NetFlix 2009 Annual Report Download - page 22

We utilize our own communications and computer hardware systems located either in our facilities or in that
of a third-party Web hosting provider. We recently have begun utilizing third-party Internet-based or “cloud”
computing systems in connection with our business operations. Also, we utilize third-party content delivery
networks to help us stream movies and TV episodes in high volume to Netflix subscribers over the Internet.
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.
In addition, problems faced by our third party Web hosting, cloud computing, or content delivery network
providers, including technological or business-related disruptions, could adversely impact the experience of our
subscribers.
In the event of an earthquake or other natural or man-made disaster, our operations could be adversely
affected.
Our executive offices and data centers are located in the San Francisco Bay Area. We have shipping centers
located throughout the United States, including earthquake and hurricane-sensitive areas. Our business and
operations could be adversely affected in the event of these natural disasters as well as from electrical blackouts,
fires, floods, power losses, telecommunications failures, break-ins or similar events. We may not be able to
effectively shift our fulfillment and delivery operations to handle disruptions in service arising from these events.
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 executive offices and data centers. We are not insured against
any losses or expenses that arise from a disruption to our business due to earthquakes and may not have adequate
insurance to cover losses and expenses from other natural disasters.
Privacy concerns could limit our ability to leverage our subscriber data and our disclosure of or
unauthorized access to subscriber data could adversely impact our business and reputation.
In the ordinary course of business and in particular in connection with providing our personal movie
recommendations, 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. In addition, if unauthorized access to our subscriber data were to occur or if we were to
disclose data about our subscribers in a manner that was objectionable to them, our business reputation could be
adversely affected, and we could face potential legal claims that could impact our operating results.
Our reputation and relationships with subscribers would be harmed if our subscriber data, particularly
billing data, were to be accessed by unauthorized persons.
We maintain personal data regarding our subscribers, including names and mailing addresses. With respect
to billing data, such as credit card numbers, we rely on licensed encryption and authentication technology to
secure such information. We take measures to protect against unauthorized intrusion into our subscribers’ data.
If, despite these measures, we, or our payment processing service, 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, we could face legal claims, 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
16