1065280--2/28/2008--NETFLIX

related topics

{system, service, information}

{product, market, service}

{capital, credit, financial}

{stock, price, share}

{regulation, change, law}

{customer, product, revenue}

{property, intellectual, protect}

{stock, price, operating}

{personnel, key, retain}

{provision, law, control}

{financial, litigation, operation}

{operation, international, foreign}

{operation, natural, condition}

{loss, insurance, financial}

{condition, economic, financial}

{competitive, industry, competition}

{acquisition, growth, future}

Risks Related to Our Business If our efforts to attract subscribers are not successful, our revenues will be adversely affected. If the market segment for online DVD rentals saturates, our business will be adversely affected. If we experience excessive rates of churn, our revenues and business will be harmed. If we are unable to compete effectively, our business will be adversely affected. If VOD or other technologies are more widely adopted and supported as a method of content delivery by the studios and consumers, our business could be adversely affected. If the popularity of the DVD format decreases, our business could be adversely affected. If U.S. Copyright law were altered to amend or eliminate the First Sale Doctrine or if studios were to release or distribute titles on DVD in a manner that attempts to circumvent or limit the affects of the First Sale Doctrine, our business could be adversely affected. We depend on studios to release titles on DVD for an exclusive time period following theatrical release. We depend on studios to license us content for Internet delivery in order to operate our instant-watching feature. We intend to rely on a number of partners to deliver our Internet delivered content to various devices. If we experience increased demand for titles which we are unable to offset with increased subscriber retention or operating margins, our operating results may be adversely affected. If our subscribers select titles or formats that are more expensive for us to acquire and deliver more frequently, our expenses may increase. If our efforts to build strong brand identity and improve subscriber satisfaction and loyalty are not successful, we may not be able to attract or retain subscribers, and our operating results may be adversely affected. If we are unable to manage the mix of subscriber acquisition sources, our subscriber levels and marketing expenses may be adversely affected. If we are unable to continue using our current marketing channels, our ability to attract new subscribers may be adversely affected. If we are not able to manage our growth, our business could be adversely affected. We rely heavily on our proprietary technology to process deliveries and returns of our DVDs and to manage other aspects of our operations, including our instant-watching feature, and the failure of this technology to operate effectively could adversely affect our business. If we experience delivery problems or if our subscribers or potential subscribers lose confidence in the U.S. mail system, we could lose subscribers, which could adversely affect our operating results. Increases in the cost of delivering DVDs could adversely affect our gross profit. If we are unable to effectively utilize our recommendation service, our business may suffer. If we do not acquire sufficient DVD titles, our subscriber satisfaction and results of operations may be adversely affected. If we are unable to renew or renegotiate our revenue sharing agreements when they expire on terms favorable to us, or if the cost of purchasing titles on a wholesale basis increases, our gross margins may be adversely affected. If the sales price of DVDs to retail consumers decreases, our ability to attract new subscribers may be adversely affected. We may seek additional capital that may result in stockholder dilution or that may have rights senior to those of our common stockholders. Any significant disruption in service on our Web site or in our computer systems could result in a loss of subscribers. Our executive offices and our Sunnyvale-based shipping center are located in the San Francisco Bay Area. In the event of an earthquake or other natural or man-made disaster, our operations would be adversely affected. The loss of our Chief Executive Officer, Chief Financial Officer or Chief Marketing Officer, or our failure to attract, assimilate and retain other highly qualified personnel in the future could harm our business and new service developments. Privacy concerns could limit our ability to leverage our subscriber data. Our reputation and relationships with subscribers would be harmed if our billing data were to be accessed by unauthorized persons. Increases in payment processing fees or changes to operating rules would increase our operating expenses and adversely affect our business and results of operations. If our trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected. Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our Web site, our recommendation service, title selection processes and marketing activities. If we are unable to protect our domain names, our reputation and brand could be adversely affected. Forecasting film revenue and associated gross profits from our films prior to release is extremely difficult and may result in significant write-offs. If we become subject to liability for content that we publish or distribute through our service, our results of operations would be adversely affected. If government regulation of the Internet or other areas of our business changes or if consumer attitudes toward use of the Internet change, we may need to change the manner in which we conduct our business, or incur greater operating expenses. We are engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management s time and attention. Changes in securities laws and regulations have increased and may continue to increase our costs. Deterioration in the economy could impact our business. Risks Related to Our Stock Ownership Our officers and directors and their affiliates will exercise significant control over Netflix. Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable. Our stock price is volatile. We record substantial expenses related to our issuance of stock options that may have a material negative impact on our operating results for the foreseeable future. Financial forecasting by us and financial analysts who may publish estimates of our performance may differ materially from actual results.

Full 10-K form ▸

1065280--2/28/2008--NETFLIX_INC