Segment Information

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Segment Information

Segment Information

Beginning 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 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 fees for services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment 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.

The Company's long-lived tangible assets were located as follows:

	As of December 31,
	2013		2012
	(in thousands)
United States	$	126,455	$	127,712
International	7,150		3,969

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

The following tables represent segment information for the year ended December 31, 2013:

	As of/Year ended December 31, 2013
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	33,420		10,930			6,930		—
Revenues	$	2,751,375	$	712,390		$	910,797	$	4,374,562
Cost of revenues	1,849,154		774,753			459,349		3,083,256
Marketing	279,454		211,969			12,466		503,889
Contribution profit (loss)	$	622,767	$	(274,332	)	$	438,982	$	787,417
Other operating expenses								559,070
Operating income								228,347
Other income (expense)								(57,273		)
Provision for income taxes								58,671
Net income								$	112,403

	As of/Year ended December 31, 2013
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total content library, net	$	2,973,023	$	804,690	$	19,779	$	3,797,492
Amortization of content library	1,420,076		701,905		71,325		2,193,306

The following tables represent segment information for the year ended December 31, 2012:

	As of/Year ended December 31, 2012
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	27,146		6,121			8,224		—
Revenues	$	2,184,868	$	287,542		$	1,136,872	$	3,609,282
Cost of revenues	1,558,864		475,570			591,432		2,625,866
Marketing	256,995		201,115			7,290		465,400
Contribution profit (loss)	$	369,009	$	(389,143	)	$	538,150	$	518,016
Other operating expenses								468,024
Operating income								49,992
Other income (expense)								(19,512		)
Provision for income taxes								13,328
Net income								$	17,152

	As of/Year ended December 31, 2012
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total content library, net	$	2,317,070	$	527,235	$	29,865	$	2,874,170
Amortization of content library	1,152,446		438,772		65,396		1,656,614

The following table represents the Company's segment information for the fourth quarter of 2011:

	As of/Three Months ended December 31, 2011
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total members at end of period (1)	21,671		1,858			11,165		—
Revenues	$	476,334	$	28,988		$	370,253	$	875,575
Cost of revenues	345,026		55,909			174,220		575,155
Marketing	73,335		32,822			1,490		107,647
Contribution profit (loss)	$	57,973	$	(59,743	)	$	194,543	$	192,773
Other operating expenses								130,901
Operating income								61,872
Other income (expense)								(5,037		)
Provision for income taxes								21,616
Net income								$	35,219

The following table represents the Company’s segment information for the year ended December 31, 2011 based on the Company’s segment reporting prior to the fourth quarter of 2011:

	As of/Year ended December 31, 2011
	Domestic		International			Consolidated
	(in thousands)
Total unique members at end of period (1) (2)	24,395		1,858			26,253
Revenues	$	3,121,727	$	82,850		$	3,204,577
Cost of revenues	1,932,419		107,482			2,039,901
Marketing	302,752		78,517			381,269
Contribution profit (loss)	$	886,556	$	(103,149	)	$	783,407
Other operating expenses						407,339
Operating income						376,068
Other income (expense)						(16,546		)
Provision for income taxes						133,396
Net income						$	226,126

(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. Memberships are assigned to territories based on the geographic location used at time of sign up as determined by our internal systems, which utilize industry standard geo-location technology. 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.

(2) For purposes of determining the number of unique members, domestic members who have elected both a DVD and a streaming membership plan are considered a single unique member.