Segment Information

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Segment Information

Segment Information

Effective 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 (loss) for each of the reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues and marketing expenses.

Revenues and the related credit card fees are attributed to the operating segment based on the nature of the underlying subscription (DVD or streaming) and the geographic region from which the subscription originates. 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. Certain allocations of corporate costs related to customer service are included in the total cost of revenues within each operating segment. Marketing is primarily comprised of advertising expenses which are generally included in the segment in which the expenditures are directly incurred. Marketing also includes an allocation of the cost of revenues incurred by that segment related to free trials.

There are no internal revenue transactions between the Company’s reportable segments. The Company's chief operating decision maker does not review an allocation of assets by reportable segment. The Domestic and International streaming segments derive revenue from monthly subscription services consisting solely of streaming content. The Domestic DVD segment derives revenue from monthly subscription services consisting solely of DVDs-by-mail.

Between the fourth quarter of 2010 and the third quarter of 2011, the Company had two operating segments: Domestic and International. During this time, the Company’s domestic streaming service and DVDs-by-mail operations were combined. Subscribers in the U.S. were able to receive both streaming services and DVDs under a single hybrid plan. Accordingly, revenues were generated and marketing expenses were incurred in connection with the subscription 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 subscribers who wish to receive both streaming services and DVDs-by-mail to have two separate subscription plans. Following this change, beginning in the fourth quarter of 2011, the Company was able to generate discrete financial information for its Domestic streaming and Domestic DVD operations and began reporting this information to the chief operating decision maker for review.

The following tables represent segment information for the quarter ended June 30, 2012:

	As of/ Three months ended June 30, 2012
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total subscriptions at end of period (1)	23,938		3,624			9,240		—
Revenues	$	532,705	$	64,973		$	291,485	$	889,163
Cost of revenues and marketing expense	449,533		154,400			157,719		761,652
Contribution profit (loss)	$	83,172	$	(89,427	)	$	133,766	$	127,511
Other operating expenses								111,357
Operating income								16,154
Other income (expense)								(5,499		)
Provision for income taxes								4,491
Net income								$	6,164

	As of/ Six months ended June 30, 2012
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total subscriptions at end of period (1)	23,938		3,624			9,240		—
Revenues	$	1,039,370	$	108,398		$	611,186	$	1,758,954
Cost of revenues and marketing expense	889,690		300,508			331,287		1,521,485
Contribution profit (loss)	$	149,680	$	(192,110	)	$	279,899	$	237,469
Other operating expenses								223,250
Operating income								14,219
Other income (expense)								(10,589		)
Provision for income taxes								2,050
Net income								$	1,580

The following tables represent the Company’s segment information for the quarter ended June 30, 2011:

	As of/ Three months ended June 30, 2011
	Domestic		International			Consolidated
	(in thousands)
Total unique subscribers at end of period (1)	24,594		967			25,561
Revenues	$	769,714	$	18,896		$	788,610
Cost of revenues and marketing expense	556,719		28,242			584,961
Contribution profit (loss)	$	212,995	$	(9,346	)	$	203,649
Other operating expenses						88,535
Operating income						115,114
Other income (expense)						(4,290		)
Provision for income taxes						42,610
Net income						$	68,214

	As of/ Six months ended June 30, 2011
	Domestic		International			Consolidated
	(in thousands)
Total unique subscribers at end of period (1)	24,594		967			25,561
Revenues	$	1,475,988	$	31,175		$	1,507,163
Cost of revenues and marketing expense	1,076,108		51,263			1,127,371
Contribution profit (loss)	$	399,880	$	(20,088	)	$	379,792
Other operating expenses						162,438
Operating income						217,354
Other income (expense)						(8,290		)
Provision for income taxes						80,617
Net income						$	128,447

(1) A subscription is defined as the right to receive either the Netflix streaming service or Netflix DVD service. In connection with our subscription services, we offer free-trial memberships to new and certain rejoining members. A method of payment is required to be provided even during the free-trial period for the membership to be defined as a subscription and included in the above metrics. Total unique subscribers and total subscriptions include those subscribers who are on a free-trial. Paid unique subscribers and paid subscriptions exclude free trial memberships. A subscription would cease to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the monthly subscription period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.

For purposes of determining the number of unique subscribers, domestic subscribers who have elected both a DVD and a streaming subscription plan are considered a single unique subscriber.