Netflix (NFLX)

Technology and Development

18

Table of Contents

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

The increase in technology and development expenses for the three months ended March 31, 2009 as compared to the same prior-year period was primarily attributable to an increase in personnel-related costs due to growth in headcount and expenses related to the development of solutions for streaming content and continued improvements in our service.

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

Technology and development expenses during the three months ended March 31, 2009 as compared to the three months ended December 31, 2008 were relatively flat.

Technology and Development

The increase in technology and development expenses in absolute dollars for 2008 as compared to 2007 was primarily the result of an increase in personnel-related costs due to growth in headcount and expenses related to the development of solutions for streaming content and continued improvements to our service.

The increase in technology and development expenses in absolute dollars for 2007 as compared to 2006 was primarily the result of an increase in personnel-related costs due to growth in headcount and expenses related to the development of solutions for streaming content.

33

Table of Contents

Technology and Development

The increase in technology and development expenses in absolute dollars for 2008 as compared to 2007 was primarily the result of an increase in personnel-related costs due to growth in headcount and expenses related to the development of solutions for streaming content and continued improvements to our service.

The increase in technology and development expenses in absolute dollars for 2007 as compared to 2006 was primarily the result of an increase in personnel-related costs due to growth in headcount and expenses related to the development of solutions for streaming content.

33

Table of Contents

Technology and Development

Technology and development expenses consist of payroll and related costs incurred in testing, maintaining and modifying the Company’s Web site, its recommendation service, developing solutions for the streaming of content to subscribers, telecommunications systems and infrastructure and other internal-use software systems. Technology and development expenses also include depreciation of the computer hardware and capitalized software used to run its Web site and store its data.

Technology and Development

Technology and development expenses consist of payroll and related costs incurred in testing, maintaining and modifying the Company’s Web site, its recommendation service, developing solutions for the streaming of content to subscribers, telecommunications systems and infrastructure and other internal-use software systems. Technology and development expenses also include depreciation of the computer hardware and capitalized software used to run its Web site and store its data.

Technology and Development

Technology and Development

Technology and Development

Technology and Development

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

The increase in technology and development expenses for the three and nine months ended September 30, 2008 as compared to the same prior-year periods was primarily attributable to an increase in personnel-related costs due to growth in headcount.

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

The increase in technology and development 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 personnel-related costs.

We regularly research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experiences. As a result, we anticipate that our technology and development expenses will increase on a year-over-year basis for the remainder of 2008.

Technology and Development

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

The increase in technology and development expenses for the three and six months ended June 30, 2008 as compared to the same prior-year periods was primarily attributable to an increase in personnel-related costs due to growth in headcount.

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

The increase in technology and development expenses during the three months ended June 30, 2008 as compared to the three months ended March 31, 2008 was primarily attributable to an increase in facilities related expenses as well as to the depreciation of computer hardware and software.

We regularly research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experiences. As a result, we anticipate that our technology and development expenses will increase on a year-over-year basis for the remainder of 2008.

Technology and Development

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

The increase in technology and development expenses for the three months ended March 31, 2008 as compared to the same prior-year period was primarily attributable to an increase in personnel-related costs due to growth in headcount.

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

The increase in technology and development 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 personnel-related costs.

We regularly research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experiences. As a result, we anticipate that our technology and development expenses will increase on a year-over-year basis for the remainder of 2008.

Technology and Development

Technology and development expenses consist of payroll and related costs incurred in testing, maintaining and modifying the Company’s Web site, its recommendation service, developing solutions for the Internet-based delivery of content to subscribers, telecommunications systems and infrastructure and other internal-use software systems. Technology and development expenses also include depreciation of the computer hardware and capitalized software used to run its Web site and store its data.

Technology and Development

Technology and development expenses consist of payroll and related costs incurred in testing, maintaining and modifying the
Company’s Web site, its recommendation service, developing solutions for the Internet-based delivery of content to subscribers, telecommunications systems and infrastructure and other internal-use software systems. Technology and development
expenses also include depreciation of the computer hardware and capitalized software used to run its Web site and store its data.

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.

FACE="Times New Roman" SIZE="2">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.

Technology and Development

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

Technology and development expenses increased $6.3 million and $17.7 million, respectively, during the three and nine months ended September 30, 2007 as compared to the same prior-year periods. The increases were primarily the result of an increase in personnel-related costs due to an increase in headcount and increased expenses related to the development of solutions for the Internet-based delivery of content.

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

Technology and development expenses decreased $0.7 million during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007 primarily due to a decrease in expenses related to the development of solutions for the Internet-based delivery of content offset by increased personnel-related costs due to an increase in headcount.

We continuously research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experience. In addition, we continue to develop solutions for the Internet-based delivery of content to our subscribers. As such, we expect that our technology and development expenses will increase slightly for the remainder of 2007.

24

Table of Contents

Technology and Development

Three and six months ended June 30, 2006 as compared to the three and six months ended June 30, 2007

Technology and development expenses increased $6.9 million and $11.4 million, respectively, during the three and six months ended June 30, 2007 as compared to the same prior-year period. The increase was primarily the result of an increase in personnel-related costs due to an increase in headcount and increased expenses related to the development of solutions for the internet-based delivery of content.

Three months ended March 31, 2007 as compared to the three months ended June 30, 2007

Technology and development expenses increased $3.2 million during the three months ended June 30, 2007 as compared to the three months ended March 31, 2007 primarily due to increased expenses related to the development of solutions for the internet-based delivery of content.

We continuously research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experience. Although we continue to develop solutions for the internet-based delivery of content to our subscribers, we expect that our technology and development expenses will decrease for the remainder of 2007.

Technology and Development

The increase in technology and development expenses for the three months ended March 31, 2007 as compared to the same prior-year period was primarily the result of an increase in personnel-related costs due to an increase in headcount. As a percentage of revenues, technology and development expenses increased slightly in the three months ended March 31, 2007 as compared to the same prior-year period primarily due to a greater increase in technology and development expenses than revenues.

21

Table of Contents

We continuously research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experience. Additionally, we continue to develop solutions for the internet-based delivery of content to our subscribers. As a result, we expect our technology and development expenses will continue to increase for the remainder of 2007.

Technology and Development

Technology and development expenses consist of payroll and related costs incurred in testing, maintaining and modifying the Company’s Web Site, its recommendation service, developing solutions for the online delivery of content to subscribers, telecommunications systems and infrastructure and other internal-use software systems. Technology and development expenses also include depreciation on computer hardware and capitalized software.

Technology and Development

The increase in technology and development expenses in absolute dollars for the three and nine months ended September 30, 2006 in comparison with the same prior-year period was primarily the result of an increase in personnel and facility-related costs. As a percentage of revenues, technology and development expenses decreased slightly in the three and nine months ended September 30, 2006 in comparison with the same prior-year period primarily due to a greater increase in revenues than technology and development expenses.

We continuously research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experience. Additionally, we are developing solutions for downloading movies to subscribers. As a result, we expect our technology and development expenses will continue to increase in absolute dollars for the remainder of 2006.

24

Table of Contents

Technology and Development

The increase in technology and development expenses in absolute dollars for the three and six months ended June 30, 2006 in comparison with the same prior-year period was primarily the result of an increase in personnel and facility-related costs. As a percentage of revenues, technology and development expenses decreased slightly in the three and six months ended June 30, 2006 in comparison with the same prior-year period primarily due to a greater increase in revenues than technology and development expenses.

We continuously research and test a variety of potential improvements to our internal hardware and software systems in an effort to improve our productivity and enhance our subscribers’ experience. Additionally, we are developing solutions for downloading movies to subscribers. As a result, we expect our technology and development expenses will continue to increase in absolute dollars for the remainder of 2006.