EX-99.1 2 nflx-093013ex991.htm LETTER TO SHAREHOLDERS NFLX-09.30.13-EX99.1


Exhibit 99.1
Oct 21, 2013

Fellow Shareholders,

We are very pleased to have over 40 million members, up from less than 30 million just one year ago.

The Netflix original series Orange is the New Black is a critical and popular success, and our earlier series House of Cards is the first Internet TV series to win a Primetime Emmy Award. We launched our 41st country and the Dutch seem to like Netflix.

Our summary results and Q4 guidance midpoints are below:


 (in millions except per share data)
Q3 '12
Q4 '12
Q1 '13
Q2 '13
Q3 '13
Q4 '13 Guidance Midpoint
Domestic:
 
 
 
 
 
 
Net Additions
1.16

2.05

2.03

0.63

1.29

2.01

Total Members
25.10

27.15

29.17

29.81

31.09

33.10

Paid Members
23.80

25.47

27.91

28.62

29.93

31.45

Revenue
$
556

$
589

$
639

$
671

$
701

$
736

Contribution Profit
$
96

$
113

$
131

$
151

$
166

$
171

Contribution Margin
17.2
 %
19.2
 %
20.6
 %
22.5
 %
23.7
 %
23.2
 %
 
 
 
 
 
 
 
International:
 
 
 
 
 
 
Net Additions
0.69

1.81

1.02

0.61

1.44

1.31

Total Members
4.31

6.12

7.14

7.75

9.19

10.50

Paid Members
3.69

4.89

6.33

7.01

8.08

9.40

Revenue
$
78

$
101

$
142

$
166

$
183

$
217

Contribution Profit (Loss)
$
(92
)
$
(105
)
$
(77
)
$
(66
)
$
74

$
(65
)
Contribution Margin
-118.8
 %
-103.2
 %
-54.2
 %
-39.7
 %
-40.6
 %
-30.0
 %
 
 
 
 
 
 
 
Total (including DVD):
 
 
 
 
 
 
Revenue
$
905

$
945

$
1,024

$
1,069

$
1,106

 
Operating Income
$
16

$
20

$
32

$
57

$
57

 
Net Income
$
8

$
8

$
3

$
29

$
32

$
37

EPS
$
0.13

$
0.13

$
0.05

$
0.49

$
0.52

$
0.60

 
 
 
 
 
 
 
Free Cash Flow
$
(20
)
$
(51
)
$
(42
)
$
13

$
7

 
Shares (FD)
58.7

59.1

60.1

60.6

61.0

 


 
                                                                                                                                       1


Domestic
Domestic net additions of 1.3 million were 11% higher than prior year Q3 due to the growing strength of our content offering, aided by the great press coverage and social buzz generated by Orange is the New Black and our Emmy nominations, and the softer comp in Q3 2012 from the impact of the summer Olympics. We expect Q4 net additions to be approximately equal to Q4 of the prior year and to expand our contribution margin about 400 basis points year over year to about 23%, assuming the midpoint of our guidance. This means that sequentially our target contribution margin is slightly down Q3 to Q4. As a reminder, we shifted our contribution margin target a few months ago from “100 basis points of quarterly sequential improvement” to “400 basis points Q over prior year Q” so we are right on target with our articulated margin growth strategy. Our $7.99 price is working very well for us for both membership growth and contribution margin growth.

While our original series get most of the headlines, a bigger percentage of overall Netflix viewing is generated by our exclusive complete season-after series. During the quarter, we launched new seasons of The New Girl, The Walking Dead, Scandal, Breaking Bad, Revolution and Pretty Little Liars. We also announced that Netflix will be the exclusive home to high quality first-run Pay1 films from The Weinstein Company beginning in 2016. Our kids offering was strengthened during the quarter by adding top rated and award winning Scholastic TV shows, Goosebumps and The Magic School Bus. We also announced an expanded list of PBS shows including Super Why!, Wild Kratts, Caillou and Arthur, as well as all seasons of the critically-acclaimed mystery The Bletchley Circle.

International
International net additions were way up from the prior year at 1.4 million new members, driven by our expansion to the Nordics and the Netherlands since last Q3, as well as growth in our existing markets from our steadily improving service, content and marketing. In addition, there was a surge in low quality free trials in September in Latin America that temporarily boosted the total member number. The paid net adds remain a reliable indicator of progress.

Our Q3 international contribution loss was $74 million, as we saw flat to slight sequential improvements in contribution profits in all international markets during the quarter, offset by the Netherlands launch expense.

In Q4, assuming the midpoint of our guidance, we expect continued momentum to result in about 1.3 million net additions, to end 2013 with 10.5 million international members. This compares to 1.8 million net additions in Q4 a year ago, which was our Nordics launch quarter. In all our other markets (Canada, Latin America, UK/IE, Netherlands), we expect net additions to be steady or up on a Q4 over Q4 basis.

Sequentially, we expect international total member net adds in Q4 to be flat to down (1.4 million in Q3 to 1.3 million) as we work through the low-quality Latin America free trials from Q3, but paid net adds in Q4 are forecasted to rise (1.1 million in Q3 to 1.3 million).

For Q4, we expect our contribution losses to improve to $65 million, assuming the midpoint of our guidance.

We plan to launch in new markets next year, executing on the strategy outlined in our long term view letter. Our success this year in increasing international net additions to nearly the level of our domestic net additions shows substantial momentum and confirms our belief there is a big international opportunity for Netflix.


 
                                                                                                                                       2


Original Content
An excellent summary of our early progress in original content is this two-minute video1.

Over the next few years we aspire to support creation of some of the most compelling and remarkable content ever produced. Coupled with the flexibility of our Internet viewing and power of our personal recommendations we will keep changing television for the better.

Orange is the New Black has been a tremendous success for us. It will end the year as our most watched original series ever and, as with each of our other previously launched originals, enjoys an audience comparable with successful shows on cable and broadcast TV. We have seen sustained social media buzz in the months after its debut and it is also one of the most critically well received TV shows of 2013. Orange is the New Black was not eligible for the Emmys in 2013, but Season 1 will be eligible next year and we believe the audience for Season 2 will grow substantially.

Speaking of Emmys, we were thrilled to be a part of TV history in the quarter by winning 3 Emmy awards (3 of our original series received 14 total nominations). David Fincher’s win for Outstanding Director in a Drama Series made House of Cards the first TV series to win a major primetime Emmy without ever airing on a broadcast network or cable channel. We were delighted for David as well as Laray Mayfield and Julie Schubert who won for Outstanding Casting in a Drama Series and Eigil Bryld who picked up an Emmy for Outstanding Cinematography for a Single Camera Series.
In addition to Orange is the New Black, during Q3, we launched the new Ricky Gervais series Derek and broadened our original content offering with the acquisition of high profile stand up comedy specials from Russell Peters and Aziz Ansari, premiering exclusively on Netflix in October and November, respectively. We also rolled out a second set of episodes of Mako Mermaids, our original series directed at the teen audience, and will soon expand into original documentaries, a category that does well on the Netflix service.
This quarter we will premiere our inaugural second season of a Netflix original series with the return of Lilyhammer starring Steven Van Zandt. We will also be launching our first animated original series with Dreamworks Animation, Turbo F.A.S.T.
In 2014, we expect to double our investment in original content (though still representing less than 10% of our overall global content expense). Coming to Netflix next year will be second seasons of House of Cards, Orange is the New Black, Derek and Hemlock Grove as well as the just announced project from Todd and Glenn Kessler and Daniel Zelman, the Emmy and Golden Globe nominated creators of Damages. We’ll also roll out a number of new animated series from DreamWorks Animation. Expect more news on additional new original projects in the months to come.
When we started with original content we didn’t have specific data about viewing patterns over time for content that premieres on Netflix. We decided to use straight line amortization based on our experience with TV series from other networks. Now we have more specific viewing data for original content which shows more viewing in the early months of a show’s debut, so we are accelerating the amortization of such content commensurately. We’ll continue to monitor the viewing patterns and adjust the amortization schedule as appropriate.


____________________
1 http://www.youtube.com/watch?v=_kOvUuMowVs

 
                                                                                                                                       3


Marketing
Our global marketing campaigns promote compelling content, unique product features and the joy of the Netflix experience. These messages are adapted market by market to form deeper brand connections with our customers wherever they live.

Q3 saw the launch of our Netherlands ‘All You Can Watch’ campaign and new advertising in the Nordic2 countries and Brazil3, all of which communicate our brand proposition nuanced for local tastes.

We continue to feature our content in advertising. Our goal is to shape customer perceptions of our catalog through an always-on layer of content marketing targeted at specific demographic groups. Last month we launched “TV Too”4 in which we are promoting the wealth of TV series on Netflix, taking advantage of the tremendous influx of new seasons coming into the service with the message ‘Discover, Relive, Start from the Beginning’.

With regard to online advertising, we continue to improve our global efficiency and targeting with investments in programmatic and online video advertising. Our aim is to target consumers with the right message at the right stage of their consumer journey in both direct response and brand messages.

Product
During Q3, we launched profiles, offering individual personalization for each member of a household and “My List” to help all members save titles to watch later in a more organized and adaptive manner than our prior Instant Queue, which was available only to U.S. members. Both of these features help members find and engage with films and TV series matched to their individual tastes.

The growth of smart TVs and Internet TV devices, such as AppleTV, Roku, and Chromecast, are increasing the availability of TV streaming platforms. Tablets and phones also are rapidly growing as Netflix viewing platforms.

We launched with Virgin Media, the UK’s leading cable company, a world first: Netflix on a major cable set-top box. It is rolling out over this quarter to Virgin Media’s subscribers. The integration of search and suggestions between broadband and cable is great for customers, and we want this superior experience to help Virgin Media gain market share in the UK.

Cable operators like Virgin Media believe that by enabling their subscribers to do more with their cable set-top and remote, they can increase satisfaction, relative to their subscribers using a separate Internet set-top box or smart TV to enjoy Netflix. We are open to more of these integrations with cable set-tops around the world, but given the fragmented technology footprints, we think it will be many years before cable set-top boxes match Internet set-top boxes for Netflix streaming volume. As a general rule, we’re happy to support devices from other video providers as long as we get application placement commensurate with our popularity.

____________________
2 http://www.youtube.com/watch?v=QF7o62RwZYM
3 http://www.youtube.com/watch?v=eq3YaVvYpF0&feature=youtu.be
4 http://www.youtube.com/watch?v=iwrK1Mqao34

 
                                                                                                                                       4


DVD
The huge selection we offer on DVD, including all the HBO and other Pay TV series, continues to be a source of satisfaction for 7.15 million domestic households, and we generated $107 million of contribution profit, as expected. With the USPS rate announcement in September, we anticipate a postal rate increase in January of 3 cents each way or $3-4 million per quarter of additional expense in 2014.

Profitability
We were pleased with our global profitability for Q3. We delivered on our targets despite the faster amortization of original content, which pulled forward into Q3 about $27 million in expense from future quarters, due to more members and revenue than expected and by adjusting spending in Q3 on other items. The effect of the faster amortization of original content is small enough that we are not changing our domestic contribution margin targets (400 basis points Q over prior year Q) or our global profitability targets (stay profitable despite international investments).


Stock Volatility
In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003.

Despite the huge swings in our stock price since our 2002 IPO ($8 to $3 to $39 to $8 to $300 to $55 to $330), we’ve continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock. The progress we’ve made over the last 10 years is stunning. We want to make the next 10 years even more remarkable.



 
                                                                                                                                       5



Business Outlook
We have also updated our long term view letter5.


 
 (in millions except per share data)
Q4 2013 Guidance
Domestic Streaming:
 
Total members
32.7 to 33.5
Paid members
31.1 to 31.8
Revenue
$731 to $741
Contribution Profit
$165 to $177
 
 
International Streaming:
 
Total members
10.1 to 10.9
Paid members
9.1 to 9.7
Revenue
$210 to $224
Contribution Profit (Loss)
($73 ) to ($57)
 
 
Domestic DVD:
 
Contribution Profit
$96 to $110
 
 
Consolidated Global:
 
Net Income
$29 to $45
EPS
$0.47 to $0.73

Summary
 
We have done well but we have a long way to go to match HBO’s 114 million6 global member count or their well-deserved Emmy award leadership. Title by title, device by device, member by member, award by award, country by country, we are making progress.




____________________
5 http://ir.netflix.com/long-term-view.cfm
6 http://www.timewarner.com/our-content/home-box-office/


 
                                                                                                                                       6



Sincerely,
 
Reed Hastings, CEO
David Wells, CFO

Third Quarter 2013 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview at 2 p.m. Pacific Time at youtube.com/netflixir. The interview will be conducted by Rich Greenfield, BTIG Research and Doug Anmuth, JP Morgan. Questions that investors would like to see asked should be sent to rgreenfield@btig.com or douglas.anmuth@jpmorgan.com.





IR Contact:
PR Contact:
Erin Kasenchak

Jonathan Friedland

Director, Investor Relations

Chief Communications Officer

408 540-3691

310 734-2958


 
                                                                                                                                       7



Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measures of free cash flow. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. However, this non-GAAP measure should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of this non-GAAP measure is contained in tabular form on the attached unaudited financial statements.
 
Forward-Looking Statements
This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding meeting domestic contribution margin targets; international contribution losses; expansion into new geographic markets and the impact of international expansion; investments in content, particularly original content, including second seasons of original content and new categories of original content; business outlook for our DVD segment, including contribution profit and the impact of a USPS rate increase; the rate and impact of integration on cable set-top boxes; member growth domestically and internationally, including total and paid; revenue and contribution profit (loss) for both domestic (streaming and DVD) and international operations as well as net income and earnings per share for the fourth quarter of 2013. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for instant streaming; fluctuations in consumer usage of our service; disruption in service on our website and systems or with third-party computer systems that help us operate our service; competition; and, widespread consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 1, 2013. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.














 
                                                                                                                                       8



Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012 (1)
 
September 30,
2013
 
September 30,
2012 (1)
Revenues
$
1,105,999

 
$
1,069,372

 
$
905,089

 
$
3,199,332

 
$
2,664,043

Cost of revenues
791,019

 
753,525

 
662,638

 
2,271,407

 
1,929,999

Marketing
116,109

 
121,760

 
108,448

 
367,044

 
352,340

Technology and development
95,540

 
93,126

 
82,521

 
280,641

 
246,869

General and administrative
46,211

 
43,844

 
35,347

 
134,181

 
104,481

Operating income
57,120

 
57,117

 
16,135

 
146,059

 
30,354

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(7,436
)
 
(7,528
)
 
(4,990
)
 
(21,704
)
 
(14,970
)
Interest and other income (expense)
(193
)
 
(2,940
)
 
801

 
(2,156
)
 
192

Loss on extinguishment of debt

 

 

 
(25,129
)
 

Income before income taxes
49,491

 
46,649

 
11,946

 
97,070

 
15,576

Provision for income taxes
17,669

 
17,178

 
4,271

 
33,088

 
6,321

Net income
$
31,822

 
$
29,471

 
$
7,675

 
$
63,982

 
$
9,255

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.54

 
$
0.51

 
$
0.14

 
$
1.11

 
$
0.17

Diluted
$
0.52

 
$
0.49

 
$
0.13

 
$
1.06

 
$
0.16

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
59,108

 
58,192

 
55,541

 
57,769

 
55,508

Diluted
60,990

 
60,590

 
58,729

 
60,578

 
58,829

 
(1) Certain prior period amounts have been reclassified from "Marketing" to "General and administrative" to conform to current period presentation.





 
                                                                                                                                       9




Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
439,056

 
$
290,291

Short-term investments
695,931

 
457,787

Current content library, net
1,577,514

 
1,368,162

Prepaid content
30,522

 
59,929

Other current assets
106,255

 
64,622

Total current assets
2,849,278

 
2,240,791

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

 
1,506,008

Property and equipment, net
127,263

 
131,681

Other non-current assets
116,397

 
89,410

Total assets
$
4,901,325

 
$
3,967,890

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
1,591,981

 
$
1,366,847

Accounts payable
100,899

 
86,468

Accrued expenses
46,433

 
53,139

Deferred revenue
195,823

 
169,472

Total current liabilities
1,935,136

 
1,675,926

Non-current content liabilities
1,179,055

 
1,076,622

Long-term debt
500,000

 
200,000

Long-term debt due to related party

 
200,000

Other non-current liabilities
82,764

 
70,669

Total liabilities
3,696,955

 
3,223,217

Stockholders' equity:
 
 
 
Common stock, $0.001 par value; 160,000,000 shares authorized at September 30, 2013 and December 31, 2012; 59,257,798 and 55,587,167 issued and outstanding at September 30, 2013 and December 31, 2012, respectively
59

 
56

Additional paid-in capital
698,677

 
301,616

Accumulated other comprehensive income
1,570

 
2,919

Retained earnings
504,064

 
440,082

Total stockholders' equity
1,204,370

 
744,673

Total liabilities and stockholders' equity
$
4,901,325

 
$
3,967,890

 

 
                                                                                                                                       10



Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
31,822

 
$
29,471

 
$
7,675

 
$
63,982

 
$
9,255

Adjustments to reconcile net income to net cash provided by (used in)operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content library
(878,314
)
 
(593,454
)
 
(744,714
)
 
(2,063,709
)
 
(1,883,859
)
Change in streaming content liabilities
310,191

 
7,284

 
274,196

 
327,175

 
631,802

Amortization of streaming content library
553,394

 
510,250

 
410,947

 
1,549,384

 
1,126,680

Amortization of DVD content library
17,546

 
17,709

 
13,132

 
53,492

 
49,482

Depreciation and amortization of property, equipment and intangibles
11,452

 
12,026

 
11,128

 
35,529

 
33,506

Stock-based compensation expense
18,477

 
17,955

 
18,472

 
54,178

 
56,254

Excess tax benefits from stock-based compensation
(20,492
)
 
(20,368
)
 
(111
)
 
(52,475
)
 
(4,173
)
Other non-cash items
1,994

 
1,188

 
(2,078
)
 
4,932

 
(5,176
)
Deferred taxes
(2,424
)
 
(2,040
)
 
(15,606
)
 
(11,212
)
 
(26,449
)
Loss on extinguishment of debt

 

 

 
25,129

 

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Prepaid content
1,542

 
25,190

 
15,358

 
29,407

 
22,855

Other current assets
8,378

 
8,572

 
(3,476
)
 
8,548

 
188

Accounts payable
(5,877
)
 
(5,138
)
 
(9,727
)
 
6,004

 
(11,167
)
Accrued expenses
(11,451
)
 
10,494

 
15,294

 
(5,089
)
 
23,931

Deferred revenue
9,252

 
7,693

 
2,356

 
26,351

 
6,350

Other non-current assets and liabilities
(10,797
)
 
7,111

 
4,229

 
4,760

 
6,112

Net cash provided by (used in) operating activities
34,693

 
33,943

 
(2,925
)
 
56,386

 
35,591

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisitions of DVD content library
(15,471
)
 
(14,023
)
 
(8,586
)
 
(50,687
)
 
(30,126
)
Purchases of property and equipment
(10,828
)
 
(8,088
)
 
(10,808
)
 
(31,034
)
 
(18,933
)
Other assets
(1,329
)
 
1,087

 
1,857

 
3,808

 
6,323

Purchases of short-term investments
(116,116
)
 
(146,050
)
 
(67,779
)
 
(497,789
)
 
(430,549
)
Proceeds from sale of short-term investments
81,185

 
33,979

 
52,172

 
196,392

 
272,680

Proceeds from maturities of short-term investments
48,890

 
5,410

 
2,695

 
58,720

 
23,685

Net cash used in investing activities
(13,669
)
 
(127,685
)
 
(30,449
)
 
(320,590
)
 
(176,920
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of common stock
25,561

 
28,846

 
318

 
93,553

 
2,066

Proceeds from issuance of debt

 

 

 
500,000

 

Issuance costs

 

 

 
(9,414
)
 
(759
)
Redemption of debt

 

 

 
(219,362
)
 

Excess tax benefits from stock-based compensation
20,492

 
20,368

 
111

 
52,475

 
4,173

Principal payments of lease financing obligations
(258
)
 
(255
)
 
(587
)
 
(916
)
 
(1,723
)
Net cash provided by (used in) financing activities
45,795

 
48,959

 
(158
)
 
416,336

 
3,757

 Effect of exchange rate changes on cash and cash equivalents
1,559

 
(2,590
)
 
1,579

 
(3,367
)
 
(183
)
 Net increase (decrease) in cash and cash equivalents
68,378

 
(47,373
)
 
(31,953
)
 
148,765

 
(137,755
)
 Cash and cash equivalents, beginning of period
370,678

 
418,051

 
402,251

 
290,291

 
508,053

 Cash and cash equivalents, end of period
$
439,056

 
$
370,678

 
$
370,298

 
$
439,056

 
$
370,298

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
34,693

 
$
33,943

 
$
(2,925
)
 
$
56,386

 
$
35,591

Acquisitions of DVD content library
(15,471
)
 
(14,023
)
 
(8,586
)
 
(50,687
)
 
(30,126
)
Purchases of property and equipment
(10,828
)
 
(8,088
)
 
(10,808
)
 
(31,034
)
 
(18,933
)
Other assets
(1,329
)
 
1,087

 
1,857

 
3,808

 
6,323

Non-GAAP free cash flow
$
7,065

 
$
12,919

 
$
(20,462
)
 
$
(21,527
)
 
$
(7,145
)

 
                                                                                                                                       11



Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Nine Months Ended
 
September 30,
2013
 
June 30,
2013
 
September 30,
 2012 (1)
 
September 30,
2013
 
September 30,
2012 (1)
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total members at end of period
31,092

 
29,807

 
25,101

 
31,092

 
25,101

Paid members at end of period
29,925

 
28,624

 
23,801

 
29,925

 
23,801

 
 
 
 
 
 
 
 
 
 
Revenues
$
701,083

 
$
671,089

 
$
556,027

 
$
2,010,821

 
$
1,595,397

Cost of revenues
470,631

 
449,473

 
399,124

 
1,356,610

 
1,138,474

Marketing
63,971

 
70,302

 
61,197

 
205,066

 
201,334

Contribution profit
166,481

 
151,314

 
95,706

 
449,145

 
255,589

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total members at end of period
9,188

 
7,747

 
4,311

 
9,188

 
4,311

Paid members at end of period
8,084

 
7,014

 
3,689

 
8,084

 
3,689

 
 
 
 
 
 
 
 
 
 
Revenues
$
183,051

 
$
165,902

 
$
77,744

 
$
490,972

 
$
186,142

Cost of revenues
207,989

 
182,885

 
124,379

 
555,898

 
324,332

Marketing
49,359

 
48,850

 
45,742

 
152,124

 
146,297

Contribution profit (loss)
(74,297
)
 
(65,833
)
 
(92,377
)
 
(217,050
)
 
(284,487
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total members at end of period
7,148

 
7,508

 
8,606

 
7,148

 
8,606

Paid members at end of period
7,014

 
7,369

 
8,465

 
7,014

 
8,465

 
 
 
 
 
 
 
 
 
 
Revenues
$
221,865

 
$
232,381

 
$
271,318

 
$
697,539

 
$
882,504

Cost of revenues
112,399

 
121,167

 
139,135

 
358,899

 
467,193

Marketing
2,779

 
2,608

 
1,509

 
9,854

 
4,709

Contribution profit
106,687

 
108,606

 
130,674

 
328,786

 
410,602

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,105,999

 
$
1,069,372

 
$
905,089

 
$
3,199,332

 
$
2,664,043

Cost of revenues
791,019

 
753,525

 
662,638

 
2,271,407

 
1,929,999

Marketing
116,109

 
121,760

 
108,448

 
367,044

 
352,340

Contribution profit
198,871

 
194,087

 
134,003

 
560,881

 
381,704

Other operating expenses
141,751

 
136,970

 
117,868

 
414,822

 
351,350

Operating income
57,120

 
57,117

 
16,135

 
146,059

 
30,354

Other income (expense)
(7,629
)
 
(10,468
)
 
(4,189
)
 
(23,860
)
 
(14,778
)
Loss on extinguishment of debt

 

 

 
(25,129
)
 

Provision for income taxes
17,669

 
17,178

 
4,271

 
33,088

 
6,321

Net income
$
31,822

 
$
29,471

 
$
7,675

 
$
63,982

 
$
9,255


(1) Certain prior period amounts have been reclassified from "Marketing" to "General and administrative" to conform to current period presentation.


 
                                                                                                                                       12