Segment Information

3 Months Ended

Mar. 31, 2016

Segment Reporting [Abstract]

Segment Information

Segment Information

The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD. Segment information is presented in the same manner that the Company’s chief operating decision maker ("CODM") reviews the operating results in assessing performance and allocating resources. The Company’s CODM 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 incurred by the segment. The Company has aggregated the results of the International operating segments into one reportable segment because these operating segments share similar long-term economic and other qualitative characteristics.

The Domestic streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members in the United States. The International streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members outside the United States. 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 (streaming or DVD) and the geographic region from which the membership originates. There are no internal revenue transactions between the Company’s segments.

The vast majority of the cost of revenues relate to content expenses, which include the amortization of streaming content assets and other costs associated with the licensing and acquisition of streaming content. In connection with the Company's global expansion, content acquired, licensed, and produced increasingly includes global rights. The Company allocates this content between the International and Domestic streaming segments based on estimated fair market value. Content expenses for each streaming segment thus include both expenses directly incurred by the segment as well as an allocation of expenses incurred for global rights. Other costs of revenues such as delivery costs are primarily attributed to the operating segment based on amounts directly incurred by the segment. Marketing expenses consist primarily of advertising expenses and payments made to device partners 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
	March 31, 2016		December 31, 2015
	(in thousands)
United States	$	151,553	$	159,566
International	14,701		13,846

The following table represents segment information for the period ended March 31, 2016:

	As of/ Three Months Ended March 31, 2016
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	46,967		34,533			4,741		—
Revenues	$	1,161,241	$	651,748		$	144,747	$	1,957,736
Cost of revenues	666,546		629,899			73,095		1,369,540
Marketing	81,942		126,068			—		208,010
Contribution profit (loss)	$	412,753	$	(104,219	)	$	71,652	$	380,186
Other operating expenses								330,733
Operating income								49,453
Other income (expense)								(9,574		)
Provision for income taxes								12,221
Net income								$	27,658

The following table represents segment information for the period ended March 31, 2015:

	As of/ Three Months Ended March 31, 2015
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	41,397		20,877			5,564		—
Revenues	$	984,532	$	415,397		$	173,200	$	1,573,129
Cost of revenues	582,529		375,278			88,594		1,046,401
Marketing	89,551		105,126			—		194,677
Contribution profit (loss)	$	312,452	$	(65,007	)	$	84,606	$	332,051
Other operating expenses								234,595
Operating income								97,456
Other income (expense)								(59,030		)
Provision for income taxes								14,730
Net income								$	23,696

The following table represents the amortization of the content assets:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Three months ended March 31,
2016	$	530,739	$	527,782	$	20,441	$	1,078,962
2015	431,989		317,529		21,185		770,703

(1) A membership (also referred to as a subscription or a member) is defined as the right to receive Netflix service following sign-up and a method of payment being provided. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to new and certain rejoining members. Total members include those who are on a free-trial as long as a method of payment has been provided. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the prepaid membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately except in limited circumstances where a short grace period is offered to ensure the streaming service is not interrupted for members who are impacted by payment processing delays by the Company's banks or integrated payment partners. The number of members in a grace period at any given point is not material.