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Segment Information
9 Months Ended
Sep. 30, 2015
Segment Reporting [Abstract]  
Segment Information
Segment Information
The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD. Segment information is presented in the same manner that the Company’s chief operating decision maker ("CODM") reviews the operating results in assessing performance and allocating resources. The Company’s CODM reviews revenues and contribution profit (loss) for each of the reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues and marketing expenses directly incurred by the segment. The Company has aggregated the results of the International operating segments into one reportable segment because these operating segments share similar long-term economic and other qualitative characteristics.
The Domestic and International streaming segments derive revenues from monthly membership fees for services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment card fees are attributed to the operating segment based on the nature of the underlying membership (streaming or DVD) and the geographic region from which the membership originates. There are no internal revenue transactions between the Company’s segments.
Cost of revenues are primarily attributed to the operating segment based on the amounts directly incurred by the segment to obtain content and deliver it to the specific region. Content rights increasingly include multiple geographies as the Company aspires to obtain global content rights to support global expansion. The Company allocates this content between the International and Domestic segments based on estimated fair market value. Marketing expenses are primarily comprised of advertising expenses which are generally included in the segment in which the expenditures are directly incurred.
The Company's long-lived tangible assets were located as follows:
 
As of
 
September 30,
2015
 
December 31,
2014
 
(in thousands)
United States
$
168,569

 
$
138,704

International
12,699

 
11,171


The following tables represent segment information for the periods ended September 30, 2015:
 
 
As of/ Three Months Ended September 30, 2015
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total memberships at end of period (1)
43,181

 
25,987

 
5,060

 

Revenues
$
1,063,961

 
$
516,870

 
$
157,524

 
$
1,738,355

Cost of revenues
644,914

 
451,251

 
77,793

 
1,173,958

Marketing
74,835

 
133,267

 

 
208,102

Contribution profit (loss)
$
344,212

 
$
(67,648
)
 
$
79,731

 
$
356,295

Other operating expenses
 
 
 
 
 
 
282,654

Operating income
 
 
 
 
 
 
73,641

Other income (expense)
 
 
 
 
 
 
(31,403
)
Provision for income taxes
 
 
 
 
 
 
12,806

Net income
 
 
 
 
 
 
$
29,432


 
As of/ Nine Months Ended September 30, 2015
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total memberships at end of period (1)
43,181

 
25,987

 
5,060

 

Revenues
$
3,074,406

 
$
1,387,030

 
$
494,742

 
$
4,956,178

Cost of revenues
1,840,134

 
1,249,495

 
252,482

 
3,342,111

Marketing
237,813

 
362,106

 

 
599,919

Contribution profit (loss)
$
996,459

 
$
(224,571
)
 
$
242,260

 
$
1,014,148

Other operating expenses
 
 
 
 
 
 
768,216

Operating income
 
 
 
 
 
 
245,932

Other income (expense)
 
 
 
 
 
 
(124,778
)
Provision for income taxes
 
 
 
 
 
 
41,691

Net income
 
 
 
 
 
 
$
79,463



The following tables represent segment information for the periods ended September 30, 2014:
 
As of/ Three Months Ended September 30, 2014
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total memberships at end of period (1)
37,219

 
15,843

 
5,986

 

Revenues
$
877,150

 
$
345,685

 
$
186,597

 
$
1,409,432

Cost of revenues
565,251

 
291,942

 
97,201

 
954,394

Marketing
61,045

 
84,609

 

 
145,654

Contribution profit (loss)
$
250,854

 
$
(30,866
)
 
$
89,396

 
$
309,384

Other operating expenses
 
 
 
 
 
 
198,977

Operating income
 
 
 
 
 
 
110,407

Other income (expense)
 
 
 
 
 
 
(12,870
)
Provision for income taxes
 
 
 
 
 
 
38,242

Net income
 
 
 
 
 
 
$
59,295

 
As of/ Nine Months Ended September 30, 2014
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Total memberships at end of period (1)
37,219

 
15,843

 
5,986

 

Revenues
$
2,513,992

 
$
920,264

 
$
585,672

 
$
4,019,928

Cost of revenues
1,628,568

 
803,906

 
305,954

 
2,738,428

Marketing
206,030

 
197,485

 

 
403,515

Contribution profit (loss)
$
679,394

 
$
(81,127
)
 
$
279,718

 
$
877,985

Other operating expenses
 
 
 
 
 
 
540,383

Operating income
 
 
 
 
 
 
337,602

Other income (expense)
 
 
 
 
 
 
(33,749
)
Provision for income taxes
 
 
 
 
 
 
120,425

Net income
 
 
 
 
 
 
$
183,428


The following table represents the amortization of the content library:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
Three months ended September 30,
 
 
 
 
 
 
 
2015
$
493,025

 
$
378,378

 
$
18,589

 
$
889,992

2014
433,266

 
252,888

 
18,269

 
704,423

Nine months ended September 30,
 
 
 
 
 
 
 
2015
1,387,242

 
1,056,279

 
60,587

 
2,504,108

2014
1,229,477

 
696,449

 
51,313

 
1,977,239

The following table represents total content library, net:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 
Consolidated
 
(in thousands)
As of September 30, 2015
$
4,367,750

 
$
2,193,785

 
$
25,439

 
$
6,586,974

As of December 31, 2014
3,476,226

 
1,392,701

 
30,101

 
4,899,028



(1)
A membership (also referred to as a subscription or member) is defined as the right to receive either the Netflix streaming service or Netflix DVD service. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to new and certain rejoining members. For inclusion in the definition of a membership in the above metrics, a method of payment is required to be provided even during the free-trial period. Total memberships therefore include those who are on a free-trial and have provided a method of payment. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the prepaid membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.