NetFlix 2006 Annual Report Download - page 24

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business plans, operating performance and condition of the capital markets. If we raise additional funds through
the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges
senior to the rights of our common stock, and our stockholders may experience dilution.
Any significant disruption in service on our Web site or in our computer systems could result in a loss of
subscribers.
Subscribers and potential subscribers access our service through our Web site, where the title selection
process is integrated with our delivery processing systems and software. Our reputation and ability to attract,
retain and serve our subscribers is dependent upon the reliable performance of our Web site, network
infrastructure and fulfillment processes. Interruptions in these systems could make our Web site unavailable and
hinder our ability to fulfill selections. Much of our software is proprietary, and we rely on the expertise of our
engineering and software development teams for the continued performance of our software and computer
systems. In addition, through our new instant-viewing feature, our subscribers will access titles on our Web site
through our proprietary movie player software and must maintain their connection to our Web site for an
uninterrupted viewing experience. Service interruptions, errors in our software or the unavailability of our Web
site could diminish the overall attractiveness of our subscription service to existing and potential subscribers.
Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions and delays in our service and operations as well as loss, misuse or theft of data.
Our Web site periodically experiences directed attacks intended to cause a disruption in service. Any attempts by
hackers to disrupt our Web site service or our internal systems, if successful, could harm our business, be
expensive to remedy and damage our reputation. Our insurance does not cover expenses related to direct attacks
on our Web site or internal systems. Efforts to prevent hackers from entering our computer systems are expensive
to implement and may limit the functionality of our services. Any significant disruption to our Web site or
internal computer systems could result in a loss of subscribers and adversely affect our business and results of
operations.
Our communications hardware and the computer hardware used to operate our Web site and our online
delivery of content are hosted at the facilities of a third party provider. Hardware for our delivery systems is
maintained in our shipping centers. Fires, floods, earthquakes, power losses, telecommunications failures,
break-ins and similar events could damage these systems and hardware or cause them to fail completely. As we
do not maintain entirely redundant systems, a disrupting event could result in prolonged downtime of our
operations and could adversely affect our business. Problems faced by our third party Web hosting provider, with
the telecommunications network providers with whom it contracts or with the systems by which it allocates
capacity among its customers, including us, could adversely impact the experience of our subscribers.
Our executive offices and our Sunnyvale-based shipping center are located in the San Francisco Bay Area.
In the event of an earthquake or other natural or man-made disaster, our operations would be adversely
affected.
Our executive offices and our Sunnyvale-based shipping center are located in the San Francisco Bay Area.
Our business and operations could be adversely affected in the event of electrical blackouts, fires, floods,
earthquakes, power losses, telecommunications failures, break-ins or similar events. We may not be able to
effectively shift our fulfillment and delivery operations due to disruptions in service in the San Francisco Bay
Area or any other facility. Because the San Francisco Bay Area is located in an earthquake-sensitive area, we are
particularly susceptible to the risk of damage to, or total destruction of, our Sunnyvale-based operations center
and the surrounding transportation infrastructure. We are not insured against any losses or expenses that arise
from a disruption to our business due to earthquakes.
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