#1Overview of Content Accounting Investor Relations January 2018 NETFLIX#2Disclosure This presentation is intended to provide additional information to investors on certain accounting matters. This information should be considered in addition to, not as a substitute for or superior to the disclosure contained in our filings with the Securities and Exchange Commission. You should read this discussion in conjunction with the condensed consolidated financial statements and the notes thereto included in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. NETFLIX#3Contents. ● Overview ASC 920: Entertainment - Broadcasters ASC 926: Entertainment - Films Financial Statements Impact on Cash Flow Frequently Asked Questions#4Overview. NETFLIX#5Streaming content accounting standards. We use two accounting standards for our streaming content costs. Since we launched streaming in 2007, we have used the guidance of ASC 920: Entertainment - Broadcasting because we started the streaming service with content that we license (rather than own). We license both Netflix originals (such as House of Cards and Orange is the New Black) as well as 2nd run titles, such as Shameless and How to Get Away with Murder Beginning in 2016, we also now apply the guidance of ASC 926: Entertainment - Films for the original content that we self-produce and where we own the intellectual property. We believe the benefits of self-producing content include lower costs (no studio middle-man), ownership of the intellectual property, which allows us to potentially monetize in different ways (eg, licensing & merchandising) and greater rights flexibility (global rights, exclusivity) NETFLIX#6Examples. Type of content Examples Netflix Originals (Branded) Self-produced Stranger Things, The OA, Dave Chappelle, Ingobernable, Ridiculous 6, Santa Clarita Diet, 3%, A Series of Unfortunate Events Licensed House of Cards (MRC), Orange is the New Black (Lionsgate), Iron Fist (Marvel), Narcos (Gaumont), Bloodline (Sony) 2nd Run movies & TV shows Licensed Shameless (Showtime), How to Get Away with Murder (ABC), Friends (Warner Bros.), Captain America: Civil War (Disney) NETFLIX#7Amortization methodology. The amortization schedule for content is based on historical and estimated viewing patterns and is reviewed quarterly Our content library is amortized on an accelerated basis Content assets are amortized over the shorter of the title's window of availability or estimated period of use or 10 years On average, over 90% of a licensed or produced streaming content asset is expected to be amortized within four years after its month of first availability. First run topical programming like talk shows are expensed upon airing NETFLIX#8ASC 920: Entertainment - Broadcasters. NETFLIX#9Criteria for ASC 920. ASC 920 specifies that a broadcaster shall account for a license agreement for program material as a purchase of rights Under ASC 920, the following 3 criteria must be met in order for the content we license to qualify for asset recognition: The cost of each title is known or reasonably determinable The title (source file) has been received The title is available for first showing NETFLIX#10ASC 926: Entertainment - Films. NETFLIX#11We use ASC 926 for produced assets. For content that we produce, we capitalize the costs associated with production, including development cost, direct costs and production overhead. These amounts are included in "Non-current content library, net" in our balance sheet. Produced assets are included in non-current content library Licensed content, net Produced content, net Released, less amortization In production In development and pre-production DVD, net Total Current content assets, net Non-current content assets, net As of December 31, 2017 2016 (in thousands) $11,771,778 $ 9,595,315 1,427,256 335,400 1,311,137 1,010,463 158,517 34,215 1,380,078 2,896,910 13,301 25,415 $14,681,989 $11,000,808 $ 4,310,934 $ 3,726,307 $10,371,055 $ 7,274,501 NETFLIX#12Financial statements. NETFLIX#13Content accounting in our financials. Balance sheet Total cost of titles is recorded as assets in the content library Total unpaid cost of titles is recorded as a liability Income statement The asset is amortized over the shorter of the title's window of availability or useful life Amortization expense is recorded in cost of revenue Cash Flow Statement - Additions to streaming content library = total gross additions (not cash paid) Change in streaming content liabilities = net change in liabilities resulting from payments and library additions, both current and non-current Amortization of content library = adjusts for the non-cash expense included in net income NETFLIX