NetFlix 2011 Annual Report Download - page 12

subscribers select titles that were acquired under more expensive revenue share arrangements more often than
they select other titles acquired through direct purchase or lower cost revenue share arrangements.
Any significant disruption in our computer systems or those of third-parties that we utilize in our
operations could result in a loss or degradation of service and could adversely impact our business.
Subscribers and potential subscribers access our service through our Web site or their TVs, computers, game
consoles or mobile devices. Our reputation and ability to attract, retain and serve our subscribers is dependent
upon the reliable performance of our computer systems and those of third-parties that we utilize in our
operations. Interruptions in these systems, or with the Internet in general, including discriminatory network
management practices, could make our service unavailable or degraded or otherwise hinder our ability to deliver
streaming content or fulfill DVD selections. From time to time, we experience service interruptions and have
voluntarily provided affected subscribers with a credit during periods of extended outage. 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. Service interruptions, errors in our software or the
unavailability of computer systems used in our operations could diminish the overall attractiveness of our
subscription service to existing and potential subscribers.
Our servers and those of third-parties we use in our operations 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 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 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 service or internal computer systems could result in a loss of subscribers and
adversely affect our business and results of operations.
We utilize our own communications and computer hardware systems located either in our facilities or in that
of a third-party Web hosting provider. In addition, we utilize third-party Internet-based or “cloud” computing
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 vast majority of our computing on 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.
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