Segment Information

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Segment Information

Segment Information

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

The Domestic streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to the members in the United States. The International streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members outside of the United States. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment card fees are attributed to the operating segment based on the nature of the underlying membership (streaming or DVD) and the geographic region from which the membership originates. There are no internal revenue transactions between the Company’s segments.

The vast majority of the cost of revenues relate to content expenses, which include the amortization of streaming content assets and other costs associated with the licensing and acquisition of streaming content. In connection with the Company's global expansion, content acquired, licensed, and produced increasingly includes global rights. The Company allocates this content between the International and Domestic streaming segments based on estimated fair market value. Content expenses for each streaming segment thus includes both expenses directly incurred by the segment as well as an allocation of expenses incurred for global rights. Other costs of revenues such as delivery costs are primarily attributed to the operating segment based on amounts directly incurred by the segment. Marketing expenses consist primarily of advertising expenses and payments made to our device partners, MVPD's, mobile platforms and ISP's which are generally included in the segment in which the expenditures are directly incurred.

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

	As of December 31,
	2016		2015
	(in thousands)
United States	$	236,977	$	159,566
International	13,418		13,846

The following tables represent segment information for the year ended December 31, 2016:

	As of/Year ended December 31, 2016
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	49,431		44,365			4,114		—
Revenues	$	5,077,307	$	3,211,095		$	542,267	$	8,830,669
Cost of revenues	2,855,789		2,911,370			262,742		6,029,901
Marketing	382,832		608,246			—		991,078
Contribution profit (loss)	$	1,838,686	$	(308,521	)	$	279,525	1,809,690
Other operating expenses								1,429,897
Operating income								379,793
Other income (expense)								(119,286		)
Provision for income taxes								73,829
Net income								$	186,678

	Year ended December 31, 2016
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Amortization of content assets	$	2,337,950	$	2,450,548	$	78,952	$	4,867,450

The following tables represent segment information for the year ended December 31, 2015:

	As of/Year ended December 31, 2015
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	44,738		30,024			4,904		—
Revenues	$	4,180,339	$	1,953,435		$	645,737	$	6,779,511
Cost of revenues	2,487,193		1,780,375			323,908		4,591,476
Marketing	317,646		506,446			—		824,092
Contribution profit (loss)	$	1,375,500	$	(333,386	)	$	321,829	1,363,943
Other operating expenses								1,058,117
Operating income								305,826
Other income (expense)								(163,941		)
Provision for income taxes								19,244
Net income								$	122,641

	Year ended December 31, 2015
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Amortization of content assets	$	1,905,069	$	1,500,313	$	79,380	$	3,484,762

The following tables represent segment information for the year ended December 31, 2014:

	As of/Year ended December 31, 2014
	Domestic Streaming		International Streaming			Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	39,114		18,277			5,767		—
Revenues	$	3,431,434	$	1,308,061		$	765,161	$	5,504,656
Cost of revenues	2,201,761		1,154,117			396,882		3,752,760
Marketing	293,453		313,733			—		607,186
Contribution profit (loss)	$	936,220	$	(159,789	)	$	368,279	1,144,710
Other operating expenses								742,062
Operating income								402,648
Other income (expense)								(53,279		)
Provision for income taxes								82,570
Net income								$	266,799

	Year ended December 31, 2014
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Amortization of content assets	$	1,657,673	$	998,606	$	71,491	$	2,727,770

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