NetFlix 2006 Annual Report Download - page 25

The loss of our Chief Executive Officer, Chief Financial Officer or Chief Marketing Officer, or our failure
to attract, assimilate and retain other highly qualified personnel in the future, could harm our business
and new service developments.
We depend on the continued services and performance of our key personnel, including Reed Hastings, our
Chief Executive Officer, President and Chairman of the Board, Barry McCarthy, our Chief Financial Officer and
Leslie J. Kilgore, our Chief Marketing Officer. In addition, much of our key technology and systems are custom-
made for our business by our personnel. The loss of key personnel could disrupt our operations and have an
adverse effect on our ability to grow our business.
Privacy concerns could limit our ability to leverage our subscriber data.
In the ordinary course of business, and in particular in connection with providing our personal movie
recommendation service, we collect and utilize data supplied by our subscribers. We currently face certain legal
obligations regarding the manner in which we treat such information. Other businesses have been criticized by
privacy groups and governmental bodies for attempts to link personal identities and other information to data
collected on the Internet regarding users’ browsing and other habits. Increased regulation of data utilization
practices, including self-regulation, as well as increased enforcement of existing laws, could have an adverse
effect on our business.
Our reputation and relationships with subscribers would be harmed if our billing data were to be accessed
by unauthorized persons.
To secure transmission of confidential information obtained by us for billing purposes, including
subscribers’ credit card or checking account data, we rely on licensed encryption and authentication technology.
In conjunction with the payment processing companies, we take measures to protect against unauthorized
intrusion into our subscribers’ data. If, despite these measures, we experience any unauthorized intrusion into our
subscribers’ data, current and potential subscribers may become unwilling to provide the information to us
necessary for them to become subscribers, and our business could be adversely affected. Similarly, if a well-
publicized breach of the consumer data security of any other major consumer Web site were to occur, there could
be a general public loss of confidence in the use of the Internet for commerce transactions, which could adversely
affect our business.
In addition, because we obtain subscribers’ billing information on our Web site, we do not obtain signatures
from subscribers in connection with the use of credit cards by them. Under current credit card practices, to the
extent we do not obtain cardholders’ signatures, we are liable for fraudulent credit card transactions, even when
the associated financial institution approves payment of the orders. From time to time, fraudulent credit cards are
used on our Web site to obtain service and access our DVD inventory. Typically, these credit cards have not been
registered as stolen and are therefore not rejected by our automatic authorization safeguards. While we do have a
number of other safeguards in place, we nonetheless experience some loss from these fraudulent transactions. We
do not currently carry insurance against the risk of fraudulent credit card transactions. A failure to adequately
control fraudulent credit card transactions would harm our business and results of operations.
Increases in payment processing fees or changes to operating rules would increase our operating expenses
and adversely affect our business and results of operations.
Our subscribers pay for our subscription services predominately using credit cards and debit cards and, to a
lesser extent, electronic checks. Our acceptance of these payment methods requires our payment of certain fees.
From time to time, these fees may increase, either as a result of rate changes by the payment processing
companies or as a result in a change in our business practices which increase the fees on a cost-per-transaction
basis. These fees may increase in 2007. Such increase may adversely affect our results of operations.
We are subject to rules, regulations and practices governing our accepted payment methods, which are
predominately credit cards and debit cards and, to a lesser extent, electronic checks. These rules, regulations and
17