Segment Information

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Segment Information

Segment Information

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 revenues and contribution profit (loss) 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 services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly membership services consisting solely of DVD-by-mail. Revenues and the related credit 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.

As of September 30, 2013, the Company had $4.7 million in long-lived tangible assets located internationally and $122.6 million in long-lived tangible assets located in the United States. As of December 31, 2012, the Company had $4.0 million in long-lived tangible assets located internationally and $127.7 million in long-lived tangible assets located in the United States.

The following tables represent segment information for the quarter ended September 30, 2013 and 2012:

	As of/ Three months ended September 30, 2013
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	31,092		9,188			7,148		—
Revenues	$	701,083	$	183,051		$	221,865	$	1,105,999
Cost of revenues	470,631		207,989			112,399		791,019
Marketing	63,971		49,359			2,779		116,109
Contribution profit (loss)	$	166,481	$	(74,297	)	$	106,687	$	198,871
Other operating expenses								141,751
Operating income								57,120
Other income (expense)								(7,629		)
Provision for income taxes								17,669
Net income								$	31,822

	As of/ Three months ended September 30, 2012
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	25,101		4,311			8,606		—
Revenues	$	556,027	$	77,744		$	271,318	$	905,089
Cost of revenues	399,124		124,379			139,135		662,638
Marketing	61,197		45,742			1,509		108,448
Contribution profit (loss)	$	95,706	$	(92,377	)	$	130,674	$	134,003
Other operating expenses								117,868
Operating income								16,135
Other income (expense)								(4,189		)
Provision for income taxes								4,271
Net income								$	7,675

The following table represents the amortization of the content library:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
Three months ended September 30,	(in thousands)
2013	$	363,787	$	189,607	$	17,546	$	570,940
2012	$	296,234	$	114,713	$	13,132	$	424,079

The following tables represent segment information for the nine months ended September 30, 2013 and 2012:

	As of/ Nine months ended September 30, 2013
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	31,092		9,188			7,148		—
Revenues	$	2,010,821	$	490,972		$	697,539	$	3,199,332
Cost of revenues	1,356,610		555,898			358,899		2,271,407
Marketing	205,066		152,124			9,854		367,044
Contribution profit (loss)	$	449,145	$	(217,050	)	$	328,786	$	560,881
Other operating expenses								414,822
Operating income								146,059
Other income (expense)								(48,989		)
Provision for income taxes								33,088
Net income								$	63,982

	As of/ Nine months ended September 30, 2012
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	25,101		4,311			8,606		—
Revenues	$	1,595,397	$	186,142		$	882,504	$	2,664,043
Cost of revenues	1,138,474		324,332			467,193		1,929,999
Marketing	201,334		146,297			4,709		352,340
Contribution profit (loss)	$	255,589	$	(284,487	)	$	410,602	$	381,704
Other operating expenses								351,350
Operating income								30,354
Other income (expense)								(14,778		)
Provision for income taxes								6,321
Net income								$	9,255

The following table represents the amortization of the content library:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
Nine months ended September 30,	(in thousands)
2013	$	1,043,976	$	505,408	$	53,492	$	1,602,876
2012	$	826,254	$	300,426	$	49,482	$	1,176,162

The following table represents total content library, net:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
As of September 30, 2013	$	2,643,433	$	715,962	$	26,506	$	3,385,901
As of December 31, 2012	$	2,317,070	$	527,235	$	29,865	$	2,874,170

(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. In connection with these services, 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.