NetFlix 2010 Annual Report Download - page 12

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services in connection with our business operations. We also utilize third-party content delivery networks to help
us stream TV shows and movies in high volume to Netflix subscribers over the Internet. 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 addition, 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.
We rely upon Amazon Web Services to operate certain aspects of our service and any disruption of or
interference with our use of the Amazon Web Services operation would impact our operations and our
business would be adversely impacted.
Amazon Web Services, or AWS, provides a distributed computing infrastructure platform for business
operations, or what is commonly referred to as a cloud computing service. We have architected our software and
computer systems so as to utilize data processing, storage capabilities and other services provided by AWS.
Currently, we run the majority of our computing at AWS. Given this, along with the fact that we cannot easily
switch our AWS operations to another cloud provider, any disruption of or interference with our use of AWS
would impact our operations and our business would be adversely impacted. While the retail side of Amazon
may compete with us, we do not believe that Amazon will use the AWS operation in such a manner as to gain
competitive advantage against our service.
If we are unable to effectively utilize our recommendation and merchandising technology, our business
may suffer.
Our proprietary recommendation and merchandising technology enables us to predict and recommend titles
and effectively merchandise our library to our subscribers. We believe that in order for our recommendation and
merchandising technology to function most effectively, it must access a large database of user ratings. We cannot
assure that our recommendation and merchandising technology will continue to function effectively to predict
and recommend titles that our subscribers will enjoy, or that we will continue to be successful in enticing
subscribers to rate enough titles for our database to effectively predict and recommend new or existing titles.
We are continually refining our recommendation and merchandising technology in an effort to improve its
predictive accuracy and usefulness to our subscribers. We may experience difficulties in implementing
refinements. In addition, we cannot assure that we will be able to continue to make and implement meaningful
refinements to our recommendation technology.
If our recommendation and merchandising technology does not enable us to predict and recommend titles
that our subscribers will enjoy or if we are unable to implement meaningful improvements, our personal movie
recommendation service will be less useful, in which event:
• our subscriber satisfaction may decrease, subscribers may perceive our service to be of lower value and
our ability to attract and retain subscribers may be adversely affected;
• our ability to effectively merchandise and utilize our library will be adversely affected; and
• our subscribers may default to choosing titles from among new releases or other titles that cost us more
to provide, and our margins may be adversely affected.
We rely heavily on our proprietary technology to stream TV shows and movies and to manage other
aspects of our operations, including processing delivery and return of our DVDs to our subscribers, and
the failure of this technology to operate effectively could adversely affect our business.
We continually enhance or modify the technology used for our operations. We cannot be sure that any
enhancements or other modifications we make to our operations will achieve the intended results or otherwise be
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