Netflix (NFLX)

Marketing

Three months ended March 31, 2009 as compared to the three months ended March 31, 2008

The increase in marketing expenses for the three months ended March 31, 2009 as compared to the same prior-year period was primarily attributable to an increase in marketing program spending, primarily in consumer electronic partner programs and online advertising. Subscriber acquisition cost decreased for the three months ended March 31, 2009 as compared to the same prior-year period primarily due to strong performance in all marketing channels coupled with strong organic subscriber growth.

Three months ended March 31, 2009 as compared to the three months ended December 31, 2008

The increase in marketing expenses during the three months ended March 31, 2009 as compared to the three months ended December 31, 2008 was primarily attributable to an increase in marketing program spending, primarily in online advertising. Subscriber acquisition cost decreased for the three months ended March 31, 2009 as compared to the three months ended December 31, 2008 primarily due to strong performance in all marketing channels coupled with strong organic subscriber growth.

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Marketing

We use multiple marketing channels through which we attract subscribers to our service. Online advertising is an important channel for acquiring subscribers. We advertise our service online through such vehicles as paid

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search listings, banner ads, text links and permission based e-mails. In addition, we have an affiliate program whereby we make available Web-based banner ads and other advertisements that third parties may retrieve on a self-assisted basis from our Web site and place on their Web sites. We also engage our consumer electronic partners to generate new subscribers for our service. We also advertise our service on various regional and national television and radio stations. We use targeted, solo direct mail, shared mail and newspaper print advertising to acquire new subscribers. We also participate in a variety of cooperative advertising programs with studios under the terms of which we receive cash consideration in exchange for featuring the studios movies in Netflix promotional advertising. We believe that our paid marketing efforts are significantly enhanced by the benefits of word-of-mouth advertising, our subscriber referrals and our active public relations programs.

Marketing

We use multiple marketing channels through which we attract subscribers to our service. Online advertising is an important channel for acquiring subscribers. We advertise our service online through such vehicles as paid

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search listings, banner ads, text links and permission based e-mails. In addition, we have an affiliate program whereby we make available Web-based banner ads and other advertisements that third parties may retrieve on a self-assisted basis from our Web site and place on their Web sites. We also engage our consumer electronic partners to generate new subscribers for our service. We also advertise our service on various regional and national television and radio stations. We use targeted, solo direct mail, shared mail and newspaper print advertising to acquire new subscribers. We also participate in a variety of cooperative advertising programs with studios under the terms of which we receive cash consideration in exchange for featuring the studios movies in Netflix promotional advertising. We believe that our paid marketing efforts are significantly enhanced by the benefits of word-of-mouth advertising, our subscriber referrals and our active public relations programs.

Marketing

The decrease in marketing expenses in absolute dollars in 2008 as compared to 2007 was primarily attributable to a decrease in marketing program spending, principally in direct mail and inserts. In the second half of 2007, we lowered prices on our most popular subscription plans and decided to partially offset the cost of our investment in lower prices by reducing our spending on marketing programs. Subscriber acquisition cost decreased in 2008 as compared to 2007 primarily due to more efficient marketing spending.

The decrease in marketing expenses in absolute dollars in 2007 as compared to 2006 was primarily attributable to a decrease in marketing program spending, principally in television advertising and direct mail. Subscriber acquisition cost decreased in 2007 as compared to 2006 primarily due to more efficient marketing spending.

Marketing

The decrease in marketing expenses in absolute dollars in 2008 as compared to 2007 was primarily attributable to a decrease in marketing program spending, principally in direct mail and inserts. In the second half of 2007, we lowered prices on our most popular subscription plans and decided to partially offset the cost of our investment in lower prices by reducing our spending on marketing programs. Subscriber acquisition cost decreased in 2008 as compared to 2007 primarily due to more efficient marketing spending.

The decrease in marketing expenses in absolute dollars in 2007 as compared to 2006 was primarily attributable to a decrease in marketing program spending, principally in television advertising and direct mail. Subscriber acquisition cost decreased in 2007 as compared to 2006 primarily due to more efficient marketing spending.

Marketing

Marketing expenses consist primarily of advertising expenses. Advertising expenses include marketing program expenditures and other promotional activities, including allocated costs of revenues related to free trial periods. Also included in marketing expenses are payments made to our consumer electronics partners to generate new subscribers for the Company’s service, and payroll related expenses. Advertising costs are expensed as incurred except for advertising production costs, which are expensed the first time the advertising is run. Advertising expense totaled approximately $181.4 million, $207.9 million, and $215.3 million in 2008, 2007, and 2006, respectively.

The Company and its vendors participate in a variety of cooperative advertising programs and other promotional programs in which the vendors provide the Company with cash consideration in exchange for marketing and advertising of the vendor’s products. If the consideration received represents reimbursement of specific incremental and identifiable costs incurred to promote the vendor’s product, it is recorded as an offset to the associated marketing expense incurred. Any reimbursement greater than the specific incremental and identifiable costs incurred is recognized as a reduction of cost of revenues when recognized in the Company’s consolidated statements of operations.

Marketing

Marketing expenses consist primarily of advertising expenses. Advertising expenses include marketing program expenditures and other promotional activities, including allocated costs of revenues related to free trial periods. Also included in marketing expenses are payments made to our consumer electronics partners to generate new subscribers for the Company’s service, and payroll related expenses. Advertising costs are expensed as incurred except for advertising production costs, which are expensed the first time the advertising is run. Advertising expense totaled approximately $181.4 million, $207.9 million, and $215.3 million in 2008, 2007, and 2006, respectively.

The Company and its vendors participate in a variety of cooperative advertising programs and other promotional programs in which the vendors provide the Company with cash consideration in exchange for marketing and advertising of the vendor’s products. If the consideration received represents reimbursement of specific incremental and identifiable costs incurred to promote the vendor’s product, it is recorded as an offset to the associated marketing expense incurred. Any reimbursement greater than the specific incremental and identifiable costs incurred is recognized as a reduction of cost of revenues when recognized in the Company’s consolidated statements of operations.

Marketing

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Marketing

Three and nine months ended September 30, 2008 as compared to the three and nine months ended September 30, 2007

Marketing expenses for the three months ended September 30, 2008 as compared to the same prior-year period was relatively flat. The decrease in marketing expenses for the nine months ended September 30, 2008 as compared to the same prior-year period was primarily attributable to a decrease in marketing program spending, primarily in direct mail advertising.

Subscriber acquisition cost decreased for the three and nine months ended September 30, 2008 as compared to the same prior-year periods primarily due to changes in the competitive environment coupled with a decrease in marketing spending to offset, in part, the costs of the price decrease we implemented in the second half of 2007.

Three months ended September 30, 2008 as compared to the three months ended June 30, 2008

The increase in marketing expenses during the three months ended September 30, 2008 as compared to the three months ended June 30, 2008 was primarily attributable to an increase in marketing program spending, primarily in online advertising, direct mail advertising and inserts.

Subscriber acquisition cost increased for the three months ended September 30, 2008 as compared to the three months ended June 30, 2008 primarily due to a decline in acquisition rates across all channels.

We anticipate that marketing expenses will decrease on a year-over-year basis as we reduce marketing spending to offset, in part, the costs of the price decrease we implemented in the second half of 2007.

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Marketing

Three and six months ended June 30, 2008 as compared to the three and six months ended June 30, 2007

The decrease in marketing expenses for the three and six months ended June 30, 2008 as compared to the same prior-year period was primarily attributable to a decrease in marketing program spending.

Subscriber acquisition cost decreased for the three and six months ended June 30, 2008 as compared to the same prior-year periods primarily due to changes in the competitive environment coupled with a decrease in marketing spending to offset, in part, the costs of the price decrease we implemented in the second half of 2007.

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Three months ended June 30, 2008 as compared to the three months ended March 31, 2008

The decrease in marketing expenses during the three months ended June 30, 2008 as compared to the three months ended March 31, 2008 was primarily attributable to a decrease in marketing program spending, primarily in online advertising.

Subscriber acquisition cost decreased for the three months ended June 30, 2008 as compared to the three months ended March 31, 2008 primarily due to a seasonal decline in marketing spending.

We anticipate that marketing expenses will decrease on a year-over-year basis as we cut marketing spending to offset, in part, the costs of the price decrease we implemented in the second half of 2007.

Marketing

Three months ended March 31, 2008 as compared to the three months ended March 31, 2007

The decrease in marketing expenses for the three months ended March 31, 2008 as compared to the same prior-year period was primarily attributable to a decrease in marketing program costs.

Subscriber acquisition cost decreased for the three months ended March 31, 2008 as compared to the same prior-year period primarily due to a decrease in marketing spending per gross subscriber addition resulting from changes in the competitive environment.

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Three months ended March 31, 2008 as compared to the three months ended December 31, 2007

The increase in marketing expenses during the three months ended March 31, 2008 as compared to the three months ended December 31, 2007 was primarily attributable to an increase in marketing program costs and costs of free trials.

Subscriber acquisition cost decreased for the three months ended March 31, 2008 as compared to the three months ended December 31, 2007 primarily due to a decrease in marketing spending per gross subscriber addition resulting from changes in the competitive environment.

We anticipate that marketing expenses will decrease on a year-over-year basis for the remainder of 2008 as we cut marketing spending to offset, in part, the costs of the price decrease we implemented in the second half of 2007.

Marketing

Marketing expenses consist primarily of advertising expenses. Advertising expenses include marketing program expenditures and other promotional activities, including revenue sharing expenses, postage and packaging expenses and content amortization related to free trial periods. Advertising costs are expensed as incurred except for advertising production costs, which are expensed the first time the advertising is run. Advertising expense totaled approximately $207.9 million, $215.3 million and $135.9 million in 2007, 2006 and 2005, respectively.

The Company and its vendors participate in a variety of cooperative advertising programs and other promotional programs in which the vendors provide the Company with cash consideration in exchange for marketing and advertising of the vendor’s products. If the consideration received represents reimbursement of specific incremental and identifiable costs incurred to promote the vendor’s product, it is recorded as an offset to the associated marketing expense incurred. Any reimbursement greater than the specific incremental and identifiable costs incurred is recognized as a reduction of cost of revenues when recognized in the Company’s consolidated statements of operations.

Marketing

Three and nine months ended September 30, 2006 as compared to the three and nine months ended September 30, 2007

Marketing expenses decreased $10.2 million during the three months ended September 30, 2007 as compared to the same prior-year period. The decrease was primarily attributable to a decrease in marketing program costs, principally in online advertising and package inserts. Subscriber acquisition cost decreased for the three months ended September 30, 2007 as compared to the same prior-year period primarily due to faster subscriber growth from free acquisition channels, such as word-of-mouth.

Marketing expenses increased $7.2 million during the nine months ended September 30, 2007 as compared to the same prior-year period. The increase was primarily attributable to an increase in marketing program costs during the first quarter of 2007, principally direct mail and online advertising, to attract new subscribers. Subscriber acquisition cost increased for the nine months ended September 30, 2007 as compared to the same prior-year period primarily due to slower subscriber growth from free acquisition channels, such as word-of-mouth, due to increased competition.

We expect that our marketing expenses will increase for the remainder of 2007.

Three months ended June 30, 2007 as compared to the three months ended September 30, 2007

Marketing expenses increased $3.9 million during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007. The increase was attributable to an increase in marketing program spending, primarily in online advertising, during the third quarter of 2007.

Subscriber acquisition cost decreased for the three months ended September 30, 2007 as compared to the three months ended June 30, 2007 due to a mix of lower prices, more efficient spending and competitors’ lighter marketing.