dec. 31, 2013
employee_group
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Jun. 30, 2004
Granted before June 30, 2004 [Member]
Jan. 1, 2007
Granted after June 30, 2004 and bfore January 1, 2007 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
 
Exercise period after employment termination
 
 
 
 
3 months 
1 year 
Full exercise period
 
 
 
10 years 
 
 
Number of employee groups
2 
 
 
 
 
 
Dividend yield
0.00% 
0.00% 
0.00% 
 
 
 
Weighted-average fair value of employee stock options granted per share
$ 113.74 
$ 41.00 
$ 84.94 
 
 
 
Stock based compensation expense
$ 73.1 
$ 73.9 
$ 61.6 
 
 
 
Income tax benefit
$ 28.1 
$ 28.5 
$ 22.8 
 
 
 
Stockholders' Equity (Summary of Assumptions Used to Value Stock Option Grants) (Details)
12 Months Ended
Dec. 31, 2013
suboptimal_exercise_factor
Dec. 31, 2012
suboptimal_exercise_factor
Dec. 31, 2011
suboptimal_exercise_factor
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
 
 
 
Dividend yield
0.00% 
0.00% 
0.00% 
Expected volatility, minimum
51.00% 
55.00% 
51.00% 
Expected volatility, maximum
54.00% 
65.00% 
65.00% 
Risk-free interest rate, minimum
1.87% 
1.61% 
2.05% 
Risk-free interest rate, maximum
2.71% 
2.01% 
3.42% 
Suboptimal exercise factor, minimum
2.33 
2.26 
2.17 
Suboptimal exercise factor, maximum
3.92 
3.65 
3.64 
Stockholders' Equity (Summary of Stock Repurchases) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Total number of shares repurchased
900,000 
Dollar amount of shares repurchased
$ 199,666 
Average price paid per share
$ 221.88 
Minimum [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Range of price paid per share
$ 160 
Maximum [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Range of price paid per share
$ 249 
Stockholders' Equity Stockholders' Equity (Stock Repurchase Program) (Narrative) (Details) (USD $)
0 Months Ended 12 Months Ended
Jun. 11, 2010
Dec. 31, 2012
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
 
 
Authorized amount
$ 300,000,000 
 
Amount repurchased
 
259,000,000.0 
Remaining authorized repurchase amount
 
$ 41,000,000.0 
Accumulated Other Comprehensive Income (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
Beginning balance
$ 2,919 
$ 706 
Other comprehensive income before reclassifications
175 
2,632 
Amounts reclassified from accumulated other comprehensive income
481 
(419)
Net increase (decrease) in other comprehensive income
656 
2,213 
Ending balance
3,575 
2,919 
Foreign currency [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
Beginning balance
1,381 
24 
Other comprehensive income before reclassifications
1,772 
1,357 
Amounts reclassified from accumulated other comprehensive income
0 
0 
Net increase (decrease) in other comprehensive income
1,772 
1,357 
Ending balance
3,153 
1,381 
Change in unrealized gains on available for sale securities [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
Beginning balance
1,538 
682 
Other comprehensive income before reclassifications
(1,597)
1,275 
Amounts reclassified from accumulated other comprehensive income
481 
(419)
Net increase (decrease) in other comprehensive income
(1,116)
856 
Ending balance
$ 422 
$ 1,538 
Income Taxes Income Taxes (Schedule of Income before Income Taxes) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Income Tax Disclosure [Abstract]
 
 
 
United States
$ 159,126 
$ 27,885 
$ 359,786 
Foreign
11,948 
2,595 
(264)
Income before income taxes
$ 171,074 
$ 30,480 
$ 359,522 
Income Taxes (Narrative) (Details) (USD $)
3 Months Ended 12 Months Ended
Mar. 31, 2013
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Operating Loss Carryforwards [Line Items]
 
 
 
 
Undistributed earnings of foreign subsidiaries
 
$ 9,500,000 
 
 
Unrecognized deferred tax liability related to undistributed foreign earnings
 
3,300,000 
 
 
Income tax benefits attributable to the exercise of employee stock options
 
80,000,000 
4,400,000 
45,500,000 
Federal R&D credit recorded by the Company
3,100,000 
 
 
 
Unrecognized tax benefits
 
68,231,000 
43,337,000 
28,133,000 
Reduction in provision for income taxes due to impact of effective tax rate
 
57,000,000 
 
 
Gross interest and penalties accrued
 
3,900,000 
3,100,000 
 
Other Current Assets [Member]
 
 
 
 
Operating Loss Carryforwards [Line Items]
 
 
 
 
Deferred tax assets, current
 
21,500,000 
11,000,000 
 
Other Noncurrent Assets [Member]
 
 
 
 
Operating Loss Carryforwards [Line Items]
 
 
 
 
Deferred tax assets, noncurrent
 
69,100,000 
56,900,000 
 
State and Local Jurisdiction [Member]
 
 
 
 
Operating Loss Carryforwards [Line Items]
 
 
 
 
Tax credit carryforward amount
 
29,700,000 
 
 
Tax credit carryforward subject to expiration
 
900,000 
 
 
Tax credit carryforward not subject to expiration
 
28,800,000 
 
 
Research Tax Credit Carryforward [Member] |
Internal Revenue Service (IRS) [Member]
 
 
 
 
Operating Loss Carryforwards [Line Items]
 
 
 
 
Tax credit carryforward amount
 
$ 16,300,000 
 
 
Income Taxes (Components of Provision for Income Taxes) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Current tax provision:
 
 
 
 
Federal
 
$ 58,558 
$ 34,387 
$ 123,406 
State
 
15,154 
7,850 
28,657 
Foreign
 
7,003 
1,162 
(70)
Total current
 
80,715 
43,399 
151,993 
Deferred tax provision:
 
 
 
 
Federal
 
(18,930)
(26,903)
(14,008)
State
 
(2,751)
(3,168)
(4,589)
Foreign
 
(363)
0 
0 
Total deferred
 
(22,044)
(30,071)
(18,597)
Provision for income taxes
$ 21,616 
$ 58,671 
$ 13,328 
$ 133,396 
Income Taxes (Reconciliation of Provision for Income Taxes) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Income Tax Disclosure [Abstract]
 
 
 
 
Expected tax expense at U.S. federal statutory rate of 35%
 
$ 59,878 
$ 10,667 
$ 125,833 
State income taxes, net of Federal income tax effect
 
8,053 
2,914 
15,042 
R&D tax credit
 
(13,841)
(1,803)
(8,365)
Other
 
4,581 
1,550 
886 
Provision for income taxes
$ 21,616 
$ 58,671 
$ 13,328 
$ 133,396 
Federal statutory rate
 
35.00% 
 
 
Income Taxes (Deferred Tax Assets and Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Deferred tax assets (liabilities):
 
 
Stock-based compensation
$ 69,201 
$ 66,827 
Accruals and reserves
13,022 
11,155 
Depreciation and amortization
(11,159)
(18,356)
R&D credits
19,196 
8,480 
Other
824 
(244)
Total deferred tax assets
91,084 
67,862 
Valuation allowance
(481)
0 
Net deferred tax assets
$ 90,603 
$ 67,862 
Income Taxes (Summary of Changes in Unrecognized Tax Benefits) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
 
 
Beginning Balance
$ 43,337 
$ 28,133 
Increases related to tax positions taken during prior periods
4 
8,487 
Decreases related to tax positions taken during prior periods
(25)
(320)
Increases related to tax positions taken during the current period
24,915 
7,037 
Ending Balance
$ 68,231 
$ 43,337 
Employee Benefit Plan (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
 
 
 
Eligible employees maximum contribution percentage
60.00% 
 
 
Contributions by employer
$ 6.5 
$ 5.2 
$ 4.0 
Segment Information (Narrative) (Details)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2011
separate_subscription_plans
Sep. 30, 2011
segments
Dec. 31, 2013
segments
Segment Reporting [Abstract]
 
 
 
Number of Operating Segments
 
2 
3 
Number of Separate Subscription Plans
2 
 
 
Segment Information (Long-lived Assets by Geographic Areas) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
United States [Member]
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
Long-Lived Assets
$ 126,455 
$ 127,712 
International [Member]
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
Long-Lived Assets
$ 7,150 
$ 3,969 
Segment Information (Information on Reportable Segments and Reconciliation to Consolidated Net Income) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2013
subscription
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
subscription
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
subscription
unique_subscriber
Dec. 31, 2013
subscription
Dec. 31, 2012
subscription
unique_subscriber
Dec. 31, 2011
subscription
unique_subscriber
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Total members at end of period
0 1
 
 
 
0 1
 
 
 
0 1
0 1
0 1
0 1
Total unique subscribers at end of period
 
 
 
 
 
 
 
 
26,253,000 1 2
 
 
26,253,000 1 2
Revenues
$ 1,175,230 
$ 1,105,999 
$ 1,069,372 
$ 1,023,961 
$ 945,239 
$ 905,089 
$ 889,163 
$ 869,791 
$ 875,575 
$ 4,374,562 
$ 3,609,282 
$ 3,204,577 
Cost of revenues
 
 
 
 
 
 
 
 
575,155 
3,083,256 
2,625,866 
2,039,901 
Marketing
 
 
 
 
 
 
 
 
107,647 
503,889 
465,400 
381,269 
Contribution profit (loss)
 
 
 
 
 
 
 
 
192,773 
787,417 
518,016 
783,407 
Other operating expenses
 
 
 
 
 
 
 
 
130,901 
559,070 
468,024 
407,339 
Operating income
 
 
 
 
 
 
 
 
61,872 
228,347 
49,992 
376,068 
Other income (expense)
 
 
 
 
 
 
 
 
(5,037)
(57,273)
(19,512)
(16,546)
Provision for income taxes
 
 
 
 
 
 
 
 
21,616 
58,671 
13,328 
133,396 
Net income
48,421 
31,822 
29,471 
2,689 
7,897 
7,675 
6,164 
(4,584)
35,219 
112,403 
17,152 
226,126 
Total content library, net
3,797,492 
 
 
 
2,874,170 
 
 
 
 
3,797,492 
2,874,170 
 
Amortization of content library
 
 
 
 
 
 
 
 
 
2,193,306 
1,656,614 
 
Domestic Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Total members at end of period
33,420,000 1
 
 
 
27,146,000 1
 
 
 
21,671,000 1
33,420,000 1
27,146,000 1
21,671,000 1
Revenues
 
 
 
 
 
 
 
 
476,334 
2,751,375 
2,184,868 
 
Cost of revenues
 
 
 
 
 
 
 
 
345,026 
1,849,154 
1,558,864 
 
Marketing
 
 
 
 
 
 
 
 
73,335 
279,454 
256,995 
 
Contribution profit (loss)
 
 
 
 
 
 
 
 
57,973 
622,767 
369,009 
 
Total content library, net
2,973,023 
 
 
 
2,317,070 
 
 
 
 
2,973,023 
2,317,070 
 
Amortization of content library
 
 
 
 
 
 
 
 
 
1,420,076 
1,152,446 
 
International Streaming [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Total members at end of period
10,930,000 1
 
 
 
6,121,000 1
 
 
 
1,858,000 1
10,930,000 1
6,121,000 1
1,858,000 1
Revenues
 
 
 
 
 
 
 
 
28,988 
712,390 
287,542 
 
Cost of revenues
 
 
 
 
 
 
 
 
55,909 
774,753 
475,570 
 
Marketing
 
 
 
 
 
 
 
 
32,822 
211,969 
201,115 
 
Contribution profit (loss)
 
 
 
 
 
 
 
 
(59,743)
(274,332)
(389,143)
 
Total content library, net
804,690 
 
 
 
527,235 
 
 
 
 
804,690 
527,235 
 
Amortization of content library
 
 
 
 
 
 
 
 
 
701,905 
438,772 
 
Domestic DVD [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Total members at end of period
6,930,000 1
 
 
 
8,224,000 1
 
 
 
11,165,000 1
6,930,000 1
8,224,000 1
11,165,000 1
Revenues
 
 
 
 
 
 
 
 
370,253 
910,797 
1,136,872 
 
Cost of revenues
 
 
 
 
 
 
 
 
174,220 
459,349 
591,432 
 
Marketing
 
 
 
 
 
 
 
 
1,490 
12,466 
7,290 
 
Contribution profit (loss)
 
 
 
 
 
 
 
 
194,543 
438,982 
538,150 
 
Total content library, net
19,779 
 
 
 
29,865 
 
 
 
 
19,779 
29,865 
 
Amortization of content library
 
 
 
 
 
 
 
 
 
71,325 
65,396 
 
Domestic [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Total unique subscribers at end of period
 
 
 
 
 
 
 
 
24,395,000 1 2
 
 
24,395,000 1 2
Revenues
 
 
 
 
 
 
 
 
 
 
 
3,121,727 
Cost of revenues
 
 
 
 
 
 
 
 
 
 
 
1,932,419 
Marketing
 
 
 
 
 
 
 
 
 
 
 
302,752 
Contribution profit (loss)
 
 
 
 
 
 
 
 
 
 
 
886,556 
International [Member]
 
 
 
 
 
 
 
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Total unique subscribers at end of period
 
 
 
 
 
 
 
 
1,858,000 1 2
 
 
1,858,000 1 2
Revenues
 
 
 
 
 
 
 
 
 
 
 
82,850 
Cost of revenues
 
 
 
 
 
 
 
 
 
 
 
107,482 
Marketing
 
 
 
 
 
 
 
 
 
 
 
78,517 
Contribution profit (loss)
 
 
 
 
 
 
 
 
 
 
 
$ (103,149)
[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 our 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.
Selected Quarterly Financial Data (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Quarterly Financial Information Disclosure [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
$ 1,175,230 
$ 1,105,999 
$ 1,069,372 
$ 1,023,961 
$ 945,239 
$ 905,089 
$ 889,163 
$ 869,791 
$ 875,575 
$ 4,374,562 
$ 3,609,282 
$ 3,204,577 
Gross profit
363,381 
314,980 
315,847 
297,098 
249,372 
242,451 
245,735 
245,858 
 
 
 
 
Net income
$ 48,421 
$ 31,822 
$ 29,471 
$ 2,689 
$ 7,897 
$ 7,675 
$ 6,164 
$ (4,584)
$ 35,219 
$ 112,403 
$ 17,152 
$ 226,126 
Basic (in dollars per share)
$ 0.81 
$ 0.54 
$ 0.51 
$ 0.05 
$ 0.14 
$ 0.14 
$ 0.11 
$ (0.08)
 
$ 1.93 
$ 0.31 
$ 4.28 
Diluted (in dollars per share)
$ 0.79 
$ 0.52 
$ 0.49 
$ 0.05 
$ 0.13 
$ 0.13 
$ 0.11 
$ (0.08)
 
$ 1.85 
$ 0.29 
$ 4.16