Netflix Dropping Disc References in Fiscal Statements

Netflix hasn’t been shy about distancing itself from its DVD by-mail rental legacy. The SVOD pioneer characterizes itself first and foremost as a digital movie/TV content producer/distributor.

In the company’s 10K filling on Jan. 29, Netflix disclosed that beginning in 2020 it would no longer reference DVD in select financial statements such as the “consolidated statements of cash flows” and “consolidated balance sheets.”

In a reclassification of financial statements, the amortization of DVD content assets is now considered “other non-cash items” within “cash flows from operating activities.” In addition, cash flows from the acquisition of DVD content assets have been downsized to “change in other assets” within “cash flows from investing activities.”

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In the “consolidated balance sheets,” DVD content assets have been relegated to “other non-current assets,” and DVD content liabilities have been reclassified from “current content liabilities” and “non-current content liabilities” to “accrued expenses and other liabilities” and “other non-current liabilities,” respectively.

Disc rental revenue in 2019 was $300 million, down from $400 million in 2018 and $500 million in 2017. More than 2 million Netflix subscribers still rent DVD/Blu-ray Disc movies.

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Finally, Netflix will no longer separate contribution profit (loss) for domestic streaming, international streaming and domestic DVD, claiming its “chief operating decision maker” (CEO Reed Hastings) no longer reviews the data independently — due in part because Netflix increasingly obtains multi-territory or global rights for streaming content. Hastings apparently now focuses on the company’s global operating margin as the primary measure of profitability and basis for allocation of resources.

 

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