Balance Sheet Components

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

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