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`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 8-K
`
`Current Report
`
`Pursuant to Section 13 or 15(d) of
`the Securities Exchange Act of 1934
`
`Date of Report (Date of earliest event reported):
`January 29, 2013
`
`NETFLIX, INC.
`
`(Exact name of registrant as specified in its charter)
`
`Delaware
`(State or other jurisdiction
`of incorporation)
`
`001-35727
`(Commission
`File Number)
`
`77-0467272
`(I.R.S. Employer
`Identification No.)
`
`100 Winchester Circle
`Los Gatos, CA
`95032
`(Address of principal executive offices)
`(Zip Code)
`Registrant’s telephone number including area code: (408) 540 -3700
`
`(Former name or address, if changed since last report)
`
` 
`
` 
`
`Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
`following provisions:
`¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
`¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
`¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
`¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
`     
`
` 
`
` 
`
`OPENTV EXHIBIT 2002
`NETFLIX, INC v. OPENTV, INC
`IPR2014-00252
`
`Page 1 of 21
`
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`Item 7.01.
`Regulation FD Disclosure.
`The information set forth in this Item 7.01 is intended to be furnished under Item 7.01 of Form 8 -K (Regulation FD Disclosure). This information
`shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise
`subject to the liabilities of that section. In addition, this information shall not be incorporated by reference into any registration statement filing
`under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
`
`To satisfy its obligations under Regulation FD, Netflix, Inc. is furnishing, in connection with its offering of $400 million aggregate principal amount
`of senior notes due 2021, updated risk factors, information regarding its business and certain selected financial information that is separately being
`provided to investors. The disclosure is furnished herewith as Exhibit 99.1.
` 
`Item 9.01.
`(d) Exhibits.
` 
`Exhibit  
`
`Financial Statement and Exhibits.
`
`Description
`
`99.1   
`
`Updated disclosure.
`
`Page 2 of 21
`
`

`

`Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
`undersigned hereunto duly authorized.
` 
`
`SIGNATURE
`
`NETFLIX, INC.
`
`/s/ David Hyman
`By: David Hyman
`Title: General Counsel
`
`Dated: January 29, 2013
`
`Page 3 of 21
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`

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`
`Exhibit  
`
`99.1   
`
`Description
`
`Updated disclosure.
`
`Index to Exhibits
`
`Page 4 of 21
`
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`

`

`
`BUSINESS OVERVIEW AND RECENT DEVELOPMENTS
` Our Company
` 
`Netflix Inc. is the world’s leading Internet television network with more than 33 million members in over 40 countries enjoying more than one
`billion hours of TV shows and movies per month, including original series. For one low monthly price, our members can watch as much as they
`want, anytime, anywhere, on nearly any Internet-connected screen. Additionally, in the United States (“U.S.”), our subscribers can receive
`standard definition DVDs and, their high definition successor, Blu-ray discs (collectively referred to as “DVD”), delivered quickly to their homes.
` 
`
`Exhibit 99.1
`
`Our core strategy is to grow our streaming subscription business domestically and internationally. We are continuously improving the
`customer experience—expanding our streaming content, with a focus on programming an overall mix of content that delights our customers,
`including exclusive and original content, enhancing our user interface and extending our streaming service to even more Internet-connected
`devices—while staying within the parameters of our consolidated net income (loss) and operating segment contribution profit (loss) targets.
`Contribution profit (loss) is defined as revenues less cost of revenues and marketing expenses.
` 
`
`We are a pioneer in the Internet delivery of TV shows and movies, launching our streaming service in 2007. Since this launch, we have
`developed an ecosystem for Internet-connected devices and have licensed increasing amounts of content that enable consumers to enjoy TV
`shows and movies directly on their TVs, computers and mobile devices. As a result of these efforts, we have experienced growing consumer
`acceptance of and interest in the delivery of TV shows and movies directly over the Internet.
` 
`
`In September 2010, we began international operations by offering our streaming service in Canada. In the past two years, we have continued
`our international expansion and now also offer our streaming service in Latin America, the United Kingdom (“U.K.”), Ireland, and the Nordic
`countries of Finland, Denmark, Sweden, and Norway.
` 
`
`Prior to July 2011, in the U.S., our streaming and DVD-by-mail operations were combined and subscribers could receive both streaming
`content and DVDs under a single “hybrid” plan. In July 2011, we separated the combined plans, making it necessary for subscribers who wish to
`receive both DVDs-by-mail and streaming content to have two separate subscription plans.
`
`Business Segments
` 
`Beginning with the fourth quarter of 2011, the Company has three operating segments: Domestic streaming, International streaming and
`Domestic DVD. The Domestic and International streaming segments derive revenues from monthly subscription services consisting solely of
`streaming content. The Domestic DVD segment derives revenues from monthly subscription services consisting solely of DVD-by-mail.
` 
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`1
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`Domestic Streaming
` 
`The Domestic streaming segment provides our more than 27 million members with access to a broad range of exclusive, non-exclusive and
`original content delivered over the Internet to a host of connected devices—including PCs and Macs, game consoles such as PlayStations, smart
`TVs, Blu-ray players, home theater systems, Internet video players such as Apple TV and Roku, digital video recorders, and mobile devices. We
`have a leading market position in domestic streaming, having grown by more than 5 million subscriptions in 2012 —an increase of 25% from 2011.
`Over the last five quarters, Domestic streaming contribution margins have grown from 10.9% to 18.5%, with respective contribution profit growing
`from $52 million in the fourth quarter of 2011 to $109 million in the fourth quarter of 2012. For the year ended December 31, 2012, Domestic
`streaming contribution profit totaled $350 million.
` 
`
`International Streaming
` 
`The large numbers of pay television and broadband households outside the U.S. provide our International streaming segment with a large
`long-term growth opportunity through significantly expanding our base of potential subscribers. From our initial international market launch in
`Canada in September 2010, our International streaming service has grown to be available in more than 40 countries outside of the U.S. as of
`December 31, 2012. We have 6.1 million International streaming subscriptions as of December 31, 2012, up from 1.9 million subscriptions as of
`December 31, 2011, an increase of 229%. Our International streaming segment now constitutes 18% of our total global streaming subscriptions. We
`believe that international markets will be a significant source of growth and cash flow in the long term, and as a result we are strategically investing
`internationally today. Our focus in international markets is to provide a compelling service offering to subscribers, which allows us to gain market
`share in the near term. We view long-term international success as consumer adoption and contribution margins at the levels of our domestic
`market. International streaming contribution loss totaled $389 million for the year ended December 31, 2012.
` 
`
`Domestic DVD
` 
`Our Domestic DVD business launched in 1999 with DVD-by-mail subscription plans. As technology has changed and consumer preference
`has shifted, we have seen subscribers move away from DVD rental and toward streaming their video content. Netflix has 8.2 million DVD
`subscriptions as of December 31, 2012, down from 11.2 million DVD subscriptions as of December 31, 2011, a decrease of 27%. Contribution profit
`was $194 million, representing 52.4% contribution for the three months ended December 31, 2011, compared to $128 million, representing 50.1%
`contribution margin for the three months ended December 31, 2012. For the year ended December 31, 2012,
` Domestic DVD contribution profit
`totaled $539 million. We expect contribution margins for the Domestic DVD segment to decline sequentially due to a seasonal increase in usage in
`the first quarter of 2013 and the expected USPS rate increase of $0.01 each way which takes effect in January 2013.
`
`Competitive Strengths
` 
`Netflix differentiates itself from the competition and has been able to grow its business through the following demonstrated unique
`competitive strengths:
` 
`
`Leading Scale Advantage Builds Compelling Content. Leveraging our substantial scale and significant content budget, Netflix has built a
`broad and deep content library. Our licensing teams are expert programmers informed by more than a decade of rich data on viewer preferences and
`viewing habits which uniquely enables them to license a compelling mix of TV and movie content to efficiently provide Netflix members with
`compelling content. To further differentiate our content offering from our competitors, we have increasingly licensed exclusive and original
`content.
` 
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`Outstanding Member Experience Attracts and Retains Subscribers. We provide our members with innovative and effective user interfaces
`that enhance their Netflix experience and help increase engagement. Netflix leverages its large global scale and billions of hours of subscriber
`viewing data and algorithms in order to tailor the Netflix recommendations and merchandising to each individual user. We believe that our user
`experience, driven by our focus on innovation and technology, help drive subscriber viewing, engagement, retention, and overall customer
`satisfaction. Relative to the competition, we believe we are further along the experience curve when it comes to improving our user interface and
`delivering great quality streaming.
` 
`
`Brand Clarity and Focus Increases Pace of Innovation for Members. We are focused on making subscription streaming video great.
`Nearly all of our notable competitors in the space today have many other product lines and services that require management attention and
`resources. We believe that our focus on streaming video will help us innovate faster and satisfy our consumers better than our competition. We
`also believe that our focus will provide a level of clarity to our brand that will help consumers more easily discover, understand and appreciate our
`service offering.
`
`Growth Drivers
` 
`Our core strategy is to grow our streaming subscription business domestically and internationally, and is built upon the following drivers:
` 
`
`Investment in Streaming Content. We believe that our investments in streaming content lead to more subscriber viewing, delight, and
`positive consumer word-of-mouth. This, in turn, leads to subscriber acquisition and revenue growth, which allows us to invest in more streaming
`content, which enables the growth cycle to continue. With more than 33 million global subscribers and our increasingly exclusive and original
`programming that differentiates us from competitors, we believe we are well positioned to capitalize upon this virtuous cycle.
` 
`
`Continuous Service Improvements. We’ve found that incremental improvements in our service and quality enhance our member satisfaction
`and retention. We continue to refine our technology, user interfaces, and delivery infrastructure to improve the customer experience. For example,
`using our “adaptive streaming” technology we automatically and constantly optimize the streaming bit-rate to each user’s Internet speed. This
`minimizes loading and buffering times, delivering the best click-and-watch experience. We have added programs in Super HD and with Dolby
`Digital Plus 5.1 surround sound for a high quality, immersive entertainment experience. We believe that improvements such as these will help us
`build a great streaming service.
` 
`
`Overall Adoption and Growth of Internet TV. Domestically, cable and satellite pay TV subscriber numbers have stagnated, while DVR
`penetration has continued to climb. We see this as indicative of consumers desiring more control and freedom in their ability to watch what they
`want, when they want, where they want, and how they want. We are leading this wave of consumer change and growth of Internet TV by
`providing broad, click-and-watch video entertainment video.
` 
`
`Future of the Consumer Electronic Ecosystem: “Internet on Every Screen”. We intend to broaden our already expansive partner
`relationships over time so that even more devices are capable of streaming content from Netflix. By making Netflix accessible on a broad array of
`devices, we believe that we enhance the value of our service to subscribers as well as position ourselves for continued growth as Internet and
`mobile delivery of content becomes more popular. We are pioneering the use of tablets and smartphones as second-screen choosing devices for
`TV viewing, and are actively engaged with all of our device partners in evaluating how Netflix can enhance and improve the user experience in
`conjunction with their product innovations.
` 
`
`International Market Expansion. The International streaming segment represents a significant long-term growth opportunity as people
`around the world discover the benefits of Netflix. We plan to continue our international investment strategy of upfront investment in content and
`marketing to build out scale required for profitability. We believe that scale advantages increase barriers to entry for our competitors. Today, 18%
`of all of Netflix’s global streaming subscribers are outside of the US.
` 
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`Recent Developments
` 
`Consolidated revenues for 2012 increased $405 million as compared to 2011 due to growth in streaming subscriptions. Operating income and
`net income in 2012 both declined as compared to prior year reflective of our launch into new international markets which results in increases in
`both cost of revenues, due to streaming content investments, and marketing.
` 
`
`Domestic revenues in 2012 increased by $200 million as compared to 2011 primarily due to the 15% growth in the domestic average number of
`unique paying subscribers driven by new streaming subscriptions. This increase was offset in part by an 8% decline in domestic average monthly
`revenue per unique paying subscriber, resulting from the decline in DVD subscriptions. We expect streaming subscriptions domestically to
`continue to grow while DVD subscription declines continue to moderate.
` 
`
`Our Domestic streaming segment had a contribution margin of 16.0% for 2012 and our Domestic DVD segment had a contribution margin of
`47.3%. We expect contribution margins for the Domestic DVD segment to decline sequentially due to a seasonal increase in usage in the first
`quarter of 2013 and the expected USPS rate increase of $0.01 each way which takes effect in January 2013. Contribution margins for the Domestic
`streaming segment are expected to expand as investments in domestic content and marketing grow slower than Domestic streaming revenues and
`contribution profit may exceed the Domestic DVD contribution profit in the first quarter of 2013.
` 
`
`International revenues in 2012 increased $205 million as compared to 2011 primarily due to the 260% growth in the international average
`number of unique paying subscribers driven by a full year of service offering in Latin America as well as our launches in the U.K., Ireland and
`Nordic regions. International streaming subscriptions accounted for 18% of total streaming subscriptions at the end of 2012. We expect
`International streaming subscriptions to continue to grow.
` 
`
`Our International streaming segment does not benefit from the established subscriber base that exists for the Domestic segments. As a result
`of having to build a member base from zero, investments in streaming content and marketing for our International segment are larger initially
`relative to revenues, in particular as new territories are launched. The contribution losses for our International segment have been significant and
`increased due to increased investments in streaming content and marketing programs to drive more membership growth and viewing in existing
`and new markets. We expect a sequential improvement in international contribution loss in the first quarter of 2013 with more modest sequential
`improvements expected in subsequent quarters. However, contribution losses will continue to be significant as we expand internationally.
` 
`
`Free cash flow for the year ended December 31, 2012 decreased $245 million as compared to 2011 to negative $58 million. Significant uses of
`cash in the year were cash payments for content (in excess of the expense), and cash payments related to income taxes. These uses of cash were
`partially offset by net income excluding the impact of non-cash stock compensation and deferred revenue. We expect excess content payments
`over expense to continue to fluctuate over time both domestically and internationally. Payment terms for certain streaming licenses, especially
`programming that initially airs in the applicable territory on our service (“original programming”) or that is considered output content, will typically
`require more up-front cash payments than other licensing agreements. Due to the expected receipt timing of original programming content, content
`cash payments in excess of expense and free cash flow will be materially more negative in the first quarter of 2013 as compared to the fourth quarter
`of 2012, but free cash flow is currently expected to improve in subsequent quarters.
` 
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`As of December 31, 2012, we have $200 million in 8.50% senior notes and $200 million in zero coupon senior convertible notes outstanding.
`We intend to use a portion of the net proceeds expected to be received from our offering of $400 million aggregate principal amount of senior notes
`due 2021 to redeem our outstanding 8.50% senior notes and we intend to exercise our option to cause the conversion of the convertible notes into
`shares of our common stock if the specified conditions are satisfied, including that the daily volume weighted average price of our common stock
`is equal or greater than $111.54 for at least 50 trading days during a 65 trading day period prior to the conversion date.
`
`CONTRACTUAL OBLIGATIONS
` 
`Contractual Obligations
` 
`The following table summarizes our contractual obligations at December 31, 2012:
` 
`    
`
`
`
`Contractual obligations (in thousands):
`Streaming content obligations (1)
`8.50% Notes (2)
`Convertible Notes (2)
`Operating lease obligations (3)
`Lease financing obligations (3)
`Other purchase obligations (4)
`Total
`
`  
`  
`    
`    
`    
`    
`    
`  
`
`Total
`    
`$ 5,633,685     
`285,000       
`200,000       
`124,252       
`15,106       
`132,169       
`$6,390,212     
`
`Payments due by Period
`Less than
`1 year (3)
`    
`$ 2,299,562     
`17,000       
`—       
`20,926       
`3,090       
`113,604       
`$2,454,182     
`
`1-3 years
`    
`$ 2,715,294     
`34,000       
`—       
`28,158       
`5,886       
`18,065       
`$2,801,403     
`
`3-5 years     
`$ 540,346     
`234,000       
`—       
`25,671       
`5,886       
`500       
`$806,403     
`
`$
`
`More than
`5 years
`78,483  
`—  
`200,000  
`49,497  
`244  
`—  
`$328,224  
`
`  Streaming content obligations include agreements to acquire and license streaming content. As of December 31, 2012 such obligations were
`comprised of $1.3 billion included in “Current content liabilities”, $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 Sheets as they do not yet meet the criteria for asset
`recognition.
` 
`       For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing
`as of the reporting date. For those agreements that include renewal provisions that are solely at the option of the content provider, we
`include the commitments associated with the renewal period to the extent such commitments are fixed or a minimum amount is specified. For
`these reasons, the amounts presented in the table may not provide a reliable indicator of our expected future cash outflows.
`       We have entered into certain streaming content license agreements that include an unspecified or a maximum number of titles that we may or
`may not receive in the future and/or that include pricing contingent upon certain variables, such as theatrical exhibition receipts for the title.
`As of the reporting date, it is unknown whether we will receive access to these titles or what the ultimate price per title will be. Accordingly
`such amounts are not reflected in the above contractual obligations table. However, such amounts are expected to be significant and the
`expected timing of payments for these commitments could range from less than one year to more than five years.
`  Long-term debt obligations as of December 31, 2012 include our 8.50% Notes consisting of principal and interest payments and the
`Convertible Notes consisting solely of the principal amount.
`  The lease financing obligations of $15.1 million relate to our for our Los Gatos, California headquarters for which we are the deemed owner
`for accounting purposes.
`       Operating lease obligations include other facilities under non-cancelable operating leases with various expiration dates through 2018. In the
`fourth quarter of 2012, the Company entered into a facilities lease agreement to expand its Los Gatos headquarters to a nearby site. The ten
`year lease term will commence after the construction of the buildings is complete. Future minimum lease payments associated with this lease
`are $63.4 million as of December 31, 2012 and are included in the operating lease obligations line in the above table.
`  Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming
`content delivery, DVD content acquisition, and miscellaneous open purchase orders for which we have not received the related services or
`goods.
`
`(1)
`
`(2)
`
`(3)
`
`(4)
`
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`

`RISK FACTORS
` Risks Related to Our Business
` If our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
` 
`We have experienced significant subscriber growth over the past several years. Our ability to continue to attract subscribers will depend in
`part on our ability to consistently provide our subscribers with a valuable and quality experience for selecting and viewing TV shows and movies.
`Furthermore, the relative service levels, content offerings, pricing and related features of competitors to our service may adversely impact our
`ability to attract and retain subscribers. Competitors include multichannel video programming distributors (“MVPDs”) with free TV Everywhere
`and other on demand content, Internet movie and TV content providers, including both those that provide legal and illegal (or pirated)
`entertainment video content, DVD rental outlets and kiosk services and entertainment video retail stores. If consumers do not perceive our service
`offering to be of value, or if we introduce new or adjust existing features or change the mix of content in a manner that is not favorably received by
`them, we may not be able to attract and retain subscribers. In addition, many of our subscribers are rejoining our service or originate from word-of-
`mouth advertising from existing subscribers. If our efforts to satisfy our existing subscribers are not successful, we may not be able to attract
`subscribers, and as a result, our ability to maintain and/or grow our business will be adversely affected. Subscribers cancel their subscription to
`our service for many reasons, including a perception that they do not use the service sufficiently, the need to cut household expenses, availability
`of content is unsatisfactory, competitive services provide a better value or experience and customer service issues are not satisfactorily resolved.
`We must continually add new subscribers both to replace subscribers who cancel and to grow our business beyond our current subscriber base.
`If too many of our subscribers cancel our service, or if we are unable to attract new subscribers in numbers sufficient to grow our business, our
`operating results will be adversely affected. If we are unable to successfully compete with current and new competitors in both retaining our
`existing subscribers and attracting new subscribers, our business will be adversely affected. Further, if excessive numbers of subscribers cancel
`our service, we may be required to incur significantly higher marketing expenditures than we currently anticipate to replace these subscribers with
`new subscribers.
`
`If we are unable to compete effectively, our business will be adversely affected.
` 
`The market for entertainment video is intensely competitive and subject to rapid change. New technologies and evolving business models
`for delivery of entertainment video continue to develop at a fast pace. The growth of Internet-connected devices, including TVs, computers and
`mobile devices has increased the consumer acceptance of Internet delivery of entertainment video. Through these new and existing distribution
`channels, consumers are afforded various means for consuming entertainment video. The various economic models underlying these differing
`means of entertainment video delivery include subscription, transactional, ad-supported and piracy-based models. All of these have the potential
`to capture meaningful segments of the entertainment video market. Several competitors have longer operating histories, larger customer bases,
`greater brand recognition and significantly greater financial, marketing and other resources than we do. They may secure better terms from
`suppliers, adopt more aggressive pricing and devote more resources to technology, fulfillment, and marketing. New entrants may enter the market
`with unique service offerings or approaches to providing entertainment video and other companies also may enter into business combinations or
`alliances that strengthen their competitive positions. If we are unable to successfully or profitably compete with current and new competitors,
`programs and technologies, our business will be adversely affected, and we may not be able to increase or maintain market share, revenues or
`profitability.
` 
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`The increasingly long-term and fixed cost nature of our content acquisition licenses may limit our operating flexibility and could adversely
`affect our liquidity and results of operation.
` 
`In connection with obtaining streaming content, we typically enter into multi-year licenses with studios and other content providers, the
`payment terms of which are not tied to subscriber usage or the size of our subscriber base (“fixed cost”) but which may be tied to such factors as
`titles licensed and/or theatrical exhibition receipt. Such contractual commitments are included in the Contractual Obligations section under the
`heading “Supplemental Information.” Given the multiple-year duration and largely fixed cost nature of content licenses, if subscriber acquisition
`and retention do not meet our expectations, our margins may be adversely impacted. Payment terms for streaming licenses, especially programming
`that initially airs in the applicable territory on our service (“original programming”) or that is considered output content, will typically require more
`up-front cash payments than other licensing agreements. To the extent subscriber and/or revenue growth do not meet our expectations, our
`liquidity and results of operations could be adversely affected as a result of content licensing commitments and accelerated payment requirements
`of certain licenses. In addition, the long-term and fixed cost nature of our streaming licenses may limit our flexibility in planning for, or reacting to
`changes in our business and the market segments in which we operate. As we expand internationally, we must license content in advance of
`entering into a new geographical market. If we license content that is not favorably received by consumers in the applicable territory, acquisition
`and retention may be adversely impacted and given the long-term and fixed cost nature of our commitments, we may not be able to adjust our
`content offering quickly and our results of operation may be adversely impacted.
`
`Changes in consumer viewing habits, including more widespread usage of TV Everywhere or other similar on demand methods of
`entertainment video consumption could adversely affect our business.
` 
`The manner in which consumers view entertainment video is changing rapidly. Digital cable, wireless and Internet content providers are
`continuing to improve technologies, content offerings, user interface, and business models that allow consumers to access on demand
`entertainment with interactive capabilities including start, stop and rewind. The devices through which entertainment video can be consumed are
`also changing rapidly. Today, content from MVPDs may be viewed on laptops and content from Internet content providers may be viewed on
`TVs. Although we provide our own Internet-based delivery of content allowing our subscribers to stream certain TV shows and movies to their
`Internet-connected televisions and other devices, if other providers of entertainment video address the changes in consumer viewing habits in a
`manner that is better able to meet content distributor and consumer needs and expectations, our business could be adversely affected.
`
`If we are not able to manage change and growth, our business could be adversely affected.
` 
`We are currently engaged in an effort to expand our operations internationally, scale our streaming service to effectively and reliably handle
`anticipated growth in both subscribers and features related to our service, as well as continue to operate our DVD service within the U.S. As we
`expand internationally, we are managing our business to address varied content offerings, consumer customs and practices, in particular those
`dealing with e-commerce and Internet video, as well as differing legal and regulatory environments. As we scale our streaming service, we are
`developing technology and utilizing relatively new third-party Internet-based or “cloud” computing services. We have also chosen to separate the
`technology that operates our DVD-by-mail service from that which runs our streaming operations. If we are not able to manage the growing
`complexity of our business, including maintaining our DVD operations, and improving, refining or revising our systems and operational practices
`related to our streaming operations, our business may be adversely affected.
`
`If the market segment for online subscription-based entertainment video saturates, our business will be adversely affected.
`
`The market segment for online subscription-based entertainment video has grown significantly. Much of the increasing growth can be attributed
`to the ability of our subscribers to stream TV shows and movies on their TVs, computers and mobile devices. As we face more competition in our
`market segment, our rate of growth relative
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`to overall growth in the segment may decline. Further, a decline in our rate of growth could indicate that the market segment for online
`subscription-based entertainment video is beginning to saturate. While we believe that this segment will continue to grow for the foresee