10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-35727

Netflix, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	77-0467272
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

100 Winchester Circle, Los Gatos, California 95032

(Address and zip code of principal executive offices)

(408) 540-3700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of March 31, 2018, there were 434,657,303 shares of the registrant’s common stock, par value $0.001, outstanding.

Table of Contents

		Page
	Part I. Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Consolidated Balance Sheets	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	Part II. Other Information
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 6.	Exhibits	29
Signatures		30
Exhibit Index		31

2

NETFLIX, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three Months Ended
	March 31, 2018			March 31, 2017
Revenues	$	3,700,856		$	2,636,635
Cost of revenues	2,196,075			1,657,024
Marketing	479,222			271,270
Technology and development	300,730			257,108
General and administrative	278,251			194,291
Operating income	446,578			256,942
Other income (expense):
Interest expense	(81,219		)	(46,742		)
Interest and other income (expense)	(65,743		)	13,592
Income before income taxes	299,616			223,792
Provision for income taxes	9,492			45,570
Net income	$	290,124		$	178,222
Earnings per share:
Basic	$	0.67		$	0.41
Diluted	$	0.64		$	0.40
Weighted-average common shares outstanding:
Basic	434,174			430,600
Diluted	450,359			445,458

See accompanying notes to the consolidated financial statements.

3

NETFLIX, INC.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)

	Three Months Ended
	March 31, 2018		March 31, 2017
Net income	$	290,124	$	178,222
Other comprehensive income:
Foreign currency translation adjustments	24,821		2,579
Change in unrealized gains on available-for-sale securities, net of tax of $0, $77, respectively	—		127
Total other comprehensive income	24,821		2,706
Comprehensive income	$	314,945	$	180,928

See accompanying notes to the consolidated financial statements.

4

NETFLIX, INC.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended
	March 31, 2018			March 31, 2017
Cash flows from operating activities:
Net income	$	290,124		$	178,222
Adjustments to reconcile net income to net cash used in operating activities:
Additions to streaming content assets	(2,986,747		)	(2,348,666		)
Change in streaming content liabilities	378,885			366,257
Amortization of streaming content assets	1,748,844			1,305,683
Amortization of DVD content assets	11,134			18,598
Depreciation and amortization of property, equipment and intangibles	19,041			15,049
Stock-based compensation expense	68,395			44,888
Other non-cash items	8,209			21,666
Foreign currency remeasurement loss on long-term debt	41,080			—
Deferred taxes	(22,049		)	(26,764		)
Changes in operating assets and liabilities:
Other current assets	(55,905		)	(25,402		)
Accounts payable	74,083			(11,000		)
Accrued expenses	119,049			93,542
Deferred revenue	55,270			15,221
Other non-current assets and liabilities	13,830			8,850
Net cash used in operating activities	(236,757		)	(343,856		)
Cash flows from investing activities:
Acquisition of DVD content assets	(10,796		)	(25,372		)
Purchases of property and equipment	(37,170		)	(52,523		)
Change in other assets	(1,786		)	(769		)
Purchases of short-term investments	—			(57,774		)
Proceeds from sale of short-term investments	—			55,748
Proceeds from maturities of short-term investments	—			5,100
Net cash used in investing activities	(49,752		)	(75,590		)
Cash flows from financing activities:
Proceeds from issuance of common stock	56,335			24,178
Other financing activities	(321		)	61
Net cash provided by financing activities	56,014			24,239
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	7,177			5,455
Net decrease in cash, cash equivalents, and restricted cash	(223,318		)	(389,752		)
Cash, cash equivalents, and restricted cash at beginning of period	2,822,795			1,467,576
Cash, cash equivalents, and restricted cash at end of period	$	2,599,477		$	1,077,824
Supplemental disclosure:
Increase (decrease) in investing activities included in liabilities	$	3,917		$	(16,672	)

See accompanying notes to the consolidated financial statements.

5

NETFLIX, INC.

Consolidated Balance Sheets

(in thousands, except share and par value data)

	As of
	March 31, 2018		December 31, 2017
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,593,666	$	2,822,795
Current content assets, net	4,626,522		4,310,934
Other current assets	597,388		536,245
Total current assets	7,817,576		7,669,974
Non-current content assets, net	11,314,803		10,371,055
Property and equipment, net	341,932		319,404
Other non-current assets	678,486		652,309
Total assets	$	20,152,797	$	19,012,742
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities	$	4,466,081	$	4,173,041
Accounts payable	436,183		359,555
Accrued expenses	429,431		315,094
Deferred revenue	673,892		618,622
Total current liabilities	6,005,587		5,466,312
Non-current content liabilities	3,444,476		3,329,796
Long-term debt	6,542,373		6,499,432
Other non-current liabilities	139,631		135,246
Total liabilities	16,132,067		15,430,786
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2018 and December 31, 2017; 434,657,303 and 433,392,686 issued and outstanding at March 31, 2018 and December 31, 2017, respectively	1,995,225		1,871,396
Accumulated other comprehensive income (loss)	4,264		(20,557		)
Retained earnings	2,021,241		1,731,117
Total stockholders’ equity	4,020,730		3,581,956
Total liabilities and stockholders’ equity	$	20,152,797	$	19,012,742

See accompanying notes to the consolidated financial statements.

6

NETFLIX, INC.

Notes to Consolidated Financial Statements

(unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim consolidated financial statements of Netflix, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2018. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the streaming content asset amortization policy and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2017. Interim results are not necessarily indicative of the results for a full year.

The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD, all of which derive revenue from monthly membership fees. See Note 10 for further detail on the Company's segments.

There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Recently adopted accounting pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. Because the Company's primary source of revenues is from monthly membership fees which are recognized ratably over each monthly membership period, the impact on its consolidated financial statements is not material.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The Company adopted ASU 2016-18 in the first quarter of 2018 and the impact on its consolidated financial statements is not material as the Company's restricted cash balances are immaterial.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019. Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.

7

2. Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	290,124	$	178,222
Shares used in computation:
Weighted-average common shares outstanding	434,174		430,600
Basic earnings per share	$	0.67	$	0.41
Diluted earnings per share:
Net income	$	290,124	$	178,222
Shares used in computation:
Weighted-average common shares outstanding	434,174		430,600
Employee stock options	16,185		14,858
Weighted-average number of shares	450,359		445,458
Diluted earnings per share	$	0.64	$	0.40

Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. These anti-dilutive stock options were immaterial for each period presented.

3. Cash, Cash Equivalents and Restricted Cash

	As of March 31, 2018
	Cash and cash equivalents		Non-current Assets (1)
	(in thousands)
Cash	$	1,867,506	$	4,531
Level 1 securities:
Money market funds	726,160		1,280

	As of December 31, 2017
	Cash and cash equivalents		Non-current Assets (1)
	(in thousands)
Cash	$	2,072,296	$	4,367
Level 1 securities:
Money market funds	449,734		1,276
Level 2 securities:
Time Deposits	300,765		—

(1) Restricted cash related to workers compensation deposits and letter of credit agreements. Balance as of March 31, 2018 is included in cash, cash equivalents, and restricted cash on the Consolidated Statements of Cash Flows.

There were no material gross realized gains or losses in the three months ended March 31, 2018 and 2017, respectively.

8

4. Balance Sheet Components

Content Assets

Content assets consisted of the following:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Licensed content, net	$	12,508,344	$	11,771,778
Produced content, net
Released, less amortization	1,643,252		1,427,256
In production	1,613,898		1,311,137
In development and pre-production	161,497		158,517
	3,418,647		2,896,910
DVD, net	14,334		13,301
Total	$	15,941,325	$	14,681,989
Current content assets, net	$	4,626,522	$	4,310,934
Non-current content assets, net	$	11,314,803	$	10,371,055

On average, over 90% of a licensed or produced streaming content asset is expected to be amortized within four years after its month of first availability.

As of March 31, 2018, over 30% of the $15.9 billion unamortized cost is expected to be amortized within one year and 29%, 79% and over 80% of the $1.6 billion unamortized cost of the produced content that has been released is expected to be amortized within one year, three years and four years, respectively.

As of March 31, 2018, the amount of accrued participations and residuals was not material.

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

	As of
	March 31, 2018			December 31, 2017			Estimated Useful Lives
	(in thousands)
Information technology assets	$	226,652		$	223,850		3 years
Furniture and fixtures	49,507			49,217			3 years
Buildings	40,681			40,681			30 years
Leasehold improvements	233,119			229,848			Over life of lease
DVD operations equipment	59,016			59,316			5 years
Corporate aircraft	57,938			30,039			8 years
Capital work-in-progress	12,885			8,267
Property and equipment, gross	679,798			641,218
Less: Accumulated depreciation	(337,866		)	(321,814		)
Property and equipment, net	$	341,932		$	319,404

9

Deferred Revenue

The Company’s primary source of revenues are from monthly membership fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. The Company is the principal in all its relationships where partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), provide access to the service as the Company retains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are expensed, but in the case where the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.

Deferred revenue consists of membership fees billed that have not been recognized, as well as gift and other prepaid memberships that have not been fully redeemed. As of March 31, 2018, total deferred revenue was $673.9 million, the vast majority of which was related to membership fees billed that are expected to be recognized as revenue within the next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The $55.3 million increase in deferred revenue as compared to the year ended December 31, 2017 is a result of the increase in membership fees billed due to increased members and average monthly revenue per paying member.

5. Long-term Debt

As of March 31, 2018, the Company had aggregate outstanding long-term notes of $6,542.4 million, net of $60.0 million of issuance costs, with varying maturities (the "Notes"). Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates.

The following table provides a summary of the Company's outstanding long-term debt and the fair values based on quoted market prices in less active markets as of March 31, 2018 and December 31, 2017:

						Level 2 Fair Value as of
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	March 31, 2018		December 31, 2017
	(in millions)					(in millions)
5.375% Senior Notes	$	500	February 2013	February 2021	February 1 and August 1	$	519	$	530
5.750% Senior Notes	400		February 2014	March 2024	March 1 and September 1	417		427
5.875% Senior Notes	800		February 2015	February 2025	April 15 and October 15	839		856
5.50% Senior Notes	700		February 2015	February 2022	April 15 and October 15	727		739
4.375% Senior Notes	1,000		October 2016	November 2026	May 15 and November 15	946		983
3.625% Senior Notes (1)	1,602		May 2017	May 2027	May 15 and November 15	1,579		1,575
4.875% Senior Notes	1,600		October 2017	April 2028	April 15 and October 15	1,539		1,571
	$	6,602

(1) Debt is denominated in euro with a €1,300 million aggregate principal amount and is remeasured into U.S. dollars at each balance sheet date.

The expected timing of principal and interest payments for these Senior Notes are as follows:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Less than one year	$	312,828	$	311,339
Due after one year and through three years	1,130,423		627,444
Due after three years and through five years	1,251,006		1,761,465
Due after five years	6,384,861		6,348,580
Total debt obligations	$	9,079,118	$	9,048,828

10

Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of March 31, 2018 and December 31, 2017, the Company was in compliance with all related covenants.

Revolving Credit Facility

In July 2017, the Company entered into a $500.0 million unsecured revolving credit facility (“Revolving Credit Agreement”), with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $250.0 million, subject to certain terms and conditions. Revolving loans may be borrowed, repaid and reborrowed until July 27, 2022, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of March 31, 2018, no amounts have been borrowed under the Revolving Credit Agreement.

The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of 0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum.

The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at a rate of 0.10%. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of March 31, 2018, the Company was in compliance with all related covenants.

6. Commitments and Contingencies

Streaming Content

As of March 31, 2018, the Company had $17.9 billion of obligations comprised of $4.5 billion included in "Current content liabilities" and $3.4 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.0 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

As of December 31, 2017, the Company had $17.7 billion of obligations comprised of $4.2 billion included in "Current content liabilities" and $3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

The expected timing of payments for these streaming content obligations is as follows:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Less than one year	$	7,949,544	$	7,446,947
Due after one year and through three years	8,015,837		8,210,159
Due after three years and through five years	1,849,029		1,894,001
Due after five years	123,272		143,535
Total streaming content obligations	$	17,937,682	$	17,694,642

11

Content obligations include amounts related to the acquisition, licensing and production of streaming content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.

Legal Proceedings

From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.

The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.

Indemnification

In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.

It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. No amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

7. Stockholders’ Equity

Stock Option Plan

In June 2011, the Company adopted the 2011 Stock Plan. The 2011 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. As of March 31, 2018, 10.2 million shares were reserved for future grants under the 2011 Stock Plan.

A summary of the activities related to the Company’s stock option plans is as follows:

			Options Outstanding
	Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price (per share)		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balances as of December 31, 2017	10,739,915		21,647,350		$	61.13
Granted	(553,220	)	553,220		252.69
Exercised	—		(1,264,617	)	43.84
Balances as of March 31, 2018	10,186,695		20,935,953		$	67.24	5.91	$	4,775,786
Vested and exercisable as of March 31, 2018			20,935,953		$	67.24	5.91	$	4,775,786

12

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the first quarter of 2018. This amount changes based on the fair market value of the Company’s common stock.

A summary of the amounts related to option exercises, is as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
	(in thousands)
Total intrinsic value of options exercised	$	277,910	$	107,097
Cash received from options exercised	56,335		24,178

Stock-based Compensation

Stock options granted are exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:

	Three Months Ended
	March 31, 2018			March 31, 2017
Dividend yield	—		%	—		%
Expected volatility	40		%	37		%
Risk-free interest rate	2.61		%	2.45		%
Suboptimal exercise factor	2.80			2.48
Weighted-average fair value (per share)	$	123.63		$	62.36
Total stock-based compensation expense (in thousands)	$	68,395		$	44,888
Total income tax impact on provision (in thousands)	$	14,691		$	14,701

The Company considers several factors in determining the suboptimal exercise factor, including the historical and estimated option exercise behavior.

The Company calculates expected volatility based solely on implied volatility. The Company believes that implied volatility of publicly traded options in its common stock is more reflective of market conditions, and given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock.

In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.

8. Accumulated Other Comprehensive Loss

The accumulated balance of other comprehensive income (loss), net of tax, for the three months ended March 31, 2018 increased $24.8 million due to cumulative translation adjustments for its non-US dollar functional currency subsidiaries.

9. Income Taxes

The effective tax rates for the three months ended March 31, 2018 and 2017 were 3% and 20%, respectively. The effective tax rates for the three months ended March 31, 2018 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation and Federal and California research and development credits (“R&D”), partially offset by state taxes, foreign taxes, non-deductible expenses, and the international provisions from the U.S. tax reform enacted in December 2017. The effective tax rate for the three months ended March 31, 2017 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09 and Federal and California R&D credits offset by state taxes, foreign taxes and non-deductible expenses. The decrease in effective tax rate for the three months ended March 31, 2018 as compared to the same period in 2017 was due primarily to the reduction of the U.S. corporate tax rate from 35% to 21% as a result of the U.S. tax reform

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enacted in December 2017. For the three months ended March 31, 2018 and 2017, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of $60.7 million and $36.0 million, respectively.

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. For the three months ended March 31, 2018, the Company obtained additional information affecting the provisional amount initially recorded for the transition tax for the three months ended December 31, 2017. As a result, the Company recorded an immaterial adjustment to the transition tax. Additional work is still necessary for a more detailed analysis of the Company's deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

Gross unrecognized tax benefits were $47.8 million and $42.9 million as of March 31, 2018 and December 31, 2017, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $44.5 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of March 31, 2018, gross unrecognized tax benefits of $25.4 million was classified as “Other non-current liabilities” and $22.4 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision for income taxes" on the Consolidated Statements of Operations and “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in the Company’s “Provision for income taxes” were not material in any of the periods presented.

Deferred tax assets of $500.6 million and $478.3 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The Company has a valuation allowance of $71.0 million and $49.4 million as of March 31, 2018 and December 31, 2017, respectively. The valuation allowance is primarily related to certain foreign tax credit carryovers that are not likely to be recognized.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS and the state of California for 2014 and 2015. The 2016 Federal tax return remains subject to examination by the IRS. The 2009 through 2016 state tax returns are subject to examination by state tax authorities. The Company has no significant foreign jurisdiction audits underway. The years 2012 through 2017 remain subject to examination by foreign tax authorities.

Given the potential outcome of the current examinations as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

10. 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 of 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.

Amortization of streaming content assets makes up the vast majority of cost of revenues. The Company obtains multi-territory or global rights for its streaming content and allocates these rights between Domestic and International streaming segments based on estimated fair market value. Amortization of content assets and other expenses associated with the acquisition, licensing, and production of streaming content for each streaming segment thus includes both expenses directly incurred by the segment as well as an allocation of expenses incurred for global or multi-territory 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 certain payments made to

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marketing partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), 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, 2018		December 31, 2017
	(in thousands)
United States	$	309,050	$	289,875
International	32,882		29,529

The following table represents segment information for the three months ended March 31, 2018:

	As of/ Three Months Ended March 31, 2018
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	56,705		68,290		3,167
Revenues	$	1,820,019	$	1,782,086	$	98,751	$	3,700,856
Cost of revenues	894,873		1,258,809		42,393		2,196,075
Marketing	228,022		251,200		—		479,222
Contribution profit	$	697,124	$	272,077	$	56,358	$	1,025,559
Other operating expenses							578,981
Operating income							446,578
Other income (expense)							(146,962		)
Provision for income taxes							9,492
Net income							$	290,124

The following table represents segment information for the three months ended March 31, 2017:

	As of/ Three Months Ended March 31, 2017
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	50,854		47,894		3,944
Revenues	$	1,470,042	$	1,046,199	$	120,394	$	2,636,635
Cost of revenues	749,488		847,317		60,219		1,657,024
Marketing	115,038		156,232		—		271,270
Contribution profit (loss)	$	605,516	$	42,650	$	60,175	$	708,341
Other operating expenses							451,399
Operating income							256,942
Other income (expense)							(33,150		)
Provision for income taxes							45,570
Net income							$	178,222

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The following table represents the amortization of content assets:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Three months ended March 31,
2018	$	730,272	$	1,018,572	$	11,134	$	1,759,978
2017	608,748		696,935		18,598		1,324,281

(1) A membership (also referred to as a subscription) 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 certain new and 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to statements regarding: our core strategy; the impact of, and the Company’s response to, new accounting standards; content amortization; pricing changes; dividends; impact of foreign currency and exchange rate fluctuations, including on net income, revenues and average revenues per paying member; investments in global streaming, including original content; impact of content on membership growth; cash use in connection with the acquisition, licensing and production of content; liquidity and free cash flow; unrecognized tax benefits; deferred tax assets; effective tax rate; accessing and obtaining additional capital, including future debt financing; accounting treatment for changes related to content assets; and future contractual obligations, including unknown streaming content obligations and timing of payments. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2017 filed with the Securities and Exchange Commission (“SEC”) on February 5, 2018, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item IA. 

We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.

Investors and others should note that we announce material financial information to our investors using our investor relations Web site (http://ir.netflix.com), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the United States ("U.S.") social media channels listed on our investor relations Web site.

Overview

We are the world’s leading internet television network with over 125 million streaming memberships in over 190 countries enjoying more than 140 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments. Additionally, in the U.S., our members can receive DVDs delivered quickly to their homes.

We are a pioneer in the internet delivery of TV shows and movies, launching our streaming service in 2007. Since this launch, we have developed an ecosystem for internet-connected screens and have added increasing amounts of content that enable consumers to enjoy TV shows and movies directly on their internet-connected screens. As a result of these efforts, we have experienced growing consumer acceptance of, and interest in, the delivery of TV shows and movies directly over the internet. Historically, the first and fourth quarters (October through March) represent our greatest membership growth across our Domestic and International streaming segments. Increasingly, our membership growth is impacted by the release of certain high-profile original content, which may affect historical seasonal patterns. Internationally, we expect each market to demonstrate more predictable seasonal patterns as our service offering in each market becomes more established and we have a longer history to assess such patterns.

Our core strategy is to grow our streaming membership business globally within the parameters of our profit margin targets. We are continuously improving our members' experience by expanding our streaming content with a focus on a programming mix of content that delights our members. In addition, we are continuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can download a selection of titles for offline viewing.

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Results of Operations

The following represents our consolidated performance highlights:

	As of/ Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except revenue per membership and percentages)
Global streaming memberships at end of period	124,995			98,748			26,247			27	%
Global streaming average monthly revenue per paying membership	$	10.46		$	9.14		$	1.32		14	%
Revenues	3,700,856			2,636,635			1,064,221			40	%
Global operating income	446,578			256,942			189,636			74	%
Global operating margin	12.1		%	9.7		%	2.4		%	25	%
Net income	290,124			178,222			111,902			63	%

Consolidated revenues for the three months ended March 31, 2018 increased 40%, including an increase of 24% and 70% in revenues in the Domestic streaming and International streaming segments, respectively as compared to the three months ended March 31, 2017. International revenues accounted for 48% of consolidated revenue for the period ended March 31, 2018 as compared to 40% of consolidated revenue for the period ended March 31, 2017. The increase in consolidated revenues was primarily driven by the growth in the average number of paid streaming memberships globally, the majority of which was growth in our international memberships. Average paid international streaming memberships accounted for 53% of total average paid streaming memberships as of March 31, 2018, as compared to 47% of total average paid streaming memberships for the same period in 2017. In addition, the average monthly revenue per paying streaming membership increased primarily due to price changes and plan mix.

The increase in operating income is due primarily to increased revenues partially offset by increased content expenses as we continue to acquire, license and produce content, including more Netflix originals, as well as increased headcount costs to support continued improvements in our streaming service, our international expansion, and our growing content production activities. The increase in net income was comprised of an increase in operating income, partially offset by an increase in interest expense primarily due to the higher principal of senior notes outstanding and an increase in foreign exchange losses primarily due to the remeasurement of our euro denominated senior notes.

We offer three types of streaming membership plans. Our “basic” plan includes access to standard definition quality streaming on a single screen at a time. Our “standard” plan is our most popular streaming plan and includes access to high definition quality streaming on two screens concurrently. Our “premium” plan includes access to high definition and ultra-high definition quality content on four screens concurrently. As of March 31, 2018, pricing on our plans ranged in the U.S. from $7.99 to $13.99 per month and internationally from the U.S. dollar equivalent of approximately $4 to $21 per month. We expect that from time to time the prices of our membership plans in each country may increase.

The following represents the key elements to our segment results of operations:

• We define contribution profit (loss) as revenues less cost of revenues and marketing expenses incurred by the segment. It represents each segment's performance before global corporate costs. As markets within our International streaming segment become profitable, we increasingly focus on our global operating margin as a measure of profitability.

• For the Domestic and International streaming segments, amortization of the streaming content assets makes up the vast majority of cost of revenues. Increasingly, we obtain multi-territory or global rights for our streaming content and allocate these rights between Domestic and International streaming segments based on estimated fair market value. Expenses associated with the acquisition, licensing and production of streaming content, streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network (“Open Connect”) to help us efficiently stream a high volume of content to our members over the internet. Streaming delivery expenses, therefore, include equipment costs related to Open Connect and all third-party costs, such as cloud computing costs, associated with delivering streaming content over the internet. Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members.

• For the Domestic and International streaming segments, marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including consumer electronics manufacturers, MVPD's, mobile operators and ISP's. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses are incurred by our Domestic and International streaming segments given our focus on building consumer awareness of the streaming offerings, and in particular our original content.

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Domestic Streaming Segment

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	As of/ Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except revenue per membership and percentages)
Memberships:
Net additions	1,955			1,423			532		37	%
Memberships at end of period	56,705			50,854			5,851		12	%
Paid memberships at end of period	55,087			49,375			5,712		12	%
Average monthly revenue per paying membership	$	11.25		$	10.07		$	1.18	12	%
Contribution profit:
Revenues	$	1,820,019		$	1,470,042		$	349,977	24	%
Cost of revenues	894,873			749,488			145,385		19	%
Marketing	228,022			115,038			112,984		98	%
Contribution profit	697,124			605,516			91,608		15	%
Contribution margin	38		%	41		%

In the Domestic streaming segment, we derive revenues from monthly membership fees for services consisting solely of streaming content to our members in the United States. The increase in our domestic streaming revenues was primarily due to the 11% growth in the average number of paid memberships, as well as a 12% increase in the average monthly revenue per paying membership, resulting from our price changes and plan mix. Our standard plan continues to be the most popular plan choice for new memberships.

The increase in domestic streaming cost of revenues was primarily due to a $121.5 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming. In addition, we had a $23.9 million increase in other costs, such as payment processing fees and customer service call centers, due to our growing member base.

Domestic marketing expenses increased primarily due to increased advertising and public relations.

Our Domestic streaming segment had a contribution margin of 38% for the three months ended March 31, 2018 and decreased as compared to the contribution margin of 41% for the three months ended March 31, 2017 as the growth in marketing spend outpaced revenue growth.

International Streaming Segment

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	As of/ Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except revenue per membership and percentages)
Memberships:
Net additions	5,458			3,529			1,929		55	%
Memberships at end of period	68,290			47,894			20,396		43	%
Paid memberships at end of period	63,815			44,988			18,827		42	%
Average monthly revenue per paying membership	$	9.77		$	8.09		$	1.68	21	%
Contribution profit:
Revenues	$	1,782,086		$	1,046,199		$	735,887	70	%
Cost of revenues	1,258,809			847,317			411,492		49	%
Marketing	251,200			156,232			94,968		61	%
Contribution profit	272,077			42,650			229,427		538	%
Contribution margin	15		%	4		%

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In the International streaming segment, we derive revenues from monthly membership fees for services consisting solely of streaming content to our members outside the United States. The increase in our international revenues was due to the 41% growth in the average number of paid international memberships, in addition to a 21% increase in the average monthly revenue per paying membership. The increase in the average monthly revenue per paying membership was due to price changes and plan mix coupled with favorable fluctuations in foreign exchange rates. We estimate that international revenues in the first quarter of 2018 would have been approximately $114.2 million lower if foreign exchange rates had remained consistent with the foreign exchange rates from the first quarter of 2017. If foreign currency exchange rates fluctuate more than expected, revenues and average revenue per paying membership may differ from our expectations.

The increase in international cost of revenues was primarily due to a $321.6 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $89.9 million primarily due to increases in our streaming delivery expenses, costs associated with our customer service call centers and payment processing fees, all driven by our growing member base.

International marketing expenses increased mainly due to increased advertising and public relations as well as increased payments to our partners.

International contribution profit for the three months ended March 31, 2018 was $272.1 million as compared to a contribution profit of $42.7 million for the three months ended March 31, 2017 as profit growth in our more mature markets offset investments in newer markets.

Domestic DVD Segment

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	As of/ Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except revenue per membership and percentages)
Memberships:
Net losses	(216		)	(170		)	(46		)	(27	)%
Memberships at end of period	3,167			3,944			(777		)	(20	)%
Paid memberships at end of period	3,138			3,867			(729		)	(19	)%
Average monthly revenue per paying membership	$	10.18		$	10.16		$	0.02		—	%
Contribution profit:
Revenues	$	98,751		$	120,394		$	(21,643	)	(18	)%
Cost of revenues	42,393			60,219			(17,826		)	(30	)%
Contribution profit	56,358			60,175			(3,817		)	(6	)%
Contribution margin	57		%	50		%

In the Domestic DVD segment, we derive revenues from our DVD-by-mail membership services. The price per plan for DVD-by-mail varies from $4.99 to $14.99 per month according to the plan chosen by the member. DVD-by-mail plans differ by the number of DVDs that a member may have out at any given point. Members electing access to high definition Blu-ray discs, in addition to standard definition DVDs, pay a surcharge ranging from $2 to $3 per month for our most popular plans. Cost of revenues in the Domestic DVD segment consist primarily of delivery expenses such as packaging and postage costs, content expenses, and other expenses associated with our DVD processing and customer service centers. The number of memberships to our DVD-by-mail offering is declining, and we anticipate that this decline will continue.

Our Domestic DVD segment contribution margin was 57% for the three months ended March 31, 2018, as compared to 50% for the three months ended March 31, 2017, due to the decreased DVD usage by paying members and decreased DVD content expenses.

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Consolidated Operating Expenses

Technology and Development

Technology and development expenses consist of payroll and related expenses for all technology personnel, as well as other costs incurred in making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendation, merchandising and streaming delivery technology and infrastructure. Technology and development expenses also include costs associated with computer hardware and software.

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except percentages)
Technology and development	$	300,730		$	257,108		$	43,622	17	%
As a percentage of revenues	8		%	10		%

The increase in technology and development expenses was primarily due to a $37.8 million increase in personnel-related costs, including stock-based compensation expense, resulting from an increase in compensation for existing employees and growth in average headcount supporting continued improvements in our streaming service and our international expansion. In addition, third party expenses, including costs associated with cloud computing, increased $3.8 million.

General and Administrative

General and administrative expenses consist of payroll and related expenses for corporate personnel, as well as for personnel that support global functions related to content, marketing, public relations and operations other than customer service. General and administrative expenses also includes professional fees and other general corporate expenses.

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except percentages)
General and administrative	$	278,251		$	194,291		$	83,960	43	%
As a percentage of revenues	8		%	7		%

General and administrative expenses increased primarily due to a $68.1 million increase in personnel-related costs, including stock-based compensation expense, resulting from an increase in average headcount primarily to support our international and original content expansion, and an increase in compensation for existing employees. In addition, facilities-related costs increased $5.4 million, primarily driven by costs for our expanded Los Gatos, California headquarters and new Los Angeles, California facility. Third party expenses, including costs for contractors and consultants, also increased $5.7 million.

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Interest Expense

Interest expense consists primarily of the interest associated with our outstanding long-term debt obligations, including the amortization of debt issuance costs, as well as interest on our lease financing obligations.

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except percentages)
Interest expense	$	(81,219	)	$	(46,742	)	$	34,477	74	%
As a percentage of revenues	(2		)%	(2		)%

Interest expense for the three months ended March 31, 2018 consists primarily of $78.6 million of interest on our notes. The increase in interest expense for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 is due to the increase in long-term debt.

Interest and Other Income (Expense)

Interest and other income (expense) consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash, cash equivalents and short-term investments.

Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	Three Months Ended						Change
	March 31, 2018			March 31, 2017			Q1'18 vs. Q1'17
	(in thousands, except percentages)
Interest and other income (expense)	$	(65,743	)	$	13,592		$	(79,335	)	(584	)%
As a percentage of revenues	(2		)%	0.5		%

Interest and other income (expense) decreased primarily due to foreign exchange losses. In the three months ended March 31, 2018, the foreign exchange loss was $71.6 million as compared to an $11.3 million foreign exchange gain for the three months ended March 31, 2017. The increase in the foreign exchange loss was primarily driven by the $41.1 million loss from the remeasurement of our €1,300.0 million Senior Notes and the remeasurement of cash and content liability positions in currencies other than the functional currencies of our European and U.S. entities.

Provision for Income Taxes

The effective tax rates for the three months ended March 31, 2018 and 2017 were 3% and 20%, respectively. The effective tax rate for the three months ended March 31, 2018 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation and Federal and California research and development credits (“R&D”), partially offset by state taxes, foreign taxes, non-deductible expenses, and the international provisions from the U.S. tax reform enacted in December 2017. The effective tax rate for the three months ended March 31, 2017 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09 and Federal and California R&D credits offset by state taxes, foreign taxes and non-deductible expenses. The decrease in our effective tax rate for the three months ended March 31, 2018, as compared to the same period in 2017 was due primarily to the reduction of the corporate tax rate from 35% to 21% as a result of the U.S. tax reform enacted in December 2017.

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. For the quarter ended March 31, 2018, we obtained additional information affecting the provisional amount initially recorded for the transition tax in the quarter ended December 31, 2017. As a result, we have recorded an immaterial adjustment to the transition tax. Additional work is still necessary for a more detailed analysis of our deferred tax assets and

22

liabilities and our historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

Liquidity and Capital Resources

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Cash, cash equivalents and restricted cash	$	2,599,477	2,822,795
Long-term debt	6,542,373		6,499,432

Cash, cash equivalents and restricted cash decreased $223.3 million in the three months ended March 31, 2018 primarily due to cash used in operations.

Long-term debt, net of debt issuance costs, increased $42.9 million primarily due to the remeasurement of our euro denominated notes. The earliest maturity date for our outstanding long-term debt is February 2021.  As of March 31, 2018, no amounts had been borrowed under the $500.0 million Revolving Credit Agreement. See Note 5 Long-term Debt in the accompanying notes to our consolidated financial statements. We anticipate financing our capital needs in the debt market, as our after-tax cost of debt is lower than our cost of equity. Our ability to obtain this or any additional financing that we may choose to, or need to, obtain will depend on, among other things, our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.

Our primary uses of cash include the acquisition, licensing and production of content, streaming delivery, marketing programs and personnel-related costs. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to significantly increase our investments in global streaming content, particularly in original content, which will impact our liquidity and result in future negative free cash flows for many years. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for at least the next twelve months.

Free Cash Flow

We define free cash flow as cash provided by (used in) operating and investing activities excluding the non-operational cash flows from purchases, maturities and sales of short-term investments. We believe 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 or the amount of cash used in operations, including investments in global streaming content. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, cash flow used in operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.

In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the three major recurring differences are excess content payments over amortization, non-cash stock-based compensation expense and other working capital differences. Working capital differences include deferred revenue, taxes and semi-annual interest payments on our outstanding debt. Our receivables from members generally settle quickly and deferred revenue is a source of cash flow.

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Three months ended March 31, 2018 as compared to the three months ended March 31, 2017

	Three Months Ended
	March 31, 2018			March 31, 2017
	(in thousands)
Net cash used in operating activities	$	(236,757	)	$	(343,856	)
Net cash used in investing activities	(49,752		)	(75,590		)
Net cash provided by financing activities	56,014			24,239
Non-GAAP free cash flow reconciliation:
Net cash used in operating activities	(236,757		)	(343,856		)
Acquisition of DVD content assets	(10,796		)	(25,372		)
Purchases of property and equipment	(37,170		)	(52,523		)
Change in other assets	(1,786		)	(769		)
Non-GAAP free cash flow	$	(286,509	)	$	(422,520	)

Net cash used in operating activities decreased $107.1 million to $236.8 million for the three months ended March 31, 2018. The decreased use of cash was primarily driven by a $1,064.2 million or 40% increase in revenues partially offset by the increase in investments in streaming content that require more upfront payments. The payments for streaming content assets increased $625.5 million, from $1,982.4 million to $2,607.9 million, or 32% as compared to the increase in the amortization of streaming content assets of $443.1 million, from $1,305.7 million to $1,748.8 million, or 34%. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service, our international expansion and increased content production activities.

Net cash used in investing activities decreased $25.8 million, primarily due to a $15.4 million decrease in purchases of property and equipment for our Los Gatos and Los Angeles headquarter offices and a $14.6 million decrease in the acquisition of DVD content assets.

Net cash provided by financing activities increased $31.8 million in the quarter ended March 31, 2018, due to an increase in cash received from the issuance of common stock.

Non-GAAP free cash flow was $576.6 million lower than net income for the three months ended March 31, 2018 primarily due to $859.0 million of cash payments for streaming content assets over streaming amortization expense partially offset by $68.4 million of non-cash stock-based compensation expense and $214.0 million of favorable other working capital differences.

Non-GAAP free cash flow was $600.7 million lower than net income for the three months ended March 31, 2017, primarily due to $676.7 million of cash payments for streaming content assets over streaming amortization expense partially offset by $44.9 million of non-cash stock-based compensation expense and $31.1 million favorable other working capital differences.

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Contractual Obligations

For the purpose of this table, contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of the payment of the obligations discussed below is estimated based on information available to us as of March 31, 2018. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. The following table summarizes our contractual obligations as of March 31, 2018:

	Payments due by Period
Contractual obligations (in thousands):	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Streaming content obligations (1)	$	17,937,682	$	7,949,544	$	8,015,837	$	1,849,029	$	123,272
Debt (2)	9,079,118		312,828		1,130,423		1,251,006		6,384,861
Lease obligations (3)	790,453		109,732		201,831		175,073		303,817
Other purchase obligations (4)	621,881		303,561		241,441		57,100		19,779
Total	$	28,429,134	$	8,675,665	$	9,589,532	$	3,332,208	$	6,831,729

(1) As of March 31, 2018, streaming content obligations were comprised of $4.5 billion included in "Current content liabilities" and $3.4 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.0 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.

Streaming content obligations increased $0.2 billion from $17.7 billion as of December 31, 2017 to $17.9 billion as of March 31, 2018, primarily due to multi-year commitments associated with the continued expansion of our exclusive and original programming.

Streaming content obligations include amounts related to the acquisition, licensing and production of streaming content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $3 billion to $5 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.

(2) Long-term debt obligations include our Notes consisting of principal and interest payments. See Note 5 to the consolidated financial statements for further details.

(3) Lease obligations include lease financing obligations of $14.6 million related to a portion of our current Los Gatos, California headquarters for which we are the deemed owner for accounting purposes, commitments of $503.3 million for our headquarters in Los Gatos, California, and our office space in Los Angeles, California and other commitments of $272.6 million for facilities under non-cancelable operating leases. These leases have expiration dates varying through approximately 2028.

(4) Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery and cloud computing costs, as well as other miscellaneous open purchase orders for which we have not received the related services or goods.

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As of March 31, 2018, we had gross unrecognized tax benefits of $47.8 million which was classified in “Other non-current liabilities” and a reduction to deferred tax assets which was classified as "Other non-current assets" in the consolidated balance sheets.  At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

Off-Balance Sheet Arrangements

We do not have transactions with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.

Indemnification

The information set forth under Note 6 to the consolidated financial statements under the caption “Indemnification” is incorporated herein by reference.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. The Securities and Exchange Commission ("SEC") has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Streaming Content

We acquire, license and produce content, including original programing, in order to offer our members unlimited viewing of TV shows and films. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to streaming assets and the changes in related liabilities, are classified within "Net cash used in operating activities" on the Consolidated Statements of Cash Flows.

For licenses, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for streaming. The portion available for streaming within one year is recognized as “Current content assets, net” and the remaining portion as “Non-current content assets, net” on the Consolidated Balance Sheets.

For productions, we capitalize costs associated with the production, including development cost, direct costs and production overhead. We include these amounts in "Non-current content assets, net" on the Consolidated Balance Sheets. Participations and residuals are expensed in line with the amortization of production costs.

Based on factors including historical and estimated viewing patterns, we amortize the content assets (licensed and produced) in “Cost of revenues” on the Consolidated Statements of Operations, over the shorter of each title's contractual window of availability or estimated period of use or ten years, beginning with the month of first availability. The amortization is on an accelerated basis as we typically expect more upfront viewing, for instance due to additional merchandising and marketing efforts. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment.

Our business model is subscription based as opposed to a model generating revenues at a specific title level. Therefore, content assets, both licensed and produced, are reviewed in aggregate at the operating segment level when an event or change in circumstances indicates a change in the expected usefulness. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost, net realizable value or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

Income Taxes

We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and

26

the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments and estimates. However, we believe that it is more likely than not that most of the deferred tax assets recorded on our Consolidated Balance Sheets will ultimately be realized. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. As of March 31, 2018, the valuation allowance of $71.0 million was related to foreign tax credits that we are not expected to realize.

We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At March 31, 2018, our estimated gross unrecognized tax benefits were $47.8 million of which $44.5 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. See Note 9 to the consolidated financial statements for further information regarding income taxes.

Recent Accounting Pronouncements

The information set forth under Note 1 to the consolidated financial statements under the caption “Basis of Presentation and Summary of Significant Accounting Policies” is incorporated herein by reference.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For financial market risks related to changes in interest rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2017. Our exposure to market risk has not changed significantly since December 31, 2017.

Foreign Currency Risk

International revenues and cost of revenues account for 48% and 57%, respectively, of consolidated amounts for the three months ended March 31, 2018. The majority of international revenues and a smaller portion of expenses are denominated in currencies other than the U.S. dollar and we therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Canadian dollar, the Australian dollar, the Japanese yen and the Brazilian real.

Accordingly, changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and contribution profit (loss) of our International streaming segment as expressed in U.S. dollars. In the three months ended March 31, 2018, we believe our international revenues would have been approximately $114.2 million lower had foreign currency exchange rates remained consistent with those in same period of 2017.

We have also experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not the functional currency. In the three months ended March 31, 2018, we recognized a $71.6 million foreign exchange loss which resulted primarily from the remeasurement of our €1,300.0 million Senior Notes and the remeasurement of cash and content liability positions in currencies other than the functional currencies of our European and U.S. entities.

In addition, the effect of exchange rate changes on cash, cash equivalents and restricted cash in the three months ended March 31, 2018 was $7.2 million.

We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under Note 6 in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.

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Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Item 6. Exhibits

(a) Exhibits:

See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NETFLIX, INC.
Dated:	April 18, 2018	By:	/s/ REED HASTINGS
			Reed Hastings Chief Executive Officer (Principal executive officer)
Dated:	April 18, 2018	By:	/s/ DAVID WELLS
			David Wells Chief Financial Officer (Principal financial and accounting officer)

30

EXHIBIT INDEX

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1*	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101	The following financial information from Netflix, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed with the SEC on April 18, 2018, formatted in XBRL includes: (i) Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017, (ii) Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017 (iii) Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, (iv) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 and (v) the Notes to the Consolidated Financial Statements.					X

* These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

31

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Reed Hastings, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Netflix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 18, 2018	By:	/S/ REED HASTINGS
		Reed Hastings
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Wells, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Netflix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 18, 2018	By:	/S/    DAVID WELLS
		David Wells
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Reed Hastings, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Netflix, Inc. for the quarter ended March 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Netflix, Inc.

Dated: April 18, 2018	By:	/S/    REED HASTINGS
		Reed Hastings
		Chief Executive Officer

I, David Wells, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Netflix, Inc. for the quarter ended March 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Netflix, Inc.

Dated: April 18, 2018	By:	/S/    DAVID WELLS
		David Wells
		Chief Financial Officer

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2018 shares
Document And Entity Information [Abstract]
Entity Registrant Name	NETFLIX INC
Entity Central Index Key	0001065280
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding	434,657,303

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Statement [Abstract]
Revenues	$ 3,700,856	$ 2,636,635
Cost of revenues	2,196,075	1,657,024
Marketing	479,222	271,270
Technology and development	300,730	257,108
General and administrative	278,251	194,291
Operating income	446,578	256,942
Other income (expense):
Interest expense	(81,219)	(46,742)
Interest and other income (expense)	(65,743)	13,592
Income before income taxes	299,616	223,792
Provision for income taxes	9,492	45,570
Net income	$ 290,124	$ 178,222
Earnings per share:
Basic (in dollars per share)	$ 0.67	$ 0.41
Diluted (in dollars per share)	$ 0.64	$ 0.40
Weighted-average common shares outstanding:
Basic (in shares)	434,174	430,600
Diluted (in shares)	450,359	445,458

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Net income	$ 290,124	$ 178,222
Other comprehensive income:
Foreign currency translation adjustments	24,821	2,579
Change in unrealized gains on available-for-sale securities, net of tax of $0, $77, respectively	0	127
Total other comprehensive income	24,821	2,706
Comprehensive income	$ 314,945	$ 180,928

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Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Change in unrealized gains on available-for-sale securities, tax	$ 0	$ 77

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net income	$ 290,124	$ 178,222
Adjustments to reconcile net income to net cash used in operating activities:
Additions to streaming content assets	(2,986,747)	(2,348,666)
Change in streaming content liabilities	378,885	366,257
Amortization of streaming content assets	1,748,844	1,305,683
Amortization of DVD content assets	11,134	18,598
Depreciation and amortization of property, equipment and intangibles	19,041	15,049
Stock-based compensation expense	68,395	44,888
Other non-cash items	8,209	21,666
Foreign currency remeasurement loss on long-term debt	41,080	0
Deferred taxes	(22,049)	(26,764)
Changes in operating assets and liabilities:
Other current assets	(55,905)	(25,402)
Accounts payable	74,083	(11,000)
Accrued expenses	119,049	93,542
Deferred revenue	55,270	15,221
Other non-current assets and liabilities	13,830	8,850
Net cash used in operating activities	(236,757)	(343,856)
Cash flows from investing activities:
Acquisition of DVD content assets	(10,796)	(25,372)
Purchases of property and equipment	(37,170)	(52,523)
Change in other assets	(1,786)	(769)
Purchases of short-term investments	0	(57,774)
Proceeds from sale of short-term investments	0	55,748
Proceeds from maturities of short-term investments	0	5,100
Net cash used in investing activities	(49,752)	(75,590)
Cash flows from financing activities:
Proceeds from issuance of common stock	56,335	24,178
Other financing activities	(321)	61
Net cash provided by financing activities	56,014	24,239
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	7,177	5,455
Net decrease in cash, cash equivalents, and restricted cash	(223,318)	(389,752)
Cash, cash equivalents, and restricted cash at beginning of period	2,822,795	1,467,576
Cash, cash equivalents, and restricted cash at end of period	2,599,477	1,077,824
Supplemental disclosure:
Increase (decrease) in investing activities included in liabilities	$ 3,917	$ (16,672)

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Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 2,593,666	$ 2,822,795
Current content assets, net	4,626,522	4,310,934
Other current assets	597,388	536,245
Total current assets	7,817,576	7,669,974
Non-current content assets, net	11,314,803	10,371,055
Property and equipment, net	341,932	319,404
Other non-current assets	678,486	652,309
Total assets	20,152,797	19,012,742
Current liabilities:
Current content liabilities	4,466,081	4,173,041
Accounts payable	436,183	359,555
Accrued expenses	429,431	315,094
Deferred revenue	673,892	618,622
Total current liabilities	6,005,587	5,466,312
Non-current content liabilities	3,444,476	3,329,796
Long-term debt	6,542,373	6,499,432
Other non-current liabilities	139,631	135,246
Total liabilities	16,132,067	15,430,786
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2018 and December 31, 2017; 434,657,303 and 433,392,686 issued and outstanding at March 31, 2018 and December 31, 2017, respectively	1,995,225	1,871,396
Accumulated other comprehensive income (loss)	4,264	(20,557)
Retained earnings	2,021,241	1,731,117
Total stockholders’ equity	4,020,730	3,581,956
Total liabilities and stockholders’ equity	$ 20,152,797	$ 19,012,742

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Common stock, par value (dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (shares)	4,990,000,000	4,990,000,000
Common stock, shares issued (shares)	434,657,303	433,392,686
Common stock, shares outstanding (shares)	434,657,303	433,392,686

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Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim consolidated financial statements of Netflix, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2018. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the streaming content asset amortization policy and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2017. Interim results are not necessarily indicative of the results for a full year.

The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD, all of which derive revenue from monthly membership fees. See Note 10 for further detail on the Company's segments.

There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Recently adopted accounting pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. Because the Company's primary source of revenues is from monthly membership fees which are recognized ratably over each monthly membership period, the impact on its consolidated financial statements is not material.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The Company adopted ASU 2016-18 in the first quarter of 2018 and the impact on its consolidated financial statements is not material as the Company's restricted cash balances are immaterial.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019. Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.

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Earnings Per Share

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	290,124	$	178,222
Shares used in computation:
Weighted-average common shares outstanding	434,174		430,600
Basic earnings per share	$	0.67	$	0.41
Diluted earnings per share:
Net income	$	290,124	$	178,222
Shares used in computation:
Weighted-average common shares outstanding	434,174		430,600
Employee stock options	16,185		14,858
Weighted-average number of shares	450,359		445,458
Diluted earnings per share	$	0.64	$	0.40

Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. These anti-dilutive stock options were immaterial for each period presented.

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Cash, Cash Equivalents and Restricted Cash

3 Months Ended

Mar. 31, 2018

Short-Term Investments And Fair Value Measurement [Abstract]

Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash

	As of March 31, 2018
	Cash and cash equivalents		Non-current Assets (1)
	(in thousands)
Cash	$	1,867,506	$	4,531
Level 1 securities:
Money market funds	726,160		1,280

	As of December 31, 2017
	Cash and cash equivalents		Non-current Assets (1)
	(in thousands)
Cash	$	2,072,296	$	4,367
Level 1 securities:
Money market funds	449,734		1,276
Level 2 securities:
Time Deposits	300,765		—

(1) Restricted cash related to workers compensation deposits and letter of credit agreements. Balance as of March 31, 2018 is included in cash, cash equivalents, and restricted cash on the Consolidated Statements of Cash Flows.

There were no material gross realized gains or losses in the three months ended March 31, 2018 and 2017, respectively.

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Balance Sheet Components

3 Months Ended

Mar. 31, 2018

Balance Sheet Components Disclosure [Abstract]

Balance Sheet Components

Balance Sheet Components

Content Assets

Content assets consisted of the following:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Licensed content, net	$	12,508,344	$	11,771,778
Produced content, net
Released, less amortization	1,643,252		1,427,256
In production	1,613,898		1,311,137
In development and pre-production	161,497		158,517
	3,418,647		2,896,910
DVD, net	14,334		13,301
Total	$	15,941,325	$	14,681,989
Current content assets, net	$	4,626,522	$	4,310,934
Non-current content assets, net	$	11,314,803	$	10,371,055

On average, over 90% of a licensed or produced streaming content asset is expected to be amortized within four years after its month of first availability.

As of March 31, 2018, over 30% of the $15.9 billion unamortized cost is expected to be amortized within one year and 29%, 79% and over 80% of the $1.6 billion unamortized cost of the produced content that has been released is expected to be amortized within one year, three years and four years, respectively.

As of March 31, 2018, the amount of accrued participations and residuals was not material.

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

	As of
	March 31, 2018			December 31, 2017			Estimated Useful Lives
	(in thousands)
Information technology assets	$	226,652		$	223,850		3 years
Furniture and fixtures	49,507			49,217			3 years
Buildings	40,681			40,681			30 years
Leasehold improvements	233,119			229,848			Over life of lease
DVD operations equipment	59,016			59,316			5 years
Corporate aircraft	57,938			30,039			8 years
Capital work-in-progress	12,885			8,267
Property and equipment, gross	679,798			641,218
Less: Accumulated depreciation	(337,866		)	(321,814		)
Property and equipment, net	$	341,932		$	319,404

Deferred Revenue

The Company’s primary source of revenues are from monthly membership fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. The Company is the principal in all its relationships where partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), provide access to the service as the Company retains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are expensed, but in the case where the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.

Deferred revenue consists of membership fees billed that have not been recognized, as well as gift and other prepaid memberships that have not been fully redeemed. As of March 31, 2018, total deferred revenue was $673.9 million, the vast majority of which was related to membership fees billed that are expected to be recognized as revenue within the next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The $55.3 million increase in deferred revenue as compared to the year ended December 31, 2017 is a result of the increase in membership fees billed due to increased members and average monthly revenue per paying member.

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Long-term Debt

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Long-term Debt

Long-term Debt

As of March 31, 2018, the Company had aggregate outstanding long-term notes of $6,542.4 million, net of $60.0 million of issuance costs, with varying maturities (the "Notes"). Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates.

The following table provides a summary of the Company's outstanding long-term debt and the fair values based on quoted market prices in less active markets as of March 31, 2018 and December 31, 2017:

						Level 2 Fair Value as of
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	March 31, 2018		December 31, 2017
	(in millions)					(in millions)
5.375% Senior Notes	$	500	February 2013	February 2021	February 1 and August 1	$	519	$	530
5.750% Senior Notes	400		February 2014	March 2024	March 1 and September 1	417		427
5.875% Senior Notes	800		February 2015	February 2025	April 15 and October 15	839		856
5.50% Senior Notes	700		February 2015	February 2022	April 15 and October 15	727		739
4.375% Senior Notes	1,000		October 2016	November 2026	May 15 and November 15	946		983
3.625% Senior Notes (1)	1,602		May 2017	May 2027	May 15 and November 15	1,579		1,575
4.875% Senior Notes	1,600		October 2017	April 2028	April 15 and October 15	1,539		1,571
	$	6,602

(1) Debt is denominated in euro with a €1,300 million aggregate principal amount and is remeasured into U.S. dollars at each balance sheet date.

The expected timing of principal and interest payments for these Senior Notes are as follows:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Less than one year	$	312,828	$	311,339
Due after one year and through three years	1,130,423		627,444
Due after three years and through five years	1,251,006		1,761,465
Due after five years	6,384,861		6,348,580
Total debt obligations	$	9,079,118	$	9,048,828

Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of March 31, 2018 and December 31, 2017, the Company was in compliance with all related covenants.

Revolving Credit Facility

In July 2017, the Company entered into a $500.0 million unsecured revolving credit facility (“Revolving Credit Agreement”), with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $250.0 million, subject to certain terms and conditions. Revolving loans may be borrowed, repaid and reborrowed until July 27, 2022, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of March 31, 2018, no amounts have been borrowed under the Revolving Credit Agreement.

The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of 0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum.

The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at a rate of 0.10%. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of March 31, 2018, the Company was in compliance with all related covenants.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Streaming Content

As of March 31, 2018, the Company had $17.9 billion of obligations comprised of $4.5 billion included in "Current content liabilities" and $3.4 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.0 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

As of December 31, 2017, the Company had $17.7 billion of obligations comprised of $4.2 billion included in "Current content liabilities" and $3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

The expected timing of payments for these streaming content obligations is as follows:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Less than one year	$	7,949,544	$	7,446,947
Due after one year and through three years	8,015,837		8,210,159
Due after three years and through five years	1,849,029		1,894,001
Due after five years	123,272		143,535
Total streaming content obligations	$	17,937,682	$	17,694,642

Content obligations include amounts related to the acquisition, licensing and production of streaming content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.

Legal Proceedings

From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.

The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.

Indemnification

In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.

It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. No amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2018

Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]

Stockholders' Equity

Stockholders’ Equity

Stock Option Plan

In June 2011, the Company adopted the 2011 Stock Plan. The 2011 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. As of March 31, 2018, 10.2 million shares were reserved for future grants under the 2011 Stock Plan.

A summary of the activities related to the Company’s stock option plans is as follows:

			Options Outstanding
	Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price (per share)		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balances as of December 31, 2017	10,739,915		21,647,350		$	61.13
Granted	(553,220	)	553,220		252.69
Exercised	—		(1,264,617	)	43.84
Balances as of March 31, 2018	10,186,695		20,935,953		$	67.24	5.91	$	4,775,786
Vested and exercisable as of March 31, 2018			20,935,953		$	67.24	5.91	$	4,775,786

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the first quarter of 2018. This amount changes based on the fair market value of the Company’s common stock.

A summary of the amounts related to option exercises, is as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
	(in thousands)
Total intrinsic value of options exercised	$	277,910	$	107,097
Cash received from options exercised	56,335		24,178

Stock-based Compensation

Stock options granted are exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:

	Three Months Ended
	March 31, 2018			March 31, 2017
Dividend yield	—		%	—		%
Expected volatility	40		%	37		%
Risk-free interest rate	2.61		%	2.45		%
Suboptimal exercise factor	2.80			2.48
Weighted-average fair value (per share)	$	123.63		$	62.36
Total stock-based compensation expense (in thousands)	$	68,395		$	44,888
Total income tax impact on provision (in thousands)	$	14,691		$	14,701

The Company considers several factors in determining the suboptimal exercise factor, including the historical and estimated option exercise behavior.

The Company calculates expected volatility based solely on implied volatility. The Company believes that implied volatility of publicly traded options in its common stock is more reflective of market conditions, and given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock.

In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.

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Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The accumulated balance of other comprehensive income (loss), net of tax, for the three months ended March 31, 2018 increased $24.8 million due to cumulative translation adjustments for its non-US dollar functional currency subsidiaries.

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Income Taxes

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rates for the three months ended March 31, 2018 and 2017 were 3% and 20%, respectively. The effective tax rates for the three months ended March 31, 2018 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation and Federal and California research and development credits (“R&D”), partially offset by state taxes, foreign taxes, non-deductible expenses, and the international provisions from the U.S. tax reform enacted in December 2017. The effective tax rate for the three months ended March 31, 2017 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits as a component of the provision for income taxes attributable to the adoption of ASU 2016-09 and Federal and California R&D credits offset by state taxes, foreign taxes and non-deductible expenses. The decrease in effective tax rate for the three months ended March 31, 2018 as compared to the same period in 2017 was due primarily to the reduction of the U.S. corporate tax rate from 35% to 21% as a result of the U.S. tax reform enacted in December 2017. For the three months ended March 31, 2018 and 2017, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of $60.7 million and $36.0 million, respectively.

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. For the three months ended March 31, 2018, the Company obtained additional information affecting the provisional amount initially recorded for the transition tax for the three months ended December 31, 2017. As a result, the Company recorded an immaterial adjustment to the transition tax. Additional work is still necessary for a more detailed analysis of the Company's deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

Gross unrecognized tax benefits were $47.8 million and $42.9 million as of March 31, 2018 and December 31, 2017, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $44.5 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of March 31, 2018, gross unrecognized tax benefits of $25.4 million was classified as “Other non-current liabilities” and $22.4 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision for income taxes" on the Consolidated Statements of Operations and “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in the Company’s “Provision for income taxes” were not material in any of the periods presented.

Deferred tax assets of $500.6 million and $478.3 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The Company has a valuation allowance of $71.0 million and $49.4 million as of March 31, 2018 and December 31, 2017, respectively. The valuation allowance is primarily related to certain foreign tax credit carryovers that are not likely to be recognized.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS and the state of California for 2014 and 2015. The 2016 Federal tax return remains subject to examination by the IRS. The 2009 through 2016 state tax returns are subject to examination by state tax authorities. The Company has no significant foreign jurisdiction audits underway. The years 2012 through 2017 remain subject to examination by foreign tax authorities.

Given the potential outcome of the current examinations as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

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Segment Information

3 Months Ended

Mar. 31, 2018

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 of 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.

Amortization of streaming content assets makes up the vast majority of cost of revenues. The Company obtains multi-territory or global rights for its streaming content and allocates these rights between Domestic and International streaming segments based on estimated fair market value. Amortization of content assets and other expenses associated with the acquisition, licensing, and production of streaming content for each streaming segment thus includes both expenses directly incurred by the segment as well as an allocation of expenses incurred for global or multi-territory 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 certain payments made to marketing partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), 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, 2018		December 31, 2017
	(in thousands)
United States	$	309,050	$	289,875
International	32,882		29,529

The following table represents segment information for the three months ended March 31, 2018:

	As of/ Three Months Ended March 31, 2018
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	56,705		68,290		3,167
Revenues	$	1,820,019	$	1,782,086	$	98,751	$	3,700,856
Cost of revenues	894,873		1,258,809		42,393		2,196,075
Marketing	228,022		251,200		—		479,222
Contribution profit	$	697,124	$	272,077	$	56,358	$	1,025,559
Other operating expenses							578,981
Operating income							446,578
Other income (expense)							(146,962		)
Provision for income taxes							9,492
Net income							$	290,124

The following table represents segment information for the three months ended March 31, 2017:

	As of/ Three Months Ended March 31, 2017
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	50,854		47,894		3,944
Revenues	$	1,470,042	$	1,046,199	$	120,394	$	2,636,635
Cost of revenues	749,488		847,317		60,219		1,657,024
Marketing	115,038		156,232		—		271,270
Contribution profit (loss)	$	605,516	$	42,650	$	60,175	$	708,341
Other operating expenses							451,399
Operating income							256,942
Other income (expense)							(33,150		)
Provision for income taxes							45,570
Net income							$	178,222

The following table represents the amortization of content assets:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Three months ended March 31,
2018	$	730,272	$	1,018,572	$	11,134	$	1,759,978
2017	608,748		696,935		18,598		1,324,281

(1) A membership (also referred to as a subscription) 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 certain new and 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.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the streaming content asset amortization policy and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

New Accounting Pronouncements

Recently adopted accounting pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. Because the Company's primary source of revenues is from monthly membership fees which are recognized ratably over each monthly membership period, the impact on its consolidated financial statements is not material.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The Company adopted ASU 2016-18 in the first quarter of 2018 and the impact on its consolidated financial statements is not material as the Company's restricted cash balances are immaterial.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019. Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Computation of Earnings Per Share

The computation of earnings per share is as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	290,124	$	178,222
Shares used in computation:
Weighted-average common shares outstanding	434,174		430,600
Basic earnings per share	$	0.67	$	0.41
Diluted earnings per share:
Net income	$	290,124	$	178,222
Shares used in computation:
Weighted-average common shares outstanding	434,174		430,600
Employee stock options	16,185		14,858
Weighted-average number of shares	450,359		445,458
Diluted earnings per share	$	0.64	$	0.40

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Cash, Cash Equivalents and Restricted Cash - (Tables)

3 Months Ended

Mar. 31, 2018

Short-Term Investments And Fair Value Measurement [Abstract]

Schedule of Cash and Cash Equivalents

	As of March 31, 2018
	Cash and cash equivalents		Non-current Assets (1)
	(in thousands)
Cash	$	1,867,506	$	4,531
Level 1 securities:
Money market funds	726,160		1,280

	As of December 31, 2017
	Cash and cash equivalents		Non-current Assets (1)
	(in thousands)
Cash	$	2,072,296	$	4,367
Level 1 securities:
Money market funds	449,734		1,276
Level 2 securities:
Time Deposits	300,765		—

(1) Restricted cash related to workers compensation deposits and letter of credit agreements. Balance as of March 31, 2018 is included in cash, cash equivalents, and restricted cash on the Consolidated Statements of Cash Flows.

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Balance Sheet Components (Tables)

3 Months Ended

Mar. 31, 2018

Balance Sheet Components Disclosure [Abstract]

Content Assets

Content assets consisted of the following:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Licensed content, net	$	12,508,344	$	11,771,778
Produced content, net
Released, less amortization	1,643,252		1,427,256
In production	1,613,898		1,311,137
In development and pre-production	161,497		158,517
	3,418,647		2,896,910
DVD, net	14,334		13,301
Total	$	15,941,325	$	14,681,989
Current content assets, net	$	4,626,522	$	4,310,934
Non-current content assets, net	$	11,314,803	$	10,371,055

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

	As of
	March 31, 2018			December 31, 2017			Estimated Useful Lives
	(in thousands)
Information technology assets	$	226,652		$	223,850		3 years
Furniture and fixtures	49,507			49,217			3 years
Buildings	40,681			40,681			30 years
Leasehold improvements	233,119			229,848			Over life of lease
DVD operations equipment	59,016			59,316			5 years
Corporate aircraft	57,938			30,039			8 years
Capital work-in-progress	12,885			8,267
Property and equipment, gross	679,798			641,218
Less: Accumulated depreciation	(337,866		)	(321,814		)
Property and equipment, net	$	341,932		$	319,404

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Long-term Debt (Tables)

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Summary of Long-term Debt

The following table provides a summary of the Company's outstanding long-term debt and the fair values based on quoted market prices in less active markets as of March 31, 2018 and December 31, 2017:

						Level 2 Fair Value as of
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	March 31, 2018		December 31, 2017
	(in millions)					(in millions)
5.375% Senior Notes	$	500	February 2013	February 2021	February 1 and August 1	$	519	$	530
5.750% Senior Notes	400		February 2014	March 2024	March 1 and September 1	417		427
5.875% Senior Notes	800		February 2015	February 2025	April 15 and October 15	839		856
5.50% Senior Notes	700		February 2015	February 2022	April 15 and October 15	727		739
4.375% Senior Notes	1,000		October 2016	November 2026	May 15 and November 15	946		983
3.625% Senior Notes (1)	1,602		May 2017	May 2027	May 15 and November 15	1,579		1,575
4.875% Senior Notes	1,600		October 2017	April 2028	April 15 and October 15	1,539		1,571
	$	6,602

(1) Debt is denominated in euro with a €1,300 million aggregate principal amount and is remeasured into U.S. dollars at each balance sheet date.

Schedule of Maturities of Long-term Debt

The expected timing of principal and interest payments for these Senior Notes are as follows:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Less than one year	$	312,828	$	311,339
Due after one year and through three years	1,130,423		627,444
Due after three years and through five years	1,251,006		1,761,465
Due after five years	6,384,861		6,348,580
Total debt obligations	$	9,079,118	$	9,048,828

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Expected Timing of Payments for Commitments

The expected timing of payments for these streaming content obligations is as follows:

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
Less than one year	$	7,949,544	$	7,446,947
Due after one year and through three years	8,015,837		8,210,159
Due after three years and through five years	1,849,029		1,894,001
Due after five years	123,272		143,535
Total streaming content obligations	$	17,937,682	$	17,694,642

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2018

Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]

Summary of Activity Related to Stock Option Plans

A summary of the activities related to the Company’s stock option plans is as follows:

			Options Outstanding
	Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price (per share)		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balances as of December 31, 2017	10,739,915		21,647,350		$	61.13
Granted	(553,220	)	553,220		252.69
Exercised	—		(1,264,617	)	43.84
Balances as of March 31, 2018	10,186,695		20,935,953		$	67.24	5.91	$	4,775,786
Vested and exercisable as of March 31, 2018			20,935,953		$	67.24	5.91	$	4,775,786

Summary of Amounts Related to Option Exercises

A summary of the amounts related to option exercises, is as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
	(in thousands)
Total intrinsic value of options exercised	$	277,910	$	107,097
Cash received from options exercised	56,335		24,178

Summary of Assumptions Used to Value Stock Option Grants Using Lattice-Binomial Model

The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:

	Three Months Ended
	March 31, 2018			March 31, 2017
Dividend yield	—		%	—		%
Expected volatility	40		%	37		%
Risk-free interest rate	2.61		%	2.45		%
Suboptimal exercise factor	2.80			2.48
Weighted-average fair value (per share)	$	123.63		$	62.36
Total stock-based compensation expense (in thousands)	$	68,395		$	44,888
Total income tax impact on provision (in thousands)	$	14,691		$	14,701

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2018

Segment Reporting [Abstract]

Long-lived Assets by Geographic Areas

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

	As of
	March 31, 2018		December 31, 2017
	(in thousands)
United States	$	309,050	$	289,875
International	32,882		29,529

Information on Reportable Segments And Reconciliation To Consolidated Net Income

The following table represents segment information for the three months ended March 31, 2018:

	As of/ Three Months Ended March 31, 2018
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	56,705		68,290		3,167
Revenues	$	1,820,019	$	1,782,086	$	98,751	$	3,700,856
Cost of revenues	894,873		1,258,809		42,393		2,196,075
Marketing	228,022		251,200		—		479,222
Contribution profit	$	697,124	$	272,077	$	56,358	$	1,025,559
Other operating expenses							578,981
Operating income							446,578
Other income (expense)							(146,962		)
Provision for income taxes							9,492
Net income							$	290,124

The following table represents segment information for the three months ended March 31, 2017:

	As of/ Three Months Ended March 31, 2017
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	50,854		47,894		3,944
Revenues	$	1,470,042	$	1,046,199	$	120,394	$	2,636,635
Cost of revenues	749,488		847,317		60,219		1,657,024
Marketing	115,038		156,232		—		271,270
Contribution profit (loss)	$	605,516	$	42,650	$	60,175	$	708,341
Other operating expenses							451,399
Operating income							256,942
Other income (expense)							(33,150		)
Provision for income taxes							45,570
Net income							$	178,222

The following table represents the amortization of content assets:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Three months ended March 31,
2018	$	730,272	$	1,018,572	$	11,134	$	1,759,978
2017	608,748		696,935		18,598		1,324,281

(1) A membership (also referred to as a subscription) 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 certain new and 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.

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Basis of Presentation and Summary of Significant Accounting Policies (Details)	3 Months Ended
	Mar. 31, 2018 segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of reportable segments	3

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Earnings Per Share - Computation of Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Basic earnings per share:
Net income	$ 290,124	$ 178,222
Weighted-average common shares outstanding (in shares)	434,174	430,600
Basic earnings per share (in dollars per share)	$ 0.67	$ 0.41
Diluted earnings per share:
Net income	$ 290,124	$ 178,222
Shares used in computation:
Weighted-average common shares outstanding (in shares)	434,174	430,600
Employee stock options (in shares)	16,185	14,858
Weighted-average number of shares (in shares)	450,359	445,458
Diluted earnings per share (in dollars per share)	$ 0.64	$ 0.40

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Cash, Cash Equivalents and Restricted Cash - (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Cash and Cash Equivalents [Line Items]
Cash	$ 1,867,506	$ 2,072,296
Non-current Assets (1)	4,531	4,367
Fair Value, Measurements, Recurring | Level 1 Securities | Money market funds
Cash and Cash Equivalents [Line Items]
Money market funds	726,160	449,734
Fair Value, Measurements, Recurring | Level 2 Securities
Cash and Cash Equivalents [Line Items]
Time Deposits		300,765
Money market funds | Fair Value, Measurements, Recurring | Level 1 Securities
Cash and Cash Equivalents [Line Items]
Non-current Assets (1)	$ 1,280	1,276
Bank Time Deposits | Fair Value, Measurements, Recurring | Level 2 Securities
Cash and Cash Equivalents [Line Items]
Non-current Assets (1)		$ 0

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Balance Sheet Components - Components of Content Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Content assets, net	$ 15,941,325	$ 14,681,989
Current content assets, net	4,626,522	4,310,934
Non-current content assets, net	$ 11,314,803	10,371,055
Average produced content asset amortization percentage	90.00%
Average produced content asset amortization period	4 years
Average unamortized cost percentage	30.00%
Average amortization period of unamortized cost at balance sheet date	1 year
Finite lived intangible assets amortization period tranche one	1 year
Finite lived intangible assets amortization period tranche two	3 years
Finite lived intangible assets amortization period tranche three	4 years
Licensed content
Finite-Lived Intangible Assets [Line Items]
Net content	$ 12,508,344	11,771,778
Produced content
Finite-Lived Intangible Assets [Line Items]
Net content	1,643,252	1,427,256
In production	1,613,898	1,311,137
In development and pre-production	161,497	158,517
Content assets, net	$ 3,418,647	2,896,910
Produced content amortization percentage over one year	29.00%
Produced content amortization percent over three years	79.00%
Produced content amortization period over the next 48 months (more than)	80.00%
DVD
Finite-Lived Intangible Assets [Line Items]
Content assets, net	$ 14,334	$ 13,301

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Balance Sheet Components - Property And Equipment And Accumulated Depreciation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 679,798	$ 641,218
Less: Accumulated depreciation	(337,866)	(321,814)
Property and equipment, net	341,932	319,404
Accrued participation liabilities, due in next operating cycle	0
Information technology assets
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 226,652	223,850
Estimated Useful Lives	3 years
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 49,507	49,217
Estimated Useful Lives	3 years
Buildings
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 40,681	40,681
Estimated Useful Lives	30 years
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 233,119	229,848
DVD operations equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 59,016	59,316
Estimated Useful Lives	5 years
Corporate aircraft
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 57,938	30,039
Estimated Useful Lives	8 years
Capital work-in-progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 12,885	$ 8,267

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Balance Sheet Components - Deferred Revenue (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Deferred Revenue Arrangement [Line Items]
Deferred revenue	$ 673,892	$ 618,622
Subscription Arrangement
Deferred Revenue Arrangement [Line Items]
Deferred revenue	55,300
Annual Membership Fees
Deferred Revenue Arrangement [Line Items]
Deferred revenue	$ 673,900

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Long-term Debt - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Debt Disclosure [Abstract]
Aggregate outstanding principal	$ 6,542,373	$ 6,499,432
Debt issuance cost	$ 60,000
Senior Notes
Debt Instrument [Line Items]
Redemption prices, percent of outstanding principal	101.00%

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Long-term Debt - Summary of Long-term Debt (Details) $ in Millions	Mar. 31, 2018 EUR (€)	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Debt Instrument [Line Items]
Principal amount at par		$ 6,602
Senior Notes | 5.375% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		500
Fair value		$ 519	$ 530
Interest rate	5.375%	5.375%
Senior Notes | 5.750% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 400
Fair value		$ 417	427
Interest rate	5.75%	5.75%
Senior Notes | 5.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 800
Fair value		$ 839	856
Interest rate	5.875%	5.875%
Senior Notes | 5.50% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 700
Fair value		$ 727	739
Interest rate	5.50%	5.50%
Senior Notes | 4.375% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 1,000
Fair value		$ 946	983
Interest rate	4.375%	4.375%
Senior Notes | 3.625% Senior Notes
Debt Instrument [Line Items]
Principal amount at par	€ 1,300,000,000.0	$ 1,602
Fair value		$ 1,579	1,575
Interest rate	3.625%	3.625%
Senior Notes | 4.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 1,600
Fair value		$ 1,539	$ 1,571
Interest rate	4.875%	4.875%

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Long-term Debt - Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Debt Disclosure [Abstract]
Less than one year	$ 312,828	$ 311,339
Due after one year and through three years	1,130,423	627,444
Due after three years and through five years	1,251,006	1,761,465
Due after five years	6,384,861	6,348,580
Total	$ 9,079,118	$ 9,048,828

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Long-term Debt - Revolving Line of Credit (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Jul. 31, 2017
Revolving Credit Facility
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity		$ 500,000,000.0
Line of credit facility, additional maximum borrowing capacity		$ 250,000,000
Commitment fee percentage	0.10%
London Interbank Offered Rate (LIBOR) | Revolving Credit Facility
Line of Credit Facility [Line Items]
Basis spread on variable rate	0.75%
Federal Funds Rate | Revolving Credit Facility
Line of Credit Facility [Line Items]
Basis spread on variable rate	0.50%
One-Month LIBOR Rate
Line of Credit Facility [Line Items]
Basis spread on variable rate	0.00%
One-Month LIBOR Rate | Revolving Credit Facility
Line of Credit Facility [Line Items]
Basis spread on variable rate	1.00%

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Commitments and Contingencies - Streaming Content - Narrative (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Contractual Obligation [Line Items]
Streaming obligations included in current content liabilities	$ 17,937,682	$ 17,694,642
Streaming obligations not reflected on Consolidated Balance Sheets	10,000,000	10,200,000
Current Content Liabilities
Contractual Obligation [Line Items]
Streaming obligations included in non-current content liabilities	4,500,000	4,200,000
Non-current Content Liabilities
Contractual Obligation [Line Items]
Streaming obligations included in non-current content liabilities	$ 3,400,000	$ 3,300,000

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Commitments and Contingencies - Expected Timing of Payments for Commitments (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]
Less than one year	$ 7,949,544	$ 7,446,947
Due after one year and through three years	8,015,837	8,210,159
Due after three years and through five years	1,849,029	1,894,001
Due after five years	123,272	143,535
Total streaming content obligations	$ 17,937,682	$ 17,694,642

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Commitments and Contingencies - Legal Proceedings - Narrative (Details)	Mar. 31, 2018 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Commitments and contingencies	$ 0

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Stockholders' Equity (Narrative) (Details) shares in Millions	Mar. 31, 2018 shares
2011 Stock Plan
Components of Stockholders' Equity [Line Items]
Shares reserved for future issuance	10.2

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Stockholders' Equity - Summary of Activity Related to Stock Option Plans (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Shares available for grant, beginning balance	10,739,915
Options outstanding, number of shares, beginning balance	21,647,350
Shares available for grant, granted	(553,220)
Options outstanding, number of shares, exercised	(1,264,617)
Shares available for grant, ending balance	10,186,695
Options outstanding, number of shares, ending balance	20,935,953
Options vested and exercisable, number of shares, ending balance	20,935,953
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Options outstanding, weighted-average exercise price, beginning balance (dollars per share) | $ / shares	$ 61.13
Options outstanding, weighted-average exercise price, granted (dollars per share) | $ / shares	252.69
Options outstanding, weighted-average exercise price, exercised (dollars per share) | $ / shares	43.84
Options outstanding, weighted-average exercise price, ending balance (dollars per share) | $ / shares	67.24
Options outstanding, weighted-average exercise price, vested and exercisable (dollars per share) | $ / shares	$ 67.24
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted-average remaining contractual term, ending balance (in years)	5 years 10 months 28 days
Weighted-average remaining contractual term, vested and exercisable (in years)	5 years 10 months 28 days
Aggregate intrinsic value, ending balance | $	$ 4,775,786
Aggregate intrinsic value, vested and exercisable | $	$ 4,775,786

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Stockholders' Equity - Summary of Amounts Related to Option Exercises (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Equity [Abstract]
Total intrinsic value of options exercised	$ 277,910	$ 107,097
Cash received from options exercised	$ 56,335	$ 24,178

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Stockholders' Equity - Summary of Assumptions Used to Value Stock Option Grants Using Lattice-Binomial Model (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) $ / shares	Mar. 31, 2017 USD ($) $ / shares
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
Share-based payment award, expiration period (in years)	10 years
Dividend yield	0.00%	0.00%
Expected volatility	40.00%	37.00%
Risk-free interest rate	2.61%	2.45%
Suboptimal exercise factor	2.80	2.48
Weighted-average fair value (in dollars per share) | $ / shares	$ 123.63	$ 62.36
Stock-based compensation expense	$ 68,395	$ 44,888
Total income tax impact on provision (in thousands)	$ 14,691	$ 14,701

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Equity [Abstract]
Foreign currency translation adjustments	$ 24,821	$ 2,579

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Effective tax rates	3.00%	20.00%
Income Tax Contingency [Line Items]
Unrecognized tax benefits	$ 47.8		$ 42.9
Reduction in provision for income taxes due to impact of effective tax rate	44.5
Deferred tax assets classified as other non-current assets	500.6		478.3
Deferred tax assets, valuation allowance	71.0		$ 49.4
Other Noncurrent Liabilities
Income Tax Contingency [Line Items]
Increase in unrecognized tax benefits is reasonably possible	25.4
Other Noncurrent Assets
Income Tax Contingency [Line Items]
Unrecognized tax benefits	22.4
Accounting Standards Update 2016-09
Income Tax Contingency [Line Items]
Effective income tax rate reconciliation, share-based compensation, excess tax benefit	$ 60.7	$ 36.0

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Segment Information - Narrative (Details)	3 Months Ended
	Mar. 31, 2018 segment
Segment Reporting Information [Line Items]
Number of reportable segments	3
International Streaming
Segment Reporting Information [Line Items]
Number of reportable segments	1

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Segment Information - Long-lived Assets by Geographical Areas (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived tangible assets	$ 309,050	$ 289,875
International
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived tangible assets	$ 32,882	$ 29,529

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Segment Information - Information On Reportable Segments And Reconciliation To Consolidated Net Income (Details) subscription in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2018 USD ($) subscription	Mar. 31, 2017 USD ($) subscription
Segment Reporting Information [Line Items]
Total memberships at end of period | subscription	[1]
Revenues		$ 3,700,856	$ 2,636,635
Cost of revenues		2,196,075	1,657,024
Marketing		479,222	271,270
Contribution profit		1,025,559	708,341
Other operating expenses		578,981	451,399
Operating income		446,578	256,942
Other income (expense)		(146,962)	(33,150)
Provision for income taxes		9,492	45,570
Net income		290,124	178,222
Amortization of content assets		$ 1,759,978	$ 1,324,281
Domestic Streaming
Segment Reporting Information [Line Items]
Total memberships at end of period | subscription	[1]	56,705	50,854
Revenues		$ 1,820,019	$ 1,470,042
Cost of revenues		894,873	749,488
Marketing		228,022	115,038
Contribution profit		697,124	605,516
Amortization of content assets		$ 730,272	$ 608,748
International Streaming
Segment Reporting Information [Line Items]
Total memberships at end of period | subscription	[1]	68,290	47,894
Revenues		$ 1,782,086	$ 1,046,199
Cost of revenues		1,258,809	847,317
Marketing		251,200	156,232
Contribution profit		272,077	42,650
Amortization of content assets		$ 1,018,572	$ 696,935
Domestic DVD
Segment Reporting Information [Line Items]
Total memberships at end of period | subscription	[1]	3,167	3,944
Revenues		$ 98,751	$ 120,394
Cost of revenues		42,393	60,219
Marketing		0	0
Contribution profit		56,358	60,175
Amortization of content assets		$ 11,134	$ 18,598

[1] A membership (also referred to as a subscription) 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 certain new and 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.