10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

☐ 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 of principal executive offices)			(Zip Code)

(408) 540-3700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	NFLX	NASDAQ Global Select Market

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No   ☐  

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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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. ☐

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

As of June 30, 2019, there were 437,834,882 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
	Consolidated Statements of Stockholders' Equity	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
	Part II. Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 6.	Exhibits	37
Exhibit Index		38
Signatures		38

2

NETFLIX, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Revenues	$	4,923,116		$	3,907,270		$	9,444,108		$	7,608,126
Cost of revenues	3,005,657			2,402,431			5,876,271			4,703,010
Marketing	603,150			592,007			1,219,728			1,128,784
Technology and development	383,233			299,095			755,997			581,405
General and administrative	224,657			151,524			426,609			286,136
Operating income	706,419			462,213			1,165,503			908,791
Other income (expense):
Interest expense	(152,033		)	(101,605		)	(287,562		)	(182,824		)
Interest and other income (expense)	(53,470		)	68,028			22,634			2,285
Income before income taxes	500,916			428,636			900,575			728,252
Provision for income taxes	230,266			44,287			285,873			53,779
Net income	$	270,650		$	384,349		$	614,702		$	674,473
Earnings per share:
Basic	$	0.62		$	0.88		$	1.41		$	1.55
Diluted	$	0.60		$	0.85		$	1.36		$	1.50
Weighted-average common shares outstanding:
Basic	437,587			435,097			437,271			434,638
Diluted	452,195			451,552			452,063			450,958

See accompanying notes to the consolidated financial statements.

3

NETFLIX, INC.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)

	Three Months Ended					Six Months Ended
	June 30, 2019		June 30, 2018			June 30, 2019			June 30, 2018
Net income	$	270,650	$	384,349		$	614,702		$	674,473
Other comprehensive income (loss):
Foreign currency translation adjustments	5,248		(16,691		)	(770		)	8,130
Comprehensive income	$	275,898	$	367,658		$	613,932		$	682,603

See accompanying notes to the consolidated financial statements.

4

NETFLIX, INC.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Cash flows from operating activities:
Net income	$	270,650		$	384,349		$	614,702		$	674,473
Adjustments to reconcile net income to net cash used in operating activities:
Additions to streaming content assets	(3,325,103		)	(3,033,721		)	(6,322,849		)	(6,020,468		)
Change in streaming content liabilities	(12,414		)	288,474			(27,112		)	667,359
Amortization of streaming content assets	2,231,915			1,817,817			4,356,601			3,566,661
Amortization of DVD content assets	7,656			11,154			16,165			22,288
Depreciation and amortization of property, equipment and intangibles	25,496			19,736			49,057			38,777
Stock-based compensation expense	103,848			81,232			205,048			149,627
Other non-cash items	53,039			13,921			90,238			22,130
Foreign currency remeasurement loss (gain) on long-term debt	61,284			(85,410		)	3,684			(44,330		)
Deferred taxes	35,519			(9,539		)	42,146			(31,588		)
Changes in operating assets and liabilities:
Other current assets	(24,231		)	(25,564		)	(56,307		)	(81,469		)
Accounts payable	(2,674		)	7,733			(127,141		)	81,816
Accrued expenses and other liabilities	(26,705		)	(52,851		)	130,942			66,198
Deferred revenue	84,085			23,848			131,878			79,118
Other non-current assets and liabilities	(26,119		)	40,582			(30,605		)	54,412
Net cash used in operating activities	(543,754		)	(518,239		)	(923,553		)	(754,996		)
Cash flows from investing activities:
Acquisition of DVD content assets	(7,798		)	(12,552		)	(16,968		)	(23,348		)
Purchases of property and equipment	(39,584		)	(27,323		)	(99,965		)	(64,493		)
Change in other assets	(2,654		)	(441		)	(13,206		)	(2,227		)
Net cash used in investing activities	(50,036		)	(40,316		)	(130,139		)	(90,068		)
Cash flows from financing activities:
Proceeds from issuance of debt	2,243,196			1,900,000			2,243,196			1,900,000
Debt issuance costs	(18,192		)	(16,992		)	(18,192		)	(16,992		)
Proceeds from issuance of common stock	21,896			26,936			44,868			83,271
Other financing activities	—			(532		)	—			(853		)
Net cash provided by financing activities	2,246,900			1,909,412			2,269,872			1,965,426
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	4,998			(36,340		)	(16		)	(29,163		)
Net increase in cash, cash equivalents, and restricted cash	1,658,108			1,314,517			1,216,164			1,091,199
Cash, cash equivalents and restricted cash at beginning of period	3,370,097			2,599,477			3,812,041			2,822,795
Cash, cash equivalents and restricted cash at end of period	$	5,028,205		$	3,913,994		$	5,028,205		$	3,913,994

See accompanying notes to the consolidated financial statements.

5

NETFLIX, INC.

Consolidated Balance Sheets

(in thousands, except share and par value data)

	As of
	June 30, 2019			December 31, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,004,247		$	3,794,483
Current content assets, net	—			5,151,186
Other current assets	872,910			748,466
Total current assets	5,877,157			9,694,135
Non-current content assets, net	21,945,740			14,960,954
Property and equipment, net	452,399			418,281
Other non-current assets	1,896,043			901,030
Total assets	$	30,171,339		$	25,974,400
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities	$	4,848,201		$	4,686,019
Accounts payable	442,194			562,985
Accrued expenses and other liabilities	750,812			477,417
Deferred revenue	892,777			760,899
Total current liabilities	6,933,984			6,487,320
Non-current content liabilities	3,564,440			3,759,026
Long-term debt	12,594,135			10,360,058
Other non-current liabilities	973,232			129,231
Total liabilities	24,065,791			20,735,635
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at June 30, 2019 and December 31, 2018; 437,834,882 and 436,598,597 issued and outstanding at June 30, 2019 and December 31, 2018, respectively	2,566,365			2,315,988
Accumulated other comprehensive loss	(20,352		)	(19,582		)
Retained earnings	3,559,535			2,942,359
Total stockholders’ equity	6,105,548			5,238,765
Total liabilities and stockholders’ equity	$	30,171,339		$	25,974,400

See accompanying notes to the consolidated financial statements.

6

NETFLIX, INC.

Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Total stockholders' equity, beginning balances	$	5,703,058		$	4,020,730		$	5,238,765		$	3,581,956
Common stock and additional paid-in capital:
Beginning balances	$	2,439,773		$	1,995,225		$	2,315,988		$	1,871,396
Issuance of common stock upon exercise of options	22,744			26,980			45,329			82,414
Stock-based compensation expense	103,848			81,232			205,048			149,627
Ending balance	$	2,566,365		$	2,103,437		$	2,566,365		$	2,103,437
Accumulated other comprehensive income (loss):
Beginning balances	$	(25,600	)	$	4,264		$	(19,582	)	$	(20,557	)
Other comprehensive income (loss)	5,248			(16,691		)	(770		)	8,130
Ending balance	$	(20,352	)	$	(12,427	)	$	(20,352	)	$	(12,427	)
Retained earnings:
Beginning balances	$	3,288,885		$	2,021,241		$	2,942,359		$	1,731,117
Net income	270,650			384,349			614,702			674,473
Adoption of ASU 2016-02, Leases (Topic 842)	—			—			2,474			—
Ending balances	$	3,559,535		$	2,405,590		$	3,559,535		$	2,405,590
Total stockholders' equity, ending balances	$	6,105,548		$	4,496,600		$	6,105,548		$	4,496,600

See accompanying notes to the consolidated financial statements.

7

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, 2018 filed with the Securities and Exchange Commission (the “SEC”) on January 29, 2019 and February 8, 2019, respectively. 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, 2018. Interim results are not necessarily indicative of the results for a full year.

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, as amended by Form 10-K/A, for the year ended December 31, 2018.

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board ("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 prior 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. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $743 million, lease liabilities for operating leases of approximately $813 million and a cumulative-effect adjustment on retained earnings of $2 million on its Consolidated Balance Sheets, with no material impact to its Consolidated Statements of Operations. See Note 4 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements. ASU 2019-02 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2019-02 in the first quarter of 2019 and as such has included all content assets (licensed and produced) as "Non-current content assets, net" on its Consolidated Balance Sheets, beginning with the period of adoption. There was no material impact to its Consolidated Statements of Operations. See the Company's updated Streaming Content policy below for further details.

Streaming Content (Effective January 1, 2019)

The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of TV series 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.

The Company recognizes content assets (licensed and produced) as “Non-current content assets, net” on the Consolidated Balance Sheets. For licenses, the Company capitalizes the fee per title and records 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. For productions, the Company capitalizes

8

costs associated with the production, including development costs, direct costs and production overhead. Participations and residuals are expensed in line with the amortization of production costs.

Based on factors including historical and estimated viewing patterns, the Company amortizes 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 the Company typically expects more upfront viewing, for instance due to additional merchandising and marketing efforts and film amortization is more accelerated than TV series amortization. The Company reviews factors impacting the amortization of the content assets on an ongoing basis. The Company's estimates related to these factors require considerable management judgment.

The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, the Company has 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 or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

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				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	270,650	$	384,349	$	614,702	$	674,473
Shares used in computation:
Weighted-average common shares outstanding	437,587		435,097		437,271		434,638
Basic earnings per share	$	0.62	$	0.88	$	1.41	$	1.55
Diluted earnings per share:
Net income	$	270,650	$	384,349	$	614,702	$	674,473
Shares used in computation:
Weighted-average common shares outstanding	437,587		435,097		437,271		434,638
Employee stock options	14,608		16,455		14,792		16,320
Weighted-average number of shares	452,195		451,552		452,063		450,958
Diluted earnings per share	$	0.60	$	0.85	$	1.36	$	1.50

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.

9

3. Cash, Cash Equivalents, and Restricted Cash

The following tables summarize the Company's cash, cash equivalents, and restricted cash as of June 30, 2019 and December 31, 2018:

	As of June 30, 2019
	Cash and cash equivalents		Non-current Assets		Total
	(in thousands)
Cash	$	2,219,099	$	22,645	$	2,241,744
Level 1 securities:
Money market funds	2,285,148		1,313		2,286,461
Level 2 securities:
Foreign Time Deposits	500,000		—		500,000
	$	5,004,247	$	23,958	$	5,028,205

	As of December 31, 2018
	Cash and cash equivalents		Non-current Assets		Total
	(in thousands)
Cash	$	2,572,685	$	16,260	$	2,588,945
Level 1 securities:
Money market funds	1,221,798		1,298		1,223,096
	$	3,794,483	$	17,558	$	3,812,041

Non-current assets include restricted cash related to letter of credit agreements and workers compensation deposits.

There were no material gross realized gains or losses in the three and six months ended June 30, 2019 and 2018, respectively.

4. Balance Sheet Components

Content Assets

Content assets consisted of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Licensed content, net	$	14,597,283	$	14,081,463
Produced content, net
Released, less amortization	3,117,549		2,403,896
In production	3,743,893		3,305,126
In development and pre-production	479,120		311,842
	7,340,562		6,020,864
DVD, net	7,895		9,813
Total	$	21,945,740	$	20,112,140

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.

10

As of June 30, 2019, approximately $5,604 million, $3,721 million, and $2,570 million of the $14,597 million unamortized cost of the licensed content is expected to be amortized in each of the next three years.  

As of June 30, 2019, approximately $1,066 million, $864 million, and $631 million of the $3,118 million unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.

As of June 30, 2019, the amount of accrued participations and residuals was not material.

The following table represents the amortization of streaming content assets:

	Three Months Ended
	June 30, 2019		June 30, 2018
	(in thousands)
Licensed content	$	1,797,179	$	1,581,536
Produced content	434,736		236,281
Total streaming content	$	2,231,915	$	1,817,817

	Six Months Ended
	June 30, 2019		June 30, 2018
	(in thousands)
Licensed content	$	3,571,468	$	3,138,960
Produced content	785,133		427,701
Total streaming content	$	4,356,601	$	3,566,661

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

	As of
	June 30, 2019			December 31, 2018			Estimated Useful Lives
	(in thousands)
Leasehold improvements	304,189			282,028			Over life of lease
Information technology	239,241			224,296			3 years
Furniture and fixtures	76,588			63,667			3-15 years
Buildings	32,787			73,468			30 years
Corporate aircraft	104,985			62,560			8 years
DVD operations equipment	45,437			53,416			5 years
Machinery and equipment	4,398			1,692			3 years
Land	6,125			6,125
Capital work-in-progress	23,761			19,548
Property and equipment, gross	837,511			786,800
Less: Accumulated depreciation	(385,112		)	(368,519		)
Property and equipment, net	$	452,399		$	418,281

11

Leases

The Company has entered into operating leases primarily for real estate. These leases generally have terms which range from 1 year to 15 years, and often include one or more options to renew. These renewal terms can extend the lease term from 1 to 15 years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. These operating leases are included in "Other non-current assets" on the Company's June 30, 2019 Consolidated Balance Sheet, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's June 30, 2019 Consolidated Balance Sheet.  Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets of approximately $743 million and lease liabilities for operating leases of approximately $813 million on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of June 30, 2019, total right-of-use assets and operating lease liabilities were approximately $1,008 million and $1,084 million, respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on the Company's balance sheet. All operating lease expense is recognized on a straight-line basis over the lease term. In the three months ended June 30, 2019, the Company recognized approximately $98 million in total lease costs, which was comprised of $48 million in operating lease costs for right-of-use assets and $50 million in short-term lease costs related to short-term operating leases. In the six months ended June 30, 2019, the Company recognized approximately $202 million in total lease costs, which was comprised of $91 million in operating lease costs for right-of-use assets and $111 million in short-term lease costs related to short-term operating leases.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate and marketing which may contain lease and non-lease components which it has elected to treat as a single lease component.

Information related to the Company's right-of-use assets and related lease liabilities were as follows:

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
	(in thousands)
Cash paid for operating lease liabilities	$	41,320	$	78,973
Right-of-use assets obtained in exchange for new operating lease obligations (1)	230,499		1,072,894

(1) Six-month ended balance includes $743 million for operating leases existing on January 1, 2019.

	As of
	June 30, 2019
Weighted-average remaining lease term	8.5 years
Weighted-average discount rate	5.4	%

Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):

12

Due in 12 month period ended June 30,
2020	$	185,631
2021	172,295
2022	168,560
2023	147,740
2024	137,937
Thereafter	572,524
	1,384,687
Less imputed interest	(300,705		)
Total lease liabilities	1,083,982
Current operating lease liabilities	137,662
Non-current operating lease liabilities	946,320
Total lease liabilities	$	1,083,982

The Company has additional operating leases for real estate of $1,185 million which have not commenced as of June 30, 2019, and as such, have not been recognized on the Company's Consolidated Balance Sheet. These operating leases are expected to commence between 2019 and 2020 with lease terms between 2 years and 15 years.

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 June 30, 2019, total deferred revenue was $893 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 $132 million increase in deferred revenue as compared to the year ended December 31, 2018 is a result of the increase in membership fees billed due to increased members and average monthly revenue per paying member.

Other Current Assets

Other current assets consisted of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Trade receivables	$	492,034	$	362,712
Prepaid expenses	184,039		178,833
Other	196,837		206,921
Total other current assets	$	872,910	$	748,466

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5. Long-term Debt

As of June 30, 2019, the Company had aggregate outstanding long-term notes of $12,594 million, net of $102 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. A portion of the outstanding long-term notes is denominated in foreign currency (comprised of €3,600 million) and is remeasured into U.S. dollars at each balance sheet date.

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 June 30, 2019 and December 31, 2018:

						Level 2 Fair Value as of
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	June 30, 2019		December 31, 2018
	(in millions)					(in millions)
5.375% Senior Notes	$	500	February 2013	February 2021	February and August	$	519	$	509
5.500% Senior Notes	700		February 2015	February 2022	April and October	738		706
5.750% Senior Notes	400		February 2014	March 2024	March and September	435		407
5.875% Senior Notes	800		February 2015	February 2025	April and October	883		812
4.375% Senior Notes	1,000		October 2016	November 2026	May and November	1,025		915
3.625% Senior Notes (1)	1,479		May 2017	May 2027	May and November	1,620		1,446
4.875% Senior Notes	1,600		October 2017	April 2028	April and October	1,656		1,464
5.875% Senior Notes	1,900		April 2018	November 2028	May and November	2,109		1,851
4.625% Senior Notes (2)	1,252		October 2018	May 2029	May and November	1,424		1,241
6.375% Senior Notes	800		October 2018	May 2029	May and November	910		797
3.875% Senior Notes (3)	1,365		April 2019	November 2029	June and December	1,482		—
5.375% Senior Notes	900		April 2019	November 2029	June and December	959		—
	$	12,696

(1) Debt is denominated in euro with a €1,300 million principal amount. Total proceeds were $1,421 million.

(2) Debt is denominated in euro with a €1,100 million principal amount. Total proceeds were $1,262 million.

(3) Debt is denominated in euro with a €1,200 million principal amount. Total proceeds were $1,343 million.

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

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Less than one year	$	645,479	$	538,384
Due after one year and through three years	2,431,782		1,550,581
Due after three years and through five years	1,534,324		1,646,101
Due after five years	13,297,541		11,138,129
Total debt obligations	$	17,909,126	$	14,873,195

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 June 30, 2019 and December 31, 2018, the Company was in compliance with all related covenants.

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Revolving Credit Facility

In July 2017, the Company entered into a $500 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 million, subject to certain terms and conditions. On March 29, 2019, the agreement was amended to extend the maturity date from July 27, 2022 to March 29, 2024 and to increase the size of the credit facility to $750 million, without impacting the existing uncommitted incremental facility. Revolving loans may be borrowed, repaid and reborrowed until March 29, 2024, 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 June 30, 2019, 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 (i) 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 June 30, 2019 and December 31, 2018, the Company was in compliance with all related covenants.

6. Commitments and Contingencies

Streaming Content

As of June 30, 2019, the Company had $18.5 billion of obligations comprised of $4.8 billion included in "Current content liabilities" and $3.6 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.1 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, 2018, the Company had $19.3 billion of obligations comprised of $4.7 billion included in "Current content liabilities" and $3.8 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.8 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
	June 30, 2019		December 31, 2018
	(in thousands)
Less than one year	$	8,741,623	$	8,611,398
Due after one year and through three years	8,282,265		8,841,561
Due after three years and through five years	1,341,448		1,684,582
Due after five years	137,481		148,334
Total streaming content obligations	$	18,502,817	$	19,285,875

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.

15

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 June 30, 2019, approximately 7 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, 2018	8,699,941		20,479,278		$	89.61
Granted	(1,200,996	)	1,200,996		339.01
Exercised	—		(1,236,285	)	36.67
Expired	—		(21	)	4.27
Balances as of June 30, 2019	7,498,945		20,443,968		$	107.46	5.62	$	5,320,942
Vested and exercisable as of June 30, 2019			20,443,968		$	107.46	5.62	$	5,320,942

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 second quarter of 2019 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 second quarter of 2019. This amount changes based on the fair market value of the Company’s common stock.

16

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

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands)
Total intrinsic value of options exercised	$	212,932	$	246,795	$	393,774	$	524,705
Cash received from options exercised	21,896		26,936		44,868		83,271

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						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Dividend yield	—		%	—		%	—		%	—		%
Expected volatility	39		%	42		%	39% - 41%			40% - 42%
Risk-free interest rate	2.50		%	2.90		%	2.50% - 2.74%			2.61% - 2.90%
Suboptimal exercise factor	3.16			2.93			3.07 - 3.16			2.80 - 2.93
Weighted-average fair value (per share)	$	179		$	161		$	171		$	142
Total stock-based compensation expense (in thousands)	$	103,848		$	81,232		$	205,048		$	149,627
Total income tax impact on provision (in thousands)	$	24,845		$	16,889		$	46,473		$	31,580

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. Income Taxes

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(in thousands, except percentages)
Provision for income taxes	$	230,266		$	44,287		$	285,873		$	53,779
Effective tax rate	46		%	10		%	32		%	7		%

In connection with the Tax Cuts and Job Act of 2017 the Company simplified its global corporate structure, effective April 1, 2019. The tax impacts of such simplifications were not material to the financial statements taken as a whole.

The effective tax rates for the three and six months ended June 30, 2019 differed from the Federal statutory rate primarily due to changes from the global corporate structure simplification, state taxes, foreign taxes, non-deductible expenses, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by the recognition of excess tax benefits of stock-based compensation, and Federal and California research and development credits (“R&D”). The effective tax rates for the three and six months ended June 30, 2018 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation and Federal and California R&D credits, partially offset by state taxes, foreign taxes, non-deductible expenses, and effects of the international tax provisions from U.S. tax reform that became effective in 2018.

The increase in effective tax rates for the three and six months ended June 30, 2019, as compared to the same period in 2018 was primarily due to changes from the global corporate structure simplification, a lower benefit from the recognition of excess tax benefits of stock-

17

based compensation, lower benefit on a percentage basis from Federal and California R&D credits, and additional expenses related to the international provisions of U.S. tax reform that became effective in 2018. For the three and six months ended June 30, 2019, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of $46 million and $87 million, respectively, compared to the three months and six months ended June 30, 2018 of $57 million and $117 million, respectively.

Gross unrecognized tax benefits were $58 million and $48 million as of June 30, 2019 and December 31, 2018, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $54 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of June 30, 2019, gross unrecognized tax benefits of $17 million were classified as “Other non-current liabilities” and $41 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 $522 million and $564 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, 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 $126 million and $125 million as of June 30, 2019 and December 31, 2018, respectively. The valuation allowance is primarily related to certain foreign tax credits that are not likely to be realized.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 2016 and 2017 and by the state of California for 2014 and 2015. The 2009 through 2017 state tax returns are subject to examination by state tax authorities. The Company is also currently under examination in the UK for 2015 through 2017. The Company has no other significant foreign jurisdiction audits underway. The years 2014 through 2018 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.

9. Segment Information

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. As markets within the Company's International streaming segment become profitable, the CODM increasingly focuses on the Company's global operating margin as a measure of profitability. As of the second quarter of 2019, the Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD. 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 related to streaming content to members in the United States. The International streaming segment derives revenues from monthly membership fees for services related to 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 processing 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 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 either attributed to the operating segment based on amounts directly incurred by the segment or are allocated across segments by management. Marketing expenses consist primarily of advertising expenses and certain payments made to marketing partners, including CE manufacturers, MVPDs, mobile operators and ISPs, which are generally included in the segment in which the expenditures are directly incurred.

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The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of June 30, 2019, were located as follows:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
United States	$	1,276,044	$	381,947
International	184,646		36,334

The following tables represent segment information for the three and six months ended June 30, 2019:

 

	As of/ Three Months Ended June 30, 2019
	Domestic Streaming			International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	60,103			91,459		2,411
Total paid net membership additions (losses) (1)	(126		)	2,825		(154		)
Total free trials at end of period	1,575			4,481		17
Revenues	$	2,299,189		$	2,547,727	$	76,200		$	4,923,116
Cost of revenues	1,196,420			1,778,890		30,347			3,005,657
Marketing	250,606			352,544		—			603,150
Contribution profit	$	852,163		$	416,293	$	45,853		$	1,314,309
Other operating expenses									607,890
Operating income									706,419
Other income (expense)									(205,503		)
Provision for income taxes									230,266
Net income									$	270,650

	As of/ Six Months Ended June 30, 2019
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	60,103		91,459		2,411
Total paid net membership additions (losses) (1)	1,617		10,686		(295		)
Total free trials at end of period	1,575		4,481		17
Revenues	$	4,372,744	$	4,914,476	$	156,888		$	9,444,108
Cost of revenues	2,335,955		3,476,011		64,305			5,876,271
Marketing	471,652		748,076		—			1,219,728
Contribution profit	$	1,565,137	$	690,389	$	92,583		$	2,348,109
Other operating expenses								1,182,606
Operating income								1,165,503
Other income (expense)								(264,928		)
Provision for income taxes								285,873
Net income								$	614,702

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The following tables represent segment information for the three and six months ended June 30, 2018:

	As of/ Three Months Ended June 30, 2018
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	55,959		68,395		2,971
Total paid net membership additions (losses) (1)	872		4,580		(167		)
Total free trials at end of period	1,420		4,367		28
Revenues	$	1,893,222	$	1,921,144	$	92,904		$	3,907,270
Cost of revenues	969,995		1,392,512		39,924			2,402,431
Marketing	251,298		340,709		—			592,007
Contribution profit	$	671,929	$	187,923	$	52,980		$	912,832
Other operating expenses								450,619
Operating income								462,213
Other income (expense)								(33,577		)
Provision for income taxes								44,287
Net income								$	384,349

	As of/ Six Months Ended June 30, 2018
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	55,959		68,395		2,971
Total paid net membership additions (losses) (1)	3,149		10,561		(359		)
Total free trials at end of period	1,420		4,367		28
Revenues	$	3,713,241	$	3,703,230	$	191,655		$	7,608,126
Cost of revenues	1,906,475		2,714,218		82,317			4,703,010
Marketing	502,017		626,767		—			1,128,784
Contribution profit	$	1,304,749	$	362,245	$	109,338		$	1,776,332
Other operating expenses								867,541
Operating income								908,791
Other income (expense)								(180,539		)
Provision for income taxes								53,779
Net income								$	674,473

(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or other promotional offering by the Company to certain new and rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately. 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.

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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 June 30,
2019	$	916,494	$	1,315,421	$	7,656	$	2,239,571
2018	751,947		1,065,870		11,154		1,828,971
Six months ended June 30,
2019	1,780,805		2,575,796		16,165		4,372,766
2018	1,482,219		2,084,442		22,288		3,588,949

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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; content amortization; seasonality; paid memberships as indicator of growth; pricing changes; DVD memberships; dividends; impact of foreign currency and exchange rate fluctuations, including on net income, revenues and average revenues per paying member; deferred revenue; investments in global streaming content, including original content; impact of content on membership growth; liquidity, including cash flows from operations, available funds and access to financing sources; net cash provided by (used in) operating activities and free cash flow; unrecognized tax benefits; deferred tax assets; commencement of operating leases; accessing and obtaining additional capital, including use of the debt market; accounting treatment for changes related to content assets; net income; 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, 2018 filed with the Securities and Exchange Commission (“SEC”) on January 29, 2019 and February 8, 2019, respectively, 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 entertainment service with over 151 million paid streaming memberships in over 190 countries enjoying TV series, documentaries and feature films across a wide variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments. Additionally, over two million members in the U.S. subscribe to our legacy DVD-by-mail service.

We are a pioneer in the internet delivery of TV series and films, 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 series and films 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 series and films 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. Our membership growth can sometimes be impacted by the release of certain high-profile original content. Within our International streaming segment, 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 operating margin target. 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 and attracts new 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
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except revenue per membership and percentages)
Global Streaming Memberships:
Paid memberships at end of period	151,562			124,354			27,208			22	%
Paid net membership additions (losses)	2,699			5,452			(2,753		)	(50	)%
Average monthly revenue per paying membership	$	10.76		$	10.45		$	0.31		3	%
Free trials at end of period	6,056			5,787			269			5	%
Financial Results:
Revenues	4,923,116			3,907,270			$	1,015,846		26	%
Operating income	706,419			462,213			244,206			53	%
Operating margin	14.3		%	11.8		%	2.5		%	21	%
Net income	270,650			384,349			(113,699		)	(30	)%

Consolidated revenues for the three months ended June 30, 2019 increased 26%, including an increase of 21% and 33% in revenues in the Domestic streaming and International streaming segments, respectively, as compared to the three months ended June 30, 2018. International revenues accounted for 53% of total streaming revenue for the three months ended June 30, 2019 as compared to 50% of total streaming revenue for the three months ended June 30, 2018. 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 60% of total average paid streaming memberships as of June 30, 2019, as compared to 54% of total average paid streaming memberships for the same period in 2018. In addition, the average monthly revenue per paying streaming membership increased by 3% primarily due to price changes and a shift in the plan mix towards higher priced plans. The growth in paid net membership additions has been less volatile when compared to growth in total net membership additions as a result of free trial variability. We therefore believe paid memberships is a more reliable indicator of revenue growth than total memberships.

The increase in operating margin 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.

We offer three main 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 June 30, 2019, pricing on our plans ranged in the U.S. from $8.99 to $15.99 per month and internationally from the U.S. dollar equivalent of approximately $3 to $22 per month. We expect that from time to time the prices of our membership plans in each country may increase and we may occasionally test other plan and price variations.

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

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

• For the Domestic and International streaming segments, amortization of the streaming content assets makes up the 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 (such as payroll and related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), 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, payroll and related personnel expenses 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.

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• For the Domestic and International streaming segments, marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including CE manufacturers, MVPDs, mobile operators and ISPs. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support the Company's marketing activities. Marketing expenses are incurred by our Domestic and International streaming segments in order to build consumer awareness of the streaming offerings, and in particular our original content.

Domestic Streaming Segment

Three months ended June 30, 2019 as compared to the three months ended June 30, 2018

	As of/ Three Months Ended					Change
	June 30, 2019		June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except revenue per membership and percentages)
Memberships:
Paid memberships at end of period	60,103		55,959			4,144			7	%
Paid net membership additions (losses)	(126	)	872			(998		)	(114	)%
Average monthly revenue per paying membership	12.74		$	11.37		$	1.37		12	%
Free trials at end of period	1,575		1,420			155			11	%
Contribution profit:
Revenues	2,299,189		1,893,222			$	405,967		21	%
Cost of revenues	1,196,420		969,995			226,425			23	%
Marketing	250,606		251,298			(692		)	—	%
Contribution profit	852,163		671,929			180,234			27	%
Contribution margin	37	%	35		%

In the Domestic streaming segment, we derive revenues from monthly membership fees for services related to streaming content to our members in the United States. The 21% increase in our domestic streaming revenues was primarily due to the 8% 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 a shift in the plan mix towards higher priced plans. 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 $165 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $61 million primarily due to increases in expenses associated with the acquisition, licensing and production of streaming content.

Domestic marketing expenses remained relatively flat as compared to the corresponding period in 2018.

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Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	As of/ Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except revenue per membership and percentages)
Memberships:
Paid memberships at end of period	60,103			55,959			4,144			7	%
Paid net membership additions (losses)	1,617			3,149			(1,532		)	(49	)%
Average monthly revenue per paying membership	$	12.19		$	11.31		$	0.88		8	%
Free trials at end of period	1,575			1,420			155			11	%
Contribution profit:
Revenues	$	4,372,744		$	3,713,241		$	659,503		18	%
Cost of revenues	2,335,955			1,906,475			429,480			23	%
Marketing	471,652			502,017			(30,365		)	(6	)%
Contribution profit	1,565,137			1,304,749			260,388			20	%
Contribution margin	36		%	35		%

The 18% increase in our domestic streaming revenues was primarily due to the 9% growth in the average number of paid memberships, as well as an 8% increase in average monthly revenue per paying membership, resulting from our price changes and a shift in the plan mix towards higher priced plans.

The increase in domestic streaming cost of revenues was primarily due to a $299 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $130 million primarily due to increases in expenses associated with the acquisition, licensing and production of streaming content.

Domestic marketing expenses decreased primarily due to a decrease in advertising, partially offset by an increase in personnel-related expenses, resulting from an increase in compensation for existing employees and growth in average headcount, as well as an increase in payments made to our marketing partners resulting from increased member growth.

International Streaming Segment

Three months ended June 30, 2019 as compared to the three months ended June 30, 2018

	As of/ Three Months Ended						Change
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except revenue per membership and percentages)
Memberships:
Paid memberships at end of period	91,459			68,395			23,064			34	%
Paid net membership additions	2,825			4,580			(1,755		)	(38	)%
Average monthly revenue per paying membership	$	9.43		$	9.69		$	(0.26	)	(3	)%
Free trials at end of period	4,481			4,367			114			3	%
Contribution profit:
Revenues	$	2,547,727		$	1,921,144		$	626,583		33	%
Cost of revenues	1,778,890			1,392,512			386,378			28	%
Marketing	352,544			340,709			11,835			3	%
Contribution profit	416,293			187,923			228,370			122	%
Contribution margin	16		%	10		%

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In the International streaming segment, we derive revenues from monthly membership fees for services related to streaming content to our members outside the United States. The 33% increase in our international revenues was due to the 36% growth in the average number of paid international memberships, partially offset by a 3% decrease in average monthly revenue per paying membership. The decrease in average monthly revenue per paying membership was due to unfavorable fluctuations in foreign exchange rates, partially offset by price changes and a shift in the plan mix towards higher priced plans. We estimate that international revenues in the second quarter of 2019 would have been approximately $265 million higher if foreign exchange rates had remained consistent with the foreign exchange rates from the second quarter of 2018 and accordingly average monthly revenue per paying membership would have increased by 7%. 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 $250 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $136 million primarily due to increases in expenses associated with the acquisition, licensing and production of streaming content.

International marketing expenses increased primarily due to an increase in personnel-related expenses, resulting from an increase in compensation for existing employees and growth in average headcount, as well as an increase in payments made to our marketing partners as a result of international member growth, partially offset by decreased advertising.

Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	As of/ Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except revenue per membership and percentages)
Memberships:
Paid memberships at end of period	91,459			68,395			23,064			34	%
Paid net membership additions	10,686			10,561			125			1	%
Average monthly revenue per paying membership	$	9.37		$	9.73		$	(0.36	)	(4	)%
Free trials at end of period	4,481			4,367			114			3	%
Contribution profit:
Revenues	$	4,914,476		3,703,230			$	1,211,246		33	%
Cost of revenues	3,476,011			2,714,218			761,793			28	%
Marketing	748,076			626,767			121,309			19	%
Contribution profit	690,389			362,245			328,144			91	%
Contribution margin	14		%	10		%

The 33% increase in our international revenues was due to the 38% growth in our average number of paid international memberships, partially offset by a 4% decrease in the average monthly revenue per paying membership. The decrease in the average monthly revenue per paying membership was due to unfavorable fluctuations in foreign exchange rates, partially offset by price changes and a shift in the plan mix towards higher priced plans. We estimate that international revenues in the six months ended June 30, 2019 would have been approximately $493 million higher if foreign exchange rates had remained consistent with the foreign exchange rates for the six months ended June 30, 2018.

The increase in international cost of revenues was primarily due to a $491 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $271 million primarily due to increases in expenses associated with the acquisition, licensing and production of streaming content.

International marketing expenses for the six months ended June 30, 2019 increased primarily due to an increase in personnel-related expenses, resulting from an increase in compensation for existing employees and growth in average headcount, as well as increased advertising and payments to our partners.

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Domestic DVD Segment

Three months ended June 30, 2019 as compared to the three months ended June 30, 2018

	As of/ Three Months Ended						Change
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except revenue per membership and percentages)
Memberships:
Paid memberships at end of period	2,411			2,971			(560		)	(19	)%
Average monthly revenue per paying membership	$	10.21		$	10.14		$	0.07		1	%
Free trials at end of period	17			28			(11		)	(39	)%
Contribution profit:
Revenues	$	76,200		92,904			$	(16,704	)	(18	)%
Cost of revenues	30,347			39,924			(9,577		)	(24	)%
Contribution profit	45,853			52,980			(7,127		)	(13	)%
Contribution margin	60		%	57		%

Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	As of/ Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except revenue per membership and percentages)
Memberships:
Paid memberships at end of period	2,411			2,971			(560		)	(19	)%
Average monthly revenue per paying membership	$	10.21		$	10.16		$	0.05		—	%
Free trials at end of period	17			28			(11		)	(39	)%
Contribution profit:
Revenues	$	156,888		$	191,655		$	(34,767	)	(18	)%
Cost of revenues	64,305			82,317			(18,012		)	(22	)%
Contribution profit	92,583			109,338			(16,755		)	(15	)%
Contribution margin	59		%	57		%

In the Domestic DVD segment, we derive revenues from our DVD-by-mail membership services. We offer various DVD-by-mail plans that differ by the number of DVDs that a member may have out at any given point and access to high definition Blu-ray discs in addition to standard definition DVDs. 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.

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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 June 30, 2019 as compared to the three months ended June 30, 2018

	Three Months Ended						Change
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except percentages)
Technology and development	$	383,233		$	299,095		$	84,138	28	%
As a percentage of revenues	8		%	8		%

The increase in technology and development expenses was primarily due to a $81 million increase in personnel-related costs resulting from an increase in compensation for existing employees and growth in average headcount supporting continued improvements in our streaming service.

Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except percentages)
Technology and development	$	755,997		$	581,405		$	174,592	30	%
As a percentage of revenues	8		%	8		%

The increase in technology and development expenses was primarily due to a $164 million increase in personnel-related costs resulting from an increase in compensation for existing employees and growth in average headcount supporting continued improvements in our streaming service.

General and Administrative

General and administrative expenses consist of payroll and related expenses for corporate personnel. General and administrative expenses also include professional fees and other general corporate expenses.

Three months ended June 30, 2019 as compared to the three months ended June 30, 2018

	Three Months Ended						Change
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except percentages)
General and administrative	$	224,657		$	151,524		$	73,133	48	%
As a percentage of revenues	5		%	4		%

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General and administrative expenses increased primarily due to a $57 million increase in personnel-related costs 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 for contractors and consultants, increased $12 million.

Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except percentages)
General and administrative	$	426,609		$	286,136		$	140,473	49	%
As a percentage of revenues	5		%	4		%

General and administrative expenses increased primarily due to a $112 million increase in personnel-related costs 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 for contractors and consultants, increased $23 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.

Three months ended June 30, 2019 as compared to the three months ended June 30, 2018

	Three Months Ended						Change
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except percentages)
Interest expense	$	(152,033	)	$	(101,605	)	$	(50,428	)	(50	)%
As a percentage of revenues	(3		)%	(3		)%

Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except percentages)
Interest expense	$	(287,562	)	$	(182,824	)	$	(104,738	)	(57	)%
As a percentage of revenues	(3		)%	(2		)%

Interest expense primarily consisted of interest on our Notes of $149 million and $282 million for the three and six months ended June 30, 2019, respectively. The increase in interest expense for the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018 was 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 June 30, 2019 as compared to the three months ended June 30, 2018

	Three Months Ended						Change
	June 30, 2019			June 30, 2018			Q2'19 vs. Q2'18
	(in thousands, except percentages)
Interest and other income (expense)	$	(53,470	)	$	68,028		$	(121,498	)	(179	)%
As a percentage of revenues	(1		)%	2		%

Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	Six Months Ended						Change
	June 30, 2019			June 30, 2018			YTD'19 vs. YTD'18
	(in thousands, except percentages)
Interest and other income (expense)	$	22,634		$	2,285		$	20,349	891	%
As a percentage of revenues	—		%	—		%

Interest and other income (expense) decreased in the three months ended June 30, 2019 primarily due to foreign exchange losses of $72 million, compared to gains of $58 million for the corresponding period in 2018. Interest and other income (expense) increased in the six months ended June 30, 2019 primarily due to foreign exchange losses of $9 million, compared to losses of $14 million for the corresponding period in 2018. In the three and six months ended June 30, 2019, the foreign exchange losses were primarily driven by the losses of $61 million and $4 million, respectively, from the remeasurement of our €3,600 million Senior Notes, coupled with the remeasurement of cash and

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content liability positions in currencies other than the functional currencies of our European and U.S. entities. In the three and six months ended June 30, 2018, the foreign exchange gains were primarily driven by gains of $85 million and $44 million, respectively, from the remeasurement of our €1,300 million Senior Notes, partially offset by 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

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(in thousands, except percentages)
Provision for income taxes	$	230,266		$	44,287		$	285,873		$	53,779
Effective tax rate	46		%	10		%	32		%	7		%

In connection with the Tax Cuts and Jobs Act of 2017 we simplified our global corporate structure, effective April 1, 2019. The tax impacts of such simplifications were not material to the financial statements taken as a whole.

The effective tax rates for the three and six months ended June 30, 2019 differed from the Federal statutory rate primarily due to changes from the global corporate structure simplification, state taxes, foreign taxes, non-deductible expenses, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by the recognition of excess tax benefits of stock-based compensation and Federal and California research and development credits (“R&D”).

The increase in our effective tax rates for the three and six months ended June 30, 2019, as compared to the same period in 2018 was primarily due to changes from the global corporate structure simplification, a lower benefit from the recognition of excess tax benefits of stock-based compensation, lower benefit on a percentage basis from Federal and California R&D credits, and additional expenses related to the international provisions of U.S. tax reform that became effective in 2018.

Liquidity and Capital Resources

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Cash, cash equivalents, and restricted cash	$	5,028,205	3,812,041
Long-term debt	12,594,135		10,360,058

Cash, cash equivalents and restricted cash increased $1,216 million in the six months ended June 30, 2019 primarily due to the issuance of debt, partially offset by cash used in operations.

Long-term debt, net of debt issuance costs, increased $2,234 million due to the issuance of debt in April 2019 coupled with the remeasurement of our euro-denominated notes. The amount of principal and interest due in the next twelve months is $645 million.  As of June 30, 2019, no amounts had been borrowed under the $750 million Revolving Credit Agreement. See Note 5 Long-term Debt in the accompanying notes to our consolidated financial statements. We anticipate continuing to finance our future capital needs in the debt market, as we continue to believe that 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,

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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 continue to significantly increase our investments in global streaming content, particularly in original content, which will impact our liquidity and result in future negative net cash provided by (used in) operating activities and 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.

Three months ended June 30, 2019 as compared to the three months ended June 30, 2018

	Three Months Ended
	June 30, 2019			June 30, 2018
	(in thousands)
Net cash used in operating activities	$	(543,754	)	$	(518,239	)
Net cash used in investing activities	(50,036		)	(40,316		)
Net cash provided by financing activities	2,246,900			1,909,412
Non-GAAP reconciliation of free cash flow:
Net cash used in operating activities	(543,754		)	(518,239		)
Acquisition of DVD content assets	(7,798		)	(12,552		)
Purchases of property and equipment	(39,584		)	(27,323		)
Change in other assets	(2,654		)	(441		)
Free cash flow	$	(593,790	)	$	(558,555	)

Net cash used in operating activities increased $26 million to $544 million for the three months ended June 30, 2019. The increased use of cash was primarily driven by the increase in investments in streaming content that require more upfront payments, partially offset by a $1,016 million or 26% increase in revenues. The payments for streaming content assets increased $593 million, from $2,745 million to $3,338 million, or 22%, as compared to the increase in the amortization of streaming content assets of $414 million, from $1,818 million to $2,232 million, or 23%. In addition, we had increased payments associated with higher operating expenses, interest on long-term debt, and income taxes.

Net cash used in investing activities increased $10 million for the three months ended June 30, 2019, primarily due to the increase in purchases of property and equipment.

Net cash provided by financing activities increased $337 million for the three months ended June 30, 2019, due to an increase in the proceeds from the issuance of debt from $1,883 million, net of $17 million issuance costs in the three months ended June 30, 2018, to $2,225 million, net of $18 million issuance costs in the three months ended June 30, 2019.

Free cash flow was $864 million lower than net income for the three months ended June 30, 2019 primarily due to $1,106 million of cash payments for streaming content assets over streaming amortization expense partially offset by $138 million favorable working capital differences and $104 million of non-cash stock-based compensation expense.

Free cash flow was $943 million lower than net income for the three months ended June 30, 2018, primarily due to $927 million of cash payments for streaming content assets over streaming amortization expense and $97 million in other non-favorable working capital differences partially offset by $81 million of non-cash stock-based compensation expense.

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Six months ended June 30, 2019 as compared to the six months ended June 30, 2018

	Six Months Ended
	June 30, 2019			June 30, 2018
	(in thousands)
Net cash used in operating activities	$	(923,553	)	$	(754,996	)
Net cash provided (used in) by investing activities	(130,139		)	(90,068		)
Net cash provided by financing activities	2,269,872			1,965,426
Non-GAAP reconciliation of free cash flow:
Net cash used in operating activities	(923,553		)	(754,996		)
Acquisition of DVD content assets	(16,968		)	(23,348		)
Purchases of property and equipment	(99,965		)	(64,493		)
Change in other assets	(13,206		)	(2,227		)
Free cash flow	$	(1,053,692	)	$	(845,064	)

Net cash used in operating activities increased $169 million to $924 million for the six months ended June 30, 2019. The increased use of cash was primarily driven by the increase in investments in streaming content that require more upfront payments partially offset by a $1,836 million or 24% increase in revenues. The payments for streaming content assets increased $997 million, from $5,353 million to $6,350 million, or 19% as compared to the increase in the amortization of streaming content assets of $790 million, from $3,567 million to $4,357 million, or 22%. In addition, we had increased payments associated with higher operating expenses, interest on long-term debt, and income taxes.

Net cash used in investing activities increased $40 million for the six months ended June 30, 2019, primarily due to the increase in purchases of property and equipment.

Net cash provided by financing activities increased $304 million in the six months ended June 30, 2019, due to an increase in the proceeds from the issuance of debt from $1,883 million, net of $17 million issuance costs in the six months ended June 30, 2018, to $2,225 million, net of $18 million issuance costs in the six months ended June 30, 2019.

Free cash flow was $1,668 million lower than net income for the six months ended June 30, 2019 primarily due to $1,993 million of cash payments for streaming content assets over streaming amortization expense partially offset by $120 million favorable other working capital differences and $205 million of non-cash stock-based compensation expenses.

Free cash flow was $1,520 million lower than net income for the six months ended June 30, 2018, primarily due to $1,786 million of cash payments for streaming content assets over streaming amortization expense partially offset by $116 million favorable other working capital differences and $150 million of non-cash stock-based compensation expenses.

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 June 30, 2019. 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 June 30, 2019:

	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)	$	18,502,817	$	8,741,623	$	8,282,265	$	1,341,448	$	137,481
Debt (2)	17,909,126		645,479		2,431,782		1,534,324		13,297,541
Operating lease obligations (3)	2,287,249		198,249		396,268		419,690		1,273,042
Other purchase obligations (4)	928,549		668,126		215,594		44,829		—
Total	$	39,627,741	$	10,253,477	$	11,325,909	$	3,340,291	$	14,708,064

33

(1) As of June 30, 2019, streaming content obligations were comprised of $4.8 billion included in "Current content liabilities" and $3.6 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.1 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 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 $2 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) See Note 4 to the consolidated financial statements for further details regarding leases. As of June 30, 2019, the Company has additional operating leases for real estate that have not yet commenced of $1,185 million which has been included above.

(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.

As of June 30, 2019, we had gross unrecognized tax benefits of $58 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 (effective January 1, 2019)

We acquire, license and produce content, including original programing, in order to offer our members unlimited viewing of TV series 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.

34

We recognize content assets (licensed and produced) as "Non-current content assets, net" on the Consolidated Balance Sheet. 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. For productions, we capitalize costs associated with the production, including development cost, direct costs and production overhead. 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, and film amortization is more accelerated than TV series amortization. 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. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. 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 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 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 June 30, 2019, the valuation allowance of $126 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 June 30, 2019, our estimated gross unrecognized tax benefits were $58 million of which $54 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 8 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.

35

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, as amended by Form 10-K/A, for the year ended December 31, 2018. Our exposure to market risk has not changed significantly since December 31, 2018.

Foreign Currency Risk

International revenues and cost of revenues account for 52% and 59%, respectively, of consolidated amounts for the six months ended June 30, 2019. 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, the Mexican Peso, the Argentine peso, 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 of our International streaming segment as expressed in U.S. dollars. In the six months ended June 30, 2019, we believe our international revenues would have been approximately $493 million higher had foreign currency exchange rates remained consistent with those in same period of 2018.

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 six months ended June 30, 2019, we recognized a $9 million foreign exchange loss primarily due to the remeasurement of our Senior Notes denominated in euros, coupled with the remeasurement of cash and content liabilities denominated in currencies other than the functional currencies of our European and U.S. entities.

Exchange rate changes had an immaterial impact on cash and cash equivalents in the six months ended June 30, 2019.

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 June 30, 2019, 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.

36

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, as amended by Form 10-K/A, for the year ended December 31, 2018.

Item 6. Exhibits

(a) Exhibits:

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

37

EXHIBIT INDEX

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
4.1	Indenture, dated as of April 29, 2019, by and between Netflix, Inc. and Wells Fargo Bank, National Association, as Trustee (5.375% Senior Notes due 2029).	8-K	001-35727	4.1	April 29, 2019
4.2	Form of 5.375% Senior Note due 2029 (included in Exhibit 4.1).	8-K	001-35727	4.2	April 29, 2019
4.3	Indenture, dated as of April 29, 2019, by and between Netflix, Inc. and Wells Fargo Bank, National Association, as Trustee (3.875% Senior Notes due 2029).	8-K	001-35727	4.3	April 29, 2019
4.4	Form of 3.875% Senior Note due 2029 (included in Exhibit 4.3).	8-K	001-35727	4.4	April 29, 2019
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.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					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.

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:	July 19, 2019	By:	/s/ Reed Hastings
			Reed Hastings Chief Executive Officer (Principal executive officer)
Dated:	July 19, 2019	By:	/s/ Spencer Neumann
			Spencer Neumann Chief Financial Officer (Principal financial and accounting officer)

38

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: July 19, 2019	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, Spencer Neumann, 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: July 19, 2019	By:	/S/    SPENCER NEUMANN
		Spencer Neumann
		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 June 30, 2019 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: July 19, 2019	By:	/S/    REED HASTINGS
		Reed Hastings
		Chief Executive Officer

I, Spencer Neumann, 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 June 30, 2019 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: July 19, 2019	By:	/S/    SPENCER NEUMANN
		Spencer Neumann
		Chief Financial Officer

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	Jun. 30, 2019 shares
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Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2019
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Entity File Number	001-35727
Entity Registrant Name	NETFLIX INC
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	77-0467272
Entity Address, Address Line One	100 Winchester Circle,
Entity Address, City or Town	Los Gatos,
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	95032
City Area Code	408
Local Phone Number	540-3700
Title of each class	Common stock, par value $0.001 per share
Trading Symbol	NFLX
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
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Entity Central Index Key	0001065280
Current Fiscal Year End Date	--12-31
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Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Revenues	$ 4,923,116	$ 3,907,270	$ 9,444,108	$ 7,608,126
Cost of revenues	3,005,657	2,402,431	5,876,271	4,703,010
Marketing	603,150	592,007	1,219,728	1,128,784
Technology and development	383,233	299,095	755,997	581,405
General and administrative	224,657	151,524	426,609	286,136
Operating income	706,419	462,213	1,165,503	908,791
Other income (expense):
Interest expense	(152,033)	(101,605)	(287,562)	(182,824)
Interest and other income (expense)	(53,470)	68,028	22,634	2,285
Income before income taxes	500,916	428,636	900,575	728,252
Provision for income taxes	230,266	44,287	285,873	53,779
Net income	$ 270,650	$ 384,349	$ 614,702	$ 674,473
Earnings per share:
Basic (in dollars per share)	$ 0.62	$ 0.88	$ 1.41	$ 1.55
Diluted (in dollars per share)	$ 0.60	$ 0.85	$ 1.36	$ 1.50
Weighted-average common shares outstanding:
Basic (in shares)	437,587	435,097	437,271	434,638
Diluted (in shares)	452,195	451,552	452,063	450,958

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income	$ 270,650	$ 384,349	$ 614,702	$ 674,473
Other comprehensive income (loss):
Foreign currency translation adjustments	5,248	(16,691)	(770)	8,130
Comprehensive income	$ 275,898	$ 367,658	$ 613,932	$ 682,603

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income	$ 270,650	$ 384,349	$ 614,702	$ 674,473
Adjustments to reconcile net income to net cash used in operating activities:
Additions to streaming content assets	(3,325,103)	(3,033,721)	(6,322,849)	(6,020,468)
Change in streaming content liabilities	(12,414)	288,474	(27,112)	667,359
Amortization of streaming content assets	2,231,915	1,817,817	4,356,601	3,566,661
Amortization of DVD content assets	7,656	11,154	16,165	22,288
Depreciation and amortization of property, equipment and intangibles	25,496	19,736	49,057	38,777
Stock-based compensation expense	103,848	81,232	205,048	149,627
Other non-cash items	53,039	13,921	90,238	22,130
Foreign currency remeasurement loss (gain) on long-term debt	61,284	(85,410)	3,684	(44,330)
Deferred taxes	35,519	(9,539)	42,146	(31,588)
Changes in operating assets and liabilities:
Other current assets	(24,231)	(25,564)	(56,307)	(81,469)
Accounts payable	(2,674)	7,733	(127,141)	81,816
Accrued expenses and other liabilities	(26,705)	(52,851)	130,942	66,198
Deferred revenue	84,085	23,848	131,878	79,118
Other non-current assets and liabilities	(26,119)	40,582	(30,605)	54,412
Net cash used in operating activities	(543,754)	(518,239)	(923,553)	(754,996)
Cash flows from investing activities:
Acquisition of DVD content assets	(7,798)	(12,552)	(16,968)	(23,348)
Purchases of property and equipment	(39,584)	(27,323)	(99,965)	(64,493)
Change in other assets	(2,654)	(441)	(13,206)	(2,227)
Net cash used in investing activities	(50,036)	(40,316)	(130,139)	(90,068)
Cash flows from financing activities:
Proceeds from issuance of debt	2,243,196	1,900,000	2,243,196	1,900,000
Debt issuance costs	(18,192)	(16,992)	(18,192)	(16,992)
Proceeds from issuance of common stock	21,896	26,936	44,868	83,271
Other financing activities	0	(532)	0	(853)
Net cash provided by financing activities	2,246,900	1,909,412	2,269,872	1,965,426
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	4,998	(36,340)	(16)	(29,163)
Net increase in cash, cash equivalents, and restricted cash	1,658,108	1,314,517	1,216,164	1,091,199
Cash, cash equivalents and restricted cash at beginning of period	3,370,097	2,599,477	3,812,041	2,822,795
Cash, cash equivalents and restricted cash at end of period	$ 5,028,205	$ 3,913,994	$ 5,028,205	$ 3,913,994

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 5,004,247	$ 3,794,483
Current content assets, net	0	5,151,186
Other current assets	872,910	748,466
Total current assets	5,877,157	9,694,135
Non-current content assets, net	21,945,740	14,960,954
Property and equipment, net	452,399	418,281
Other non-current assets	1,896,043	901,030
Total assets	30,171,339	25,974,400
Current liabilities:
Current content liabilities	4,848,201	4,686,019
Accounts payable	442,194	562,985
Accrued expenses and other liabilities	750,812	477,417
Deferred revenue	892,777	760,899
Total current liabilities	6,933,984	6,487,320
Non-current content liabilities	3,564,440	3,759,026
Long-term debt	12,594,135	10,360,058
Other non-current liabilities	973,232	129,231
Total liabilities	24,065,791	20,735,635
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at June 30, 2019 and December 31, 2018; 437,834,882 and 436,598,597 issued and outstanding at June 30, 2019 and December 31, 2018, respectively	2,566,365	2,315,988
Accumulated other comprehensive loss	(20,352)	(19,582)
Retained earnings	3,559,535	2,942,359
Total stockholders’ equity	6,105,548	5,238,765
Total liabilities and stockholders’ equity	$ 30,171,339	$ 25,974,400

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
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)	437,834,882	436,598,597
Common stock, shares outstanding (shares)	437,834,882	436,598,597

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock and Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings
Beginning Balance at Dec. 31, 2017	$ 3,581,956	$ 1,871,396	$ (20,557)	$ 1,731,117
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon exercise of options		82,414
Stock-based compensation expense		149,627
Other comprehensive income (loss)			8,130
Net income	674,473			674,473
Ending Balance at Jun. 30, 2018	4,496,600	2,103,437	(12,427)	2,405,590
Beginning Balance at Mar. 31, 2018	4,020,730	1,995,225	4,264	2,021,241
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon exercise of options		26,980
Stock-based compensation expense		81,232
Other comprehensive income (loss)			(16,691)
Net income	384,349			384,349
Ending Balance at Jun. 30, 2018	4,496,600	2,103,437	(12,427)	2,405,590
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of ASU 2016-02, Leases (Topic 842)				2,474
Beginning Balance at Dec. 31, 2018	5,238,765	2,315,988	(19,582)	2,942,359
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon exercise of options		45,329
Stock-based compensation expense		205,048
Other comprehensive income (loss)			(770)
Net income	614,702
Ending Balance at Jun. 30, 2019	6,105,548	2,566,365	(20,352)	3,559,535
Beginning Balance at Mar. 31, 2019	5,703,058	2,439,773	(25,600)	3,288,885
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon exercise of options		22,744
Stock-based compensation expense		103,848
Other comprehensive income (loss)			5,248
Net income	270,650			270,650
Ending Balance at Jun. 30, 2019	$ 6,105,548	$ 2,566,365	$ (20,352)	$ 3,559,535

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Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

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, 2018 filed with the Securities and Exchange Commission (the “SEC”) on January 29, 2019 and February 8, 2019, respectively. 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, 2018. Interim results are not necessarily indicative of the results for a full year.

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, as amended by Form 10-K/A, for the year ended December 31, 2018.

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board ("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 prior 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. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $743 million, lease liabilities for operating leases of approximately $813 million and a cumulative-effect adjustment on retained earnings of $2 million on its Consolidated Balance Sheets, with no material impact to its Consolidated Statements of Operations. See Note 4 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements. ASU 2019-02 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2019-02 in the first quarter of 2019 and as such has included all content assets (licensed and produced) as "Non-current content assets, net" on its Consolidated Balance Sheets, beginning with the period of adoption. There was no material impact to its Consolidated Statements of Operations. See the Company's updated Streaming Content policy below for further details.

Streaming Content (Effective January 1, 2019)

The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of TV series 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.

The Company recognizes content assets (licensed and produced) as “Non-current content assets, net” on the Consolidated Balance Sheets. For licenses, the Company capitalizes the fee per title and records 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. For productions, the Company capitalizes

costs associated with the production, including development costs, direct costs and production overhead. Participations and residuals are expensed in line with the amortization of production costs.

Based on factors including historical and estimated viewing patterns, the Company amortizes 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 the Company typically expects more upfront viewing, for instance due to additional merchandising and marketing efforts and film amortization is more accelerated than TV series amortization. The Company reviews factors impacting the amortization of the content assets on an ongoing basis. The Company's estimates related to these factors require considerable management judgment.

The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, the Company has 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 or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

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Earnings Per Share

6 Months Ended

Jun. 30, 2019

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				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	270,650	$	384,349	$	614,702	$	674,473
Shares used in computation:
Weighted-average common shares outstanding	437,587		435,097		437,271		434,638
Basic earnings per share	$	0.62	$	0.88	$	1.41	$	1.55
Diluted earnings per share:
Net income	$	270,650	$	384,349	$	614,702	$	674,473
Shares used in computation:
Weighted-average common shares outstanding	437,587		435,097		437,271		434,638
Employee stock options	14,608		16,455		14,792		16,320
Weighted-average number of shares	452,195		451,552		452,063		450,958
Diluted earnings per share	$	0.60	$	0.85	$	1.36	$	1.50

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

6 Months Ended

Jun. 30, 2019

Short-Term Investments And Fair Value Measurement [Abstract]

Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents, and Restricted Cash

The following tables summarize the Company's cash, cash equivalents, and restricted cash as of June 30, 2019 and December 31, 2018:

	As of June 30, 2019
	Cash and cash equivalents		Non-current Assets		Total
	(in thousands)
Cash	$	2,219,099	$	22,645	$	2,241,744
Level 1 securities:
Money market funds	2,285,148		1,313		2,286,461
Level 2 securities:
Foreign Time Deposits	500,000		—		500,000
	$	5,004,247	$	23,958	$	5,028,205

	As of December 31, 2018
	Cash and cash equivalents		Non-current Assets		Total
	(in thousands)
Cash	$	2,572,685	$	16,260	$	2,588,945
Level 1 securities:
Money market funds	1,221,798		1,298		1,223,096
	$	3,794,483	$	17,558	$	3,812,041

Non-current assets include restricted cash related to letter of credit agreements and workers compensation deposits.

There were no material gross realized gains or losses in the three and six months ended June 30, 2019 and 2018, respectively.

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Balance Sheet Components

6 Months Ended

Jun. 30, 2019

Balance Sheet Components Disclosure [Abstract]

Balance Sheet Components

Balance Sheet Components

Content Assets

Content assets consisted of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Licensed content, net	$	14,597,283	$	14,081,463
Produced content, net
Released, less amortization	3,117,549		2,403,896
In production	3,743,893		3,305,126
In development and pre-production	479,120		311,842
	7,340,562		6,020,864
DVD, net	7,895		9,813
Total	$	21,945,740	$	20,112,140

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 June 30, 2019, approximately $5,604 million, $3,721 million, and $2,570 million of the $14,597 million unamortized cost of the licensed content is expected to be amortized in each of the next three years.  

As of June 30, 2019, approximately $1,066 million, $864 million, and $631 million of the $3,118 million unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.

As of June 30, 2019, the amount of accrued participations and residuals was not material.

The following table represents the amortization of streaming content assets:

	Three Months Ended
	June 30, 2019		June 30, 2018
	(in thousands)
Licensed content	$	1,797,179	$	1,581,536
Produced content	434,736		236,281
Total streaming content	$	2,231,915	$	1,817,817

	Six Months Ended
	June 30, 2019		June 30, 2018
	(in thousands)
Licensed content	$	3,571,468	$	3,138,960
Produced content	785,133		427,701
Total streaming content	$	4,356,601	$	3,566,661

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

	As of
	June 30, 2019			December 31, 2018			Estimated Useful Lives
	(in thousands)
Leasehold improvements	304,189			282,028			Over life of lease
Information technology	239,241			224,296			3 years
Furniture and fixtures	76,588			63,667			3-15 years
Buildings	32,787			73,468			30 years
Corporate aircraft	104,985			62,560			8 years
DVD operations equipment	45,437			53,416			5 years
Machinery and equipment	4,398			1,692			3 years
Land	6,125			6,125
Capital work-in-progress	23,761			19,548
Property and equipment, gross	837,511			786,800
Less: Accumulated depreciation	(385,112		)	(368,519		)
Property and equipment, net	$	452,399		$	418,281

Leases

The Company has entered into operating leases primarily for real estate. These leases generally have terms which range from 1 year to 15 years, and often include one or more options to renew. These renewal terms can extend the lease term from 1 to 15 years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. These operating leases are included in "Other non-current assets" on the Company's June 30, 2019 Consolidated Balance Sheet, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's June 30, 2019 Consolidated Balance Sheet.  Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets of approximately $743 million and lease liabilities for operating leases of approximately $813 million on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of June 30, 2019, total right-of-use assets and operating lease liabilities were approximately $1,008 million and $1,084 million, respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on the Company's balance sheet. All operating lease expense is recognized on a straight-line basis over the lease term. In the three months ended June 30, 2019, the Company recognized approximately $98 million in total lease costs, which was comprised of $48 million in operating lease costs for right-of-use assets and $50 million in short-term lease costs related to short-term operating leases. In the six months ended June 30, 2019, the Company recognized approximately $202 million in total lease costs, which was comprised of $91 million in operating lease costs for right-of-use assets and $111 million in short-term lease costs related to short-term operating leases.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate and marketing which may contain lease and non-lease components which it has elected to treat as a single lease component.

Information related to the Company's right-of-use assets and related lease liabilities were as follows:

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
	(in thousands)
Cash paid for operating lease liabilities	$	41,320	$	78,973
Right-of-use assets obtained in exchange for new operating lease obligations (1)	230,499		1,072,894

(1) Six-month ended balance includes $743 million for operating leases existing on January 1, 2019.

	As of
	June 30, 2019
Weighted-average remaining lease term	8.5 years
Weighted-average discount rate	5.4	%

Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):

Due in 12 month period ended June 30,
2020	$	185,631
2021	172,295
2022	168,560
2023	147,740
2024	137,937
Thereafter	572,524
	1,384,687
Less imputed interest	(300,705		)
Total lease liabilities	1,083,982
Current operating lease liabilities	137,662
Non-current operating lease liabilities	946,320
Total lease liabilities	$	1,083,982

The Company has additional operating leases for real estate of $1,185 million which have not commenced as of June 30, 2019, and as such, have not been recognized on the Company's Consolidated Balance Sheet. These operating leases are expected to commence between 2019 and 2020 with lease terms between 2 years and 15 years.

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 June 30, 2019, total deferred revenue was $893 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 $132 million increase in deferred revenue as compared to the year ended December 31, 2018 is a result of the increase in membership fees billed due to increased members and average monthly revenue per paying member.

Other Current Assets

Other current assets consisted of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Trade receivables	$	492,034	$	362,712
Prepaid expenses	184,039		178,833
Other	196,837		206,921
Total other current assets	$	872,910	$	748,466

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Long-term Debt

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Long-term Debt

Long-term Debt

As of June 30, 2019, the Company had aggregate outstanding long-term notes of $12,594 million, net of $102 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. A portion of the outstanding long-term notes is denominated in foreign currency (comprised of €3,600 million) and is remeasured into U.S. dollars at each balance sheet date.

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 June 30, 2019 and December 31, 2018:

						Level 2 Fair Value as of
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	June 30, 2019		December 31, 2018
	(in millions)					(in millions)
5.375% Senior Notes	$	500	February 2013	February 2021	February and August	$	519	$	509
5.500% Senior Notes	700		February 2015	February 2022	April and October	738		706
5.750% Senior Notes	400		February 2014	March 2024	March and September	435		407
5.875% Senior Notes	800		February 2015	February 2025	April and October	883		812
4.375% Senior Notes	1,000		October 2016	November 2026	May and November	1,025		915
3.625% Senior Notes (1)	1,479		May 2017	May 2027	May and November	1,620		1,446
4.875% Senior Notes	1,600		October 2017	April 2028	April and October	1,656		1,464
5.875% Senior Notes	1,900		April 2018	November 2028	May and November	2,109		1,851
4.625% Senior Notes (2)	1,252		October 2018	May 2029	May and November	1,424		1,241
6.375% Senior Notes	800		October 2018	May 2029	May and November	910		797
3.875% Senior Notes (3)	1,365		April 2019	November 2029	June and December	1,482		—
5.375% Senior Notes	900		April 2019	November 2029	June and December	959		—
	$	12,696

(1) Debt is denominated in euro with a €1,300 million principal amount. Total proceeds were $1,421 million.

(2) Debt is denominated in euro with a €1,100 million principal amount. Total proceeds were $1,262 million.

(3) Debt is denominated in euro with a €1,200 million principal amount. Total proceeds were $1,343 million.

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

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Less than one year	$	645,479	$	538,384
Due after one year and through three years	2,431,782		1,550,581
Due after three years and through five years	1,534,324		1,646,101
Due after five years	13,297,541		11,138,129
Total debt obligations	$	17,909,126	$	14,873,195

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 June 30, 2019 and December 31, 2018, the Company was in compliance with all related covenants.

Revolving Credit Facility

In July 2017, the Company entered into a $500 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 million, subject to certain terms and conditions. On March 29, 2019, the agreement was amended to extend the maturity date from July 27, 2022 to March 29, 2024 and to increase the size of the credit facility to $750 million, without impacting the existing uncommitted incremental facility. Revolving loans may be borrowed, repaid and reborrowed until March 29, 2024, 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 June 30, 2019, 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 (i) 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 June 30, 2019 and December 31, 2018, the Company was in compliance with all related covenants.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Streaming Content

As of June 30, 2019, the Company had $18.5 billion of obligations comprised of $4.8 billion included in "Current content liabilities" and $3.6 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.1 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, 2018, the Company had $19.3 billion of obligations comprised of $4.7 billion included in "Current content liabilities" and $3.8 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $10.8 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
	June 30, 2019		December 31, 2018
	(in thousands)
Less than one year	$	8,741,623	$	8,611,398
Due after one year and through three years	8,282,265		8,841,561
Due after three years and through five years	1,341,448		1,684,582
Due after five years	137,481		148,334
Total streaming content obligations	$	18,502,817	$	19,285,875

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

6 Months Ended

Jun. 30, 2019

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 June 30, 2019, approximately 7 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, 2018	8,699,941		20,479,278		$	89.61
Granted	(1,200,996	)	1,200,996		339.01
Exercised	—		(1,236,285	)	36.67
Expired	—		(21	)	4.27
Balances as of June 30, 2019	7,498,945		20,443,968		$	107.46	5.62	$	5,320,942
Vested and exercisable as of June 30, 2019			20,443,968		$	107.46	5.62	$	5,320,942

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 second quarter of 2019 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 second quarter of 2019. 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				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands)
Total intrinsic value of options exercised	$	212,932	$	246,795	$	393,774	$	524,705
Cash received from options exercised	21,896		26,936		44,868		83,271

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						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Dividend yield	—		%	—		%	—		%	—		%
Expected volatility	39		%	42		%	39% - 41%			40% - 42%
Risk-free interest rate	2.50		%	2.90		%	2.50% - 2.74%			2.61% - 2.90%
Suboptimal exercise factor	3.16			2.93			3.07 - 3.16			2.80 - 2.93
Weighted-average fair value (per share)	$	179		$	161		$	171		$	142
Total stock-based compensation expense (in thousands)	$	103,848		$	81,232		$	205,048		$	149,627
Total income tax impact on provision (in thousands)	$	24,845		$	16,889		$	46,473		$	31,580

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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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(in thousands, except percentages)
Provision for income taxes	$	230,266		$	44,287		$	285,873		$	53,779
Effective tax rate	46		%	10		%	32		%	7		%

In connection with the Tax Cuts and Job Act of 2017 the Company simplified its global corporate structure, effective April 1, 2019. The tax impacts of such simplifications were not material to the financial statements taken as a whole.

The effective tax rates for the three and six months ended June 30, 2019 differed from the Federal statutory rate primarily due to changes from the global corporate structure simplification, state taxes, foreign taxes, non-deductible expenses, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by the recognition of excess tax benefits of stock-based compensation, and Federal and California research and development credits (“R&D”). The effective tax rates for the three and six months ended June 30, 2018 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation and Federal and California R&D credits, partially offset by state taxes, foreign taxes, non-deductible expenses, and effects of the international tax provisions from U.S. tax reform that became effective in 2018.

The increase in effective tax rates for the three and six months ended June 30, 2019, as compared to the same period in 2018 was primarily due to changes from the global corporate structure simplification, a lower benefit from the recognition of excess tax benefits of stock-

based compensation, lower benefit on a percentage basis from Federal and California R&D credits, and additional expenses related to the international provisions of U.S. tax reform that became effective in 2018. For the three and six months ended June 30, 2019, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of $46 million and $87 million, respectively, compared to the three months and six months ended June 30, 2018 of $57 million and $117 million, respectively.

Gross unrecognized tax benefits were $58 million and $48 million as of June 30, 2019 and December 31, 2018, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $54 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of June 30, 2019, gross unrecognized tax benefits of $17 million were classified as “Other non-current liabilities” and $41 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 $522 million and $564 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, 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 $126 million and $125 million as of June 30, 2019 and December 31, 2018, respectively. The valuation allowance is primarily related to certain foreign tax credits that are not likely to be realized.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 2016 and 2017 and by the state of California for 2014 and 2015. The 2009 through 2017 state tax returns are subject to examination by state tax authorities. The Company is also currently under examination in the UK for 2015 through 2017. The Company has no other significant foreign jurisdiction audits underway. The years 2014 through 2018 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

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Segment Information

Segment Information

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. As markets within the Company's International streaming segment become profitable, the CODM increasingly focuses on the Company's global operating margin as a measure of profitability. As of the second quarter of 2019, the Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD. 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 related to streaming content to members in the United States. The International streaming segment derives revenues from monthly membership fees for services related to 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 processing 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 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 either attributed to the operating segment based on amounts directly incurred by the segment or are allocated across segments by management. Marketing expenses consist primarily of advertising expenses and certain payments made to marketing partners, including CE manufacturers, MVPDs, mobile operators and ISPs, which are generally included in the segment in which the expenditures are directly incurred.

The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of June 30, 2019, were located as follows:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
United States	$	1,276,044	$	381,947
International	184,646		36,334

The following tables represent segment information for the three and six months ended June 30, 2019:

 

	As of/ Three Months Ended June 30, 2019
	Domestic Streaming			International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	60,103			91,459		2,411
Total paid net membership additions (losses) (1)	(126		)	2,825		(154		)
Total free trials at end of period	1,575			4,481		17
Revenues	$	2,299,189		$	2,547,727	$	76,200		$	4,923,116
Cost of revenues	1,196,420			1,778,890		30,347			3,005,657
Marketing	250,606			352,544		—			603,150
Contribution profit	$	852,163		$	416,293	$	45,853		$	1,314,309
Other operating expenses									607,890
Operating income									706,419
Other income (expense)									(205,503		)
Provision for income taxes									230,266
Net income									$	270,650

	As of/ Six Months Ended June 30, 2019
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	60,103		91,459		2,411
Total paid net membership additions (losses) (1)	1,617		10,686		(295		)
Total free trials at end of period	1,575		4,481		17
Revenues	$	4,372,744	$	4,914,476	$	156,888		$	9,444,108
Cost of revenues	2,335,955		3,476,011		64,305			5,876,271
Marketing	471,652		748,076		—			1,219,728
Contribution profit	$	1,565,137	$	690,389	$	92,583		$	2,348,109
Other operating expenses								1,182,606
Operating income								1,165,503
Other income (expense)								(264,928		)
Provision for income taxes								285,873
Net income								$	614,702

The following tables represent segment information for the three and six months ended June 30, 2018:

	As of/ Three Months Ended June 30, 2018
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	55,959		68,395		2,971
Total paid net membership additions (losses) (1)	872		4,580		(167		)
Total free trials at end of period	1,420		4,367		28
Revenues	$	1,893,222	$	1,921,144	$	92,904		$	3,907,270
Cost of revenues	969,995		1,392,512		39,924			2,402,431
Marketing	251,298		340,709		—			592,007
Contribution profit	$	671,929	$	187,923	$	52,980		$	912,832
Other operating expenses								450,619
Operating income								462,213
Other income (expense)								(33,577		)
Provision for income taxes								44,287
Net income								$	384,349

	As of/ Six Months Ended June 30, 2018
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	55,959		68,395		2,971
Total paid net membership additions (losses) (1)	3,149		10,561		(359		)
Total free trials at end of period	1,420		4,367		28
Revenues	$	3,713,241	$	3,703,230	$	191,655		$	7,608,126
Cost of revenues	1,906,475		2,714,218		82,317			4,703,010
Marketing	502,017		626,767		—			1,128,784
Contribution profit	$	1,304,749	$	362,245	$	109,338		$	1,776,332
Other operating expenses								867,541
Operating income								908,791
Other income (expense)								(180,539		)
Provision for income taxes								53,779
Net income								$	674,473

(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or other promotional offering by the Company to certain new and rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately. 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 following table represents the amortization of content assets:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Three months ended June 30,
2019	$	916,494	$	1,315,421	$	7,656	$	2,239,571
2018	751,947		1,065,870		11,154		1,828,971
Six months ended June 30,
2019	1,780,805		2,575,796		16,165		4,372,766
2018	1,482,219		2,084,442		22,288		3,588,949

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

6 Months Ended

Jun. 30, 2019

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.

Recently adopted accounting pronouncements and Recently issued accounting pronouncements not yet adopted

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board ("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 prior 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. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $743 million, lease liabilities for operating leases of approximately $813 million and a cumulative-effect adjustment on retained earnings of $2 million on its Consolidated Balance Sheets, with no material impact to its Consolidated Statements of Operations. See Note 4 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements. ASU 2019-02 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2019-02 in the first quarter of 2019 and as such has included all content assets (licensed and produced) as "Non-current content assets, net" on its Consolidated Balance Sheets, beginning with the period of adoption. There was no material impact to its Consolidated Statements of Operations. See the Company's updated Streaming Content policy below for further details.

Streaming Content (Effective January 1, 2019)

The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of TV series 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.

The Company recognizes content assets (licensed and produced) as “Non-current content assets, net” on the Consolidated Balance Sheets. For licenses, the Company capitalizes the fee per title and records 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. For productions, the Company capitalizes

costs associated with the production, including development costs, direct costs and production overhead. Participations and residuals are expensed in line with the amortization of production costs.

Based on factors including historical and estimated viewing patterns, the Company amortizes 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 the Company typically expects more upfront viewing, for instance due to additional merchandising and marketing efforts and film amortization is more accelerated than TV series amortization. The Company reviews factors impacting the amortization of the content assets on an ongoing basis. The Company's estimates related to these factors require considerable management judgment.

The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, the Company has 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 or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Computation of Earnings Per Share

The computation of earnings per share is as follows:

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	270,650	$	384,349	$	614,702	$	674,473
Shares used in computation:
Weighted-average common shares outstanding	437,587		435,097		437,271		434,638
Basic earnings per share	$	0.62	$	0.88	$	1.41	$	1.55
Diluted earnings per share:
Net income	$	270,650	$	384,349	$	614,702	$	674,473
Shares used in computation:
Weighted-average common shares outstanding	437,587		435,097		437,271		434,638
Employee stock options	14,608		16,455		14,792		16,320
Weighted-average number of shares	452,195		451,552		452,063		450,958
Diluted earnings per share	$	0.60	$	0.85	$	1.36	$	1.50

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Cash, Cash Equivalents and Restricted Cash (Tables)

6 Months Ended

Jun. 30, 2019

Short-Term Investments And Fair Value Measurement [Abstract]

Schedule of Cash and Cash Equivalents

The following tables summarize the Company's cash, cash equivalents, and restricted cash as of June 30, 2019 and December 31, 2018:

	As of June 30, 2019
	Cash and cash equivalents		Non-current Assets		Total
	(in thousands)
Cash	$	2,219,099	$	22,645	$	2,241,744
Level 1 securities:
Money market funds	2,285,148		1,313		2,286,461
Level 2 securities:
Foreign Time Deposits	500,000		—		500,000
	$	5,004,247	$	23,958	$	5,028,205

	As of December 31, 2018
	Cash and cash equivalents		Non-current Assets		Total
	(in thousands)
Cash	$	2,572,685	$	16,260	$	2,588,945
Level 1 securities:
Money market funds	1,221,798		1,298		1,223,096
	$	3,794,483	$	17,558	$	3,812,041

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Balance Sheet Components (Tables)

6 Months Ended

Jun. 30, 2019

Balance Sheet Components Disclosure [Abstract]

Content Assets

Content assets consisted of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Licensed content, net	$	14,597,283	$	14,081,463
Produced content, net
Released, less amortization	3,117,549		2,403,896
In production	3,743,893		3,305,126
In development and pre-production	479,120		311,842
	7,340,562		6,020,864
DVD, net	7,895		9,813
Total	$	21,945,740	$	20,112,140

Schedule of Amortization of Streaming Content Assets

The following table represents the amortization of streaming content assets:

	Three Months Ended
	June 30, 2019		June 30, 2018
	(in thousands)
Licensed content	$	1,797,179	$	1,581,536
Produced content	434,736		236,281
Total streaming content	$	2,231,915	$	1,817,817

	Six Months Ended
	June 30, 2019		June 30, 2018
	(in thousands)
Licensed content	$	3,571,468	$	3,138,960
Produced content	785,133		427,701
Total streaming content	$	4,356,601	$	3,566,661

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

	As of
	June 30, 2019			December 31, 2018			Estimated Useful Lives
	(in thousands)
Leasehold improvements	304,189			282,028			Over life of lease
Information technology	239,241			224,296			3 years
Furniture and fixtures	76,588			63,667			3-15 years
Buildings	32,787			73,468			30 years
Corporate aircraft	104,985			62,560			8 years
DVD operations equipment	45,437			53,416			5 years
Machinery and equipment	4,398			1,692			3 years
Land	6,125			6,125
Capital work-in-progress	23,761			19,548
Property and equipment, gross	837,511			786,800
Less: Accumulated depreciation	(385,112		)	(368,519		)
Property and equipment, net	$	452,399		$	418,281

Lease, Cost

Information related to the Company's right-of-use assets and related lease liabilities were as follows:

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
	(in thousands)
Cash paid for operating lease liabilities	$	41,320	$	78,973
Right-of-use assets obtained in exchange for new operating lease obligations (1)	230,499		1,072,894

(1) Six-month ended balance includes $743 million for operating leases existing on January 1, 2019.

	As of
	June 30, 2019
Weighted-average remaining lease term	8.5 years
Weighted-average discount rate	5.4	%

Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):

Due in 12 month period ended June 30,
2020	$	185,631
2021	172,295
2022	168,560
2023	147,740
2024	137,937
Thereafter	572,524
	1,384,687
Less imputed interest	(300,705		)
Total lease liabilities	1,083,982
Current operating lease liabilities	137,662
Non-current operating lease liabilities	946,320
Total lease liabilities	$	1,083,982

Other Current Assets

Other current assets consisted of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Trade receivables	$	492,034	$	362,712
Prepaid expenses	184,039		178,833
Other	196,837		206,921
Total other current assets	$	872,910	$	748,466

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Long-term Debt (Tables)

6 Months Ended

Jun. 30, 2019

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 June 30, 2019 and December 31, 2018:

						Level 2 Fair Value as of
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	June 30, 2019		December 31, 2018
	(in millions)					(in millions)
5.375% Senior Notes	$	500	February 2013	February 2021	February and August	$	519	$	509
5.500% Senior Notes	700		February 2015	February 2022	April and October	738		706
5.750% Senior Notes	400		February 2014	March 2024	March and September	435		407
5.875% Senior Notes	800		February 2015	February 2025	April and October	883		812
4.375% Senior Notes	1,000		October 2016	November 2026	May and November	1,025		915
3.625% Senior Notes (1)	1,479		May 2017	May 2027	May and November	1,620		1,446
4.875% Senior Notes	1,600		October 2017	April 2028	April and October	1,656		1,464
5.875% Senior Notes	1,900		April 2018	November 2028	May and November	2,109		1,851
4.625% Senior Notes (2)	1,252		October 2018	May 2029	May and November	1,424		1,241
6.375% Senior Notes	800		October 2018	May 2029	May and November	910		797
3.875% Senior Notes (3)	1,365		April 2019	November 2029	June and December	1,482		—
5.375% Senior Notes	900		April 2019	November 2029	June and December	959		—
	$	12,696

(1) Debt is denominated in euro with a €1,300 million principal amount. Total proceeds were $1,421 million.

(2) Debt is denominated in euro with a €1,100 million principal amount. Total proceeds were $1,262 million.

(3) Debt is denominated in euro with a €1,200 million principal amount. Total proceeds were $1,343 million.

Schedule of Maturities of Long-term Debt

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

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Less than one year	$	645,479	$	538,384
Due after one year and through three years	2,431,782		1,550,581
Due after three years and through five years	1,534,324		1,646,101
Due after five years	13,297,541		11,138,129
Total debt obligations	$	17,909,126	$	14,873,195

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2019

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
	June 30, 2019		December 31, 2018
	(in thousands)
Less than one year	$	8,741,623	$	8,611,398
Due after one year and through three years	8,282,265		8,841,561
Due after three years and through five years	1,341,448		1,684,582
Due after five years	137,481		148,334
Total streaming content obligations	$	18,502,817	$	19,285,875

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2019

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, 2018	8,699,941		20,479,278		$	89.61
Granted	(1,200,996	)	1,200,996		339.01
Exercised	—		(1,236,285	)	36.67
Expired	—		(21	)	4.27
Balances as of June 30, 2019	7,498,945		20,443,968		$	107.46	5.62	$	5,320,942
Vested and exercisable as of June 30, 2019			20,443,968		$	107.46	5.62	$	5,320,942

Summary of Amounts Related to Option Exercises

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

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands)
Total intrinsic value of options exercised	$	212,932	$	246,795	$	393,774	$	524,705
Cash received from options exercised	21,896		26,936		44,868		83,271

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						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Dividend yield	—		%	—		%	—		%	—		%
Expected volatility	39		%	42		%	39% - 41%			40% - 42%
Risk-free interest rate	2.50		%	2.90		%	2.50% - 2.74%			2.61% - 2.90%
Suboptimal exercise factor	3.16			2.93			3.07 - 3.16			2.80 - 2.93
Weighted-average fair value (per share)	$	179		$	161		$	171		$	142
Total stock-based compensation expense (in thousands)	$	103,848		$	81,232		$	205,048		$	149,627
Total income tax impact on provision (in thousands)	$	24,845		$	16,889		$	46,473		$	31,580

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(in thousands, except percentages)
Provision for income taxes	$	230,266		$	44,287		$	285,873		$	53,779
Effective tax rate	46		%	10		%	32		%	7		%

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Long-lived Assets by Geographic Areas

The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of June 30, 2019, were located as follows:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
United States	$	1,276,044	$	381,947
International	184,646		36,334

Information on Reportable Segments And Reconciliation To Consolidated Net Income

The following tables represent segment information for the three and six months ended June 30, 2019:

 

	As of/ Three Months Ended June 30, 2019
	Domestic Streaming			International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	60,103			91,459		2,411
Total paid net membership additions (losses) (1)	(126		)	2,825		(154		)
Total free trials at end of period	1,575			4,481		17
Revenues	$	2,299,189		$	2,547,727	$	76,200		$	4,923,116
Cost of revenues	1,196,420			1,778,890		30,347			3,005,657
Marketing	250,606			352,544		—			603,150
Contribution profit	$	852,163		$	416,293	$	45,853		$	1,314,309
Other operating expenses									607,890
Operating income									706,419
Other income (expense)									(205,503		)
Provision for income taxes									230,266
Net income									$	270,650

	As of/ Six Months Ended June 30, 2019
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	60,103		91,459		2,411
Total paid net membership additions (losses) (1)	1,617		10,686		(295		)
Total free trials at end of period	1,575		4,481		17
Revenues	$	4,372,744	$	4,914,476	$	156,888		$	9,444,108
Cost of revenues	2,335,955		3,476,011		64,305			5,876,271
Marketing	471,652		748,076		—			1,219,728
Contribution profit	$	1,565,137	$	690,389	$	92,583		$	2,348,109
Other operating expenses								1,182,606
Operating income								1,165,503
Other income (expense)								(264,928		)
Provision for income taxes								285,873
Net income								$	614,702

The following tables represent segment information for the three and six months ended June 30, 2018:

	As of/ Three Months Ended June 30, 2018
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	55,959		68,395		2,971
Total paid net membership additions (losses) (1)	872		4,580		(167		)
Total free trials at end of period	1,420		4,367		28
Revenues	$	1,893,222	$	1,921,144	$	92,904		$	3,907,270
Cost of revenues	969,995		1,392,512		39,924			2,402,431
Marketing	251,298		340,709		—			592,007
Contribution profit	$	671,929	$	187,923	$	52,980		$	912,832
Other operating expenses								450,619
Operating income								462,213
Other income (expense)								(33,577		)
Provision for income taxes								44,287
Net income								$	384,349

	As of/ Six Months Ended June 30, 2018
	Domestic Streaming		International Streaming		Domestic DVD			Consolidated
	(in thousands)
Total paid memberships at end of period (1)	55,959		68,395		2,971
Total paid net membership additions (losses) (1)	3,149		10,561		(359		)
Total free trials at end of period	1,420		4,367		28
Revenues	$	3,713,241	$	3,703,230	$	191,655		$	7,608,126
Cost of revenues	1,906,475		2,714,218		82,317			4,703,010
Marketing	502,017		626,767		—			1,128,784
Contribution profit	$	1,304,749	$	362,245	$	109,338		$	1,776,332
Other operating expenses								867,541
Operating income								908,791
Other income (expense)								(180,539		)
Provision for income taxes								53,779
Net income								$	674,473

(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or other promotional offering by the Company to certain new and rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately. 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 following table represents the amortization of content assets:

	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Three months ended June 30,
2019	$	916,494	$	1,315,421	$	7,656	$	2,239,571
2018	751,947		1,065,870		11,154		1,828,971
Six months ended June 30,
2019	1,780,805		2,575,796		16,165		4,372,766
2018	1,482,219		2,084,442		22,288		3,588,949

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Basis of Presentation and Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018	Jun. 30, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right-of-use assets	$ 1,008,000
Non-current operating lease liabilities	$ 946,320
Content assets, amortization period cap	10 years
Retained Earnings
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Adoption of ASU 2016-02, Leases (Topic 842)			$ 2,474
ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right-of-use assets		$ 743,000
Non-current operating lease liabilities		$ 813,000
ASU 2016-02 | Retained Earnings
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Adoption of ASU 2016-02, Leases (Topic 842)				$ 2,000

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Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Basic earnings per share:
Net income	$ 270,650	$ 384,349	$ 614,702	$ 674,473
Weighted-average common shares outstanding (in shares)	437,587	435,097	437,271	434,638
Basic earnings per share (in dollars per share)	$ 0.62	$ 0.88	$ 1.41	$ 1.55
Diluted earnings per share:
Net income	$ 270,650	$ 384,349	$ 614,702	$ 674,473
Shares used in computation:
Weighted-average common shares outstanding (in shares)	437,587	435,097	437,271	434,638
Employee stock options (in shares)	14,608	16,455	14,792	16,320
Weighted-average number of shares (in shares)	452,195	451,552	452,063	450,958
Diluted earnings per share (in dollars per share)	$ 0.60	$ 0.85	$ 1.36	$ 1.50

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Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Cash and Cash Equivalents [Line Items]
Cash	$ 2,219,099	$ 2,572,685
Cash and cash equivalents	5,004,247	3,794,483
Non-current Assets, Cash	22,645	16,260
Restricted Cash and Cash Equivalents	23,958	17,558
Cash and Restricted Cash	2,241,744	2,588,945
Total Cash, cash equivalents, and restricted cash and cash equivalents	5,028,205	3,812,041
Fair Value, Measurements, Recurring | Level 1 Securities | Money market funds
Cash and Cash Equivalents [Line Items]
Non-current Assets, Securities	1,313	1,298
Cash Equivalents and Restricted Cash Equivalents	2,286,461	1,223,096
Fair Value, Measurements, Recurring | Level 1 Securities | Money market funds
Cash and Cash Equivalents [Line Items]
Money market funds	2,285,148	$ 1,221,798
Fair Value, Measurements, Recurring | Level 2 securities | Foreign Time Deposits
Cash and Cash Equivalents [Line Items]
Non-current Assets, Securities	0
Cash Equivalents and Restricted Cash Equivalents	500,000
Fair Value, Measurements, Recurring | Level 2 securities | Foreign Time Deposits
Cash and Cash Equivalents [Line Items]
Foreign Time Deposits	$ 500,000

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Balance Sheet Components - Components of Content Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Content assets, net	$ 21,945,740		$ 21,945,740		$ 20,112,140
Average produced content asset amortization percentage			90.00%
Average produced content asset amortization period			4 years
Amortization of streaming content assets	2,231,915	$ 1,817,817	$ 4,356,601	$ 3,566,661
Licensed content, net
Finite-Lived Intangible Assets [Line Items]
Net content	14,597,283		14,597,283		14,081,463
Unamortized cost in year one	5,604,000		5,604,000
Unamortized cost in year two	3,721,000		3,721,000
Unamortized cost in year three	2,570,000		2,570,000
Amortization of streaming content assets	1,797,179	1,581,536	3,571,468	3,138,960
Produced content, net
Finite-Lived Intangible Assets [Line Items]
Net content	3,117,549		3,117,549		2,403,896
In production	3,743,893		3,743,893		3,305,126
In development and pre-production	479,120		479,120		311,842
Content assets, net	7,340,562		7,340,562		6,020,864
Unamortized cost in year one	1,066,000		1,066,000
Unamortized cost in year two	864,000		864,000
Unamortized cost in year three	631,000		631,000
Amortization of streaming content assets	434,736	$ 236,281	785,133	$ 427,701
DVD, net
Finite-Lived Intangible Assets [Line Items]
Content assets, net	$ 7,895		$ 7,895		$ 9,813

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Balance Sheet Components - Property And Equipment (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 837,511,000	$ 786,800,000
Less: Accumulated depreciation	(385,112,000)	(368,519,000)
Property and equipment, net	452,399,000	418,281,000
Accrued participation liabilities, due in next operating cycle	0
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	304,189,000	282,028,000
Information technology
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 239,241,000	224,296,000
Estimated Useful Lives	3 years
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 76,588,000	63,667,000
Furniture and fixtures | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	3 years
Furniture and fixtures | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	15 years
Buildings
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 32,787,000	73,468,000
Estimated Useful Lives	30 years
Corporate aircraft
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 104,985,000	62,560,000
Estimated Useful Lives	8 years
DVD operations equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 45,437,000	53,416,000
Estimated Useful Lives	5 years
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 4,398,000	1,692,000
Estimated Useful Lives	3 years
Land
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 6,125,000	6,125,000
Capital work-in-progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 23,761,000	$ 19,548,000

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Balance Sheet Components - Leases (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jan. 01, 2019
Lessee, Lease, Description [Line Items]
Operating lease right-of-use assets	$ 1,008,000	$ 1,008,000
Non-current operating lease liabilities	946,320	946,320
Total lease liabilities	1,083,982	1,083,982
Lease Cost:
Lease costs	98,000	202,000
Operating lease cost	48,000	91,000
Short-term lease cost	50,000	111,000
Cash paid for operating lease liabilities	41,320	78,973
Right-of-use assets obtained in exchange for new operating lease obligations	$ 230,499	$ 1,072,894
Weighted-average remaining lease term	8 years 6 months	8 years 6 months
Weighted-average discount rate	5.40%	5.40%
Maturities of Lease Liabilities
2020	$ 185,631	$ 185,631
2021	172,295	172,295
2022	168,560	168,560
2023	147,740	147,740
2024	137,937	137,937
Thereafter	572,524	572,524
Total lease liabilities	1,384,687	1,384,687
Less imputed interest	(300,705)	(300,705)
Current operating lease liabilities	137,662	137,662
Operating lease, liability, leases not commenced	$ 1,185,000	$ 1,185,000
ASU 2016-02
Lessee, Lease, Description [Line Items]
Operating lease right-of-use assets			$ 743,000
Non-current operating lease liabilities			$ 813,000
Minimum
Lessee, Lease, Description [Line Items]
Lease term of contract	1 year	1 year
Lease renewal term	1 year	1 year
Maturities of Lease Liabilities
Lease not yet commenced, term of contract	2 years	2 years
Maximum
Lessee, Lease, Description [Line Items]
Lease term of contract	15 years	15 years
Lease renewal term	15 years	15 years
Maturities of Lease Liabilities
Lease not yet commenced, term of contract	15 years	15 years

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Balance Sheet Components - Deferred Revenue (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Disaggregation of Revenue [Line Items]
Deferred revenue	$ 892,777	$ 760,899
Gift Cards and Other Prepaid Memberships
Disaggregation of Revenue [Line Items]
Deferred revenue	$ 893,000	$ 132,000

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Balance Sheet Components - Other Current Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Balance Sheet Components Disclosure [Abstract]
Trade receivables	$ 492,034	$ 362,712
Prepaid expenses	184,039	178,833
Other	196,837	206,921
Total other current assets	$ 872,910	$ 748,466

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Long-term Debt - Narrative (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2019 EUR (€)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Disclosure [Abstract]
Aggregate outstanding principal			$ 12,594,135	$ 10,360,058
Debt issuance costs			102,000
Debt Instrument [Line Items]
Principal amount at par			12,696,000
Senior Notes
Debt Instrument [Line Items]
Principal amount at par | €		€ 3,600,000,000
Redemption prices, percent of outstanding principal	101.00%
Senior Notes | 3.625% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		1,300,000,000	1,479,000
Proceeds from convertible debt	$ 1,421,000
Senior Notes | 4.625% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		1,100,000,000	1,252,000
Proceeds from convertible debt	1,262,000
Senior Notes | 3.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		€ 1,200,000,000	$ 1,365,000
Proceeds from convertible debt	$ 1,343,000

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Long-term Debt - Summary of Long-term Debt (Details) $ in Millions	Jun. 30, 2019 EUR (€)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Principal amount at par		$ 12,696
Senior Notes
Debt Instrument [Line Items]
Principal amount at par | €	€ 3,600,000,000
Senior Notes | 5.375% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		500
Fair value		$ 519	$ 509
Interest rate	5.375%	5.375%
Senior Notes | 5.50% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 700
Fair value		$ 738	706
Interest rate	5.50%	5.50%
Senior Notes | 5.750% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 400
Fair value		$ 435	407
Interest rate	5.75%	5.75%
Senior Notes | 5.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 800
Fair value		$ 883	812
Interest rate	5.875%	5.875%
Senior Notes | 4.375% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 1,000
Fair value		$ 1,025	915
Interest rate	4.375%	4.375%
Senior Notes | 3.625% Senior Notes
Debt Instrument [Line Items]
Principal amount at par	€ 1,300,000,000	$ 1,479
Fair value		$ 1,620	1,446
Interest rate	3.625%	3.625%
Senior Notes | 4.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 1,600
Fair value		$ 1,656	1,464
Interest rate	4.875%	4.875%
Senior Notes | 5.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 1,900
Fair value		$ 2,109	1,851
Interest rate	5.875%	5.875%
Senior Notes | 4.625% Senior Notes
Debt Instrument [Line Items]
Principal amount at par	€ 1,100,000,000	$ 1,252
Fair value		$ 1,424	1,241
Interest rate	4.625%	4.625%
Senior Notes | 6.375% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 800
Fair value		$ 910	797
Interest rate	6.375%	6.375%
Senior Notes | 3.875% Senior Notes
Debt Instrument [Line Items]
Principal amount at par	€ 1,200,000,000	$ 1,365
Fair value		$ 1,482	0
Interest rate	3.875%	3.875%
Senior Notes | 5.375% Senior Notes
Debt Instrument [Line Items]
Principal amount at par		$ 900
Fair value		$ 959	$ 0
Interest rate	5.375%	5.375%

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Long-term Debt - Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Disclosure [Abstract]
Less than one year	$ 645,479	$ 538,384
Due after one year and through three years	2,431,782	1,550,581
Due after three years and through five years	1,534,324	1,646,101
Due after five years	13,297,541	11,138,129
Total	$ 17,909,126	$ 14,873,195

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Long-term Debt - Revolving Line of Credit (Details) - Revolving Credit Facility - USD ($)	6 Months Ended
	Jun. 30, 2019	Mar. 29, 2019	Jul. 31, 2017
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity		$ 750,000,000	$ 500,000,000
Line of credit facility, additional maximum borrowing capacity			$ 250,000,000
Commitment fee percentage	0.10%
London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Basis spread on variable rate	0.75%
Federal Funds Rate
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	1.00%
One-Month LIBOR Rate | Minimum
Line of Credit Facility [Line Items]
Basis spread on variable rate	0.00%

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Commitments and Contingencies - Streaming Content (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Contractual Obligation [Line Items]
Streaming obligations included in current content liabilities	$ 18,502,817	$ 19,285,875
Streaming obligations not reflected on Consolidated Balance Sheets	10,100,000	10,800,000
Current content liabilities
Contractual Obligation [Line Items]
Streaming obligations included in non-current content liabilities	4,800,000	4,700,000
Non-current content liabilities
Contractual Obligation [Line Items]
Streaming obligations included in non-current content liabilities	$ 3,600,000	$ 3,800,000

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Commitments and Contingencies - Expected Timing of Payments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Less than one year	$ 8,741,623	$ 8,611,398
Due after one year and through three years	8,282,265	8,841,561
Due after three years and through five years	1,341,448	1,684,582
Due after five years	137,481	148,334
Total streaming content obligations	$ 18,502,817	$ 19,285,875

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Commitments and Contingencies - Legal Proceedings (Details)	Jun. 30, 2019 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Commitments and contingencies	$ 0

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Stockholders' Equity - Narrative (Details) shares in Millions	Jun. 30, 2019 shares
2011 Stock Plan
Components of Stockholders' Equity [Line Items]
Shares reserved for future issuance	7

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Stockholders' Equity - Activity Related to Stock Option Plans (Details) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Shares available for grant, beginning balance (in shares)	8,699,941
Options outstanding, number of shares, beginning balance (in shares)	20,479,278
Shares available for grant, granted (in shares)	1,200,996
Options outstanding, number of shares, exercised (in shares)	(1,236,285)
Options outstanding, number of shares expired (in shares)	(21)
Shares available for grant, ending balance (in shares)	7,498,945
Options outstanding, number of shares, ending balance (in shares)	20,443,968
Options vested and exercisable, number of shares, ending balance (in shares)	20,443,968
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	$ 89.61
Options outstanding, weighted-average exercise price, granted (dollars per share) | $ / shares	339.01
Options outstanding, weighted-average exercise price, exercised (dollars per share) | $ / shares	36.67
Options expired, weighted-average exercise price (dollars per share) | $ / shares	4.27
Options outstanding, weighted-average exercise price, ending balance (dollars per share) | $ / shares	107.46
Options outstanding, weighted-average exercise price, vested and exercisable (dollars per share) | $ / shares	$ 107.46
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted-average remaining contractual term, ending balance (in years)	5 years 7 months 13 days
Weighted-average remaining contractual term, vested and exercisable (in years)	5 years 7 months 13 days
Aggregate intrinsic value, ending balance | $	$ 5,320,942
Aggregate intrinsic value, vested and exercisable | $	$ 5,320,942

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Stockholders' Equity - Amounts Related to Option Exercises (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Stockholders' Equity and Stock-based Compensation Disclosure [Abstract]
Total intrinsic value of options exercised	$ 212,932	$ 246,795	$ 393,774	$ 524,705
Cash received from options exercised	$ 21,896	$ 26,936	$ 44,868	$ 83,271

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Stockholders' Equity - Assumptions Used to Value Stock OptionS (Details) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) $ / shares	Jun. 30, 2018 USD ($) $ / shares	Jun. 30, 2019 USD ($) $ / shares	Jun. 30, 2018 USD ($) $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based payment award, expiration period (in years)			10 years
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	39.00%	42.00%
Risk-free interest rate	2.50%	2.90%
Suboptimal exercise factor	3.16	2.93
Weighted-average fair value (in dollars per share) | $ / shares	$ 179	$ 161	$ 171	$ 142
Stock-based compensation expense	$ 103,848	$ 81,232	$ 205,048	$ 149,627
Total income tax impact on provision (in thousands)	$ 24,845	$ 16,889	$ 46,473	$ 31,580
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility			39.00%	40.00%
Risk-free interest rate			2.50%	2.61%
Suboptimal exercise factor			3.07	2.80
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility			41.00%	42.00%
Risk-free interest rate			2.74%	2.90%
Suboptimal exercise factor			3.16	2.93

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 230,266	$ 44,287	$ 285,873	$ 53,779
Effective tax rates	46.00%	10.00%	32.00%	7.00%
Income Tax Contingency [Line Items]
Unrecognized tax benefits	$ 58,000		$ 58,000		$ 48,000
Reduction in provision for income taxes due to impact of effective tax rate	54,000		54,000
Deferred tax assets classified as other non-current assets	522,000		522,000		564,000
Deferred tax assets, valuation allowance	126,000		126,000		$ 125,000
Other noncurrent liabilities
Income Tax Contingency [Line Items]
Unrecognized tax benefits	17,000		17,000
Other noncurrent assets
Income Tax Contingency [Line Items]
Unrecognized tax benefits	41,000		41,000
Accounting Standards Update 2016-09
Income Tax Contingency [Line Items]
Effective income tax rate reconciliation, share-based compensation, excess tax benefit	$ 46,000	$ 57,000	$ 87,000	$ 117,000

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Segment Information - Narrative (Details)	6 Months Ended
	Jun. 30, 2019 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	Jun. 30, 2019	Dec. 31, 2018
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived tangible assets	$ 1,276,044	$ 381,947
International
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived tangible assets	$ 184,646	$ 36,334

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Segment Information - Information On Reportable Segments And Reconciliation To Consolidated Net Income (Details) subscription in Thousands, membership in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) subscription membership	Jun. 30, 2018 USD ($) subscription membership	Jun. 30, 2019 USD ($) subscription membership	Jun. 30, 2018 USD ($) subscription membership
Segment Reporting Information [Line Items]
Revenues	$ 4,923,116	$ 3,907,270	$ 9,444,108	$ 7,608,126
Cost of revenues	3,005,657	2,402,431	5,876,271	4,703,010
Marketing	603,150	592,007	1,219,728	1,128,784
Contribution profit	1,314,309	912,832	2,348,109	1,776,332
Other operating expenses	607,890	450,619	1,182,606	867,541
Operating income	706,419	462,213	1,165,503	908,791
Other income (expense)	(205,503)	(33,577)	(264,928)	(180,539)
Provision for income taxes	230,266	44,287	285,873	53,779
Net income	270,650	384,349	614,702	674,473
Amortization of content assets	$ 2,239,571	$ 1,828,971	$ 4,372,766	$ 3,588,949
Domestic Streaming
Segment Reporting Information [Line Items]
Total paid memberships at end of period | subscription	60,103	55,959	60,103	55,959
Total paid net membership additions (losses) | membership	(126)	872	1,617	3,149
Total free trials at end of period | membership	1,575	1,420	1,575	1,420
Revenues	$ 2,299,189	$ 1,893,222	$ 4,372,744	$ 3,713,241
Cost of revenues	1,196,420	969,995	2,335,955	1,906,475
Marketing	250,606	251,298	471,652	502,017
Contribution profit	852,163	671,929	1,565,137	1,304,749
Amortization of content assets	$ 916,494	$ 751,947	$ 1,780,805	$ 1,482,219
International Streaming
Segment Reporting Information [Line Items]
Total paid memberships at end of period | subscription	91,459	68,395	91,459	68,395
Total paid net membership additions (losses) | membership	2,825	4,580	10,686	10,561
Total free trials at end of period | membership	4,481	4,367	4,481	4,367
Revenues	$ 2,547,727	$ 1,921,144	$ 4,914,476	$ 3,703,230
Cost of revenues	1,778,890	1,392,512	3,476,011	2,714,218
Marketing	352,544	340,709	748,076	626,767
Contribution profit	416,293	187,923	690,389	362,245
Amortization of content assets	$ 1,315,421	$ 1,065,870	$ 2,575,796	$ 2,084,442
Domestic DVD
Segment Reporting Information [Line Items]
Total paid memberships at end of period | subscription	2,411	2,971	2,411	2,971
Total paid net membership additions (losses) | membership	(154)	(167)	(295)	(359)
Total free trials at end of period | membership	17	28	17	28
Revenues	$ 76,200	$ 92,904	$ 156,888	$ 191,655
Cost of revenues	30,347	39,924	64,305	82,317
Marketing	0	0	0	0
Contribution profit	45,853	52,980	92,583	109,338
Amortization of content assets	$ 7,656	$ 11,154	$ 16,165	$ 22,288