UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________ FORM 10-K _________________________________________________________ (Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
☐ 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 No.)
100 Winchester Circle, Los Gatos, California 95032
(Address and zip code of principal executive offices)
(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
Securities registered pursuant to Section 12(g) of the Act: None
_________________________________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 the
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020 the aggregate market value of voting stock held by non-affiliates of the registrant, based upon the closing sales price for the registrant’s common stock, as reported in the
NASDAQ Global Select Market System, was $196,932,116,552. Shares of common stock beneficially owned by each executive officer and director of the registrant and by each person known
by the registrant to beneficially own 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for any other purpose.
As of December 31, 2020, there were 442,895,261 shares of the registrant’s common stock, par value $0.001, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s Proxy Statement for the registrant’s 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
TABLE OF CONTENTS
Item 1. Business 1
Item 1A. Risk Factors 4
Item 1B. Unresolved Staff Comments 16
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Mine Safety Disclosures 17
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18
Item 6. Selected Financial Data 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32
Item 9A. Controls and Procedures 33
Item 9B. Other Information 35
Item 10. Directors, Executive Officers and Corporate Governance 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 36
Item 13. Certain Relationships and Related Transactions, and Director Independence 36
Item 14. Principal Accounting Fees and Services 36
Item 15. Exhibits, Financial Statement Schedules 37
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This Annual Report on Form 10-K 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; our future financial performance, including expectations regarding revenues, deferred
revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, net cash provided by
(used in) operating activities, access to financing sources, and free cash flows; capital allocation strategies, including any future stock repurchase programs;
seasonality; stock price volatility; impact of foreign exchange rate fluctuations, including on net income, revenues and average revenues per paying member;
adequacy of existing facilities; the impact of the discontinuance of the LIBO Rate; future regulatory changes and their impact on our business; intellectual
property; price changes and testing; impact of recently adopted accounting pronouncements; accounting treatment for changes related to content assets; action by
competitors; membership growth, including impact of content and pricing changes on membership growth; partnerships; member viewing patterns; dividends;
future contractual obligations, including unknown content obligations and timing of payments; our global content and marketing investments, including
investments in original programming; content amortization; tax expense; unrecognized tax benefits; deferred tax assets; our ability to effectively manage change
and growth; our company culture; our ability to attract and retain qualified employees and key personnel; and the impact of the coronavirus (COVID-19)
pandemic and our response to it. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ. A
detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements
is included throughout this filing and particularly in Item 1A: “Risk Factors” section set forth in this Annual Report on Form 10-K. All forward-looking statements
included in this document are based on information available to us on the date hereof, and we assume no obligation to revise or publicly release any revision to
any such forward-looking statement, except as may otherwise be required by law.
Item 1. Business
Netflix, Inc. (“Netflix”, “the Company”, “registrant”, “we”, or “us”) is one of the world’s leading entertainment services with approximately 204 million paid
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. Additionally,
we continue to offer our DVD-by-mail service in the United States (“U.S.”).
We are a pioneer in the delivery of streaming entertainment, 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 entertainment 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 streaming entertainment.
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 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.
We operate as one operating segment. Our revenues are primarily derived from monthly membership fees for services related to streaming content to our
members. See Note 12, Segment and Geographic Information, in the accompanying notes to our consolidated financial statements for further detail.
The market for video entertainment is intensely competitive and subject to rapid change. We compete against other entertainment video providers, such as
multichannel video programming distributors (“MVPDs”), streaming entertainment providers (including those that provide pirated content), video gaming
providers and more broadly against other sources of entertainment that our members could choose in their moments of free time. We also compete against
streaming entertainment providers and content producers in obtaining content for our service, both for licensed content and for original content projects.
While consumers may maintain simultaneous relationships with multiple entertainment sources, we strive for consumers to choose us in their moments of
free time. We have often referred to this choice as our objective of “winning moments of
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truth.” In attempting to win these moments of truth with our members, we are continually improving our service, including both our technology and our content,
which is increasingly exclusive and curated, and includes our original programming.
Our membership growth exhibits a seasonal pattern that reflects variations when consumers buy internet-connected screens and when they tend to increase
their viewing. Historically, the first and fourth quarters (October through March) represent our greatest streaming membership growth. In addition, our membership
growth can be impacted by our content release schedule and changes to pricing.
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technologies and similar intellectual
property as important to our success. We use a combination of patent, trademark, copyright and trade secret laws and confidentiality agreements to protect our
proprietary intellectual property. Our intellectual property rights extend to our technology, business processes and the content we produce and distribute through
our service. We use the intellectual property of third parties in creating some of our content, merchandising our products and marketing our service. Our ability to
provide our members with content they can watch depends on studios, content providers and other rights holders licensing rights, including distribution rights, to
such content and certain related elements thereof, such as the public performance of music contained within the content we distribute. The license periods and the
terms and conditions of such licenses vary. Our ability to protect and enforce our intellectual property rights is subject to certain risks and from time to time we
encounter disputes over rights and obligations concerning intellectual property. We cannot provide assurance that we will prevail in any intellectual property
The media landscape and the internet delivery of content have seen growing regulatory action. Historically, media has been highly regulated in many
countries. We are seeing some of these legacy regulatory frameworks be updated and expanded to address services like ours. In particular, we are seeing some
countries update their cultural support legislation to include services like Netflix. This includes content quotas, levies and investment obligations. Some even
restrict the extent of ownership rights we can have both in our service and in our content. In certain countries, regulators are also looking at restrictions that could
require formal reviews of and/or adjustments to content that appears on our service in their country. In general these regulations impact all services and may make
operating in certain jurisdictions more expensive or restrictive as to the content offering we may provide.
We view our employees and our culture as key to our success. As of December 31, 2020, we had approximately 9,400 full-time employees located globally
in 59 countries. Of these, 7,600 (81%) were located in the United States and Canada, 1,000 (11%) in Europe, Middle East, and Africa, 200 (2%) in Latin America
and 600 (6%) in Asia-Pacific. We also have a number of employees engaged in content production, some of whom are part-time or temporary, and whose numbers
fluctuate throughout the year.
We believe a critical component of our success is our company culture. This culture, which is detailed in a “Culture Memo” located on our website, is often
described as a high-performance culture of freedom and responsibility. We aim to attract and retain great people – representing a diverse array of perspectives and
skills – to work together as a dream team. We empower all of our employees so that they can have significant impact and input into decision-making; each
employee has the freedom and power to make the decisions and take actions in the best interest of the Company in carrying out their role. In return, our employees
are responsible and accountable for those decisions and actions. With this approach, we believe we are a more flexible, fun, stimulating, creative, collaborative and
As we have expanded our offices globally, our company culture remains an important aspect of our operations. We have also become mindful of cultural
differences across and within regions. Fostering a work environment that is culturally diverse, inclusive and equitable is a major focus for us. We employ a team
reporting to our VP of Inclusion Strategy who works to build diversity, inclusion and equity into all aspects of our operations globally, with the goal of having
diversity and inclusion function as a critical lens through which each Netflix employee carries out their role. We want more people and cultures to see themselves
reflected on screen – so it’s important that our employees are diverse like the communities we serve. Our Inclusion team helps increase representation by training
our recruiters on how to hire more inclusively, and to help the company and senior leaders diversify their networks. We also support numerous employee resource
groups (ERGs), representing employees and allies from a broad array of historically underrepresented and/or marginalized communities. Our ERGs are important
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creating a more inclusive environment for all employees, allowing space to connect on shared experiences, providing mentoring, career development and
volunteering opportunities, and to provide the Company with insight into the perspectives, needs and lived experiences of the communities. Each ERG is supported
by senior leaders across the Company. We published our first Inclusion report in January 2021 which further highlights our approach to diversity and inclusion.
We believe in fostering great leaders. We employ a VP of Leadership Programs, whose team’s mission is to design programs, such as seminars and lectures,
that help our leaders (officers, VPs and director-level employees) examine values that guide them personally, and as leaders, especially when those values come
into tension with the world around us. The goal of these programs is to create great human beings, who become great leaders, who shape a great company. We also
employ a learning and development team that programs workshops to provide skills and coaching to employees on a variety of topics, such as leading and inspiring
teams. We believe this focus helps our employees grow as leaders and well-rounded individuals, and better positions Netflix to operate our global business of
providing compelling content to entertain the world.
We aim to pay our employees at the top of their personal market, and they generally are able to choose the form of their compensation between cash and
stock options. This permits employee compensation to be highly personalized and reflective of each employee’s individual needs and preferences. In 2020, we
conducted a pay equity analysis and adopted practices to ensure that employees from underrepresented groups are not being underpaid relative to others doing the
same or similar work. We also practice “open compensation,” which means the top leaders (director-level and above) at the company can see how much any
employee is paid. This encourages open discussions about pay disparities throughout the Company. We aim to rectify any pay gaps that we find through these
We care about the health and well-being of our employees and their families. Each employee receives an annual cash health benefit allowance that they may
allocate to medical, dental and vision premiums in a way that makes sense for them. If any portion of the benefit is unused, the employee is paid the unused benefit
as cash compensation, up to $5,000. Employees have access to a host of other benefits, including mental health, childcare, family planning and a company match
for charitable donations. We enhanced a number of these benefits to support our employees through the challenges arising from the COVID-19 pandemic.
We believe that our approach to human capital resources has been instrumental in our growth, and has made Netflix a desirable destination for employees.
We maintain a website at www.netflix.com. The contents of our website are not incorporated in, or otherwise to be regarded as part of, this Annual Report on
Form 10-K. We make available, free of charge on our website, access to our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current
Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as soon as reasonably practicable after we file or furnish them electronically with the Securities and Exchange Commission (“SEC”).
Investors and others should note that we announce material financial information to our investors using our investor relations website (ir.netflix.net), SEC
filings, press releases, public conference calls and webcasts. We use these channels as well as social media and blogs 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 and blogs 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 social media channels
and blogs listed on our investor relations website.
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Item 1A. Risk Factors
If any of the following risks actually occur, our business, financial condition and results of operations could be harmed. In that case, the trading price of our
common stock could decline, and you could lose all or part of your investment.
Risks Related to Our Business
The ongoing coronavirus (COVID-19) pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to
raise additional capital.
The global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and economic
disruption. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, some of which have been
subsequently rescinded, modified or reinstated, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of
residence, and practice social distancing. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will
continue to negatively impact business activity across the globe. In response to government mandates, health care advisories and otherwise responding to employee
and vendor concerns, we have altered certain aspects of our operations. In an effort to protect the health and safety of our employees, our workforce has and
continues to spend a significant amount of time working from home. International travel has been severely curtailed and many of our productions continue to
experience disruption, as are productions of our third-party content suppliers. Other partners have similarly had their operations disrupted, including those partners
that we use for our operations as well as development, production and post-production of content. While we and our partners have resumed productions and related
operations in many parts of the world, our ability to produce content remains affected by the pandemic. To the extent the resulting economic disruption is severe,
we could see some vendors go out of business, resulting in supply constraints and increased costs or delays to our productions. Such production pauses may cause
us temporarily to have less new content available on our service in subsequent quarters, which could negatively impact consumer demand for and member
retention to our service and the number of paid memberships. Temporary production pauses or permanent shutdowns in production could result in content asset
impairments or other charges and will change the timing and amount of cash outflows associated with production activity.
The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will depend on
numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and
individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access the capital markets; the effect on our
customers and customer demand for and ability to pay for our services; disruptions or restrictions on our employees’ ability to work and travel; and any stoppages,
disruptions or increased costs associated with our development, production, post-production, marketing and distribution of original programming. During the
COVID-19 crisis, we may not be able to provide the same level of customer service and product features that our members are used to which could negatively
impact their perception of our service resulting in an increase in cancellations. Furthermore, given increased government expenditures associated with their
COVID-19 response, we could see increased government obligations which could negatively impact our results of operations. If we need to access the capital
markets, there can be no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the
COVID-19 pandemic and may take further actions that alter our business operations, including content production, as may be required by federal, state, local or
foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects
any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.
The COVID-19 pandemic also led to an increase in our net paid membership additions relative to our quarterly forecast and historic trends in the first half of
2020, and slower net paid membership additions in the second half of 2020 relative to historic trends. These results, as well as those of other metrics such as
revenues, operating margins, net income, net cash provided by operating activities and other financial and operating data, may not be indicative of results for future
periods. In addition to the potential direct impacts to our business, the global economy is likely to be significantly weakened as a result of the actions taken in
response to COVID-19. To the extent that such a weakened global economy impacts consumers’ ability or willingness to pay for our service or vendors’ ability to
provide services to us, especially those related to our content productions, we could see our business and results of operation negatively impacted.
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If our efforts to attract and retain members are not successful, our business will be adversely affected.
We have experienced significant membership growth over the past several years. Our ability to continue to attract members will depend in part on our ability
to consistently provide our members with compelling content choices, effectively market our service, as well as provide a quality experience for selecting and
viewing TV series, documentaries and feature films. Furthermore, the relative service levels, content offerings, pricing and related features of competitors to our
service may adversely impact our ability to attract and retain memberships. Competitors include other entertainment video providers, such as MVPDs, and
streaming entertainment providers (including those that provide pirated content), as well as video gaming providers and more broadly other sources of
entertainment that our members could choose in their moments of free time. If consumers do not perceive our service offering to be of value, including if we
introduce new or adjust existing features, adjust pricing or service offerings, or change the mix of content in a manner that is not favorably received by them, we
may not be able to attract and retain members. We may, from time to time, adjust our membership pricing or our pricing model itself, which may not be wellreceived by consumers, and which may result in existing members canceling our service or fewer new members joining our service. In addition, many of our
members rejoin our service or originate from word-of-mouth advertising from existing members. If our efforts to satisfy our existing members are not successful,
we may not be able to attract members, and as a result, our ability to maintain and/or grow our business will be adversely affected. Members cancel our service for
many reasons, including a perception that they do not use the service sufficiently, the need to cut household expenses, availability of content is unsatisfactory,
competitive services provide a better value or experience and customer service issues are not satisfactorily resolved. We must continually add new memberships
both to replace canceled memberships and to grow our business beyond our current membership base. While we permit multiple users within the same household
to share a single account for non-commercial purposes, if multi-household usage is abused or if our efforts to restrict multi-household usage are ineffective, our
ability to add new members may be hindered and our results of operations may be adversely impacted. If we do not grow as expected, given, in particular, that our
content costs are largely fixed in nature and contracted over several years, we may not be able to adjust our expenditures or increase our (per membership)
revenues commensurate with the lowered growth rate such that our margins, liquidity and results of operation may be adversely impacted. If we are unable to
successfully compete with current and new competitors in both retaining our existing memberships and attracting new memberships, our business will be adversely
affected. Further, if excessive numbers of members cancel our service, we may be required to incur significantly higher marketing expenditures than we currently
anticipate to replace these members with new members.
Changes in competitive offerings for entertainment video, including the potential rapid adoption of piracy-based video offerings, could adversely impact
The market for entertainment video is intensely competitive and subject to rapid change. Through new and existing distribution channels, consumers have
increasing options to access entertainment video. The various economic models underlying these channels include subscription, transactional, ad-supported and
piracy-based models. All of these have the potential to capture meaningful segments of the entertainment video market. Piracy, in particular, threatens to damage
our business, as its fundamental proposition to consumers is so compelling and difficult to compete against: virtually all content for free. Furthermore, in light of
the compelling consumer proposition, piracy services are subject to rapid global growth. Traditional providers of entertainment video, including broadcasters and
cable network operators, as well as internet based e-commerce or entertainment video providers are increasing their streaming video offerings. Several of these
competitors have long operating histories, large customer bases, strong brand recognition, exclusive rights to certain content and significant financial, marketing
and other resources. They may secure better terms from suppliers, adopt more aggressive pricing and devote more resources to product development, technology,
infrastructure, content acquisitions and marketing. New entrants may enter the market or existing providers may adjust their services with unique offerings or
approaches to providing entertainment video. Companies also may enter into business combinations or alliances that strengthen their competitive positions. If we
are unable to successfully or profitably compete with current and new competitors, our business will be adversely affected, and we may not be able to increase or
maintain market share, revenues or profitability.
We face risks, such as unforeseen costs and potential liability in connection with content we acquire, produce, license and/or distribute through our
As a producer and distributor of content, we face potential liability for negligence, copyright and trademark infringement, or other claims based on the nature
and content of materials that we acquire, produce, license and/or distribute. We also may face potential liability for content used in promoting our service,
including marketing materials. We are devoting more resources toward the development, production, marketing and distribution of original programming,
including TV series, documentaries and feature films. We believe that original programming can help differentiate our service from other offerings, enhance our
brand and otherwise attract and retain members. To the extent our original programming does not meet our expectations, in particular, in terms of costs, viewing
and popularity, our business, including our brand and results of operations may be adversely impacted. As we expand our original programming, we have become
responsible for production costs and
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other expenses, such as ongoing guild payments. We also take on risks associated with production, such as completion and key talent risk. Negotiations or renewals
related to entertainment industry collective bargaining agreements could negatively impact timing and costs associated with our productions. We contract with
third parties related to the development, production, marketing and distribution of our original programming. We may face potential liability or may suffer losses
in connection with these arrangements, including but not limited to if such third parties violate applicable law, become insolvent or engage in fraudulent behavior.
To the extent we create and sell physical or digital merchandise relating to our original programming, and/or license such rights to third parties, we could become
subject to product liability, intellectual property or other claims related to such merchandise. We may decide to remove content from our service, not to place
licensed or produced content on our service or discontinue or alter production of original content if we believe such content might not be well received by our
members, or could be damaging to our brand or business.
To the extent we do not accurately anticipate costs or mitigate risks, including for content that we obtain but ultimately does not appear on or is removed
from our service, or if we become liable for content we acquire, produce, license and/or distribute, our business may suffer. Litigation to defend these claims could
be costly and the expenses and damages arising from any liability or unforeseen production risks could harm our results of operations. We may not be indemnified
against claims or costs of these types and we may not have insurance coverage for these types of claims.
If we are not able to manage change and growth, our business could be adversely affected.
We are expanding our operations internationally, scaling our streaming service to effectively and reliably handle anticipated growth in both members and
features related to our service, scaling our ability to produce original content, as well as continuing to operate our DVD service within the U.S. As our international
offering evolves, we are managing and adjusting our business to address varied content offerings, consumer customs and practices, in particular those dealing with
e-commerce and streaming video, as well as differing legal and regulatory environments. As we scale our streaming service, we are developing technology and
utilizing third-party “cloud” computing services. As we scale our original content production, we are building out expertise in a number of disciplines, including
creative, marketing, legal, finance, licensing, merchandising and other resources related to the development and physical production of content. Further, we may
expand our content offering in a manner that is not well received by consumers. As we grow our operations, we may face integration and operational challenges as
well as potential unknown liabilities and reputational concerns in connection with partners we work with or companies we may acquire or control. If we are not
able to manage the growing complexity of our business, including improving, refining or revising our systems and operational practices related to our streaming
operations and original content, our business may be adversely affected.
If we fail to maintain or, in newer markets establish, a positive reputation concerning our service, including the content we offer, we may not be able to
attract or retain members, and our operating results may be adversely affected.
We believe that a positive reputation concerning our service is important in attracting and retaining members. To the extent our content, in particular, our
original programming, is perceived as low quality, offensive or otherwise not compelling to consumers, our ability to establish and maintain a positive reputation
may be adversely impacted. To the extent our content is deemed controversial or offensive by government regulators, we may face direct or indirect retaliatory
action or behavior, including being required to remove such content from our service, our entire service could be banned and/or become subject to heightened
regulatory scrutiny across our business and operations. We could also face boycotts which could adversely affect our business. Furthermore, to the extent our
response to government action or our marketing, customer service and public relations efforts are not effective or result in negative reaction, our ability to establish
and maintain a positive reputation may likewise be adversely impacted. With newer markets, we also need to establish our reputation with consumers and to the
extent we are not successful in creating positive impressions, our business in these newer markets may be adversely impacted.
Changes in how we market our service could adversely affect our marketing expenses and membership levels may be adversely affected.
We utilize a broad mix of marketing and public relations programs, including social media sites, to promote our service and content to existing and potential
new members. We may limit or discontinue use or support of certain marketing sources or activities if advertising rates increase or if we become concerned that
members or potential members deem certain marketing platforms or practices intrusive or damaging to our brand. If the available marketing channels are curtailed,
our ability to engage members and attract new members may be adversely affected.
Companies that promote our service may decide that we negatively impact their business or may make business decisions that in turn negatively impact us.
For example, if they decide that they want to compete more directly with us, enter a similar business or exclusively support our competitors, we may no longer
have access to their marketing channels. We also acquire a number of members who rejoin our service having previously canceled their membership. If we are
unable to maintain or
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replace our sources of members with similarly effective sources, or if the cost of our existing sources increases, our member levels and marketing expenses may be
We utilize marketing to promote our content and drive conversation about our content and service. To the extent we promote our content or service
inefficiently or ineffectively, we may not obtain the expected acquisition and retention benefits and our business may be adversely affected.
We rely upon a number of partners to make our service available on their devices.
We currently offer members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players,
television set-top boxes and mobile devices. We have agreements with various cable, satellite and telecommunications operators to make our service available
through the television set-top boxes of these service providers, some of whom may have investments in competing streaming content providers. In many instances,
our agreements also include provisions by which the partner bills consumers directly for the Netflix service or otherwise offers services or products in connection
with offering our service. If partners or other providers do a better job of connecting consumers with content they want to watch, for example through multi-service
discovery interfaces, our service may be adversely impacted. We intend to continue to broaden our relationships with existing partners and to increase our
capability to stream TV series, documentaries and feature films to other platforms and partners over time. If we are not successful in maintaining existing and
creating new relationships, or if we encounter technological, content licensing, regulatory, business or other impediments to delivering our streaming content to our
members via these devices, our ability to retain members and grow our business could be adversely impacted.
Our agreements with our partners are typically between one and three years in duration and our business could be adversely affected if, upon expiration, a
number of our partners do not continue to provide access to our service or are unwilling to do so on terms acceptable to us, which terms may include the degree of
accessibility and prominence of our service. Furthermore, devices are manufactured and sold by entities other than Netflix and while these entities should be
responsible for the devices’ performance, the connection between these devices and Netflix may nonetheless result in consumer dissatisfaction toward Netflix and
such dissatisfaction could result in claims against us or otherwise adversely impact our business. In addition, technology changes to our streaming functionality
may require that partners update their devices, or may lead to us to stop supporting the delivery of our service on certain legacy devices. If partners do not update
or otherwise modify their devices, or if we discontinue support for certain devices, our service and our members’ use and enjoyment could be negatively impacted.
We are subject to payment processing risk.
Our members pay for our service using a variety of different payment methods, including credit and debit cards, gift cards, prepaid cards, direct debit, online
wallets and direct carrier and partner billing. We rely on internal systems as well as those of third parties to process payment. Acceptance and processing of these
payment methods are subject to certain rules and regulations, including additional authentication requirements for certain payment methods, and require payment
of interchange and other fees. To the extent there are increases in payment processing fees, material changes in the payment ecosystem, such as large re-issuances
of payment cards, delays in receiving payments from payment processors, changes to rules or regulations concerning payments, loss of payment partners and/or
disruptions or failures in our payment processing systems, partner systems or payment products, including products we use to update payment information, our
revenue, operating expenses and results of operation could be adversely impacted. In certain instances, we leverage third parties such as our cable and other
partners to bill subscribers on our behalf. If these third parties become unwilling or unable to continue processing payments on our behalf, we would have to
transition subscribers or otherwise find alternative methods of collecting payments, which could adversely impact member acquisition and retention. In addition,
from time to time, we encounter fraudulent use of payment methods, which could impact our results of operations and if not adequately controlled and managed
could create negative consumer perceptions of our service. If we are unable to maintain our fraud and chargeback rate at acceptable levels, card networks may
impose fines, our card approval rate may be impacted and we may be subject to additional card authentication requirements. The termination of our ability to
process payments on any major payment method would significantly impair our ability to operate our business.
If government regulations relating to the internet or other areas of our business change, we may need to alter the manner in which we conduct our
business, or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the internet or other areas of our business could limit or otherwise adversely affect the manner
in which we currently conduct our business. As our service and others like us gain traction in international markets, governments are increasingly looking to
introduce new or extend legacy regulations to these services, in particular those related to broadcast media and tax. For example, recent changes to European law
enables individual member states to impose levies and other financial obligations on media operators located outside their jurisdiction.
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We anticipate that several jurisdictions may, over time, impose greater financial and regulatory obligations on us. In addition, the continued growth and
development of the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens on us. If we are
required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
Changes in laws or regulations that adversely affect the growth, popularity or use of the internet, including laws impacting net neutrality, could decrease the
demand for our service and increase our cost of doing business. Certain laws intended to prevent network operators from discriminating against the legal traffic
that traverse their networks have been implemented in many countries, including across the European Union. In others, the laws may be nascent or non-existent.
Furthermore, favorable laws may change, including for example, in the United States where net neutrality regulations were repealed. Given uncertainty around
these rules, including changing interpretations, amendments or repeal, coupled with potentially significant political and economic power of local network
operators, we could experience discriminatory or anti-competitive practices that could impede our growth, cause us to incur additional expense or otherwise
negatively affect our business.
Risks Related to Intellectual Property
If studios, content providers or other rights holders refuse to license streaming content or other rights upon terms acceptable to us, our business could be
Our ability to provide our members with content they can watch depends on studios, content providers and other rights holders licensing rights, including
distribution rights, to such content and certain related elements thereof, such as the public performance of music contained within the content we distribute. The
license periods and the terms and conditions of such licenses vary. As content providers develop their own streaming services, they may be unwilling to provide us
with access to certain content, including popular series or movies. If the studios, content providers and other rights holders are not or are no longer willing or able
to license us content upon terms acceptable to us, our ability to stream content to our members may be adversely affected and/or our costs could increase. Certain
licenses for content provide for the studios or other content providers to withdraw content from our service relatively quickly. Because of these provisions as well
as other actions we may take, content available through our service can be withdrawn on short notice. As competition increases, we see the cost of certain
programming increase. As we seek to differentiate our service, we are often focused on securing certain exclusive rights when obtaining content, including original
content. We are also focused on programming an overall mix of content that delights our members in a cost efficient manner. Within this context, we are selective
about the titles we add and renew to our service. If we do not maintain a compelling mix of content, our membership acquisition and retention may be adversely
Music and certain authors’ performances contained within content we distribute may require us to obtain licenses for such distribution. In this regard, we
engage in negotiations with collection management organizations (“CMOs”) that hold certain rights to music and/or other interests in connection with streaming
content into various territories. If we are unable to reach mutually acceptable terms with these organizations, we could become involved in litigation and/or could
be enjoined from distributing certain content, which could adversely impact our business. Additionally, pending and ongoing litigation as well as negotiations
between certain CMOs and other third parties in various territories could adversely impact our negotiations with CMOs, or result in music publishers represented
by certain CMOs unilaterally withdrawing rights, and thereby adversely impact our ability to reach licensing agreements reasonably acceptable to us. Failure to
reach such licensing agreements could expose us to potential liability for copyright infringement or otherwise increase our costs. Additionally, as the market for the
digital distribution of content grows, a broader role for CMOs in the remuneration of authors, performers and other rights holders could expose us to greater
If our trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by our competitors, the value of our brand
and other intangible assets may be diminished, and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with
whom we have relationships, as well as trademark, copyright, patent and trade secret protection laws, to protect our proprietary rights. We may also seek to enforce
our proprietary rights through court proceedings or other legal actions. We have filed and we expect to file from time to time for trademark and patent applications.
Nevertheless, these applications may not be approved, third parties may challenge any copyrights, patents or trademarks issued to or held by us, third parties may
knowingly or unknowingly infringe our intellectual property rights, and we may not be able to prevent infringement or misappropriation without substantial
expense to us. If the protection of our intellectual property rights is inadequate to prevent use or misappropriation by third parties, the value of our brand, content,
and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the
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perception of our business and service to members and potential members may become confused in the marketplace, and our ability to attract members may be
We currently hold various domain names relating to our brand, including Netflix.com. Failure to protect our domain names could adversely affect our
reputation and brand and make it more difficult for users to find our website and our service. We may be unable, without significant cost or at all, to prevent third
parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.
Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our website, streaming
technology, our recommendation and merchandising technology, title selection processes, our content, and marketing activities.
Trademark, copyright, patent and other intellectual property rights are important to us and other companies. Our intellectual property rights extend to our
technology, business processes and the content we produce and distribute through our service. We use the intellectual property of third parties in creating some of
our content, merchandising our products and marketing our service. From time to time, third parties allege that we have violated their intellectual property rights. If
we are unable to obtain sufficient rights, successfully defend our use, or develop non-infringing technology or otherwise alter our business practices on a timely
basis in response to claims against us for infringement, misappropriation, misuse or other violation of third-party intellectual property rights, our business and
competitive position may be adversely affected. Many companies are devoting significant resources to developing patents that could potentially affect many
aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the internet. We have not searched patents
relative to our technology. Defending ourselves against intellectual property claims, whether they are with or without merit or are determined in our favor, results
in costly litigation and diversion of technical and management personnel. It also may result in our inability to use our current website, streaming technology, our
recommendation and merchandising technology or inability to market our service or merchandise our products. We may also have to remove content from our
service, or remove consumer products or marketing materials from the marketplace. As a result of a dispute, we may have to develop non-infringing technology,
enter into royalty or licensing agreements, adjust our content, merchandising or marketing activities or take other actions to resolve the claims. These actions, if
required, may be costly or unavailable on terms acceptable to us.
Risks Related to Information Technology
Any significant disruption in or unauthorized access to our computer systems or those of third parties that we utilize in our operations, including those
relating to cybersecurity or arising from cyber-attacks, could result in a loss or degradation of service, unauthorized disclosure of data, including member
and corporate information, or theft of intellectual property, including digital content assets, which could adversely impact our business.
Our reputation and ability to attract, retain and serve our members is dependent upon the reliable performance and security of our computer systems and
those of third parties that we utilize in our operations. These systems may be subject to damage or interruption from, among other things, earthquakes, adverse
weather conditions, other natural disasters, terrorist attacks, rogue employees, power loss, telecommunications failures, and cybersecurity risks. Interruptions in
these systems, or with the internet in general, could make our service unavailable or degraded or otherwise hinder our ability to deliver our service. Service
interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our membership
service to existing and potential members.
Our computer systems and those of third parties we use in our operations are subject to cybersecurity threats, including cyber-attacks such as computer
viruses, denial of service attacks, physical or electronic break-ins and similar disruptions. These systems periodically experience directed attacks intended to lead
to interruptions and delays in our service and operations as well as loss, misuse or theft of personal information and other data, confidential information or
intellectual property. Additionally, outside parties may attempt to induce employees or users to disclose sensitive or confidential information in order to gain
access to data. Any attempt by hackers to obtain our data (including member and corporate information) or intellectual property (including digital content assets),
disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our business, be expensive to remedy and damage
our reputation. We have implemented certain systems and processes to thwart hackers and protect our data and systems, but the techniques used to gain
unauthorized access to data and software are constantly evolving, and we may be unable to anticipate or prevent unauthorized access. Because of our prominence,
we (and/or third parties we use) may be a particularly attractive target for such attacks, and from time to time, we have experienced an unauthorized release of
certain digital content assets. However, to date these unauthorized releases have not had a material impact on our service, systems or business. There is no
assurance that hackers may not have a material impact on our service or systems in the future. Our insurance does not cover expenses related to such disruptions or
unauthorized access. Efforts to prevent hackers from disrupting our service or otherwise accessing our systems are expensive to develop, implement and maintain.
These efforts require ongoing monitoring and updating as technologies change and efforts
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to overcome security measures become more sophisticated, and may limit the functionality of or otherwise negatively impact our service offering and systems. Any
significant disruption to our service or access to our systems could result in a loss of memberships and adversely affect our business and results of operation.
Further, a penetration of our systems or a third-party’s systems or other misappropriation or misuse of personal information could subject us to business,
regulatory, litigation and reputation risk, which could have a negative effect on our business, financial condition and results of operations.
We utilize our own communications and computer hardware systems located either in our facilities or in that of a third-party provider. In addition, we utilize
third-party “cloud” computing services in connection with our business operations. We also utilize our own and third-party content delivery networks to help us
stream TV series, documentaries and feature films in high volume to Netflix members over the internet. Problems faced by us or our third-party “cloud” computing
or other network providers, including technological or business-related disruptions, as well as cybersecurity threats and regulatory interference, could adversely
impact the experience of our members.
We rely upon Amazon Web Services to operate certain aspects of our service and any disruption of or interference with our use of the Amazon Web
Services operation would impact our operations and our business would be adversely impacted.
Amazon Web Services (“AWS”) provides a distributed computing infrastructure platform for business operations, or what is commonly referred to as a
“cloud” computing service. We have architected our software and computer systems so as to utilize data processing, storage capabilities and other services
provided by AWS. Currently, we run the vast majority of our computing on AWS. Given this, along with the fact that we cannot easily switch our AWS operations
to another cloud provider, any disruption of or interference with our use of AWS would impact our operations and our business would be adversely impacted.
While the retail side of Amazon competes with us, we do not believe that Amazon will use the AWS operation in such a manner as to gain competitive advantage
against our service, although if it was to do so it could harm our business.
If the technology we use in operating our business fails, is unavailable, or does not operate to expectations, our business and results of operation could be
We utilize a combination of proprietary and third-party technology to operate our business. This includes the technology that we have developed to
recommend and merchandise content to our consumers as well as enable fast and efficient delivery of content to our members and their various consumer
electronic devices. For example, we have built and deployed our own content-delivery network (“CDN”). To the extent Internet Service Providers (“ISPs”) do not
interconnect with our CDN or charge us to access their networks, or if we experience difficulties in our CDN’s operation, our ability to efficiently and effectively
deliver our streaming content to our members could be adversely impacted and our business and results of operation could be adversely affected. Likewise, if our
recommendation and merchandising technology does not enable us to predict and recommend titles that our members will enjoy, our ability to attract and retain
members may be adversely affected. We also utilize third-party technology to help market our service, process payments, and otherwise manage the daily
operations of our business. If our technology or that of third-parties we utilize in our operations fails or otherwise operates improperly, including as a result of
“bugs” in our development and deployment of software, our ability to operate our service, retain existing members and add new members may be impaired. Any
harm to our members’ personal computers or other devices caused by software used in our operations could have an adverse effect on our business, results of
operations and financial condition.
Changes in how network operators handle and charge for access to data that travel across their networks could adversely impact our business.
We rely upon the ability of consumers to access our service through the internet. If network operators block, restrict or otherwise impair access to our service
over their networks, our service and business could be negatively affected. To the extent that network operators implement usage based pricing, including
meaningful bandwidth caps, or otherwise try to monetize access to their networks by data providers, we could incur greater operating expenses and our
membership acquisition and retention could be negatively impacted. Furthermore, to the extent network operators create tiers of internet access service and either
charge us for or prohibit us from being available through these tiers, our business could be negatively impacted.
Most network operators that provide consumers with access to the internet also provide these consumers with multichannel video programming. As such,
many network operators have an incentive to use their network infrastructure in a manner adverse to our continued growth and success. While we believe that
consumer demand, regulatory oversight and competition will help check these incentives, to the extent that network operators are able to provide preferential
treatment to their data as opposed to ours or otherwise implement discriminatory network management practices, our business could be negatively impacted. The
extent to which these incentives limit operator behavior differs across markets.
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Risks Related to Privacy
Privacy concerns could limit our ability to collect and leverage member personal information and other data and disclosure of member personal
information and other data could adversely impact our business and reputation.
In the ordinary course of business and in particular in connection with content acquisition and merchandising our service to our members, we collect and
utilize information supplied by our members, which may include personal information and other data. We currently face certain regulatory requirements regarding
the manner in which we treat such information, including but not limited to Regulation (EU) 2016/679 (also known as the General Data Protection Regulation or
“GDPR”) and the California Consumer Privacy Act (“CCPA”). Any actual or perceived failure to comply with the GDPR, the CCPA, other data privacy laws or
regulations, or related contractual or other obligations, or any perceived privacy rights violation, could lead to investigations, claims, and proceedings by
governmental entities and private parties, damages for contract breach, and other significant costs, penalties, and other liabilities, as well as harm to our reputation
and market position.
Other businesses have been criticized by privacy groups and governmental bodies for attempts to link personal identities and other information to data
collected on the internet regarding users’ browsing and other habits. Increased regulation of data utilization practices, including self-regulation or findings under
existing laws that limit our ability to collect, transfer and use information and other data, could have an adverse effect on our business. In addition, if we were to
disclose information and other data about our members in a manner that was objectionable to them, our business reputation could be adversely affected, and we
could face potential legal claims that could impact our operating results. Internationally, we may become subject to additional and/or more stringent legal
obligations concerning our treatment of customer and other personal information, such as laws regarding data localization and/or restrictions on data export.
Failure to comply with these obligations could subject us to liability, and to the extent that we need to alter our business model or practices to adapt to these
obligations, we could incur additional expenses.
Our reputation and relationships with members would be harmed if member personal information and other data, particularly billing data, were to be
accessed by unauthorized persons.
We maintain personal information and other data regarding our members, including names and billing information. This information and data is maintained
on our own systems as well as that of third parties we use in our operations. With respect to billing information, such as credit card numbers, we rely on encryption
and authentication technology to secure such information. We take measures to protect against unauthorized intrusion into our members’ information and other
data. Despite these measures we, our payment processing services or other third-party services we use such as AWS, could experience an unauthorized intrusion
into our members’ information and other data. In the event of such a breach, current and potential members may become unwilling to provide the information to us
necessary for them to remain or become members. We also may be required to notify regulators about any actual or perceived data breach (including various state
Attorneys General, one or more EU data protection authorities, or other data protection authorities) as well as the individuals who are affected by the incident
within strict time periods. Additionally, we could face legal claims or regulatory fines or penalties for such a breach. The costs relating to any data breach could be
material, and we currently do not carry insurance against the risk of a data breach. We also maintain personal information and other data concerning our
employees, as well as personal information of others working on our productions. Should an unauthorized intrusion into our members’ or employees’ personal
information and other data and/or production personal information occur, our business could be adversely affected and our larger reputation with respect to data
protection could be negatively impacted.
Risks Related to Liquidity
The long-term and largely fixed cost nature of our content commitments may limit our operating flexibility and could adversely affect our liquidity and
results of operations.
In connection with licensing streaming content, we typically enter into multi-year commitments with studios and other content providers. We also enter into
multi-year commitments for content that we produce, either directly or through third parties, including elements associated with these productions such as noncancelable commitments under talent agreements. The payment terms of these agreements are not tied to member usage or the size of our membership base (“fixed
cost”) but may be determined by costs of production or tied to such factors as titles licensed and/or theatrical exhibition receipts. Such commitments, to the extent
estimable under accounting standards, are included in the Contractual Obligations section of Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Note 7, Commitments and Contingencies in the accompanying notes to our consolidated financial statements included in
Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Given the multiple-year duration and largely fixed cost
nature of content commitments, if membership acquisition and retention do not meet our expectations, our margins may be adversely impacted. Payment terms for
certain content commitments, such as content we directly produce, will typically
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require more up-front cash payments than other content licenses or arrangements whereby we do not cashflow the production of such content. To the extent
membership and/or revenue growth do not meet our expectations, our liquidity and results of operations could be adversely affected as a result of content
commitments and accelerated payment requirements of certain agreements. In addition, the long-term and fixed cost nature of our content commitments may limit
our flexibility in planning for, or reacting to changes in our business and the market segments in which we operate. If we license and/or produce content that is not
favorably received by consumers in a territory, or is unable to be shown in a territory, acquisition and retention may be adversely impacted and given the long-term
and fixed cost nature of our content commitments, we may not be able to adjust our content offering quickly and our results of operation may be adversely
We may seek additional capital that may result in stockholder dilution or that may have rights senior to those of our common stockholders.
From time to time, we may seek to obtain additional capital, either through equity, equity-linked or debt securities. For several years prior to 2020, our cash
flows from operations were negative and to the extent that it becomes negative in the future we may need to seek additional capital. The decision to obtain
additional capital will depend on, among other things, our business plans, operating performance and condition of the capital markets. Any disruption in the capital
markets could make it more difficult and expensive for us to raise additional capital or refinance our existing indebtedness. If we raise additional funds through the
issuance of equity, equity-linked 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. Any large equity or equity-linked offering could also negatively impact our stock price.
We have a substantial amount of indebtedness and other obligations, including streaming content obligations, which could adversely affect our financial
We have a substantial amount of indebtedness and other obligations, including streaming content obligations. Moreover, we may incur additional
indebtedness in the future and incur other obligations, including additional streaming content obligations. If the financial markets become difficult or costly to
access, our ability to raise additional capital may be negatively impacted. As of December 31, 2020, we had the equivalent of $16.4 billion aggregate principal
amount of senior notes outstanding (“Notes”), some of which is denominated in currencies other than the U.S. dollar. In addition, we have entered into a revolving
credit agreement that provides for a $750 million unsecured revolving credit facility. As of December 31, 2020, we have not borrowed any amount under this
revolving credit facility. As of December 31, 2020, we had approximately $7.0 billion of total content liabilities as reflected on our consolidated balance sheet,
some of which is denominated in currencies other than the U.S. dollar. Such amount does not include streaming content commitments that do not meet the criteria
for liability recognition, the amounts of which are significant. For more information on our streaming content obligations, including those not on our consolidated
balance sheet, see Note 7, Commitments and Contingencies in the accompanying notes to our consolidated financial statements included in Part II, Item 8,
“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Our substantial indebtedness and other obligations, including streaming
content obligations, may: • make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on our Notes and our other
obligations; • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes; • increase our cost of borrowing; • limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business
purposes; • require us to use a substantial portion of our cash flow from operations to make debt service payments and pay our other obligations when due; • limit our flexibility to plan for, or react to, changes in our business and industry; • place us at a competitive disadvantage compared to our less leveraged competitors; and
• increase our vulnerability to the impact of adverse economic and industry conditions, including changes in interest rates and foreign exchange rates.
Our streaming obligations include large multi-year commitments. As a result, we may be unable to react to any downturn in the economy or reduction in our
cash flows from operations by reducing our streaming content obligations in the near-term. This could result in our needing to access the capital markets at an
unfavorable time, which may negatively impact our stock price.
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The interest rate of borrowings under our revolving credit agreement makes reference to an adjusted London interbank offered rate (“LIBO Rate”). It is
possible that beginning in 2022, the LIBO Rate will be discontinued as a reference rate. Under our revolving credit agreement, in the event of the discontinuance of
the LIBO Rate, a mutually agreed-upon alternate benchmark rate will be established to replace the LIBO Rate. In the event that an agreement cannot be reached
on an appropriate benchmark rate, the availability of borrowings under our revolving credit agreement could be adversely impacted.
We may not be able to generate sufficient cash to service our debt and other obligations.
Our ability to make payments on our debt, including our Notes, and our other obligations will depend on our financial and operating performance, which is
subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. For several years prior to 2020,
our cash flows from operations were negative. We may be unable to attain a level of cash flows from operating activities sufficient to permit us to pay the
principal, premium, if any, and interest on our debt, including the Notes, and other obligations, including amounts due under our streaming content obligations.
If we are unable to service our debt and other obligations from cash flows, we may need to refinance or restructure all or a portion of such obligations prior to
maturity. Our ability to refinance or restructure our debt and other obligations will depend upon the condition of the capital markets and our financial condition at
such time. Any refinancing or restructuring could be at higher interest rates and may require us to comply with more onerous covenants, which could further
restrict our business operations. If our cash flows are insufficient to service our debt and other obligations, we may not be able to refinance or restructure any of
these obligations on commercially reasonable terms or at all and any refinancing or restructuring could have a material adverse effect on our business, results of
operations, or financial condition.
If our cash flows are insufficient to fund our debt and other obligations and we are unable to refinance or restructure these obligations, we could face
substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell material assets or operations to meet our debt
and other obligations. We cannot assure you that we would be able to implement any of these alternative measures on satisfactory terms or at all or that the
proceeds from such alternatives would be adequate to meet any debt or other obligations when due. If it becomes necessary to implement any of these alternative
measures, our business, results of operations, or financial condition could be materially and adversely affected.
Risks Related to International Operations
We could be subject to economic, political, regulatory and other risks arising from our international operations.
Operating in international markets requires significant resources and management attention and will subject us to economic, political, regulatory and other
risks that may be different from or incremental to those in the U.S. In addition to the risks that we face in the U.S., our international operations involve risks that
could adversely affect our business, including: • the need to adapt our content and user interfaces for specific cultural and language differences; • difficulties and costs associated with staffing and managing foreign operations; • political or social unrest and economic instability; • compliance with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, export controls and economic
sanctions, and local laws prohibiting corrupt payments to government officials; • difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions, including local ownership requirements for
streaming content providers; • regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory
requirements or otherwise, that results in disruption or non-availability of our service or particular content in the applicable jurisdiction; • foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, which may be less favorable than U.S. law and, among
other issues, may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property
rights; • adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations, and the related application of judgment in
determining our global provision for income taxes, deferred tax assets or liabilities or other tax liabilities given the ultimate tax determination is
uncertain; • fluctuations in currency exchange rates, which we do not use foreign exchange contracts or derivatives to hedge against and which will impact revenues
and expenses of our international operations and expose us to foreign currency exchange rate risk; • profit repatriation and other restrictions on the transfer of funds;
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our service; • low usage and/or penetration of internet-connected consumer electronic devices; • different and more stringent user protection, data protection, privacy and other laws, including data localization and/or restrictions on data export, and
local ownership requirements; • availability of reliable broadband connectivity and wide area networks in targeted areas for expansion; • differing, and often more lenient, laws and consumer understanding/attitudes regarding the illegality of piracy; • negative impacts from trade disputes; and
• implementation of regulations designed to stimulate the local production of film and TV series in order to promote and preserve local culture and
economic activity, including local content quotas, investment obligations, and levies to support local film funds. For example, the European Union
revised its Audio Visual Media Services Directive in 2018 to require that European works comprise at least thirty (30) percent of media service
providers’ catalogs, and to require prominence of those works.
Our failure to manage any of these risks successfully could harm our international operations and our overall business, and results of our operations.